Main finds of Deliverable D2.1 "Policy instruments to internalize externalities"

Introduction

The role of the food sector in ensuring both human and planetary health has been widely recognized globally, including in the European Union (EU), over the past decades (EPA, 2023; FAO, 2023). However, food and agricultural systems generate environmental, social, health, and economic externalities. Given the complexity of these systems and their far-reaching impacts, public policy plays a crucial role in shaping their trajectory towards sustainability development (Brundtland, 1987), in line with the 2030 Agenda for Sustainable Development.

This study aims to give an overview of main public policies and economic instruments that the EU and four national governments – France, Romania, Spain, and Sweden – have considered to internalize environmental and social externalities in the food market since 2000. We define internalization as any policy-induced change in costs and/or final product prices.

Methodology

Task 2.1 of the FOODCoST project involves a four-step methodological process. First, we collected the main public policies implemented in the EU and the four countries. Second, based on a literature review, we identified their intended and unintended impacts on environmental, social, health, and economic externalities, and described the theoretical economic mechanisms of internalization. Third, we provided the methodological approach and descriptive results from the mapping of public policies, pinpointing evidence gaps and recommending policy improvements in the food sector.

Economic instruments

We consider two broad sets of instruments with the potential to internalize environmental and social externalities are considered:
• Administrative-based instruments, including public procurement, regulation, and other instruments such as coexistence measures, property rights, liability and compensation schemes, tradable permits and auctions, and quotas.
• Market-based instruments, including taxes and charges, subsidies, and certification and labelling instruments.

Results

Overall, this review reveals a clear gap in the literature on the causal effects of these policies. In particular, the current state of the literature provides only a fragmented picture of the policy effects on costs, prices and externalities and makes it difficult to draw definitive conclusions on the effectiveness of the policy instruments considered since 2000. Moreover, the non-exhaustive nature of the policy framework at EU, national and regional levels also makes it difficult to draw a global picture of the gaps in policy interventions across the EU. While Task 2.1 does not attempt to fill this gap, we delve into the economic mechanisms of these policies in order to better explain their potential impact.

New ideas

Based on our review, we suggested six policy-oriented ideas to better internalize the externalities of the food system and two institutional priorities to strengthen the EU policy framework for a sustainable food ecosystem.

Policy-oriented new ideas

1. Create a harmonized seafood sustainability label at the EU level
A mandatory, harmonized seafood sustainability label could inform consumption and production choices and promote best sustainable practices in the fisheries sector. It would increase transparency and traceability along the food chain, helping consumers make informed choices and encouraging producers to adopt sustainable practices.

2. Implement a harmonized FSA Nutritional Score for consumer guidance and taxation policy
Adopting the Food Standards Agency (FSA) nutritional scoring system (like Nutri-Score in France) across the EU could guide consumers toward healthier choices and serve as a metric for potential fiscal incentives, such as taxation of unhealthy foods. This would encourage both consumers and producers to opt for healthier options.

3. Create a mandatory labelling scheme on animal welfare
A harmonized, comprehensive and mandatory animal welfare labelling scheme would address growing concerns about inhumane treatment in the livestock sector. It would inform consumers, allowing them to make ethical choices with confidence, and reward producers who prioritize animal welfare, promoting a more humane and sustainable supply chain.

4. Balance between animal and plant-based protein diets
Promoting plant-based diets could contribute to climate change mitigation, biodiversity conservation and improved human health. A mixed policy framework is needed, including fiscal measures (e.g., taxes on red and processed meat), public procurement that promotes plant-based diets, and educational campaigns to help consumers make dietary changes.

5. Strengthen implementation of bans on the most harmful pesticides and introduce fiscal measures on others
To achieve a reduction in pesticide use, regulations should be coupled with an EU-wide tax system on less harmful pesticides. The revenue could be used to support sustainable farming practices, compensate farmers and fund research into alternatives to pesticides.

6. Balance productivity goals with sustainable water management
Implementing fiscal measures for excessive water use or pollution and encouraging the adoption of water-saving technologies can help balance agricultural productivity with sustainable water management. A multi-dimensional approach that combines economic incentives with technological advances is essential.

Institutional priorities

7. Create a harmonized EU framework
There is a need for a harmonized EU framework to address the fragmentation and slow adaptability of current food systems. Persistent barriers stem from the lack of an EU-wide policy framework, which is not sufficiently compensated by national governments.

8. Strengthen research on the evaluation of public policies in the food system
Comprehensive research is essential to quantify the causal impact of policy instruments on externalities. There is a significant gap in interdisciplinary research and a lack of policy evaluation along the food value chain. Actions include establishing ex ante and ex post evaluations, ensuring access to data, legally requiring regular updates, and strengthening interdisciplinary collaborations.