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Nadia Scialabba

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This document summarizes a presentation on full cost accounting of food wastage. It discusses the environmental and economic impacts of the 1.3 gigatons of food wasted annually. Environmentally, it accounts for 3.7 gigatons of greenhouse gas emissions, uses 250 cubic kilometers of water, and occupies 1.5 billion hectares of land. Economically, using producer prices the loss is estimated at $750 billion annually, and using retail prices it is $920 billion. The presentation then outlines frameworks for monetizing some of these environmental costs, such as $55-$900 billion to account for greenhouse gas emissions using social cost of carbon estimates. It acknowledges challenges and limitations but argues full cost accounting can help identify policy priorities

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True-Cost Accounting in Food and Farming, London, 6 December 2013 Full Cost Accounting of Food Wastage Nadia El-Hage Scialabba Senior Officer, Natural Resources Management and Environment Department
Full Cost Accounting of Food Wastage Why bother? After coal power generation, agriculture has globally the highest impact sector on the environment when measured in monetary terms The economic loss incurred by food wastage has not triggered the necessary investments in reduction measures, despite decades of FAO assistance to countries on post-harvest losses; at the retail and consumer levels, it is economically “profitable” to waste food FCA seeks to lower the “profitability” of unsustainable production and consumption practices by monetizing unpriced natural resources’ inputs to food production Social costs are used to assess the contribution of ecosystems to human wellbeing and inform strategic decision-making 2
Food Wastage Footprint Environmental Impacts Environmental impact of 1.3 Gtonnes of food wastage/ year 3.7 Gt CO2eq/year = 3rd largest emitter if food wastage was a country 250 km3/year = 3 times lake Geneva CO2 Carbon Water Land 1.5 billion ha used to grow food that is wasted = 30% of agricultural land Biodiv. 66% of endangered/vulnerable species threatened by food production 3
Food Wastage Footprint Economic Impact Economic quantification of 1.3 Gtonnes of food wastage If using producer prices USD 750 billion / year Superior to Saudi Arabia GDP < $ If using trading prices < USD 920 billion / year Inferior to South Korea GDP This cost is much higher numbers when socio-environmental costs monetized Full Cost Accounting of Food Wastage 4
Food Wastage Footprint FCA Framework Food wastage during Production Post-harvest Processing Consumption Distribution Reduced food availability => Food security concerns Increased pressure on land for production => Planetary boundaries concerns Increased waste management challenges => Landfill concerns Loss of productivity Direct and indirect impacts Environmental impacts Direct impacts Air pollution Climate change Scarcity Energy Socio-economic impacts Increased public costs Increased labour demand Increased food prices Land occupation Land degradation Presources Water use Water pollution Land Ecosystem services Water Biodiversity loss Deforestation Loss of wild landscapes (grasslands, wetlands) Pillars of sustainable livelihoods Increased pesticide and nitrate exposure Increased safety and displacement risks Reduced access to ecosystem services (regulating, provisioning and supporting) Income Food security Health and wellbeing Reduced vulnerability Sustainable use of the natural resource base 5
CO2 Full Cost Accounting of Food wastage Carbon Accounting Selected Carbon valuation methodologies Marginal abatement cost Market price of Carbon Cost of reducing emissions efficient mostly if > USD 20/t Value of traded carbon emissions depends on volatile markets values are currently low USD 5/t (was 45/t few years ago) CO2 Social cost of Carbon Full cost of a tonne of carbon (or equivalent GHG), emitted today, over the course of its lifetime in the atmosphere. includes external costs + society willingness to pay to avoid future damages wide range of variation (USD 8-85/tonne) depending on coverage and key parameters choice, such as discount rate, time-horizon, risk aversion and climate sensitivity. Carbon taxes and fines Value defined by governments & intergovernmental organizations values have a wide range and reflect political reality (EU/ETS is Euro 100), not damage costs 6
CO2 Full Cost Accounting of Food wastage Carbon Accounting The Social Cost of Carbon framework Uncertainty in Valuation Studies proposed: Waldhoff et al. (2011) Market Non-Market (Socially Contingent) Coastal protection Uncertainty in Predicting Climate Change Heat stress Regional costs Loss of wetland Investment Projection (e.g. sea level Loss of dryland Rise) Energy (heating/cooling) Agriculture Water Stern (2007) Ecosystem change Biodiversity Bounded Risks (e.g. droughts, floods, storms) Variability Comparative advantage & market structures Loss of life Secondary social effects Above, plus Significant loss of land and resources Regional collapse Non-marginal effects System change & surprises (e.g. major events) Higher order social effects Irreversible losses Regional collapse The Social Cost of Carbon Risk Matrix adapted from Watkiss (2008) illustrating the gradient of difficulty (from green to red) in taking different climate effects categories into consideration 7
CO2 Full Cost Accounting of Food wastage Carbon Accounting Draft Carbon monetization USD 55 billion (although with a range of 10-900 billion) Waldhoff et al. (2011) Food Wastage GHG Emissions = 3.7 Gt CO2eq/year USD 315 billion Stern (2007) Remark: a wide range of social costs included such as health, insurance for damage, climate refugees, poverty, etc. 8
Full Cost Accounting of Food wastage Water Use Accounting Focusing on direct and indirect use of water Total Economic Value Use value Direct use value Consumptive e.g. Irrigation Non-Consumptive e.g. Recreation Non-use value Indirect use value Option value Bequest value Altruistic Value as a necessary input for ecosystems and thus, their existence and their services, such as: - Biodiversity/species habitat - Water purification services - Mitigation of salinization Existence value Current scope of the FWF study “Water pollution” from agricultural runoff will be accounted for as an external cost of fertilizer and pesticide use. However, water withdrawal beyond natural rate of flow may lead to a reduction in water purification services 9
Full Cost Accounting of Food wastage Water Use Accounting Draft Water use monetization Direct use (irrigation water) Food wastage water use = 250 km3/year USD 0.56 billion (using benefit transfer for USD 0.01/m3 in the UK) Realistic estimate USD 10-50 billion USD 280 billion (using benefit transfer for USD 0.25/m3 in Bangladesh) Indirect use (ecosystem services) Open questions • As water for irrigation is not viable if water cost more than USD 1/m3, could 10 cents/m3 be a realistic global estimate for the valuation? • There is need to account for water scarcities under direct use value: best method? • How to do benefits transfer of ecosystem services? 10
Full Cost Accounting of Food wastage Land Use Accounting Focusing on direct and indirect use of land Total Economic Value Use value Direct use value Provisioning: Food, fiber and timber production Regulating: Carbon storage Cultural: Tourism, recreational hunting Non-use value Indirect use value Supporting: Nutrient cycling, microclimate Regulating & Cultural: Watershed protection, flood attenuation, pollut ion assimilation Option value Existence value Bequest value Stewardship value Regulating: Area used for waste recycling Cultural: Area that becomes of recreational value Provisioning: biodiversity possibly useful for humans 11
Full Cost Accounting of Food wastage Land Use Accounting Draft land use monetization Land occupation Land occupation by food wastage = 1.5 billion ha/year Land degradation USD 10 billion considering only financial costs from agriculture to society (i.e. treatment, prevention, ad ministration and monitoring costs) Pretty, Brett et al. (2011) Trucost, 2013 uses land values dependent on provision of ecosystem services > USD 200 billion Food wastage degradation potential (using crops degradation potential) USD 130 billion Large spectrum assessment of costs including damages on site (e.g. yield loss, drop in land value) and off site (e.g. flooding, sedimentation, health) Pimentel, Harvey et al. (1995) Question Which methodology could be used to best estimate land occupation costs: opportunity cost, rental cost, possible production value, etc.? 12
Full Cost Accounting of Food Wastage Biodiversity/Ecosystems Accounting Total Economic Value Use value Direct use value Direct harvest of wild species for pharmaceutics; pollination services of pollinators Non-use value Indirect use value Water purification, climate change mitigation (e.g. soil carbon sequestration in wetlands) Option value Existence value Pharmaceutics not yet discovered Existence of the Great Barrier Reef Altruistic value Knowledge that others can use the Great Barrier Reef (e.g. for tourism) Bequest value Conserving the Great Barrier Reef for future generations Focus area for the FWF Project 13
Full Cost Accounting of Food Wastage Biodiversity/ Ecosystems Accounting Drivers of biodiversity loss (MEA, 2005) and draft indicators Over-exploitation Pollution • N-eutrophication • P-eutrophication • Pollinator loss (linked to pesticides) • Fisheries depletion • Grassland degradation (cf land use component) Climate change • Global Warming Potential (cf carbon component) Habitat change • Deforestation (cf land use component) Invasive Species 14
Full Cost Accounting of Food Wastage Biodiversity/ Ecosystems Accounting Draft Biodiversity/Ecosystem Loss Monetization Overfishing costs for lost/wasted fish N USD 50 billion/ year Damages due to N runoff into protected areas Loss of pollinators USD 20 billion/ year USD 20-25 billion/ year Remark: the quantification of biodiversity impact is too rough, incomplete and difficult to estimate meaningfully 15
Full Cost Accounting of Food Wastage Accounting Accounting for part of the environmental externalities doubles Food Wastage Cost 1200 1000 USD billion 800 600 400 200 0 Series1 Selected environmental costs (low estimate) 356 Economic cost 750 Selected environmental costs (high estimate) 1020 16
Full Cost Accounting of Food Wastage The way ahead for environmental monetization • Improving the database • Identifying the adequate estimate for the social costs of Carbon • Reality check for upper estimates • Inclusion of water scarcities into costs evaluation CO2 Carbon Water Land • Alternative land occupation valuations • Refined erosion rates per country Biodiv. • Improvement of current calculations • Inclusion of new parameter valuations: Peutrophication, species’ loss 17
Full Cost Accounting of Food wastage Challenges Challenges ahead for Full-Cost Accounting DOUBLE COUNTING OF IMPACTS DATA AVAILABILITY / BENEFIT TRANSFER OPPORTUNITY FULL-COST ACCOUNTING SOCIAL COSTS ACCOUNTING NARROWING ESTIMATES RANGE
Full Cost Accounting of Food Wastage So what? Monetizing the environmental and social cost of food waste has several limitations but acts as a wake-up call on the magnitude of the problem and future risks (e.g. increased mitigation costs, ecosystem services collapse, natural events) Agriculture does not generate enough revenue to cover its environmental damage: natural capital cost is USD 2 369 billion when revenue is USD 1 567 billion – with an impact ratio of 1.5 (Trucost, 2013) Integrating FCA in market prices would unrealistically inflate food prices! Valuation studies identify hotspots requiring consideration in the food supply chain (price volatility from scarcity) in order to: – – – – – anticipate decreased company profitability consider shadow pricing in sustainable procurement appraise natural resources assets and risks for investments evaluate trade-offs and opportunities among sectoral policies develop forward-looking regulation 19
THANK YOU www.fao.org/nr/sustainability/food-loss-and-waste

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Nadia Scialabba

  • 1. True-Cost Accounting in Food and Farming, London, 6 December 2013 Full Cost Accounting of Food Wastage Nadia El-Hage Scialabba Senior Officer, Natural Resources Management and Environment Department
  • 2. Full Cost Accounting of Food Wastage Why bother? After coal power generation, agriculture has globally the highest impact sector on the environment when measured in monetary terms The economic loss incurred by food wastage has not triggered the necessary investments in reduction measures, despite decades of FAO assistance to countries on post-harvest losses; at the retail and consumer levels, it is economically “profitable” to waste food FCA seeks to lower the “profitability” of unsustainable production and consumption practices by monetizing unpriced natural resources’ inputs to food production Social costs are used to assess the contribution of ecosystems to human wellbeing and inform strategic decision-making 2
  • 3. Food Wastage Footprint Environmental Impacts Environmental impact of 1.3 Gtonnes of food wastage/ year 3.7 Gt CO2eq/year = 3rd largest emitter if food wastage was a country 250 km3/year = 3 times lake Geneva CO2 Carbon Water Land 1.5 billion ha used to grow food that is wasted = 30% of agricultural land Biodiv. 66% of endangered/vulnerable species threatened by food production 3
  • 4. Food Wastage Footprint Economic Impact Economic quantification of 1.3 Gtonnes of food wastage If using producer prices USD 750 billion / year Superior to Saudi Arabia GDP < $ If using trading prices < USD 920 billion / year Inferior to South Korea GDP This cost is much higher numbers when socio-environmental costs monetized Full Cost Accounting of Food Wastage 4
  • 5. Food Wastage Footprint FCA Framework Food wastage during Production Post-harvest Processing Consumption Distribution Reduced food availability => Food security concerns Increased pressure on land for production => Planetary boundaries concerns Increased waste management challenges => Landfill concerns Loss of productivity Direct and indirect impacts Environmental impacts Direct impacts Air pollution Climate change Scarcity Energy Socio-economic impacts Increased public costs Increased labour demand Increased food prices Land occupation Land degradation Presources Water use Water pollution Land Ecosystem services Water Biodiversity loss Deforestation Loss of wild landscapes (grasslands, wetlands) Pillars of sustainable livelihoods Increased pesticide and nitrate exposure Increased safety and displacement risks Reduced access to ecosystem services (regulating, provisioning and supporting) Income Food security Health and wellbeing Reduced vulnerability Sustainable use of the natural resource base 5
  • 6. CO2 Full Cost Accounting of Food wastage Carbon Accounting Selected Carbon valuation methodologies Marginal abatement cost Market price of Carbon Cost of reducing emissions efficient mostly if > USD 20/t Value of traded carbon emissions depends on volatile markets values are currently low USD 5/t (was 45/t few years ago) CO2 Social cost of Carbon Full cost of a tonne of carbon (or equivalent GHG), emitted today, over the course of its lifetime in the atmosphere. includes external costs + society willingness to pay to avoid future damages wide range of variation (USD 8-85/tonne) depending on coverage and key parameters choice, such as discount rate, time-horizon, risk aversion and climate sensitivity. Carbon taxes and fines Value defined by governments & intergovernmental organizations values have a wide range and reflect political reality (EU/ETS is Euro 100), not damage costs 6
  • 7. CO2 Full Cost Accounting of Food wastage Carbon Accounting The Social Cost of Carbon framework Uncertainty in Valuation Studies proposed: Waldhoff et al. (2011) Market Non-Market (Socially Contingent) Coastal protection Uncertainty in Predicting Climate Change Heat stress Regional costs Loss of wetland Investment Projection (e.g. sea level Loss of dryland Rise) Energy (heating/cooling) Agriculture Water Stern (2007) Ecosystem change Biodiversity Bounded Risks (e.g. droughts, floods, storms) Variability Comparative advantage & market structures Loss of life Secondary social effects Above, plus Significant loss of land and resources Regional collapse Non-marginal effects System change & surprises (e.g. major events) Higher order social effects Irreversible losses Regional collapse The Social Cost of Carbon Risk Matrix adapted from Watkiss (2008) illustrating the gradient of difficulty (from green to red) in taking different climate effects categories into consideration 7
  • 8. CO2 Full Cost Accounting of Food wastage Carbon Accounting Draft Carbon monetization USD 55 billion (although with a range of 10-900 billion) Waldhoff et al. (2011) Food Wastage GHG Emissions = 3.7 Gt CO2eq/year USD 315 billion Stern (2007) Remark: a wide range of social costs included such as health, insurance for damage, climate refugees, poverty, etc. 8
  • 9. Full Cost Accounting of Food wastage Water Use Accounting Focusing on direct and indirect use of water Total Economic Value Use value Direct use value Consumptive e.g. Irrigation Non-Consumptive e.g. Recreation Non-use value Indirect use value Option value Bequest value Altruistic Value as a necessary input for ecosystems and thus, their existence and their services, such as: - Biodiversity/species habitat - Water purification services - Mitigation of salinization Existence value Current scope of the FWF study “Water pollution” from agricultural runoff will be accounted for as an external cost of fertilizer and pesticide use. However, water withdrawal beyond natural rate of flow may lead to a reduction in water purification services 9
  • 10. Full Cost Accounting of Food wastage Water Use Accounting Draft Water use monetization Direct use (irrigation water) Food wastage water use = 250 km3/year USD 0.56 billion (using benefit transfer for USD 0.01/m3 in the UK) Realistic estimate USD 10-50 billion USD 280 billion (using benefit transfer for USD 0.25/m3 in Bangladesh) Indirect use (ecosystem services) Open questions • As water for irrigation is not viable if water cost more than USD 1/m3, could 10 cents/m3 be a realistic global estimate for the valuation? • There is need to account for water scarcities under direct use value: best method? • How to do benefits transfer of ecosystem services? 10
  • 11. Full Cost Accounting of Food wastage Land Use Accounting Focusing on direct and indirect use of land Total Economic Value Use value Direct use value Provisioning: Food, fiber and timber production Regulating: Carbon storage Cultural: Tourism, recreational hunting Non-use value Indirect use value Supporting: Nutrient cycling, microclimate Regulating & Cultural: Watershed protection, flood attenuation, pollut ion assimilation Option value Existence value Bequest value Stewardship value Regulating: Area used for waste recycling Cultural: Area that becomes of recreational value Provisioning: biodiversity possibly useful for humans 11
  • 12. Full Cost Accounting of Food wastage Land Use Accounting Draft land use monetization Land occupation Land occupation by food wastage = 1.5 billion ha/year Land degradation USD 10 billion considering only financial costs from agriculture to society (i.e. treatment, prevention, ad ministration and monitoring costs) Pretty, Brett et al. (2011) Trucost, 2013 uses land values dependent on provision of ecosystem services > USD 200 billion Food wastage degradation potential (using crops degradation potential) USD 130 billion Large spectrum assessment of costs including damages on site (e.g. yield loss, drop in land value) and off site (e.g. flooding, sedimentation, health) Pimentel, Harvey et al. (1995) Question Which methodology could be used to best estimate land occupation costs: opportunity cost, rental cost, possible production value, etc.? 12
  • 13. Full Cost Accounting of Food Wastage Biodiversity/Ecosystems Accounting Total Economic Value Use value Direct use value Direct harvest of wild species for pharmaceutics; pollination services of pollinators Non-use value Indirect use value Water purification, climate change mitigation (e.g. soil carbon sequestration in wetlands) Option value Existence value Pharmaceutics not yet discovered Existence of the Great Barrier Reef Altruistic value Knowledge that others can use the Great Barrier Reef (e.g. for tourism) Bequest value Conserving the Great Barrier Reef for future generations Focus area for the FWF Project 13
  • 14. Full Cost Accounting of Food Wastage Biodiversity/ Ecosystems Accounting Drivers of biodiversity loss (MEA, 2005) and draft indicators Over-exploitation Pollution • N-eutrophication • P-eutrophication • Pollinator loss (linked to pesticides) • Fisheries depletion • Grassland degradation (cf land use component) Climate change • Global Warming Potential (cf carbon component) Habitat change • Deforestation (cf land use component) Invasive Species 14
  • 15. Full Cost Accounting of Food Wastage Biodiversity/ Ecosystems Accounting Draft Biodiversity/Ecosystem Loss Monetization Overfishing costs for lost/wasted fish N USD 50 billion/ year Damages due to N runoff into protected areas Loss of pollinators USD 20 billion/ year USD 20-25 billion/ year Remark: the quantification of biodiversity impact is too rough, incomplete and difficult to estimate meaningfully 15
  • 16. Full Cost Accounting of Food Wastage Accounting Accounting for part of the environmental externalities doubles Food Wastage Cost 1200 1000 USD billion 800 600 400 200 0 Series1 Selected environmental costs (low estimate) 356 Economic cost 750 Selected environmental costs (high estimate) 1020 16
  • 17. Full Cost Accounting of Food Wastage The way ahead for environmental monetization • Improving the database • Identifying the adequate estimate for the social costs of Carbon • Reality check for upper estimates • Inclusion of water scarcities into costs evaluation CO2 Carbon Water Land • Alternative land occupation valuations • Refined erosion rates per country Biodiv. • Improvement of current calculations • Inclusion of new parameter valuations: Peutrophication, species’ loss 17
  • 18. Full Cost Accounting of Food wastage Challenges Challenges ahead for Full-Cost Accounting DOUBLE COUNTING OF IMPACTS DATA AVAILABILITY / BENEFIT TRANSFER OPPORTUNITY FULL-COST ACCOUNTING SOCIAL COSTS ACCOUNTING NARROWING ESTIMATES RANGE
  • 19. Full Cost Accounting of Food Wastage So what? Monetizing the environmental and social cost of food waste has several limitations but acts as a wake-up call on the magnitude of the problem and future risks (e.g. increased mitigation costs, ecosystem services collapse, natural events) Agriculture does not generate enough revenue to cover its environmental damage: natural capital cost is USD 2 369 billion when revenue is USD 1 567 billion – with an impact ratio of 1.5 (Trucost, 2013) Integrating FCA in market prices would unrealistically inflate food prices! Valuation studies identify hotspots requiring consideration in the food supply chain (price volatility from scarcity) in order to: – – – – – anticipate decreased company profitability consider shadow pricing in sustainable procurement appraise natural resources assets and risks for investments evaluate trade-offs and opportunities among sectoral policies develop forward-looking regulation 19