Calculation of external climate costs for food highlights inadequate pricing of animal products

The agricultural sector is a significant global greenhouse gas (GHG) emitter. Current market prices for food do not reflect the social and environmental costs associated with GHG emissions from agriculture, leading to market distortions and welfare losses. The UN's polluter-pays principle suggests that these external costs should be incorporated into food prices or addressed through other policy interventions. While previous research has assessed agricultural external costs, it lacked differentiation between farming systems and food categories. This study addresses this gap by developing a method for quantifying and monetizing GHG emissions from various food categories and farming practices in Germany. The framework presented is applicable to other regions and externalities, ensuring its broad applicability and transferability. The life-cycle assessment (LCA) methodology is used to examine the environmental impacts throughout a product's entire lifecycle, from production to disposal, including both direct and indirect emissions. The study considers not only CO2 but also CO2 equivalents (methane, CH4; nitrous oxide, N2O), which significantly contribute to climate effects, particularly in animal-based food production. The ultimate goal is to calculate the monetary valuation of carbon footprints for various food products, highlighting the difference between current producer prices and true costs.

Existing literature has explored agricultural externalities, with studies quantifying environmental impacts at the societal level for regions like the UK, USA, and Germany. However, these top-down approaches lacked the link between specific emission values and their associated costs. Bottom-up approaches have been developed for monetizing externalities, but comprehensive assessments differentiating between food categories and farming systems are still lacking. Studies quantifying food-category-specific GHG emissions and the differences between conventional and organic practices exist, but a comprehensive connection between emission quantification and monetization across various food categories and farming systems has remained absent. Discrepancies exist in monetizing agricultural greenhouse gases and estimating greenhouse gas costs, with varying prices per tonne of emission reported in different studies and varying suggestions for the damage costs of GHG emissions from different organizations. Despite this, a scientific consensus has emerged regarding an adequate cost rate for GHG-related damage, although the price is expected to rise in the future.

The study employs a two-step method: quantification and monetization of externalities from agricultural GHG emissions. **Quantification:** The quantification step uses the Global Emission Model of Integrated Systems (GEMIS) tool, a material-flow analysis tool, to determine food-specific GHG emissions (carbon footprints) from cradle to farmgate. GEMIS data primarily focuses on conventional farming, so the researchers calculated the difference in GHG emissions between conventional and organic systems using a meta-analytical approach. They reviewed 15 studies comparing GHG emissions between conventional and organic farming systems, weighting them based on publication year, citations per year, and journal ranking to account for study quality. Land-use change (LUC) emissions were calculated separately for conventional production, primarily focusing on soymeal imports, using a method by Ponsioen and Blonk. The emission data was then aggregated to broad (plant-based, animal-based, dairy) and narrower food categories using German production data from the German Federal Office of Statistics and AMI. For organic production, emission data was derived by multiplying the conventional emission data by the meta-analytically determined emission differences between conventional and organic farming systems. The yield gap between organic and conventional farming was factored into these calculations. **Monetization:** The monetization step involved converting emission data into monetary values using a cost rate of €180 per tonne of CO2 equivalents, as recommended by the German Federal Environmental Agency (UBA). Producer prices for each food category were calculated using total producer proceeds and production quantity data from the German Federal Office of Statistics and AMI. The percentage price increase necessary to internalize GHG-related externalities was then determined by calculating the ratio of external costs to producer prices for each food category. The reference year for this analysis was 2016.

The results show that animal-based products have the highest GHG emissions and external costs (€2.41/kg), followed by dairy and plant-based products. Within the animal-based category, ruminants had the highest emissions, while legumes had the lowest among plant-based products. The inclusion of LUC emissions significantly increased the external costs of animal-based products, particularly for conventional production. Organic farming generally resulted in lower emissions compared to conventional farming for plant-based and dairy products but not always for animal-based products. The choice of farming system had a stronger effect on percentage price increases due to the difference in producer prices between organic and conventional food. Conventional animal products required the highest percentage price increase (146%), while organic plant-based products required the lowest (6%). The high emissions associated with animal-based products were linked to inefficient feed conversion ratios and emissions from animal waste and digestion. Secondary animal products (milk, eggs) had lower emissions than meat due to higher production volumes per animal. The lower emissions in organic farming systems were attributed to restrictions on mineral nitrogen fertilizers and the use of locally sourced, organic feed, reducing direct and indirect emissions. However, the higher land use in organic animal farming can sometimes offset the emission reductions from other practices, leading to higher emissions in some cases. The analysis highlights the disproportionately high external costs associated with animal products compared to plant-based products, suggesting a shift in consumption patterns would be beneficial for climate change mitigation.

The findings underscore the significant contribution of animal-based products, especially meat, to overall GHG emissions in the German agricultural sector. These high emissions are due to inefficient feed conversion ratios and direct emissions from animals. The study shows that organic farming generally leads to lower emissions compared to conventional farming, mainly due to restrictions on mineral nitrogen fertilizers and local sourcing of feed. However, the higher land use requirements and lower productivity in organic animal farming can sometimes outweigh these benefits. The paper addresses concerns about a complete transition to organic farming by highlighting that appropriate pricing of food would increase the competitiveness of organic products, leading to a shift in consumer demand. Such a shift, coupled with the decrease in demand for high-emission animal products, could potentially free land currently used for feed production, allowing for more sustainable expansion of organic agriculture. The internalization of external costs would also encourage reduced food waste, improving overall efficiency and environmental burden. While price surcharges might be seen as a burden on consumers, it is important to note that society already bears these costs indirectly through, for example, emergency aid for weather events. Internalizing costs enables fairer distribution of these burdens, encouraging sustainable consumption patterns.

The study presents a method for calculating product-specific external costs of GHG emissions from food production. This method is widely applicable to other regions and externalities. The findings highlight the disproportionately high climate costs associated with animal products, underscoring the need for policy interventions that reflect the true cost of food. Further research should explore externalities beyond GHG emissions and address LUC emissions on a more refined product-specific level, including post-farmgate activities. Internalizing external costs is a significant step toward reducing market imperfections and enhancing societal welfare.

The study focuses solely on the German context, limiting the generalizability of the findings to other regions with different agricultural practices and regulations. The analysis considers the cradle-to-farmgate stage of production only, excluding processing and logistics. The meta-analysis of emission differences between organic and conventional farming relies on a limited number of studies, and the weighting scheme introduces potential biases. The study also uses a fixed cost rate for CO2 equivalents; future studies could explore the impact of varying cost rates. Finally, the study does not account for the potential changes in the productivity gap over time, which could influence the overall assessment.