Most environmental impacts of producing food are not included in the prices paid to farmers and then passed on to buyers. Water is a good case in point. Table II 3-1 shows the amount of water it takes to grow raw materials used as ingredients to manufacture four common products. The amount the farmer was paid was insufficient to pay a decent price for water, much less all the other expenses farmers have in producing any of the crops.

Table II 3-1 Externalities, Products and Prices—The Case of Water

Raw Material Input Water to Produce Input Farm Gate Price
1 cotton T-shirt 4 oz. ginned 500-2,000 liters US$0.20 (Australia)
1 Liter of soda 6 T. sugar 175-250 liters US$0.006 (Brazil)
1 oz. slice of cheese 6 oz. milk 40 liters US$0.03 (USA)
1 double-quarter pounder 8 oz. hamburger 3,000-15,000 liters US$0.26 (USA)

SOURCE: Clay, J. W. 2009. The Political Economy of Water and Agriculture. pp. 29-37 in Water and Agriculture: Implications for Development and Growth. Washington, DC: Center for Strategic and International Studies.

We cannot measure every environmental externality. We need to focus on those that are the most critical. It would also be strategic to focus on those that already have markets. We should use markets to incorporate those values into pricing. For example, we have carbon markets, so ideally we could develop markets to pay farmers for their carbon along with other products they produce. This carbon could include what is sequestered as well as what is avoided. The unit would be in CO2e (carbon dioxide equivalent) emissions. As water becomes more scarce, water markets are beginning to develop. And as farmers are confronted with higher prices for water, they use it more efficiently.

Farmers, too, are beginning to find that addressing environmental externalities can make them more productive and more profitable. For example, farmers who maintain or improve soil quality have to buy fewer soil amendments. Farmers in Brazil and Indonesia have found that buying degraded land and rehabilitating it for soy and oil palm is more profitable than is clearing forests or other natural habitat. In fact, in Brazilian farmers make more money growing soil than growing soy, when one takes into account the increased value of land from increasing soil carbon (Landers, 2007). In fact, for every 0.5 percent soil carbon they introduce into the soil, they reduce their input use, on average, by about 10 percent. In another case, Central American coffee producers have found that they can increase coffee production by up to 30 percent if they maintain sufficient habitat to accommodate pollinators. We live on a finite planet. We have limited resources, but both population and per capita consumption are increasing. We need to protect the planet’s resources for future generations. There is no such thing as a free lunch. Addressing environmental externalities will increase the price of food. However, eroding our resource base will also increase the cost of producing food.

As the Oromo of Ethiopia say, “You can’t wake a person who’s pretending to sleep.” We need to wake up to the fact that we live on a finite planet.

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