1. Food and agriculture also have positive externalities. While the focus of the workshop was on negative externalities, that is, costs, Smith thought it was important to keep in mind that food and agriculture also yield many benefits that are not reflected in the market price of food.


Smith fielded several questions on externalities. An audience member asked whether some of the externalities that she mentioned, such as the health costs associated with pesticide exposure, are in fact reflected in the price of food given that organic foods, for example, have higher prices. Smith explained that the higher price for organic foods typically reflects the cost to producers (e.g., the higher cost of allowable practices to control pests).

There was a question about whether the costs of diet-related diseases, such as obesity, can be considered externalities. Smith responded that while those costs are external costs to food, society might be paying for them through health insurance premiums, personal expenses for health and well-being, or other means. An audience member added that the Danish “fat tax” is one way to internalize the external cost of obesity. Smith agreed that taxes can be used to internalize external costs, but cautioned that a food tax typically has to be very high in order to change consumer behavior enough to affect the targeted health outcome.

Another question was about how energy costs should be factored into an analysis of the cost of food given that the actual cost of energy in the United States does not reflect the “true” cost of energy. Smith replied that the actual price of energy used during food production is in fact reflected in the cost of that food. While the discrepancy between the actual and true cost of energy may represent an externality, whether to include that externality in an analysis of the cost of food depends on how far back one wants to go in the life cycle and how many intersecting life cycles one wants to consider. Smith’s response led into some further discussion about where to draw the line when thinking about externalities. For example, another audience member wondered whether the profits that other people earn from obesity (e.g., profits from medications prescribed for obesity-related conditions) would be accounted for in an analysis of the external costs of food. Smith replied that it is more manageable to analyze only direct externalities. She said, “Because everything is related to everything else, there are indirect externalities. You can go as far as you want…. It gets harder and harder the farther out you go.”

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