Earlier this summer the Food System Impact Valuation Initiative of the University of Oxford published a report, “Valuing the Impact of Food,” digging into the questions: Who is really paying for the food we eat? What is the true value of our global food systems? How can we link activities in the food sector to impact? How can we measure the economic costs of those impacts? Several WBCSD member companies and WBCSD’s True Value of Food team supported this project, with the aim of driving toward a consistent approach to monetizing the societal impacts of food.
Understanding the global footprint of the food system
The global footprint of food is huge – 30% of CO2-equivalent emissions; 70% of water use, and over 50% of synthetic nitrogen production and phosphorous use are a result of growing food. Meanwhile, 66% of the 740 million people living in extreme poverty globally are agricultural workers – with 60% of all child labour, as classified by the International labour Organisation (ILO), in agriculture. And while significant advances in nutrition have been achieved over the last decades, 33% of adults are obese while 12% of the global population is hungry and undernourished. Extensive environmental, human and social impacts are linked to this footprint.1 The direct cost of those impacts have been equated in present value to 11% of annual global GDP.2 Looking across the system, once costs and benefits of impacts in the whole economy are taken into account, the gain to GDP over the long run from a food system with a much lower global footprint has been estimated at around 1%.3
How food system costs compare to the economic toll of COVID-19
To put the costs of this footprint in context, COVID-19 is estimated by the International Monetary Fund to deflate the global economy in 2020 by 5% with a 5.4% recovery in 2021; this is likely to average out over 5 years to a 1% annual depression of global GDP compared to pre-COVID-19 projections. If we do not transform the food system then the social, human and environment costs of continuing the status quo would depress the global economy on the same scale, on average, over decades.
A mid- to long-term average 1% boost to annual global GDP growth from a transformed food system may sound like a dry statistic. This change in GDP, however, represents a tremendous change in human and social welfare for developed and developing nations and a very different global future. We can imagine today a system where all children are well nourished, food is produced equitably and sustainably, and people thrive into old ages as the incidence of chronic disease plummets. Healthy people living on a healthy planet are critical to generating healthy economies.
Why it matters to value the impacts of food
The impacts of the food system result from predominately private activity in the production, manufacturing, and consumption of food. Of these impacts, the only one that has a developed accounting methodology is carbon, which formalizes an economic quantity (CO2-equivalent emissions) and links business and individual activity to climate impacts. For the other impacts of the food sector, we lack standardized economic quantities and methodologies.
The “Valuing the Impact of Food” report is a technical examination of food impact costing and considers whether carbon accounting methodologies can be applied to food production, manufacturing, and consumption. In particular, the report explores how the treatment of social and abatement costs (i.e. the costs of reducing environmental and social negatives) in carbon accounting methodologies can be used to estimate the longer-term and externalized costs of the food system. It makes the following broader points:
1) It calls for a consortium of intergovernmental and institutional actors and experts, in collaboration with the food sector, to standardize quantities associated to food system impacts and develop costings. By reflecting the mid- to long-term economic damage from activity now, costing provides signals to the market and government that counter or moderate short-term signals.
Costs of the impact of food are, like the costs of carbon, almost certainly positive and large, implying that governments are failing in their management of the economy if they do not address the economics of food system transformation. Long global value chains in the food sector and time between consumption and consequences (i.e. an action today may generate negative outcomes many years down the road) separates the impact from the market power to penalize or correct the activity causing it.
2) It highlights how abatement costing provides the opportunity to both measure and manage food system impacts; however, abatement costing needs to be developed further. It could reveal the products and practices needed to achieve reduction targets. Over time, this could trigger a radical change in agricultural subsidies and tariffs, incentives for land management, and market opportunities for sustainable and healthy food products.
Replacing unsustainable and unhealthy food products with sustainable and healthy food products to the volume required for food system transformation, will fail if there is no economic return in proportion to the abatement of impact they generate. An abatement market sufficient to achieve reduction targets is unlikely to arise without intervention, which presents an important role for government to play.
It is not easy to value food system impacts, but all will benefit from doing it well
Like carbon costs, there are large uncertainties in food impact costing. The impacts associated with the multiple quantities of food system impact are also correlated, e.g. climate and health, and climate and inequity. The chance of extreme GDP loss increases because of the correlations. Society is already bearing, or will soon bear, many of the impacts of current production and consumption in the food sector. The high uncertainty in the cost of those impacts means that considerable risk is being transferred to society from business and individual activity, even as the risks are also felt acutely by companies and people. Given the extent and scale of the food system footprint described above, all members of society will ultimately bear the burden through degraded ecosystems and loss of natural resources, a lack of clean water, an unhealthy workforce and populace, and more.
Consistent and comparable monetary valuation of food system impacts would help companies better measure and manage their impacts, and with the right incentive structures in place, begin a race to the top with new products, services and business models that support healthy people and a healthy planet. As put forward in WBCSD’s CEO Guide to Food System Transformation, there would be USD $4.5 trillion in new business opportunities each year until 2030 if business steps up and helps lead this transformation. All sectors have a role to play and there is a real opportunity today for leading companies to kick off the race.
1. IPCC, IPCC Special Report on Climate Change, Desertification, Land Degradation, Sustainable Land Management, Food Security, and Greenhouse gas fluxes in Terrestrial Ecosystems, Intergovernmental Panel on Climate Change (2019); P. C. West et al., "Leverage points for improving global food security and the environment," Science 345, no. 6194 (2014); FOLU, Growing Better: Ten Critical Transitions to Transform Food and Land Use, The Global Consultation Report of the Food and Land Use Coalition., Food and Land Use Coalition (New York, 2019); Global Nutrition Report, 2020 Global Nutrition Report (2020), Section 1.1.
2. FOLU, Exhibit A.
3. FOLU, Exhibit A.