Negative externalities: What's the true price of beef and cheese?

Meat and dairy production have negative effects on the environment, on our health and on animal welfare. One way to economically quantify these negative effects is with the concept of negative externality. A negative externality is a cost that affects a third party who did not choose to incur the cost. This usually happens when the market price of a good does not reflect the true cost.

Animal-based food production has an array of negative externalities. Therefore, the true price of buying cheese or beef should be significantly higher. Otherwise, our society incurs those costs in form of environmental damage, health issues and animal welfare problems.

While it's pretty clear what the negative externalities are, it's very hard to quantify them. Let's see what they are and why they are hard to quantify.

Negative externalities from meat and dairy

Environment

Producing meat and dairy has a lot of different negative effects on our environment. Livestock such as cows emit greenhouse gases while they process the food they eat. This is mostly in the form of methane. We use half of the habitable land that's available for agriculture, and 77% of that is either used by livestock directly or to grow crops for them. Agriculture also uses a lot of water, as 70% of the global water is used for it. Furthemore, livestock produce a lot of feces, and that, together with the use of fertilizers, pollute our waters (called eutrophication). Finally livestock agriculture is the leading cause of biodiversity loss and the number one reason for endangering wildlife [1].

What are the environmental impcats of food and agriculture?

Health

There is an increasing amount of research showing that proteins from plants are healthier than proteins from animals. For example, eating more plant proteins and less animal proteins leads to better cardiovascular health [2].

The use of antibiotics for animals is the leading cause for resistance to antibiotics in humans. This means that we need to find new medicine or ways to treat diseases that we successfully treat today [3]. In the US, 80% of all antibiotics are used for livestock [4].

A current example of negative health externality from eating animal-based foods is COVID-19. It's most likely that the virus spread to humans from bats [5]. Obviosuly, bats are not the main driver of livestock agriculture across the world. However, there are enough other examples that might hit closer to home. For example, you might have heard of the mad cow disease or the swine flu [6][7]. Or what about getting salmonellosis from eating pouletry, from which around 280,000 people died worldwide in 2015 [8]?

Animal welfare

In the US, every year 9.8 billion animals are raised and killed for meat and dairy production [9]. While there exist some farms where animals are treated well, the reality is that most of the dairy and meat is produced in highly industrialized animal factories. Animals are mostly kept indoors, don't have enough space and are not treated well. Even in the case of "good" farms, animals are in the end killed and babies are separated from their mothers. This can't be right.

One might argue that bad animal welfare doesn't have a negative impact on us as a society, and therefore no negative externality. One would be wrong, though. The market and studies have shown that people are willing to pay more for meat and dairy that comes from animals that had better living conditions. This suggests that bad animal welfare takes some kind of toll on people and they are ready to pay more to make it go away.

Quantifying the negative externalities

In theory, this sounds easy. Just add up the costs from the list above. In reality, all we can do is take an educated guess. Let's look at some of the research that has been done in this area.

One study that looked at pork in The Netherlands estimated that the price of pork needs to be 31% higher to reflect its true price. The authors found that pork needs to be € 2.06 more expensive per kilogramm, and break it down as follows:

I think the overall cost is in the ballpark, but they underestimate the costs of climate change and overestimate the cost of animal welfare (especially at the upper bound there) [10].

Another study looked at the negative externalities in New Zealand's dairy industry and found that the incurred costs are higher than the revenues generated from the export of it [11].

One study that looked only at the global environmental and health costs incurred by eating meat and dairy, estimating them between $ 1 to 31 trillion per year. This is a wide range, and is the result of different methods and scenarios they used to calculate the costs [12].

While it's hard to predict the exact costs, it's clear that the negative externalities of meat and dairy are not included in their price.

Solutions to correct the negative externalities

A common way of addressing negative externalities is by levying a tax on the product or service. For example, taxes make up 42.5% of the price of a pack of cigarettes in the US [13]. Therefore, less people are willing to buy cigarettes and this is overall better for society because there are less public health costs.

A tax on meat and dairy would increase its price and most likely lead to less consumption and production. In fact, many countries already have a carbon tax on fossil fuels, but not on animal-based foods [14]. Unlike a pure carbon tax, a tax on meat and dairy would not only include GHG emissions, but also incorporate the other negative externalities discussed earlier.

Such a tax has been proposed by some researchers. As mentioned above, one study found that the tax would need to increase the price of pork in The Netherlands by 31% to account for all the costs [10].

In reality, government are doing the opposite. They are subsidizing livestock farmers. The European Union pays around $ 30 billion dollars in direct subsidies to farmers, that's nearly 20% of their whole budget [15].

Negative externalities can also be corrected by shifting demand. We need more excellent plant-based alternatives to meat, milk and cheese. It's great to see that companies like Impossible Foods and Beyond Meat are successful and available at an increasing number of stores and restaurants. But we need more. We need thousands of food companies that are committed to shifting our population to a plant-based diet.

So, what can you do? Vote for politicians who understand these issues and are committed to solving them. Eat less meat and dairy, instead eat meat and cheese made directly from plants. And, tell your friends and family about the this. Most people don't realize how their diet relates to climate change.

References

1: Environmental impacts of food production (Our World in Data)
2: Association of Animal and Plant Protein Intake With All-Cause and Cause-Specific Mortality (JAMA Internal Medicine)
3: Reducing antimicrobial use in food animals (Science)
4: Are antibiotics turning livestock into superbug factories? (ScienceMag)
5: The proximal origin of SARS-CoV-2 (Nat Med)
6: https://en.wikipedia.org/wiki/Bovine_spongiform_encephalopathy
7: https://en.wikipedia.org/wiki/Swine_influenza
8: https://en.wikipedia.org/wiki/Salmonellosis
9: Improving the Lives of Farm Animals (The Humane Society)
10: The true price of meat (Institute for Environmental Studies,VU University)
11: The true cost of milk: Environmental deterioration vs. profit in the New Zealand dairy industry
12: Some External Costs of Dairy Farming in Canterbury
13: https://en.wikipedia.org/wiki/Cigarette_taxes_in_the_United_States
14: https://en.wikipedia.org/wiki/Carbon_tax
15: EU ignoring climate crisis with livestock farm subsidies, campaigners warn (The Guardian)

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