Building H #94: How Much Should Food Cost?

Photo by Jonathan Mast on Unsplash

Late last week the New York Times published a story about a model project to conserve water in one of California’s prized agricultural regions. In Some California Farmers Pay Water Fee to Protect Aquifers. Does It Work?, Coral Davenport reports on the case of Pajaro Valley, home to growers of strawberries, raspberries, and blackberries, not to mention brussels sprouts and several varieties of kale. These growers, unlike just about any others, have to pay for irrigating their crops through the pumping of groundwater. This system of pricing water has survived a few political challenges over the years, resulted in greater conservation of the region’s groundwater and, ultimately, has even won over the growers. In short, to answer the headline’s question, it works.

So what does this story have to do with health, and with our concerns at Building H? First, there’s a direct link because it’s about the production of food, which is, of course, a major input to health; and second, there’s a more conceptual connection because it’s a story of removing hidden subsidies from a system, capturing economic externalities and managing the changes that result. Davenport describes how requiring farmers to pay for their groundwater use has serious economic implications: production costs go up and prices follow, meaning that consumers have to pay more, but also that land that becomes expensive in this manner is no longer suitable for growing cheap commodity crops. Scaling this approach to other parts of the country and the globe, such that food production would have to bear some of the costs of environmental degradation, could “trigger changes across the economy that affect both farmers and shoppers, resulting in higher prices at the grocery store while forcing farmers to abandon low-cost commodity crops that are needed for animal feed and other purposes, such as textiles.” 

Such potential implications, and the fundamental trade-off between keeping food prices low and using the land sustainably, raise the question of how much food should cost. We’ve discussed before theRockefeller Foundation’s analysis of the “true cost” cost of food, which found that for every dollar reflected in what we actually pay for food, there’s roughly an additional 82 cents of negative environmental impact and an additional dollar of health cost. (To give a stark example of this impact, consider that the average American household spends a little less than $800 per month on food; a month’s supply of  Ozempic, which was developed to treat diet-related conditions, costs over $900.) Americans now spend approximately 11% of their disposable income on food (split evenly between groceries and restaurants/delivery), which is two-thirds of what it was 60 years ago and less than half the share that people spent 100 years ago.

Taking a Pajaro Valley approach to health impacts would have similar systemic implications: pricing the costs associated with treating diet-related health conditions into the production costs of unhealthy foods would drive prices up, leading to higher shares of household income spent on food (and less on other important costs) and, as economic theory would suggest, shifting some consumption toward healthier food. The trade-offs are not easy from a social benefit perspective and the political challenges would be daunting. At the same time, the question of how much food should cost is serious – and the answer cannot simply be the default of what it costs now. Any question of cost must also consider value – and the more we understand about the importance of healthy food, to say nothing of its social value in bringing people together, the more underpriced food begins to appear.

What do you think? Comments are open below.

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