Farmers are getting a smaller share of the money consumers pay for food, as today’s food systems increasingly allocate costs to aspects like processing, transportation, and marketing. A recent study from the Potsdam Institute for Climate Impact Research (PIK) indicates that this trend influences how food prices react to agricultural climate policies. In wealthier nations, value-added components help stabilize consumer price fluctuations, whereas lower-income nations, where farming expenses are more significant, find it tougher to cope with rising food prices brought about by climate regulations.
“In affluent nations such as the U.S. and Germany, farmers receive less than 25% of the total food expenditure, in contrast to over 70% in Sub-Saharan Africa, where farming costs constitute a bigger share of food pricing,” comments David Meng-Chuen Chen, a scientist at PIK and the lead author of the study published in Nature Food. “This disparity highlights the different ways food systems operate globally.” The researchers forecast that as economies grow and food systems become more industrialized, farmers will continue to receive a reduced portion of what consumers spend on food, referred to as the ‘farm share’ of the food dollar.
“In wealthy countries, we are increasingly purchasing processed items like bread, cheese, or candy, where the cost of raw ingredients is merely a small part of the overall price,” elaborates Benjamin Bodirsky, a scientist at PIK and co-author of the study. “The bulk of the price is attributed to processing, retail, marketing, and transportation. Consequently, consumers are generally less affected by fluctuations in farm prices due to climate policies such as pollution taxes or limitations on land use, but this also highlights the minimal earnings for farmers.”
Analyzing the entire food value chain to understand climate policy effects
To reach these insights, the research team employed statistical and process-based modeling methods to evaluate food price elements across 136 countries and 11 food categories. They looked at prices of food consumed both at home and in dining establishments. “Many models only focus on farm costs, but we traced the entire journey to the grocery store and even to the restaurant or cafeteria,” notes Chen. By examining the complete food value chain, the researchers glean new information about the impact of greenhouse gas reduction policies on consumers: “Concerns about increasing food prices often arise from climate policies aimed at cutting emissions in agriculture. However, our analysis indicates that the long supply chains present in modern food systems cushion consumer prices against significant spikes, particularly in wealthier nations,” Chen explains.
How climate policies affect consumers in affluent versus poor countries
“Even with extremely ambitious climate policies that impose stringent greenhouse gas pricing on agricultural activities, the effect on consumer prices by 2050 is predicted to be significantly less in wealthy nations,” Bodirsky states. Consumer food prices in richer countries could increase by 1.25 times due to climate policies, even when producer prices soar to 2.73 times higher by 2050. Conversely, low-income nations are projected to see consumer food prices rise by a factor of 2.45 under ambitious climate policies by 2050, alongside a 3.3-fold increase in producer prices. Although consumer price hikes are less severe than those faced by farmers, it would still complicate access to sufficient and healthy food for those in lower-income countries.
Despite inflation in food prices, poor consumers might not suffer as much from climate mitigation policies. A prior study by PIK (Soergel et al 2021) demonstrated that using the proceeds from carbon pricing to support low-income families could leave these households in a better financial position, even amid food price inflation, because of their augmented incomes.
“While climate policies may pose challenges for consumers, farmers, and food producers in the short run, they are crucial for protecting agriculture and food systems in the long term,” says Hermann Lotze-Campen, Head of the Climate Resilience Research Department at PIK and a study co-author. “Without robust climate policies and emission reductions, we risk facing larger impacts from unchecked climate change, such as crop failures and supply chain disruptions, potentially driving food prices even higher. Climate policies should be structured to incorporate strategies that support producers and consumers through this transition, including equitable carbon pricing, financial assistance for vulnerable communities, and investments in sustainable agricultural practices.”
