The economic benefits of a food system transition

Restoring ecosystems and limiting emissions from farming could curb hidden costs from the food system by around 500 billion US dollars a year. Combined with healthy diets and tackling poverty, the benefits are many times greater.

Five years after the launch of the 2019 EAT-Lancet Commission report1 comes the sequel. Some of the prominent names behind the last report have assembled a new commission comprising economic, health and sustainability experts, known as the Food System Economics Commission. Their work is presented in a report2 that addresses the costs incurred by an unsustainable food system, manifesting as both human suffering and planetary harm. They have calculated the economic toll of continuing on the set path, pegging it at a minimum of USD 10 trillion annually by 2050. However, there is also a more hopeful message: it is estimated that more than half of this loss could be mitigated at significantly lower cost if we embark on the journey to transform the food system.

As a basis for their calculations, the researchers have devised models for two pathways leading up to 2050 – one labelled Current Trends and the other Food System Transition.

The Current Trends pathway aligns with its name, reflecting trends extrapolated from historical trajectories and our present state. Envisioning a world where deep structural changes are absent, the global GDP is set to skyrocket by over 100 per cent by 2050. However, this prosperity isn’t evenly distributed, leaving a substantial portion of the world’s population still grappling with poverty. As the global population swells to an estimated 9.5 billion by 2050, food production scales up to meet the demand, yet 640 million people continue to suffer from undernourishment. Paradoxically, the affluence in wealthier nations fuels the rise of unhealthy diets, contributing to a surge in obesity that afflicts nearly 1.5 billion people in 2050.

When it comes to tackling climate change, nations stick to their existing commitments, expanding managed forestry by 230 million hectares globally. However, the lack of robust international cooperation hinders significant progress toward the crucial 1.5°C climate goal. Ambitious plans to meet the targets set in the Paris Agreement lose momentum, allowing agricultural expansion and overexploitation of natural resources to exacerbate the degradation of ecosystems and biodiversity.

This is contrasted in the Food System Transition pathway where they project a comprehensive transition. This includes a global commitment to shape a food system that is inclusive, health-centric, and environmentally sustainable. Over the next three decades, nations worldwide gradually shift away from diets dominated by empty calories and animal-sourced proteins. Instead, they embrace the reference diet as defined in the EAT-Lancet report. On average, high- and middle-income regions will significantly cut down on animal-sourced food consumption by 68 per cent and 62 per cent, respectively, from 2020 to 2050. In tandem, these regions increase their intake of fruits, nuts, vegetables and legumes. However, the story is different for low-income regions like Sub-Saharan Africa and India. Here, overall food intake, especially that of healthy foods, will rise to address undernutrition.

This resolute action brings about the elimination of hunger by 2050, sparing 640 million people from the anguish of going to bed hungry or not knowing what their children will eat the next morning. Extensive efforts are made to protect natural ecosystems from development, complemented by ambitious reforestation programmes that expand managed forests by 2.5 million hectares annually from the present day to 2050.

Technological advancements, coupled with determined efforts to reduce agricultural pollutants, transform the land-use sector into a net carbon sink by 2040. Successful campaigns against poverty in the agricultural sector ensure living wages for the nearly 400 million people employed in it. Simultaneously, the shift away from expensive and wasteful diets, combined with the redistribution of carbon taxes, guarantees that food remains affordable for all.

The commission employs two complementary methods to compare the economics of the two pathways: a bottom-up approach and a top-down approach. In the first, the avoided costs related to health, the environment and poverty are calculated item per item, while in the latter approach, the emphasis is on valuing the additional benefits instead.

Using the bottom-up method the scientists estimate that the Food System Transition pathway could yield cumulative gross benefits of USD 104 trillion purchasing power parity (PPP) between 2020 and 2050 compared to the Current Trends. Annuitised, that’s equivalent to 5 trillion USD per year.

As time goes on, the present value of hidden costs declines in both pathways. This decrease is primarily attributed to discounting, a financial concept that diminishes the present value of future hidden costs. Additionally, policy actions play a crucial role in this trend. Under Current Trends, these actions encompass the Nationally Determined Contributions pledges already made by countries under the Paris Agreement.
In figure 1 we can see how the gross benefits of the Food System Transition compare to the Current Trends over time, without annuitisation. These benefits arise from environmental and health factors in equal measure, even though various effects unfold at different points in time.

Figure 1. Reduction in hidden costs compared to current trends.

The Food System Transition pathway demonstrates early and comprehensive implementation of environmental measures, resulting in an annual reduction of hidden costs by approximately 500 billion USD. This gives lasting benefits over time. The positive impact is due to the restoration of forests and ecosystems, as well as effectively counteracting the lingering effects of methane emissions and nitrogen pollution from farming. Furthermore, the Food System Transition pathway implies a significant improvement in nitrogen use efficiency.

For health, the reduction in hidden costs becomes more noticeable, amplifying Food System Transition pathway’s impact over time. This progress is attributed to the gradual adoption of healthier diets, steadily contributing to the pathway’s positive influence on public health.

The overall reduction in hidden costs between 2020 and 2050 under the Food System Transition pathway can be dissected as follows:

• A significant part, 55 per cent of the total reduction, stems from curbing health-related hidden costs. This is mainly due to addressing overconsumption, leading to a decrease in the years of life lost to non-communicable diseases.
• Another 45 per cent is attributed to mitigating environmental costs. This reduction arises from a variety of measures, including the decrease in greenhouse gas emissions from agriculture (13 per cent), preventing habitat loss (17 per cent), and reducing nitrogen pollution (15 per cent).
• In contrast, the hidden costs of poverty undergo minimal change, accounting for less than half a percentage point of the gross benefits of the Food System Transition. This is primarily due to an increase in food prices. Although income support measures offset this increase, they do not eliminate poverty.

The Food System Transition pathway, on its own, does not erase all hidden costs of the global food system. The remaining costs are mostly associated with the lasting burden of disease. In contrast, the food system gradually transforms into a net carbon sink, resulting in overall net environmental benefits.

Turning to the top-down approach, where a kind of social welfare calculator is used. First off, the commissioners have estimated the global social welfare under the two pathways. Then they calculate the difference in welfare between these two paths and quantify it in dollars to figure out the net economic benefits under the Food System Transition.

Applying the top-down approach, the projected net economic benefits of the Food System Transition amount to approximately USD 10 trillion annually by 2050. This constitutes roughly 8 per cent of global GDP PPP in 2020, as illustrated in Figure 2. The cumulative net welfare gains are projected to reach USD 270 trillion by the middle of the century. That is considerably more than in the bottom-up approach. The major difference is that the top-down approach takes a bigger picture view of how everyone’s income changes, not just focusing on the poor. When only comparing the combined value of environmental and health benefits, the two assessments end up close to each other, within the range of USD 5–6 trillion PPP per year, which reinforces the reliability of the findings.

Figure 2. Net benefits of the FST compared to current trends, overall and disaggregated by food system outcome, top-down approach.

The attentive reader has probably noticed that a crucial part is missing from the equation. What are the costs of implementing the Food System Transition pathway? The researchers estimate the costs to fall within the range of USD 200 to 500 billion PPP annually until 2050. The wide range considers the great uncertainty that prevails regarding poverty measures above all. It plays out as follow:

• The safety nets are estimated to account for the largest share of the transition costs, roughly USD 300 billion.
• Measures to protect, restore and manage forests and other natural ecosystems, which are expected to comprise annual expenditures of almost USD 90 billion.
• Reducing GHG emissions from livestock and crop production through improved management practices, agroforestry, increasing soil organic carbon croplands and grasslands, and biochar applications may cost USD 70 billion.
• Ensuring an inclusive transition by investing in rural infrastructure and training is expected to absorb some USD 30 billion per year.
• Measures to support shifts to healthy diets is expected to need slightly more than USD 20 billion a year.

A transition of the food system would bring great economic benefits. And the required investment appears to be readily affordable on a global scale – estimated to range between 0.2 and 0.4 per cent of the global GDP PPP in 2020. However, these costs disproportionately burden low-income countries, surpassing their financial capacity. Even at the lower bound of cost estimates, covering the expenses of the transformation in low-income countries would necessitate nearly 2 per cent of their GDP PPP in 2020. In middle- and high-income countries the relative cost to GDP is in the order of one tenth or one hundredth of that in poor countries. This calls for the need for global redistribution, but the report’s authors state that at present a tiny part of international development funds and climate finance are directed to measures in the food system.

The report highlights that actual global food system change will mostly unfold on national and local levels. While there isn’t a one-size-fits-all blueprint, they have identified five overarching priorities that can serve as guiding principles for national and local strategies:

• Support a shift towards healthy diets. There are some measures that have been proven effective, but this is an area where policy development and research is needed.
• Farm subsidies must favour a sustainable food system. Unlike today where a lot of support is directed towards the largest farms and promotes unsustainable practices.
• Develop carbon and nitrogen taxes to propel the transition. Since net carbon sinks and reducing nitrogen pollution will bring great benefits.
• Empower and streamline the dissemination of innovation. Especially those that facilitate for small-scale farmers in in low- and middle-income countries.
• Improve safety nets to keep food affordable for the poorest. This is key to making food system transformations inclusive and politically feasible.

The report underscores the urgent need for a transformative approach to the global food system to mitigate costs, promote health and ensure environmental sustainability, while acknowledging the challenges and emphasising the importance of global cooperation and inclusive policies. The focus on the economic benefit of a transition is well-timed given the recent and on-going protests by farmers in several parts of the world. Hopefully, this type of economic analysis can provide a potential avenue for mutual understanding and agreement.

Kajsa Pira

1 The EAT-Lancet Commission Report, 19 January 2019, https://doi.org/10.1016/S0140-6736(18)31788-4
2 The Economics of the Food System Transformation, 27 January 2024, https://foodsystemeconomics.org/