Good Food System Transition:  Repurposing agricultural support to promote fiscal resilience, human and planetary health 

The UN Biodiversity COP15 Summit, which took place in December, saw countries globally agreeing under Target 18 to align agricultural incentives and subsidies with biodiversity goals. At COP27, food system risks were also recognised. Indeed, agriculture is the leading driver of biodiversity loss as well as contributing to a third of global greenhouse gas emissions, and the leading user of antibiotics worldwide.

Current agricultural practices and consumption of unhealthy food are harming fiscal stability through rising health costs, food waste, decreased soil health, land degradation, and climate change impacts. Furthermore, access to food that is healthy and sustainable is a basic human right.  History has shown that food insecurity, stemming from access and affordability issues, has led to civil unrest, negatively impacting global financial markets, economic growth, and political stability.

The UN estimates that over US$500 billion in agricultural subsidies are distributed globally but the vast majority of these subsidies are harmful for health and for the environment. Under the Good Food Finance Network, several partners including FAIRR and Food Systems for the Future have been working together to analyse the available data to understand the role of finance in the food system.

In 2021, FAIRR launched an investor statement with other policy experts that called on the EU to better align its agricultural support with climate and nature goals. Investors have recognised that goals such as reaching net zero cannot be achieved unless policymakers act as well. The business-as-usual trajectory poses major risks for investors and asset owners. 

As shown below, drawing on work by Dr Marco Springmann from Oxford University, unhealthy diets are associated with high costs for public health including for healthcare systems and negatively impact productivity. In the UK, for example, the health costs (2021) associated with current unhealthy diets amount to around US$0.75 per person per day, summing to US$18.5 billion per year nationally. By contrast, through a shift to a healthier flexitarian diet, these health costs could be reduced to just US$0.17 per day. This represents a health cost saving of US$0.59 per person per day and a total saving of approximately US$14.5 billion per year across the population. This shift could provide substantial savings for the UK National Health Service and facilitate a lower fiscal debt burden, paving the way for more balanced economic growth.

CountryHealth cost in 2021 of current diets in USD per person per dayHealth cost in 2021 for Flexitarian diet in USD per person per day
EU ( Sum of 27 Countries) 2.151.22
Source:Springmann, M., Clark, M., Rayner, M., Scarborough, P., Lancet, Vol 5, Issue 11, E797-E807, November 2021. See Supplementary data sheet, Oxford University, 2021. Additional inflation adjustments carried out using consumer price index data from The World Bank and Eurostat.

In the US, a 2017 study by Springmann and colleagues showed there are US$1.80 health costs per person per day associated with diseases such as coronary heart disease, stroke and diabetes , rising to $2 per day in 2021 with inflation. Given the business-as-usual trajectory, the same study found these costs would increase to US$3.74 per day by 2050.  

A switch to a flexitarian diet could have saved the equivalent of around 4% of total 2021 healthcare expenditure for the UK, and 5% for the US as shown in the table below. Health cost savings should feature more prominently on the radar of finance ministries, sovereign credit rating agencies and investors when assessing the fiscal health of nations.

Fiscal savings resulting from healthier diets in selected countries

The table below for 2021 summarises the total annual cost and the fiscal and economic impacts after applying an inflation adjustment to data from the 2017 study by Springmann and colleagues It shows the difference between the costs per person per day between a healthier flexitarian diet and an unhealthy diet.

2021 Fiscal savings resulting from healthier diets in selected countries
UKUSAEU (EU-27)India
Annual health cost savings US$14.4 bnUS$205.3 bnUS$151.9 bnUS$24.8 bn
Annual climate cost savings US$8.3 bnUS$67.7 bnUS$82.1 bnUS$0.03 bn
Total savingsUS$22.8 bnUS$273.0 bnUS$234.0 bnUS$24.8 bn
Total savings as a % of GDP0.71%1.20%1.36%0.78%
Total saving as a % of Gross  Government Public Debt0.74%0.94%1.55%0.93%
Health cost savings as % of health expenditure3.79%4.83%n/a38.8%
SourceHealth cost saving and climate saving data from Springmann, M., Clark, M., Rayner, M., Scarborough, P., Lancet, Vol 5, Issue 11, E797-E807, November 2021 See data drawn from Supplementary data sheet, Oxford University, 2021. Nominal GDP and gross debt figures from UK, US and India from IMF Article IV staff reports 2021 & FSF workings. EU public debt figures from Eurostat and GDP from the World Bank. 2021 health expenditure data from the Office for National Statistics (provisional), US CMS, and the Reserve Bank of India (budget estimate). Population data from the World Bank.  National health spending converted into US$ using appropriate average exchange rates for 2021

Dr. Springmann’s study also highlights that the food waste cost associated with the baseline diet in the UK is  US$1.43 per person per day in 2021, after accounting for inflation between 2017 and 2021 (NB data from 2017 was used in Dr. Springmann’s study). The annual cost amount to US$35 billion in 2021. This represents 1.09% of the nominal GDP estimated for the UK by the IMF. The table below provides the fiscal impact for the selected countries.

2021 Fiscal impact of food waste cost 
UKUSAEU (EU-27)India
Food Wastage CostUS$35 bnUS$161.9 bnUS$213.7 bnUS$211.1 bn
Food Waste / GDP1.09%0.71%1.24%6.65%
Food / Gov Debt1.13%0.55%1.42%7.89%
SourceSpringmann, M., Clark, M., Rayner, M., Scarborough, P., Lancet, Vol 5, Issue 11, E797-E807, November 2021 See data drawn from Supplementary data sheet, Oxford University, 2021. Nominal GDP and gross debt figures from IMF Article IV staff reports 2021 & FSF working. Health expenditure data from the Office for National Statistics, US Treasury and the Reserve Bank of India. EU data from Eurostat and the World Bank.

The benefits of shifting to healthier diets span both high-income and lower-income countries and the implications go well beyond diet-related diseases – malnutrition and obesity also impact unfavorably on productivity, which further impacts economies and fiscal health via its impact on tax revenues, interest rates, sovereign bond yields, and central bank monetary policy mandates. A Chatham House study ‘The business case for investment in Nutrition’ highlights that businesses in low and middle-income countries collectively lose between US$130 billion and US$850 billion a year through malnutrition-related productivity reductions, which is equivalent to between 0.4% and 2.9% of those economies’ combined GDP. 

However, the above costs may be an underestimate as they did not factor in the costs of other so-called externalities of the food system, such as antimicrobial resistance (AMR) associated with food production. Moreover, these costs did not factor in the costs of biodiversity loss from the business-as-usual trajectory and the benefits of improved soil health and land degradation from shifting to sustainable food systems, which can be difficult to quantify.  Scientists have warned 24 billion tons of fertile soil are lost globally each year, largely due to unsustainable agriculture practices. If this trend continues, 95% of the Earth’s land areas could become degraded by 2050. In economic terms, the World Bank calculates global land degradation was shaving 10-17% off the world economy, which the World Bank calculates at 85.8 trillion dollars.

Finance ministers can delve deeper into the available data to find cost efficiencies. For example, allocating agricultural subsidies to unhealthy foods may drive over-consumption of products that cause non-communicable diseases, placing a burden on health budgets. 

Where agricultural subsidies are repurposed toward a more sustainable and healthy diet, as well as huge savings for finance ministries, many deaths can potentially be avoided. According to a paper published in Nature Communications by Springmann and Freund, 143,000 lives could be saved in the EU in 2030 by repurposing 100% of agricultural subsidies towards sustainable and healthy diets. 

Globally, 3.2 billion people are directly affected by land degradation, especially smallholder farmers and rural communities. Millions more are affected by a confluence of food insecurity, higher food prices, climate change, environmental hazards, and the loss of biodiversity and ecosystem services.  A failure to address these systemic risks has significant negative implications for socio-economic growth and political stability now and into the future. 

On average, major unrest events are followed by a 1 percentage point reduction in GDP six quarters after the event. Unrest motivated by socioeconomic factors has sharper GDP contractions than unrest associated with political motives. 

The topic is clearly rising up the international agenda, as the FAO State of Food Security and Nutrition report last year highlighted the majority of subsidies going towards unhealthy food products. 

Better management of subsidies to agriculture have clear fiscal payoffs and benefits around the management of government resources. Reallocation of subsidies creates benefits for health, the climate, biodiversity loss, and antibiotic resistance – and clear wins for society. Finance ministers have some way to go to quantify and integrate these costs and savings into their expenditures more completely, but new data is becoming available all the time. The benefits also link to food security – as well as social stability. Food affordability and inflationary pressure have led to civil unrest in many places – impacting economic growth and the trajectory for price expectations – further supporting the case for a more sustainable food system.

There are clearly opportunities for institutional investors and policymakers to work together on the agenda of repurposing agricultural support and on agricultural policies. This can inform win-win policies that can better support human health, help stabilize the climate, as well as enhance businesses’ productivity and preserve the ecosystems on which food production depends. 

This article was written by Helena Wright, Policy Director at the FAIRR Initiative, Hamid Hamirani, Senior Investment Advisor at Food Systems for the Future, and Rajel Khambhaita, Senior Manager at the FAIRR Initiativeas part of the work taken forward by the GFFN Public Finance Catalyst Group. Click here to see the original post.