Impact valuation can help harness the dynamics of economic markets for food system transformation.
Investors allocating their capital to more sustainable food and agricultural companies, government paying farmers to produce food with lower impacts, and consumers shifting their spending away from goods that have large “hidden costs”, are examples of what are called internalisations. The economic cost of the impacts of the food and agricultural sector are usually borne by those who did not produce or benefit from the impact, and internalisation reflects the economic cost back on the producer or beneficiaries of the impact. Impact valuation indicates how much internalisation is required.
Investors that shift capital to sustainable companies are increasing the costs of capital to unsustainable companies. Governments reducing support to agricultural production with high impacts makes that production more expensive. Consumers shifting their spending away from high impact goods reduces revenue to the makers of those goods. Internalisation provides incentives in the market to sustainable, lower impact production, and the reorganisation of the market around the incentives contributes to transforming the food system.
The final part of the cycle is how food system transformation acts on impact valuation. It does so by defining what is impact. Nitrogen emissions from any amount of synthetic fertiliser application will contribute to air pollution, productivity losses, and a loss of value. At the same time synthetic fertiliser application has raised the standard of living globally and produced immense value. At what point does the further application of synthetic fertiliser become detrimental, and the increasing costs of air pollution outweigh the benefits to agricultural yields? Science that can estimate the formation of particulate matter from fertiliser application and the dose received by nearby human populations, in combination with economics that can estimate productivity losses, can inform the point at which further application of synthetic fertiliser is detrimental and a net economic cost.