Assessing the performance of – and the main risks and challenges faced by – agrifood systems will be critical to guiding structural change towards agrifood systems that deliver affordable healthy diets to all while respecting environmental sustainability.45 For such an assessment, collaboration between political, economic and social actors, including the research community, is required.47 The challenge is to co-assess current agrifood systems to collectively rethink their future, identify possible trade-offs and synergies, devise alternative options and steer the systems onto a sustainable track, given the aforementioned barriers.
Recent advances in evaluation and accounting frameworks create an unprecedented opportunity for such comprehensive assessments through the TCA approach, which is:
a holistic and systemic approach to measure and value the environmental, social, health and economic costs and benefits generated by agrifood systems to facilitate improved decisions by policymakers, businesses, farmers, investors and consumers.48
The definition of TCA is broad and a variety of methods can be adopted,b depending on a country’s resources, data, capacity and reporting systems. True cost accounting is not a new concept. Rather, it is an evolved and improved approach that goes beyond market exchanges to measure and value all flows to and from agrifood systems, including those not captured by market transactions (Figure 2). Valuation can be either qualitative or quantitative, including monetary. The four dimensions covered – environmental, social, health and economic – are reflected in the four capitals: natural, human, social and produced.
While the TCA approach is aspirational, as covering all hidden costs and benefits of agrifood systems is a massively resource- and data-intensive exercise, the aim is for policymakers and other stakeholders to avoid making decisions without a full assessment.
In this regard, the principle of “materiality” will be key (see Glossary). Generally defined as a “measure of how important a piece of information is when making a decision”,49 materiality helps focus the scope of TCA assessments on the impacts and flows that have the potential to alter a decision-making process.37 A key application of the principle of materiality is in choosing indicators, as this is an exercise often constrained by time, resources and available data, so should be limited to those indicators that are material to the decision-making process.50
Given the challenges of collecting the necessary data and quantifying all flows across the four capitals (Figure 1 and Figure 2), already available data and information take priority for an initial understanding of agrifood systems. Such initial analyses can be used to initiate a dialogue with relevant stakeholders as to the most important issues in agrifood systems and the most urgent data gaps that need to be filled to better guide interventions. The materiality principle should then be used to determine the most important and significant impacts for which data are unavailable, so they can be collected. This can substantially reduce the quantity of unavailable data that need to be collected. The principle of materiality is particularly relevant for low-income countries and middle-income countries, where data and overall capacity are lacking and policymakers need to make decisions in the face of conflicting objectives.
With its broad capital accounting framework, TCA builds on the body of existing measurement work reflected in established international statistical standards. As far as produced and natural capital and associated flows are concerned, these standards include: (i) the System of National Accounts (SNA) and the balance of payments for the measurement of produced assets and associated flows of production, income and consumption, and (ii) the System of Environmental-Economic Accounting (SEEA) for the measurement of environmental flows (for example, water, energy and emissions) and environmental assets (for example, land, soil, timber and fish). The latter also includes extensions in terms of Experimental Ecosystem Accounting for measuring ecosystem assets, ecosystem services and biodiversity, and the recently published SEEA for Agriculture, Forestry and Fisheries (SEEA AFF) for measuring environmental assets and flows in the context of agricultural activity (see Box 3).
Box 3True cost accounting builds upon the work of the System of Environmental-Economic Accounting for Agriculture, Forestry and Fisheries
The System of Environmental-Economic Accounting for Agriculture, Forestry and Fisheries (SEEA AFF) is particularly relevant to this report, as the primary activities it analyses depend directly and have an impact on the environment and its resources. It was developed in coordination with the United Nations Statistics Division, the Organisation for Economic Co-operation and Development, the Statistical Office of the European Union (EUROSTAT), the World Bank and other partners, and was endorsed by the United Nations Committee of Experts on Environmental-Economic Accounting in 2016. The SEEA AFF focuses on the integration of data required to describe how biophysical and management information relevant to agriculture, forestry and fisheries (AFF) production can be integrated into internationally recognized statistical frameworks.
Its coverage includes monetary and biophysical data across ten primary data domains (see the table). The ten domains were selected on the basis of the AFF products according to the International Standard Industrial Classification of all Economic Activities (ISIC), the environmental assets of direct relevance to AFF activities, and the main physical flows associated with AFF activities – water, energy, greenhouse gas emissions, fertilizers, nutrient flows and pesticides – as well as data related to the production and investment activity of AFF activities within the System of National Accounts (SNA).
TABLE SEEA AFF: Data domains, scope of activities considered and base accounts
SOURCE: FAO & UN. 2020. System of Environmental-Economic Accounting for Agriculture, Forestry and Fisheries (SEEA AFF). Rome. https://doi.org/10.4060/ca7735en
The System of Environmental-Economic Accounting (SEEA) and true cost accounting (TCA) are quite similar in spirit, in the sense that they aspire to provide an internally consistent framework to take into account flows that are not explicit in monetary flows as currently reported under the SNA. However, there is a major difference between SEEA and TCA, as set out in this report: TCA encompasses a broad range of environmental, social, health and economic outcomes and impacts. Securing these outcomes is directly related to the stock of all forms of capital – natural, human, social and produced. SEEA is more focused on produced and natural capital.
Initiating a two-phase process of TCA assessments
Against this backdrop, this report proposes a two-phase assessment using TCA to provide decision-makers with a comprehensive understanding of current and future agrifood systems and intervention areas to improve their sustainability. The assessment process is schematized in Figure 3. The cyclical depiction of the process is intended to emphasize its continuous nature, whereby improved decision-making can be viewed as the final objective, but also as the start of a new cycle of monitoring and evaluation to ensure continuous positive results. The process can be described as follows:
FIGURE 3 Two-phase agrifood systems assessment process
The first phase is to undertake initial national-level assessments that quantify and analyse as much as possible the hidden costs of agrifood systems across the different capitals using readily available data. The main role of the first phase is to raise awareness about the magnitude of the challenges and it can be used as a starting point to break down the hidden costs of national agrifood systems to feed discussions and dialogues with stakeholders in a certain country. This phase helps to link the hidden costs to the most urgent national priorities, such as reducing hunger or preserving scarce natural resources. It also serves to identify hidden cost categories that may be important, but which are not yet quantified, and considers the data needed to fill such gaps.
Chapter 2 of this report presents results that serve as an input to the first phase. It provides an initial national-level assessment that quantifies as far as possible the hidden costs of national agrifood systems, in a consistent and comparable way, for 154 countries. The results presented in Chapter 2 depend on the assumptions made and the data integrated into the assessment, and should not be viewed as a definitive assessment, but rather as a starting point to stimulate debate and dialogue. These results help us see the big picture of the hidden costs and their structure and dimensions. With input from in-country stakeholders and experts, the initial preliminary quantification and analysis can be improved based on country-specific information. This informs the planning for the more in-depth tailored analysis of the second phase.
The second phase is devoted to in-depth assessments targeting specific components, value chains or sectors of agrifood systems to guide transformational policy actions and investments in a specific country. The selection of the target sectors can be inspired by the results of the first phase, but can also be guided by country priorities per consultations with relevant stakeholders. The stakeholders involved may vary from context to context, but they are generally policymakers and research and accounting institutions (especially those with good knowledge of the country’s major agrifood systems challenges), as well as representatives of key actors in agrifood systems, such as agricultural producers, processors and distributors.
Chapter 3 and Chapter 4 provide more detailed guidance on this phase, expounding how to conduct targeted assessments that would guide the actions required to address the hidden costs and improve the outcomes of agrifood systems. This second phase is not just an accounting exercise, as it requires the continuous involvement of the relevant stakeholders, from the starting step of framing the main challenges, to the implementation of any transformational plan or project. This is critical in order to collect the requisite data, validate assumptions and results, and account for the distributional impact of any consequent action to guarantee the inclusiveness of the transformation process. Therefore, consultations on priorities and sequence of interventions and their costs (that is, abatement costs), as well as who will bear them, are fundamental to this phase. Depending on the granularity of the data available, the level of detail of the analysis will vary, with qualitative analysis playing a greater role to accommodate important experiences and variables for which quantitative data are poor, unavailable or non-quantifiable.
In sum, the first phase of the assessment process proposed in this report relies on estimates obtained using a transparent and well-established methodology based on national-level open-access data, available through institutions such as the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Environment Programme (UNEP). The estimated hidden costs are expressed in monetary terms, that is, they are comparable across different capital flows, impacts and countries. They can provide comparable results across impact categories within and between countries. This can then be aggregated at global, regional and country-income levels to obtain the overall magnitude of the problem on various scales. These initial national assessments, however, are incomplete and suffer from uncertainty due to data scarcity on aspects that can be important in certain contexts. Thus, the results provided in Chapter 2 are preliminary and should be considered work in progress. The results are intended to raise awareness about the hidden costs of agrifood systems. However, to go further and be used as an input in guiding priorities at the national level, the estimates need to be evaluated by country experts, in order to reduce uncertainty in estimates and include material aspects not covered in the initial estimates of the hidden costs presented in Chapter 2.
Knowing the hidden costs is only one of the inputs needed to prioritize resources, investments and policy actions to transform agrifood systems. Guiding transformative actions requires knowing to what extent the hidden costs are avoidable or what the cost of avoiding them might be. The cost of policy change (that is, the abatement cost) requires a different type of analysis based on local information and data and should, therefore, be at the core of the second phase of the assessment.
The general rule of thumb for decision-making in such contexts is that policy changes or investments are justified when the associated costs are lower than the expected benefits of reducing the damages of the current status. However, costs and benefits may be difficult to express in monetary terms in the case of environmental and social dimensions. Monetization of these dimensions can facilitate the cost–benefit analysis; however, it has its limitations and may not be the right tool to evaluate costs and benefits and make decisions. In this respect, the TEEBAgriFood Evaluation Framework is widely recognized as the most comprehensive method of applying TCA in the agrifood sector, and it is used as the overall reference for the two-phase assessment proposed in this report. See Box 4 for a brief overview of the framework.
Box 4THE ECONOMICS OF ECOSYSTEMS AND BIODIVERSITY (TEEB): TEEBAgriFood IN A NUTSHELL
Launched in 2018, the TEEBAgriFood Evaluation Framework was designed to understand the impacts of agrifood systems and their interdependencies with the environment, society and human health.14 It was designed with the input of more than 100 researchers, with a view to including the full range of costs, impacts and dependencies across agrifood value chains. The applications of the framework can vary depending on which costs and benefits are covered, how these are valued (for example, monetary or non-monetary) and for what purpose.19
Amid a shift towards multi-capital reporting among companies and finance institutions, the TEEBAgriFood Operational Guidelines for Business51 support such organizations in implementing the TEEBAgriFood Evaluation Framework, so that they can understand and act on their impacts and dependencies across the four capitals. This is an important stepping stone in mainstreaming natural, social and human capital into decision-making in diversified value chains and geographies. Through assessment approaches and, in some cases, reporting, companies and finance institutions are better able to understand and manage their impacts and dependencies.
Guiding principles of the two-phase assessment process
Figure 4 breaks down the different elements of the two-phase process for informed agrifood systems transformation. Starting from the core need to improve the economic, social and environmental sustainability of agrifood systems (red column), fulfilling this need requires assessments (green column) to help policymakers prioritize actions (orange column) that will transform agrifood systems. The assessment first involves measuring agrifood systems performance at national level, usually using indicators that have data available for a wide range of countries. This will allow decision-makers to identify the most important desirable outcomes (for example, lower obesity) and to quantify the benefits of achieving them. The second phase of the process is to conduct more targeted assessments at a sectoral or subnational level. The assessment identifies the different transformational actions needed, comparing the costs and benefits of each in order to allocate resources to the most feasible and cost-effective ones.
FIGURE 4 Process of informed agrifood systems transformation
Careful monitoring of actions will be needed (blue column), using indicators that reflect the environmental, social, health and economic dimensions. This way, decision-makers can assess the distributional impact and equity implications, such as who will benefit, and who will bear the costs of change. Engagement with relevant stakeholders to ensure alignment of interests, coordination of actions and accountability of results will be key. Lastly, actions should be adjusted to ensure their closest possible alignment with the initial core need.
