Food Prices: It’s Not Just a Matter of Economics

I was recently contacted about speaking at a major conference that was being organized for the purpose of revealing “The True Cost of American Food.” Being an economist, I was asked if I would focus on economic cost of the food system that are not reflected in prices we pay for food. The organizers wanted someone who would estimate the economic value of natural resources – soil, water, air, – that are essential for agricultural production but are not paid for by food producers. Since producers don’t pay for these things, their costs are not reflected in food prices, meaning that food prices do not reflect the true cost of food. The reasoning is that if nature belongs to any of us, it belongs to all of us, and we are not all being compensated economically for the use of nature’s resources. Society also contributes to the value of food in ways that are not reflected in food prices – highways, a legal system, rules of trade, and a variety of government subsidies. Food prices don’t reflect the value of public services that we pay for in taxes. Cheap food is not really as cheap as it seems.

The conference organizers also wanted someone to put an economic value on the damages inflicted on nature and society by food production as well as unpaid services. We bear some of the economic costs of air and water pollution and food related illnesses in the form of healthcare costs and lost incomes due to sick days. We bear some of the economic costs of exploited farmers and food industry workers and economic and social decay of rural communities through support for a variety of government social welfare programs. Those of future generations will also bear economic costs of the ecological and social degradation of the natural and societal resources that will be needed to support future food production.

Economists refer to attempts to fully account for such economic costs as “internalizing economic externalities.” Once the unpaid external costs, or benefits, have been assigned economic values, they can be internalized by using a variety of public policies. Pollution-based taxes and carbon credit are examples of policies that attempt to internalize external economic costs and benefits. My initial response to the conference organizers was that while accounting for the “true economic costs” of food is necessary, it will not be sufficient to account for the “true cost” of American food. I tried to explain that ignoring the purely social and ecological cost of food is an even greater concern that failing to fully account for all economic costs. Costs and benefits that are purely social or ecological in nature have no economic value. The “true costs” of food must include “all costs” – social, ecological, and economic.

I suggested that the conference was unlikely to bring about significant change in the American food system if it simply focused on internalizing economic externalities. First, I pointed out that estimating external economic costs and benefits is far from an exact science. It is difficult to isolate specific cause-and-effect relationships in complex system that function within even more complex economies, societies, and ecosystems – such as the food system. There is no way to prove that a specific ecological or social impact is due to a specific activity or aspect of food production.

Second, even if a strong argument can be made for cause and effect, there is no way of assigning accurate economic values to positive or negative impacts on nature and society. Economists recognize more than a half-dozen “dollar-based ecosystem valuation methods.” Disagreements regarding the magnitude of external economic cost and benefits of the American food system turn out to be little more than intellectual duels among economists using different methods, models, and initial assumptions. I have reviewed and critiqued dozens of such economic impact assessments and have found none that could not be challenged or discredited by using different approaches, models, or just different sets of reasonable and logical initial assumptions. External economic impacts on society are even more difficult to estimate than are impact on nature.

While such estimates are essential in bringing public attention to the importance of economic externalities, public policy initiatives and political movements that rely on estimates of economic externalities are unlikely to bring about significant changes in the current food system. As in the case of climate change and fossil energy depletion, credible estimates can indicate huge negative economic impacts, without resolving arguments about causes and effects. There is little hope for significant change until changing climates or fossil energy depletion actually affect the economic bottom-lines of global corporations. Advocates for “true cost accounting” in food system should learn from the frustrations of the environmental and social justice movements.

It’s time for a fundamental change in strategy. The U.S. environmental, civil rights, and peace movements of the 1960s and 1970s all began to falter during the 1980s when U.S. policy priorities shifted from ensuring democratic rights to promoting economic growth. I have been told by policy wonks that “economics is now the language of public policy.” Advocates argue that what is good for nature and society is also good for the economy. It simply is not true. While the economy obviously depends on nature and society over the long run, economic value in inherently short-run in nature. The economy places a high premium on the present relative to the future. Changes over time in social and ethical values of consumers create new economic opportunities. Most people don’t make purely economic decisions, and their non-economic values change. Future values also  eventually become present values.  However, it will always make more “economic sense” to extract and exploit today than to conserve, protect, and renew for the future. While internalizing economic externalities would reduce economic incentives to do so, the extraction and exploitation would continue.

The “true value” of nature and society simply cannot be translated into economic value. Among the most popular methods of attempting to so by economists is “willingness to pay” or “contingency valuation.” People are asked how much money they would be willing to pay for a given ecosystem service, such a public park, a scenic landscape, or a species of wild animal – to enjoy or just to know it is there. But, do we really believe the “true value” of nature is determined by what we humans are willing pay for it? How can we place an economic value on something with which we are integrally connected and upon which we are ultimately dependent? It is even more troublesome to try to place an economic value on social values that we contribute to the greater good of humanity. It make no more sense to ask how many dollars a loving relationships is worth than to ask how much love a dollar is worth. How much money would it take to turn something that is ethically “wrong” into something that is “right”? Many of the most important things in life are simply priceless.

If we are going to calculate the “true cost of American food,” we must include the social and ethical and social costs, as well as the “full” economic costs.  The resources of nature are not really ours to use or used up to satisfy our individual preferences. We are caretakers of the earth. We can and must use the things of nature to meet our basic needs, but we must do so in ways that restore and maintain the health of productivity of nature so that future generations can meet their needs as well. It is a moral and ethical imperative, not an economic choice. The costs of polluted environments and unhealthy foods must include the pain and suffering of those whose lives are diminished or destroyed, not just their medical bills. The true cost of food also must include the social marginalization and exclusion keenly felt by farm families who are forced off their land, rural residents who lose their social and  cultural communities, and the farm and food industry workers who are treated as little more than biological machines.

Economic externalities are important. But, the true cost of food is not just a matter of economics. We will not bring about fundamental change in the American food system until we address its social and ecological impacts directly, in terms of social and ethical values, rather than try to reduce everything to its asocial, amoral economic value. (More on this later.)

John Ikerd