The actual cost of food is much higher than what you pay at the register

After years of soaring grocery store prices due to the pandemic, retail food price inflation is slowing. This is good news for consumers, especially those in low-income households who spend a proportionately large portion of their income on food.

But there's more to the cost of food than what you pay at the store. Producing, processing, transporting and selling food incurs costs throughout the value chain. Much of the burden is borne by society as a whole, or by communities and regions.

For example, runoff from farms is a major cause of algae blooms and dead zones in rivers, lakes, and bays. And food waste takes up a quarter of the space in U.S. landfills, where it rots and produces methane that warms the Earth's climate.

Investigating these lesser-known costs is the first step to reducing costs. The key is a method called true cost accounting, which examines the economic, environmental, social and health impacts of food production and consumption to arrive at a complete picture of its costs and benefits.

Countless costs in the trillions of dollars

Since 1947, the Food and Agriculture Organization of the United Nations has annually published an important and widely read report called The State of Food and Agriculture, known in the food sector as SOFA. SOFA 2023 investigates how much food costs more than consumers pay at the grocery store.

Using true cost accounting, the report calculates that the global cost of agricultural products systems in 2020 was up to US$12.7 trillion more than what consumers paid at retail. This is equivalent to about 10% of the world's gross domestic product, or $5 per person per day around the world.

In traditional economics language, hidden costs are known as externalities. That is, spillover effects from production caused by one party and paid for by the other party. Some externalities are positive. For example, birds, butterflies, and insects pollinate crops for free, and everyone who eats those crops benefits. Other factors such as pollution are also negative. Delivery trucks emit pollutants, and people nearby breathe even dirtier air.

True cost accounting attempts to make these externalities visible. To do this, academics analyze data related to environmental, health, social, and other costs and benefits and add them up to calculate a price tag that represents the actual cost of food.

The Sweat Center for Sustainable Food Systems at Arizona State University, which I direct, recently collaborated with Colorado State University to conduct a true cost accounting study of cow-calf operations in the western United States. We found that the climate costs of these operations are so high that solving climate change alone could threaten the livelihoods of 70,000 ranchers and the rural communities in which they live. A true costing approach reveals the need for multidimensional solutions.

I study sustainable food systems and am one of 150 academics from 33 countries who worked together over several years to design and test this new methodology. Our work was led by the United Nations Environment Program and partially funded by the Global Alliance for the Future of Food, a coalition of charities.

In many ways, true cost accounting is a modern and improved version of cost-benefit analysis, a technique that is embedded in government decision-making in most developed countries around the world. This approach quantifies the expected rewards and costs associated with taking a particular action and compares them to see whether the action is likely to result in a net benefit or loss to the general public. To do.

Proponents of true cost accounting argue that its more nuanced approach addresses the shortcomings of traditional cost-benefit analysis, particularly its lack of deep consideration of social and health externalities. Because there are many similarities between these two methods, it is hoped that governments will be able to upgrade to true costing relatively easily as it becomes more widely adopted.

Actual food costs vary by country

The 2023 State of Food and Agriculture report reveals some clear patterns. Of the $12.7 trillion in global hidden costs compiled by the organization, 39% are generated by upper middle-income countries and 36% by high-income countries.

In wealthy countries, 84% of hidden costs come from unhealthy dietary patterns, such as eating large amounts of red meat and processed foods, which are associated with increased risks of heart disease, cancer, and other diseases. Related. These health impacts also reduce productivity and impact the economy, as people take time off from work when they get sick.

In contrast, 50% of hidden food costs in low-income countries are social costs due to poverty and undernutrition. SOFA 2023 estimates that the incomes of poor food producers in low-income countries will need to increase by 57% to have enough income and calories for a productive life.

Food insecurity on farms is also a problem in the United States, where the people who produce the food themselves can go hungry. Food systems rely on undocumented, low-wage workers, leaving undernourished children often unable to learn.

The fact that many U.S. farmworkers lack health insurance also incurs costs because when these farmworkers become ill or injured, hospitals treat them at public expense.

Food production also has environmental costs. Together, nitrogen runoff, ammonia emissions, deforestation, water pollution, and greenhouse gas emissions account for about 20% of the hidden costs of global food production. Other environmental costs, such as costs associated with species loss and exposure to pesticides, are not included in the SOFA analysis.

Should food costs be higher?

The first question people ask me about true costing is: Doesn't using costing make food more expensive? Some proponents argue that food prices should be set at a level that internalizes hidden costs.

For example, a Dutch organization called True Price works with food companies to help them charge more accurate prices. The group operates a grocery store in Amsterdam that charges traditional prices but also provides receipts that also show the “true” price, which reflects the hidden costs of the products.

Consumers are encouraged to pay these higher prices. In doing so, the store will share proceeds with his two nonprofit organizations that promote land and wildlife conservation and poverty reduction in Africa.

I believe that the most effective way to address the hidden costs of food is not to raise prices, but to change government policies that provide $540 billion in agricultural subsidies worldwide each year. I am. Of this amount, 87% will go toward supporting production systems that produce cheap food, fiber, and biofuels, but cause social and environmental harm. Examples include the use of chemical fertilizers and pesticides, the overuse of natural resources, and subsidies that encourage the cultivation of emissions-intensive products such as rice.

The UN agency is calling on world leaders to redirect these subsidies towards mitigating negative impacts, calling this a “multi-billion dollar opportunity to transform food systems.” It's a strategy. While it may seem that eliminating subsidies will increase retail prices, this is not necessarily the case, especially when subsidies are repurposed to support sustainable, fair and efficient production.

By using true cost accounting as a guide, policymakers can redirect some of these vast sums of money back into production methods that deliver net benefits, such as organic farming, agroforestry, and the expansion of sustainable fishing. It may be possible to allocate it. We could also invest in developing and supporting the next generation of food and agriculture leaders.

By creating transparency, true cost accounting can help shift funds away from harmful food production systems and toward alternatives that protect resources and rural communities. Doing so could potentially reduce the hidden costs of feeding the world.

Kathleen Merrigan, Executive Director, Sweat Center for Sustainable Food Systems, Arizona State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.