Climate policies unequally impact food prices globally

In high-income countries like the U.S. or Germany, farmers receive less than a quarter of food spending, compared to over 70 per cent in Sub-Saharan Africa, where farming costs make up a larger portion of food prices. This effect shapes how food prices respond to agricultural climate policies: While value-added components buffer consumer price changes in wealthier countries, low-income countries – where farming costs dominate – face greater challenges in managing food price increases on account of climate policies, a study by Germany’s Potsdam Institute for Climate Impact Research PIK published in January 2025 shows.

The researchers project that as economies develop and food systems industrialise, farmers will increasingly receive a smaller share of consumer spending, a measure known as the “farm share” of the food dollar. In wealthy countries, the majority of the price is spent for processing, retail, marketing and transport. This also means that consumers are largely shielded from fluctuations in farm prices caused by climate policies such as taxes on pollution or restrictions on land expansion, but it underscores how little farmers actually earn, too. Long supply chains of modern food systems buffer consumer prices from drastic increases, especially in wealthier countries, the researchers say.

Even under very ambitious climate policies with strong greenhouse gas pricing on farming activities, the impact on consumer prices by the year 2050 would be far smaller in wealthier countries. Consumer food prices in richer countries would be 1.25 times higher with climate policies, even if producer prices were 2.73 times higher by 2050. In contrast, lower-income countries would see consumer food prices rise by a factor of 2.45 under ambitious climate policies by 2050, while producer prices would rise by a factor of 3.3. While even in lower-income countries, consumer price rises are less pronounced than for farmers, this would still make it harder for people in lower-income countries to afford sufficient and healthy food.

Despite food price inflation, poor consumers do not necessarily need to suffer from climate mitigation policies. A previous study by PIK (Soergel et al 2021) showed that if revenues from carbon pricing were used to support low-income households, these households would be net better off despite food price inflation, thanks to their higher incomes.

“Climate policies might be challenging for consumers, farmers and food producers in the short term, but they are essential for safeguarding agriculture and food systems in the long run,” says Hermann Lotze-Campen, Head of Research Department “Climate Resilience” at PIK and author of the study. “Without ambitious climate policies and emission reductions, much larger impacts of unabated climate change, such as crop harvest failures and supply chain disruptions, are likely to drive food prices even higher. Climate policies should be designed to include mechanisms that help producers and consumers to transition smoothly, such as fair carbon pricing, financial support for vulnerable regions and population groups, and investments in sustainable farming practices.”

(PIK/ile)

Read more on the PIK website