How Climate Policies Hit Food Budgets Differently Around the World

 The Price of Change

Imagine a world where the cost of your daily bread isn't just about the wheat in the field, but also about the complex journey it takes to your table: the milling, the baking, the packaging, the transport, the marketing. This complex reality of modern food systems has a profound impact on how climate policies affect food prices, creating a growing divide between wealthy and poor nations.

A groundbreaking study by the Potsdam Institute for Climate Impact Research (PIK) reveals a crucial insight: the way our food systems are structured determines how much we feel the pinch of climate-friendly agricultural policies. In wealthier countries, the intricate web of processing, transport, and marketing acts as a buffer, shielding consumers from the full impact of price changes at the farm level. But in low-income countries, where the cost of farming itself makes up a much larger portion of the final price, these policies can have a much more significant impact on household budgets.  

The Farm Share Divide: A Tale of Two Food Systems

"In high-income countries like the U.S. or Germany, farmers receive less than a quarter of what consumers spend on food," explains David Meng-Chuen Chen, PIK scientist and lead author of the study published in Nature Food. "In stark contrast, in Sub-Saharan Africa, that share is over 70 percent. This dramatic difference highlights how vastly different food systems operate across the globe." The researchers predict that as economies develop and food systems become more industrialized, the "farm share" – the portion of consumer spending that goes directly to farmers – will continue to shrink.  

"In wealthy nations, we increasingly consume processed foods like bread, cheese, or candy, where the raw ingredients are just a tiny fraction of the final cost," adds Benjamin Bodirsky, another PIK scientist involved in the study. "The majority of the price tag covers processing, retail, marketing, and transport. This means consumers in these countries are largely insulated from farm price fluctuations caused by climate policies, such as taxes on pollution or restrictions on land use. But it also reveals how little farmers are actually earning."  

Unveiling the Full Picture: From Farm to Fork

To understand these complex dynamics, the research team employed a combination of statistical and process-based modeling, analyzing food price components across 136 countries and 11 different food groups. Crucially, they considered the prices of food consumed both at home and away from home, providing a more complete picture of consumer spending. "Most models stop at farm costs, but we tracked prices all the way to the grocery store, and even to restaurants and canteens," says Chen.  

By examining the entire food value chain, the researchers gained valuable insights into how greenhouse gas mitigation policies affect consumers. "Climate policies aimed at reducing agricultural emissions often raise concerns about rising food prices," Chen explains. "Our analysis shows that the long and complex supply chains of modern food systems actually buffer consumer prices from drastic increases, especially in wealthier countries."  

A Tale of Two Impacts: Rich vs. Poor

The study's findings reveal a stark contrast in how climate policies affect consumers in different economic contexts. "Even under highly ambitious climate policies with significant greenhouse gas pricing on farming activities, the impact on consumer prices by 2050 would be far smaller in wealthier countries," Bodirsky states. Their projections show that consumer food prices in richer countries would increase by a factor of 1.25 with climate policies in place, even if producer prices (what farmers receive) rise by a factor of 2.73.  

The situation is drastically different in lower-income countries. Under the same ambitious climate policies, consumer food prices in these nations are projected to rise by a factor of 2.45 by 2050, while producer prices would increase by a factor of 3.3. While consumer price increases are still less pronounced than those faced by farmers, the impact on affordability is significantly greater in lower-income countries, making it harder for people to access sufficient and nutritious food.  

A Path Forward: Mitigating the Impact on the Vulnerable

While these findings highlight the potential challenges, they also offer a path forward. Previous research by PIK has demonstrated that if revenues generated from carbon pricing are used to support low-income households, these households could actually be better off despite food price inflation, thanks to increased incomes.  

"Climate policies might present short-term challenges for consumers, farmers, and food producers, but they are absolutely essential for safeguarding agriculture and food systems in the long run," emphasizes Hermann Lotze-Campen, Head of the "Climate Resilience" research department at PIK. "Without ambitious climate policies and emission reductions, the far greater impacts of unchecked climate change, such as crop failures and supply chain disruptions, are likely to drive food prices even higher."  

The key is to design climate policies that incorporate mechanisms to help producers and consumers navigate the transition smoothly. This includes fair carbon pricing, financial support for vulnerable regions and populations, and investments in sustainable farming practices. By addressing the disparities in our food systems and implementing thoughtful policies, we can work towards a future where both the planet and its people can thrive.