Considering the True Cost of Food

Introduction

The food system is crucial for human life. It not only provides the nutrition we need but also creates employment, supports livelihoods, and enriches the environment and social culture.

However, the processes of food production, distribution, consumption, and disposal can have negative impacts depending on how they are managed. For instance, a diet heavy in junk food like hamburgers and instant noodles can lead to obesity and hypertension, increasing the risk of diseases. This translates into higher medical costs and reduced workforce productivity, potentially stagnating societal progress. Thus, food, health, and society are intricately connected.

Increased demand for meat necessitates vast agricultural land for livestock and their feed, possibly leading to deforestation and ecosystem destruction. When we buy meat at the supermarket, we might not often think about it, but our food choices have a significant impact on the environment.

What is True Cost?

The relationship between food, health, the environment, and society is something that we may not always be consciously aware of. One reason for this is that the impacts of the food system on health, the environment, and society are often externalized.

 Ease of quantification for selected capital flows along a spectrum. Source: FAO. 2023. The State of Food and Agriculture 2023 – Revealing the true cost of food to transform agrifood systems. Rome. https://doi.org/10.4060/cc7724en Figure 2.

As shown in the figure above, these impacts include both positive and negative effects. However, it is the significant negative impacts that have increasingly become a cause for concern. In other words, the health costs incurred from consuming certain foods, the environmental costs involved in producing, transporting, consuming, and disposing of those foods, and the social costs arising from issues such as child labor or unfair labor conditions like low wages and long working hours—these are not reflected in the prices of the food products we purchase.

True Cost is the concept of economically evaluating these externalized impacts related to sustainability and ensuring transparency. This approach is also referred to as True Cost Accounting (TCA). While various sectors can be subject to such evaluations, research has been particularly active in agriculture and food sectors where externalized impacts are substantial. A representative example of this is UNEP’s TEEB for Agriculture and Food (TEEBAgriFood), an international initiative promoting the use of TCA in agriculture and food sectors.^*1

It should be noted that while True Cost is similar to the term Hidden Cost, there is a slight difference: True Cost refers to the total cost including externalized impacts, whereas Hidden Cost refers only to the externalized impacts themselves. Furthermore, as mentioned earlier, externalized impacts include not only negative effects but also positive ones such as biodiversity conservation and soil carbon sequestration. Therefore, True Cost can refer to an economic evaluation that also takes positive effects into account. However, some studies deliberately focus only on negative impacts. This approach stems from the idea that reducing negative impacts at each stage of the food system leads to a better overall food system, since positive and negative externalities often arise from different sources.

Various research teams, organizations, and companies are working on initiatives to reveal True Costs or Hidden Costs, with numerous reports being published. Although the specific items included in these calculations may vary slightly, all results indicate that these costs are extremely large. Below are a few examples of such reports.

The State of Food and Agriculture 2023 （FAO, 2023）^*2

The State of Food and Agriculture (SOFA) is an annual report published by the FAO (Food and Agriculture Organization of the United Nations) that provides a comprehensive analysis of the global status of food and agriculture. The 2023 edition is subtitled "Revealing the true cost of food to transform agrifood systems" and presents the results of TCA (True Cost Accounting) conducted across 154 countries. According to this analysis, the Hidden cost of global food systems in 2020 was estimated to be at least $12.7 trillion in purchasing power parity.

The largest portion of this cost is attributed to health-related costs due to dietary habits, estimated at about $9.3 trillion (73%), followed by environmental costs, estimated at approximately $2.9 trillion (20%).

Quantified hidden costs of agrifood systems by cost category (left) and subcategory (right), 2020. Source: FAO. 2023. The State of Food and Agriculture 2023 – Revealing the true cost of food to transform agrifood systems. Rome. https://doi.org/10.4060/cc7724en Figure 6.

The report also highlights that the scale and composition of Hidden costs vary significantly depending on a country's income level, with low-income countries bearing a substantial burden relative to their national income. The primary causes identified are poverty and malnutrition.

 Share of quantified hidden costs of agrifood systems to GDP by income group (hidden costs per capita on the right-hand side). Source: FAO. 2023. The State of Food and Agriculture 2023 – Revealing the true cost of food to transform agrifood systems. Rome. https://doi.org/10.4060/cc7724en Figure 8.  

It is noted that the data used in this analysis contain many missing values, suggesting that the calculated results may be underestimated, and the actual Hidden costs could be even higher.

The HIDDEN COST of UK FOOD （Sustainable Food Trust, 2019）^*3

The Sustainable Food Trust (SFT) is a UK-based charitable organization dedicated to achieving sustainable food and agriculture through policy advocacy, sustainability measurement and evaluation, and consumer education. In 2017, SFT published a report titled "The HIDDEN COST of UK FOOD," which was revised in 2019 to estimate the Hidden cost of the UK's food system.

According to this report, UK consumers spend £120 billion annually on food, with an additional £116 billion in severe environmental and health-related costs. This indicates that Hidden costs nearly equal the actual spending on food. The breakdown of these Hidden costs is divided into six major categories, listed from largest to smallest:

1. Food consumption-related health costs (£44.94 billion)
2. Natural capital degradation (£37.35 billion)
3. Food production-related health costs (£10.59 billion)
4. Food imports (£9.29 billion)
5. Biodiversity & ecosystem service loss (£7.8 billion)
6. Farm support payments & regulation (£6.36 billion)

Source: Sustainable Food Trust (2019), The HIDDEN COST of UK FOOD, https://sustainablefoodtrust.org/wp-content/uploads/2022/01/Website-Version-The-Hidden-Cost-of-UK-Food_compressed.pdf

True Cost of Food Measuring What Matters to Transform the U.S. Food System （The ROCKEFELLER FOUNDATION, 2021）^*4

The Rockefeller Foundation, established in 1913, is one of the world's largest charitable organizations, consistently focusing on improving human well-being as its mission. One area of focus is creating a food system that is friendly to both people and the planet. In 2021, it released a report calculating the health, environmental, and social costs associated with the U.S. food system.

According to the report, while annual food spending in the U.S. was about $1.1 trillion, the costs considering health, environmental, and social impacts were estimated to be at least $3.2 trillion annually. This means there were $2.1 trillion in costs not accounted for in food prices.

The breakdown of these costs is divided into five main categories, listed from largest to smallest:

1. Human health ($1,145 billion)
2. Biodiversity ($455 billion)
3. Environment ($350 billion)
4. Livelihoods ($134 billion)
5. Economy ($21 billion)

Source: The ROCKEFELLER FOUNDATION (2021), True Cost of Food Measuring What Matters to Transform the U.S. Food System, https://www.rockefellerfoundation.org/wp-content/uploads/2021/07/True-Cost-of-Food-Full-Report-Final.pdf

Additionally, although not included in the calculations, factors such as resilience (the ability to quickly respond to unforeseen events) and animal welfare are considered important factors and are discussed in a column within the report. Furthermore, it was revealed that cost burdens are not equally distributed across races; African Americans are 1.2 times more likely to be obese than average, while Hispanic Americans are 1.7 times more likely than European Americans to develop diabetes, indicating that people of color generally bear a greater burden.

The Health Costs Hidden in Food Systems are Enormous

The results of the three reports mentioned reveal that health-related costs within food systems are the largest. Unhealthy diets lead to obesity and increase susceptibility to diseases, and they can directly cause non-communicable diseases such as cardiovascular diseases, cancer, and diabetes. When people fall ill, medical costs rise, and individuals who could otherwise work productively are unable to do so, thereby reducing overall societal productivity.

In low-income countries, inadequate food supply results in insufficient nutrition, leading to illness and similarly increasing medical costs and reducing productivity. Additionally, although often excluded from TCA calculations, physical health issues can lead to mental health problems, loss of educational opportunities due to illness, and other negative effects.

Environmental Costs Extend Beyond CO2

In recent years, the agricultural, forestry, and fisheries sectors have become increasingly aware of environmental costs related to CO2 through initiatives like carbon credit creation and emissions transparency. While emissions from food production are significant, emissions from land-use changes for creating farmland should also be acknowledged as they are considerably large.

Furthermore, environmental costs within food systems are extensive. Crop production requires large amounts of water. While water scarcity might be hard to imagine in Japan, droughts and water shortages have become frequent worldwide, affecting food production. Additionally, the negative impacts on biodiversity from land conversion and nitrogen pollution are extremely significant.

Such accumulating negative impacts on the environment and biodiversity can lead to situations where agricultural production becomes impossible in certain areas or forces people to relocate.

Both health and environmental costs are just examples of elements considered in TCA, but even these examples highlight the numerous factors that must be considered to make food systems sustainable. It is crucial to recognize and address these elements properly. Doing so may not only minimize the negative impacts of overlooked costs but also create new opportunities.

Examples of Utilizing True Cost

There are instances where companies have utilized TCA analyses. For example, the German supermarket chain Penny conducted an experiment in August 2023 where they sold food at prices reflecting True Cost for one week in all stores.^*5 This experiment was conducted in collaboration with The University of Technology Nuremberg and The University of Greifswald, calculating prices for nine items considering climate impact, water use, soil impact, and health effects. These items included dairy and meat products with both organic and non-organic options, possibly serving as a comparative experiment.

As a result of these calculations, for instance, Maasdam cheese (a semi-hard cheese from the Netherlands) usually priced at €2.49 was nearly doubled to €4.84 (breakdown: climate impact €0.84, water use €0.12, soil impact €0.76, health effects €0.63). On the other hand, organic products and plant-based proteins had smaller additional costs calculated compared to non-organic products, with Penny's website recommending these products.

Additionally, Eosta, a major distributor of organic produce in the Netherlands, launched a campaign called "True Cost of Food" in 2016 with support from IFOAM (International Federation of Organic Agriculture Movements) and Stiftung Ökologie und Landwirtschaft (SÖL). ^*6 The campaign emphasized that switching to organic farming could significantly reduce True Costs compared to conventional farming, as highlighted in a 2014 FAO report revealing that externalized costs of conventionally produced foods amounted to ＄4.8 trillion.

Expectations for Policy Utilization

True Cost is expected to be leveraged for better policy formation. Given its comprehensive approach to considering health, environmental, social, and economic impacts, it is seen as a useful tool for evaluating the overall impact on food systems, even in situations prone to trade-offs.

The Sustainable Food Trust (2019) outlines policy measures that governments can use to reduce True Costs, that is to say externalized costs, including taxation, subsidies, regulations, information disclosure, and labeling and certification systems. These are introduced with examples.

For example, by taxing the excessive use of pesticides and fertilizers, it is possible to reduce carbon emissions from the production and distribution of these agricultural materials and decrease pollution runoff into soil, air, and oceans, while also generating tax revenue. Although setting new taxes is extremely challenging due to the difficulty of determining optimal tax levels and political reasons, Austria introduced a tax on nitrogen fertilizers (€0.25 per kg) in 1986 to support soil conservation and grain production. As a result, the amount of usage decreased from about 400,000 tons in 1985 to about 240,000 tons in 1995, and fertilizer prices increased by approximately 10% overall.^*7 This tax has encouraged more farmers to consider the environmental and human impacts of nitrogen fertilizers and has promoted changes such as utilizing leguminous crops.

In terms of health through diet, there are also examples of taxing unhealthy foods such as sugary drinks (soda tax). In 2015, Berkeley, California introduced a tax of one cent per ounce on sugary drinks, resulting in a 21% reduction in consumption within a year.^*8 The Berkeley City Council used additional revenue from this tax for the "Healthy Berkeley Program," which promotes health improvement initiatives. Research indicates that taxing unhealthy foods while subsidizing fruits and vegetables could have significant public health benefits.^*9

Other effective measures include zoning regulations to prevent excessive land-use changes, promoting information disclosure related to True Costs, and labeling or certification systems for foods meeting certain criteria. In Japan, the Ministry of Agriculture, Forestry and Fisheries is advancing labeling that visualizes the environmental impact reduction effects of agricultural products and is gradually expanding the range of target items.^*10 Policies addressing externalized costs are expected to become increasingly important; utilizing TCA concepts could be extremely effective.

The FAO has published materials on using TCA for policymakers in agrifood systems as background resources for integrated reports.^*11 These materials detail how TCA can be applied in policy formation with case studies. Given that data collection is often challenging when implementing TCA, particular attention is paid to data collection and estimation methods.

Key Point: True Cost as a Hint for Sustainable Food Systems

Considering True Cost helps us realize that when purchasing food, it is crucial not only to think about the price paid at the store but also about the various impacts of consuming that food. For example, in Japan today, it is easy to quickly get food that is not necessarily healthy at fast food restaurants or convenience stores at seemingly low prices. However, are these meals truly "inexpensive"? Will they remain inexpensive in the future?

The environmental, health-related, and social costs associated with food systems may be difficult to see but are certainly accumulating; if left unchecked, the situation will only worsen. There may also be unseen costs beyond those identified in existing reports. It is essential for stakeholders to adopt this perspective and consider necessary actions for future food systems from their respective positions. We also plan to conduct discussions and research on the sustainability of food systems moving forward. If you are interested in this topic, please feel free to contact us through the contact form for discussion opportunities.

*1 The Economics of Ecosystems & Biodiversity, TEEB for Agriculture and Food, https://teebweb.org/publications/teebagrifood/ （Last accessed on 2024/10/16）

*2 FAO (2023), The State of Food and Agriculture 2023, https://openknowledge.fao.org/items/d8b6b6d9-4fe3-4589-8b88-cac3f9ccdf0f

*3 Sustainable Food Trust (2019), The HIDDEN COST of UK FOOD, https://sustainablefoodtrust.org/wp-content/uploads/2022/01/Website-Version-The-Hidden-Cost-of-UK-Food_compressed.pdf

*4 The ROCKEFELLER FOUNDATION (2021), True Cost of Food Measuring What Matters to Transform the U.S. Food System, https://www.rockefellerfoundation.org/wp-content/uploads/2021/07/True-Cost-of-Food-Full-Report-Final.pdf

*5 PENNY, Wahre Kosten., https://www.penny.de/aktionen/wahrekosten (Last accessed on 2024/10/16）

*6 eosta (2016), Press release - Nature & More takes True Cost of Food to the consumer, https://newsroom.eosta.com/en/press-release---nature--more-takes-true-cost-of-food-to-the-consumer/ 

*7 Söderholm, P. & ministerrådet, N. (2009) Economic Instruments in Chemicals Policy: Past Experiences and Prospects for Future Use (Nordic Council of Ministers).

*8 Jennifer Falbe, Hannah R Thompson, Christina M Becker, Nadia Rojas, Charles E McCulloch, Kristine A Madsen (2016), Impact of the Berkeley Excise Tax on Sugar-Sweetened Beverage Consumption https://pmc.ncbi.nlm.nih.gov/articles/PMC5024386/ 

*9 Powell, L. M. et al. (2013) Assessing the Potential Effectiveness of Food and Beverage Taxes and Subsidies for Improving Public Health: A

Systematic Review of Prices, Demand and Body Weight Outcomes, Obesity Reviews 14, 110–128

*10 農林水産省 (Ministry of Agriculture, Forestry and Fisheries), 見つけて！農産物の環境負荷低減の取組の「見える化」 ～温室効果ガス削減への貢献と生物多様性保全への配慮～, https://www.maff.go.jp/j/kanbo/kankyo/seisaku/being_sustainable/mieruka/mieruka.html 

*11 True cost accounting applications for agrifood systems policymakers (2023),  https://openknowledge.fao.org/server/api/core/bitstreams/d5d04abf-a9a8-4028-ad39-7ac3961cf9e8/content