Agri-food systems generate substantial external costs, or "externalities," which are not captured by traditional economic metrics. These costs include environmental damage, poor health, and low incomes for small-scale farmers. According to the Food and Agriculture Organization (FAO), these costs amount to at least $10 trillion annually. The largest share of these costs (more than 70%) comes from unhealthy diets, while environmental factors account for about 20% of all hidden costs.

This report examines one of the drivers of those crises: economic systems that privatize profits but socialize costs. The report argues that the existing economic system – from accounting systems to macroeconomic planning and patterns of consumption – is blocking the transformation of food systems.

The report presents True Cost Accounting (TCA) as a key enabling factor in the transformation of agri- food systems. TCA helps to place value on natural, human and social capital and to consider not just immediate financial gains but also the long-term impacts on the planet and future generations.

TCA can inform decision-making and support economic reform at different levels, from local initiatives to global transformation strategies, and by all stakeholders in agri-food systems. It does not aim to provide definitive solutions to the problems associated with agri-food systems but argues instead that changing the system of economic accounting is a prerequisite for a transition to sustainability.

Key messages:

1. ‘Cheap’ food often comes at a high price: environmental damage, poor health, and low incomes for small-scale farmers. While large corporations profit, smallholder farmers, agri-food workers, consumers and society as a whole bear the true costs – especially vulnerable groups, for whom it can mean deepening poverty and eroding food sovereignty.
2. Agri-food systems generate substantial external costs (so- called externalities) by harming the environment and human health. According to FAO, these costs amount to at least 10 trillion US dollars per year, exceeding the contribution of food systems to global GDP.
3. These externalities are currently ‘invisible’ because our system of economic accounting does not consider impacts on nature and human well-being. Yet these costs are real and will be borne by society as a whole and by future generations.
4. Externalities are a direct cause of the global climate, biodiversity and human health crises. Ignoring them incentivizes unsustainable business practices.
5. The current system of economic accounting favours unsustainable development pathways, distorts markets and puts sustainable businesses at a disadvantage, thereby hindering the transformation to sustainable agri-food systems
6. True Cost Accounting (TCA) is designed to identify and measure the hidden costs and benefits of economic systems, including agri-food systems. It can be used to develop measures that accelerate the transformation of agri-food systems to sustainable models.
7. By assessing the environmental, social, health and economic costs, benefits, and risks of economic activities, TCA helps policymakers, businesses, farmers, investors, and consumers make better and more informed decisions that support long-term sustainability and well-being.
8. TCA can be used to address market distortions by integrating sustainability costs and benefits into traditional accounting. In doing so, sustainability becomes part of the equation, incentivizing sustainable practices and promoting human and planetary well-being.
9. To realise the full potential of TCA, it needs to be integrated into national and international policy frameworks, performance evaluation processes, accounting standards and regulatory policies, thereby becoming an enabling factor in the transformation to sustainability.
10. The aim of TCA is not to raise the market price of food but to inform policy reforms such as repurposing of subsidies and strategies for sustainable finance, social equity, sustainable livelihoods, and poverty alleviation and to develop more socially just agri-food systems.