Food System Sustainability Workshops
Rod MacRae
How can we address climate change and keep food affordable for low income people?
Context
A common view is that climate change mitigation and adaptation will make food more expensive as a result of increased costs and reduce productivity, with associated changes in supply dynamics that ultimately increase food prices for consumers. As discussed in paper 1, it is not necessarily the case that production will be significantly reduced and more expensive. But there are many additional considerations when examining food affordability.
The average Canadian is spending about 10% of household income on food in the home (AAFC, 2012). But for low income people, the average is at least double that (AAFC, 2015) and typically this means foregoing many kinds of foods. As many of the most nutritious items are also the most expensive (Drewnowski and Barratt-Fornell, 2004), this has significant health implications. At least 10% of Canadians are not currently able to afford a nourishing diet. Many are on social assistance, but a significant percentage is the working poor, with insufficient income from waged work (Dietitians of Canada, 2016). Obviously, wider angle changes to employment, labour force development, wage structures and social assistance will have a large impact on the ability of consumers to afford a nourishing diet, but what role do food prices play?
Challenges
If we look at the biggest contributors to current food prices, the farmgate price is not the main consumer cost, in contrast to what is typically portrayed in media reports. Although food costs are one of the most significant expenses for many food processing, distribution and retail firms, a wider angle view from the consumer level reveals that farm prices have for many years been one of the least significant contributors to consumer prices, probably around 15%. Roughly 85% of the consumer price is going to all the actors between the farm and the eater (USDA, 2003). The biggest contributor is the labour bill, associated with the complex supply chains we have created. By some estimates, the average food item changes hands 30 times between farm and eater and all those handlers have to be paid (Guptil and Wilkins, 2002). The packaging, marketing and logistics bill is also significant, associated with efforts to convince eaters to buy the product. For imported foods, particularly fruit and vegetables, beverages and many processed goods, the value of the dollar has a significant impact.
And how much of this expenditure is actually essential? For basic foods, much of it is. Fruits and vegetables have to be washed and graded, though often the packaging strategy is more about branding and managing logistics than food safety. Eggs have to be graded and packaged, milk has to be processed and put in cartons or bottled. Grains have to be turned into flours and baked goods (though many on the market have limited nutritional value). Oilseeds have to be cleaned, pressed and the resulting oil bottled. But, many other types of secondary and tertiary processing result in greater “value-added” for the manufacturer but lower value to the consumer, particularly significant nutrient losses. Many products follow convoluted paths from production to consumption, in part because of convenient and coercive economic relations or the absence of proximate infrastructure and services. Many firms have additional costs, associated with these complex supply chains, that they pass on to consumers.
Corporate concentration also has a significant negative impact on the Canadian food system. The economic debate is about when consolidation of economic power moves from being efficient to uncompetitive. Typically, the line is crossed at the 40-50% CR4 level (the level of concentration of the 4 largest firms in a sector). Much of the Canadian food system exhibits concentration beyond this level, particularly retailing, some manufacturing and some farm input sectors (AAFC, 2012, 2013, 2015). The classic implications are lower prices for farmers and higher prices for consumers, though in Canada the entry of low cost general merchandisers has somewhat constrained retail price increases. Many retail firms pressure farmers and food manufacturers to reduce their prices. Scale efficiencies, long promoted as the rationale for consolidation, do not necessarily result in improved performance and lower costs (the Sobey’s acquisition of Safeway a recent example, in that the complications of merging two organizations were accentuated by scale and organizational culture). As many economists have noted, scale efficiency does not necessarily increase in a linear fashion with size. At a certain scale, an operation can become less efficient with higher costs. While the Canadian food system often requires a certain scale to bring down unit costs and make things more affordable for consumers, there are significant questions about how much of the system has surpassed that threshold, resulting in higher consumer prices than would occur in a more scale appropriate and competitive system.
Another consideration is externalized costs. Because of widespread market failure in the Canadian food system, many real costs are externalized to the environment, to social and community dislocations, and to reduced population health. In this sense, consumers do not directly pay the real costs of food, as some costs are never paid, or they are paid by private insurers, NGOs, environmental protection agencies, and the health care system (Tegtmeier and Duffy, 2004). Food producers, manufacturers and distributors create or distribute products that contribute significantly to these externalities without having those costs appear on their bottom lines. There are small examples of what happens when regulatory changes address some of these externalized costs. When the federal government changed the labeling rules to require trans fat labeling, part of their effort to address heart health problems linked to trans fat consumption, many companies reformulated their recipes to eliminate trans fats from the product rather than keep the old recipe and add trans fats to the label. For many firms, such changes were made without increasing the consumer price of the goods. In a different setting, we know that farmers respond to input price signals, reducing use of fertilizers when prices are high. If regulatory changes require synthetic fertilizer prices to reflect their true costs, farmers are likely to move more in the direction of cropping systems with less reliance on fertilizers and more GHG mitigation potential (see paper 1). Although not well modelled in Canada, internalizing externalized costs can incentivize GHG mitigation.
Food waste is another major cost to the Canadian food system. Some 44% of what is produced on the farm is wasted before eaten, with roughly 2/3 of that avoidable edible waste. Not only is the food wasted, but also all the resources and energy expended in creating it. Undue attention is given to the consumer level because half of all waste occurs in the home, but we confuse where the waste happens with the forces that create it. In fact, much of food waste is linked to the behaviours of food retailers and the up and downstream consequences of those behaviours. The presumption is that firms are acting rationally by throwing things out rather than improving the resource efficiencies of their operations. To some extent this is true, since the real costs of waste are not charged in disposal services and landfill fees (another externalized cost). Firms that have streamlined their operations to reduce waste have usually found significant cost savings which could potentially be passed on to consumers, though with high degrees of corporate concentration, this does not necessarily happen (MacRae et al., 2016).
Opportunities
So, keeping food costs down is feasible with shifts to multiple variables: less complex supply chains, with shortened distances and more proximate facilities, combined with lower food waste, shifts in resource price signals, and reduced concentration and scale. Combined, they can permit the food system to serve well low income communities. Such processes can also be facilitated by dietary shifts which are the subject of Paper 3.
Citations
AAFC, 2012, 2013, 2015. An Overview of the Agriculture and Agri-food System. AAFC, Ottawa.
Dietitians of Canada. 2016. Prevalence, Severity and Impact of Household Food Insecurity:
A Serious Public Health Issue. Background Paper, Position Statement and Recommendations Dietitians of Canada, Ottawa.
Guptill, A. and J. L. Wilkins. 2002. Buying into the food system: Trends in food retailing in the US and implications for local foods. Agriculture and Human Values 19: 39-51.
MacRae, R.J., A. Siu, M. Kohn, D. McCallum, M. Matsubuchi-Shaw, T. Hernandez Cervantes and D. Perreault. 2016. Doing better with what we’ve got: strategies to reduce food and resource waste in the Canadian food system. Canadian Food Studies 3(2):145-215.
Tegtmeier, E.M. and Duffy, M.D. 2004. External costs of agricultural production in the United States. International Journal of Agricultural Sustainability 2:1-20
USDA. 2003. Handbook of Agriculture 2002. USDA, Washington
