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FIGURE 2-1 The industry group food dollar series illustrates the distribution of the food dollar among 10 food supply chain industry groups, demonstrating that the cost of food equals the sum of value added by all supply chain industry groups.

NOTE: “Other” includes two industry groups: advertising and legal & accounting.

SOURCE: USDA/ERS, 2010.

and other crops). Also underlying these longer term trends in food prices are stagnating investments in agricultural research and development, which slow growth in agricultural productivity.

THE CONCEPT OF EXTERNALITIES: COSTS AND BENEFITS NOT REFLECTED IN MARKET PRICES

Costs not included in the market price of food are called external costs, or externalities. The technical definition of an externality, according to Smith, is “a cost or benefit not transmitted through prices that is incurred by a party who did not agree to the action causing the cost or benefit.” General types of externalities associated with food include ecological effects, environmental quality, GHG emissions, animal welfare, social costs associated with labor, and public health effects.

These costs can occur anywhere in the food life cycle, from animal feed crop production through food waste disposal. For an example at the input stage, Smith mentioned potential ecological costs to using genetically engineered crop seeds for animal feed. They include the evolution of newer, more vigorous pests; harm to nontarget species (e.g., butterflies); disruption of biotic communities; and irreparable loss of species diversity or genetic diversity within a species (Snow et al., 2005). The actual crop and animal



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