The food system in Canada experiences widespread market failure.
1) Our present economic system only measures a limited portion of human activity. There are limited attempts to effectively measure, for example, household activity or voluntary contributions to a community.
2) Private firms have externalized many of the costs of environmental degradation, social dislocation, and non-renewable resource consumption (Pretty et al., 2000; Tegtmeier and Duffy, 2004), as part of the search for lower costs. Two recent international studies have concluded that the external costs of the dominant food system (environmental, health, economic and social dislocation) exceed consumer expenditures on food by 3 times in the US (Rockefeller Foundation, 2021) and 2 times globally (Hendriks et al. 2021). A third study for the FAO concludes that total externalized and hidden costs for the planet are in the 11-15 trillion USD (2020) range (Lord, 2023). In other words, the food system creates problems that cost us significantly more than what we spend to feed ourselves. Estimates of the costs of such externalities in the Canadian food system are limited. Skolrud et al. (2020), using data from the AAFC Agri-environmental Indicators reports, conservatively estimated the gross externalities of Prairie and Central Canadian agriculture in 2011 at $8.8 billion, with net costs following estimates of positive externalities at $4.3 billion. Conventional theory holds, however, that internalizing these external costs places a firm at a competitive disadvantage unless everyone does it.
3) The new approaches in economics reject the assumption that price is an adequate measure of value, and that market activity is only motivated by narrow self-interest.
4) Neo-classical economics suggests that when the relative wage rate rises, firms should substitute capital for labour until their relative internal costs just balance their relative marginal productivities. This occurs, however, without concern for the short-run external unemployment costs to the community. The new approach is to actively promote employment possibilities and to keep capital and operating costs low. It makes a clear distinction between human and material inputs, avoiding the social cost of attempting to economise on labour.
5) Conventional economic analysis tends to favour centralized production and distribution systems because of the perceived existence of economies of scale. The case for scale efficiency is disputed amongst neo-classical economists, and has even fewer supporters among those with an ecological analysis. The narrow concept used in the analysis of scale efficiency is inadequate because of the neglect of environmental and social costs.
6) Markets are not competitive in any classical sense. The preconditions for a truly free market do not exist in the Canadian food system. The reasons include corporate concentration, distorted price signals, and widespread consumer deskilling and misinformation.
