Key takeaways

• True cost accounting (TCA) quantifies hidden impacts in agrifood systems not captured in standard economic analyses, including environmental damage and social inequities.
• A TCA study of Colombia and Peru finds these costs are substantial, equaling 12% and 13% of agrifood output, respectively.
• Policy action to address these costs should target key system gaps, including environmental impacts of livestock systems and labor conditions.

Latin America’s agrifood systems are economically dynamic, generating jobs, exports, and foreign exchange, and driving regional growth. They are the backbone of rural economies. But existing alongside this apparent success story are the environmental and social burdens that do not show up on balance sheets.

Many agrifood system impacts, positive and negative, remain unpriced and largely invisible in policy and market decisions—including greenhouse gas emissions, land degradation, water scarcity, air pollution, child labor, and wage inequities. Systematically accounting for these effects, or externalities, reveals a more complete—and more sobering—picture of the impacts of agricultural production.

A new study, Assessing Environmental and Social Burdens in Agrifood Systems: Insights from Colombia and Peru, authored by researchers from IFPRI and the Alliance of Bioversity International and CIAT, brings these hidden costs for those two countries to light. It accounts for externalities using the Impact Institute’s Global Impact Database and a true cost accounting (TCA) framework. As we observe World Environment Day (June 5), with its call to climate action, the study findings show how analytical tools such as TCA are crucial to designing policies to guide sustainable food system transformation.

Why true cost accounting matters

True cost accounting asks a simple but transformative question: What does food really cost once we account for environmental degradation, labor conditions, and social inequities? Because these impacts are not reflected in market prices, food systems often appear more efficient or profitable than they actually are.

By monetizing these impacts, TCA helps governments and businesses see where the system is leaking value, and where targeted interventions could yield the biggest societal returns.

The big picture

The study shows that negative externalities represent 12% of total agrifood system economic output in Colombia and 13% in Peru. In other words, more than one-tenth of the economic value generated by agrifood systems is effectively canceled out by environmental and social harm. And this reflects only a share of total unaccounted-for costs, since health-related costs (dietary risks, foodborne illness) were not included.

Livestock system vs. crop production impacts

In both countries, environmental externalities dominate. Harmful land use, climate change, air pollution, and scarce water availability account for the bulk of hidden costs. Livestock systems—especially cattle and dairy—are the most externality-intensive sectors by far. In Colombia, livestock externalities equal 56% of that sector’s output. In Peru, the figure is even higher, at 72%.

Crop sectors, by contrast, have lower environmental footprints but higher social costs. Social impacts account for around 39% of total externalities in crop sectors in Peru. In Colombia the social impact share in the crop sector is about 42%—much higher than the share for each country’s full agrifood system: 24% and 28% for Colombia and Peru, respectively. Social costs such as child labor, underpayment, and gender wage gaps are especially pronounced in labor‑intensive export crops in Peru and smallholder crop systems in Colombia.

Unpacking the hidden costs: What’s driving the numbers?

The study goes beyond totals to examine the anatomy of externalities. A few patterns stand out.

First, damaging forms of land use are the single largest environmental cost. Most of this cost comes not from deforestation but from the sheer size of the environmental impact of cropland and pasture compared with natural habitats. Claiming land for extensive commercial agriculture has reduced biodiversity, ecological resilience, and benefits from ecosystem services.

Second, water pollution looks very different across countries. In Colombia, marine eutrophication—water degradation through nutrient overload, resulting in algal blooms, dead zones, and fish kills—dominates. Freshwater eutrophication, meanwhile, is the main issue in Peru, reflecting geography, watershed dynamics, and fertilizer use patterns.

Third, air pollution is overwhelmingly driven by ammonia, linked to fertilizer use and livestock manure, and far exceeds all other air pollutants in both countries.

Fourth, hazardous child labor is a major social burden. This includes work with dangerous equipment, exposure to chemical or ergonomic hazards, excessive workloads, and other problems. It accounts for more than four times the externality cost of nonhazardous child labor in both countries—an alarming signal of persistent risks in agricultural work. Finally, forced labor is also a problem, though small, accounting for less than 2% of externality costs in both countries.

Which value chain stages bear the greatest costs?

The study uses value chain impact data to map where in the chain externalities originate. Results indicate that primary production is the main source of negative externalities in crop sectors, while upstream inputs (feed, fertilizer, energy) dominate in livestock and processed food sectors. Downstream impacts are consistently the smallest among the value chain nodes. These results suggest that farm‑level interventions such as climate‑smart agriculture, better labor conditions, and improved manure management can deliver the largest reductions in externalities.

What should policymakers and investors do?

The study has several important implications for agrifood policy in Colombia and Peru, and beyond:

• Policies and investments should target livestock systems for environmental mitigation. Aiming at feed efficiency, combined tree-livestock systems, and manure management offer high-impact opportunities.
• Improve labor conditions in crop sectors. Addressing underpayment, child labor, and gender wage gaps requires stronger regulation, certification, and supply‑chain governance.
• Invest in farm‑level technologies such as water‑efficient irrigation, integrated pest management, and soil health practices to reduce both environmental and social burdens.
• Further integrate TCA into national planning. Considering that Colombia and Peru already have ambitious climate and rural development agendas, TCA can help in carrying out existing legislation.
• Expand the evidence base by extending the TCA analysis to include negative health externalities, monitor progress, and use more localized data and high‑resolution analysis to strengthen future assessments.

Ultimately, the analysis points to the importance of making the invisible visible. Food systems transformation is often framed as a series of trade-offs between sustainability and economic growth. The study highlights a more complex dimension to that idea that deserves more attention: the trade-off between visible profits and invisible costs. By quantifying those costs, Colombia and Peru can have a clearer roadmap for building agrifood systems that are productive, equitable, and environmentally sound. Or, as the study report puts it, “Making these hidden costs visible is essential for advancing more sustainable, equitable, inclusive, and resilient food systems.”

Kristin Davis, Rui Benfica, and Carlo Azzarri are Senior Research Fellows with IFPRI’s Agrifood Innovation and Resilience (AIR) Unit; Sedi-Anne Boukaka is an AIR Research Coordinator; Carlo Fadda is Director of Agrobiodiversity at the Alliance of Bioversity International and CIAT; Baragu Geoffrey is an AIR Research Associate. This post is based on research that is not yet peer-reviewed. Opinions are the authors’.

This work was supported by the CGIAR Program on Multifunctional Landscapes and the Government of Canada.

Reference:
Benfica, Rui; Davis, Kristin E.; Azzarri, Carlo; Boukaka, Sedi Anne; Geoffrey, Baragu; and Fadda, Carlo. 2026. Revealing the hidden costs of food systems in Colombia and Peru: Evidence and priorities for action. CGIAR Science Program on Multifunctional Landscapes. CGIAR System Organization. https://hdl.handle.net/10568/182846