Agrifood systems come with $11.6T in hidden costs driven by poor diets

The complex global web responsible for growing, processing, and transporting our food comes with numerous hidden costs, such as the greenhouse gasses that cause climate change and poor health due to less-than-nutritious diets. The Food and Agriculture Organization’s latest flagship annual report puts an $11.6 trillion annual price tag on those health, environmental, and social costs across 156 countries. An estimated 70% of those costs — amounting to $8.1 trillion — comes from unhealthy diets linked to noncommunicable diseases such as heart disease, stroke, and diabetes. This year’s report — called the State of Food and Agriculture and known in the development sector as SOFA — gives a refined estimated price tag that builds on last year’s report about the same topic. It also offers more nuance about the costs for individual countries. The agency hopes its findings will help anyone involved in global agri-food systems — from producers to governments to large agricultural companies — recognize opportunities to mitigate the hidden costs. This year’s SOFA “again has proven that agri-food systems have become increasingly fragile and unsustainable,” Alexander Müller, the managing director of TMG Think Tank for Sustainability, told Devex. “The world and people pay a very high price for it.” It is the first time that FAO has dedicated its flagship report to the same issue two years in a row, reflecting a desire to help translate last year’s findings into actionable goals. And the two reports are seen as a victory for true cost accounting, which has been gaining traction in the food world. This method moves beyond basic metrics such as productivity and caloric intake to capture the full range of environmental, social, health, and economic impacts of the agri-food system — costs that are ultimately borne by society, even if they are not factored into the prices consumers pay. The 2023 SOFA estimated $12.7 trillion in hidden costs measured at purchasing power parity in 2020. This year’s report arrived at a slightly lower number after dropping the hidden cost of body mass index, since it could not all be attributed to agri-food systems, while adding the impact of sugar-sweetened beverages. Ultimately, the idea is to lay out “the costs countries pay when they don’t change their food systems,” Müller said. That includes the long-term costs of a system that produces one-third of all global greenhouse gas emissions and is geared toward producing diets that exacerbate cardiovascular diseases, diabetes, and other noncommunicable diseases. While health risks linked to NCDs made up the bulk of the hidden expenses, Müller cautioned that the reports might still be undercounting the true environmental impact of agri-food systems. In part, he said that’s because it is difficult to determine exactly what the impact of soil degradation or water pollution will be in the future. The cost estimates in the FAO reports are “a bottom line,” said Olivia Riemer, who leads the food systems program at TMG Think Tank for Sustainability. “But there is a very high chance remaining that the cost is much higher than this.” Health expenses Given the outsized hidden health expenses to the overall total, the latest report considered how agri-food systems are contributing to unhealthy diets. It considered 13 dietary risk factors for NCDs, ultimately concluding that the three that contributed most were diets that are low in whole grains, high in sodium, and low in fruit. Of course, those risks are not consistent across countries, FAO Director-General Qu Dongyu pointed out during the report’s launch last week. In some settings, “addressing undernutrition and unhealthy dietary patterns is an important part of the transformation that we need,” he said. That is why this year’s SOFA took the additional step of dividing countries based on a typology that weighed factors like urbanization and number of supermarkets, as well as the amount of calories people consumed beyond staple crops. The report ultimately arrived at six categories — industrial, formalizing, diversifying, expanding, traditional, and protracted crisis. Two agri-food systems — industrial and diversifying, which describes a system with rapid economic growth and changing consumption and production patterns — accounted for the highest quantified hidden costs, at $5.9 trillion, mostly linked to expenditure on NCDs. The move toward industrialization usually marks a transition to diets high in processed and red meat, which have been linked to higher rates of cardiovascular disease and diabetes, among other NCD risks. At the same time, the health risks for countries that fall in the diversifying, expanding, traditional, and protracted crises categories expand beyond NCDs. During the report launch, Dr. Soumya Swaminathan, the former chief scientist for the World Health Organization, said many countries are contending with a crisis that also involves malnutrition and nutritional deficiencies that can lead to conditions like anemia. “You can find a combination of stunting” — as a result of malnutrition — “obesity and anemia in the same household,” she said. Countries facing protracted crises such as Afghanistan, Haiti, and Somalia, are the outliers, featuring hidden costs that are relatively evenly distributed across health, environmental, and social, including the costs of undernourishment but also of farmers not being paid enough. Likely the least able to manage them, countries in protracted crises have the highest burden of hidden costs, at an estimated 47% of their gross domestic product. Real-world impact This emphasis on true cost accounting has already migrated from the pages of SOFA 2023 to the real world. For example, last year the German supermarket chain Penny had a “true cost week,” displaying the price of nine meat and dairy items if the environmental and climate impacts were factored in. Most of the products were twice as expensive. While these kinds of initiatives are helpful for internalizing what have largely been invisible costs, the experts behind the report are looking for more substantial change across the entire agri-food system chain. Those changes are going to look different depending on the country's context. High- or middle-income countries contending with a high NCD burden might look to take steps to shift dietary patterns away from beef and processed meats, for instance, which could have the additional effect of reducing greenhouse gasses and freeing land. To do so, governments might consider implementing taxes or subsidies that could shift consumer behavior. These kinds of policies might be particularly appealing to countries that find themselves transitioning from a more traditional agri-food system to something more formalized. They could have a window to shift behaviors and leapfrog some of the nutritional, social, and environmental costs experienced by industrialized countries. The 2024 SOFA also encourages agribusinesses to think about more sustainable and socially conscious practices. The TMG Think Tank is actually working to bring sustainability efforts into the annual reports of businesses. “Money governs the world,” Riemer said, and there is a need to think strategically about how to finance a transformation that will begin to eliminate some of these hidden costs. “When investors are assessing a company, we want them to be assessing the future-proofness of a company. Are they resilient? Able to deal with climate shocks? Able to deal with the political and economic shocks that are likely to come?” The producers and consumers who stand at either end of the agri-food system must also get involved in any transformation. Policymakers will have to work with producers — many of whom already bear the social cost of not making a living wage — to figure out how to implement potentially expensive, but environmentally sustainable practices. FAO urges greater exploration of certification programs that can help compensate farmers for the costs of any transition. And there is also a need to collaborate with consumers to help shift them toward diets that reduce these hidden expenses. “The current food system is not a natural law,” Müller said. “It is driven by policies, by institutions, and by markets. These three are creating failures and if we don’t correct these failures, we will have to live with very high externalities of our food systems. Society has a choice to make.”