Issued by Boston Consulting Group
Agriculture contributed around 1.2% to the EU's GDP in 2017 and employed around 10 million people in the region in 2016.
December 13, 2019 – Across the world, agriculture plays a crucial role not only in supplying food, but in shaping rural areas, preserving landscapes and cultural practices and heritage. At the same time, however, the industry is facing enormous pressure: Society has grown accustomed to low food prices, while equally expecting agriculture’s environmental footprint to be as small as possible – with reduced greenhouse gas emissions and protection of biodiversity. For instance, EU’s agricultural sector accounts for around 10% of the EU’s total greenhouse gas emissions, while contributing around 1.2% to the EU's GDP and employing around 10 million people. These externalities and others including air, water and soil pollutant emissions or loss of biodiversity cause external costs that are borne by society. They are not included in the economic decisions of the farmers and also not reflected in food prices.
In its latest report, Boston Consulting Group has analyzed the external costs of agriculture using agriculture in Germany as an example. The calculations include five environmental categories – climate, air, water, soil and livestock farming. In addition, the report also considers the loss of ecosystem services (including biodiversity loss). Whilst assessing the external costs remains complex, particularly regarding biodiversity, there is no doubt that we need to find solutions in reducing external effects of agricultural practices today. The exact impacts might vary around the world, but external effects occur everywhere and better ways to reduce those are required globally. In the case of Germany, the report found that the external costs currently exceed the actual GDP contribution. This will likely not look very different in other European countries. Using the example of Germany, the assessment shows that Germany’s external costs could be reduced by around 30% through selected and in some cases relatively low-threshold sustainable agriculture methods. These methods are of course not only applicable in Germany but in many other agricultural systems.
BCG’s report also shows that sustainable agriculture is only the first step toward reducing the external costs. Any further reduction in external costs would require a veritable transformation of society, with consumers changing their behavior to take into account natural conditions and restrictions.
At present, it is most often farmers who find themselves pilloried. However, society as a whole, politicians, food retailers, and also industry all play a decisive part in shaping the agricultural system. It is therefore crucial that all the players are included in the search for solutions; the path toward a more sustainable future must be trod together. The report offers an overview of options available for key stakeholders as well as four thought experiments to spark the discussion on what kind of agricultural system we need and want. These thought experiments do not nearly cover all possible paths into the future, but they show that lower meat consumption, fewer meat exports, no food waste and an agriculture which is optimized for domestic consumption are effective levers to lower the external costs of agriculture.
The results of this report are equally relevant for discussion in other European countries and beyond. After all, other countries have similar tasks ahead of them. Therefore, the report aims to foster a broader societal discussion on how we can secure affordable, healthy and safe food in the future – yet creating awareness of the actual costs of production.
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact.
To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive.
For more information, please visit bcg.com.