Improved true cost accounting for sustainable, equitable food systems
Food prices and the costs of production rarely reflect the full environmental, social and health costs and benefits (externalities) of production and consumption. Closing this gap could incentivise more sustainable, healthier and equitable outcomes across the food value chain. The EU-funded FOODCoST(opens in new window) project set out to harmonise ‘true cost accounting’ (TCA) approaches – putting an accurate price on the value of environmental, health and social externalities. Only then can complementary policies and business models increase sustainability and equity along the food value chain.
Internalising externalities across 11 case studies
Across 11 case studies, FOODCoST tested how hidden costs can be measured and built into market prices or policy measures. The studies evaluated primary production (coffee, vegetables, legumes, fish, meat), consumer-facing taxes and labelling, and sustainability indicators in lending and investment scenarios. Environmental externalities such as emissions and water and land use were largely addressed through fiscal instruments, certification, labelling and technological optimisation. Policy mixes consistently outperformed standalone measures. For example, combining greenhouse gas taxes on conventional meat, subsidies for alternatives, certification and promotional instruments (including labelling and educational campaigns) encouraged the transition to plant-based alternatives and sustainable beef. Policy mixes addressing both consumer demand and producer incentive are most promising. Sugar taxes and true pricing approaches helped internalise health externalities – diet-related disease burden and food safety – though investor and institutional uptake remains limited. Social externalities – labour rights, living income, equity and animal welfare – proved hardest to internalise, requiring complementary state enforcement, social protection and value-chain governance to be effective.
Models, databases and analytical tools
The project evaluated externality costing in nine TCA approaches, including the ‘Shadow Prices of Impact Quantities – Food System’ (SPIQ-FS) model. Full harmonisation proved challenging given the variation in methods and data. “Priorities for future standardisation include distinguishing between true externalities and impacts arising from other market failures,” says project coordinator Michiel van Galen of Wageningen Research(opens in new window). Using the SPIQ-FS approach, project partner University of Oxford created a publicly accessible EU-global database of external costs at country level(opens in new window) and a global-burden-of-disease dietary risk emulator tool(opens in new window). The first provides marginal external environmental and dietary health costs; the second simulates diet’s effects on non-communicable diseases, such as diabetes and heart disease, with impact on productivity. This work fed directly into the ‘State of Food and Agriculture’ report, (2024), revealing the enormous hidden productivity-loss costs of global agri-food systems from diet-related health impacts. Additionally, another FOODCoST study(opens in new window) specifically looked at the global cost of illness, focusing on treatment rather than productivity costs – these were much lower albeit significant (over EUR 1.5 trillion; converted from USD 1.7 trillion at 2024 exchange rate). The team integrated externality valuation into two leading macro-economic policy models of European agri-food systems. FOODCoST combined these with the EU-global database, consumer-behaviour modelling and stakeholder-developed internalisation-of-externalities scenarios to deliver an integrated analytical toolbox. “Users can interactively explore(opens in new window) the impacts of policies, business strategies and consumer interventions in these scenarios,” notes van Galen.
Policy recommendations for adoption and fair transition
Across all external cost categories, robust measurement proved necessary but insufficient. “Wider adoption depends on alignment of internalisation approaches with complementary regulatory, reporting and market frameworks alongside value-chain relationships and consumer practices,” van Galen summarises. “A combination of policies outperforms single measures, and any internalisation strategy should explicitly address equity, including the distribution of transition costs and the need to level the international playing field.” Overall, FOODCoST showed that external costs are real and vast. The project’s real-world evidence, tools and strategies could support harmonisation of TCA approaches and the shift towards sustainability and equity in global food systems.
