Internalizing the external costs to achieve environmental and economic Goals: A Case study of rice production in China

This study addresses the critical issue of internalizing externalities in grain production, a key challenge in aligning economic growth with environmental sustainability in agricultural policy, particularly in the context of cross-regional grain trade. Using data from 30,524 rice circulation samples across China, we map inter-provincial rice flows and quantify the external costs of rice production at the provincial level. Our finding indicates that total external costs reach 8,810.4 million CNY, including greenhouse gas emissions and environmental impacts resulting from the inefficient use of fertilizers and pesticides. To address this, we propose an external cost-sharing mechanism in which consuming provinces compensate producing provinces with 4,955.7 million CNY. This innovative framework aims to harmonize economic growth with sustainable rice production while establishing a solid foundation for implementing inter-provincial horizontal benefit compensation policies in China. Moreover, it serves as a valuable reference for cross-regional ecological compensation strategies. By addressing both economic and environmental dimensions, this study contributes to the discourse on sustainable agricultural policy and regional equity.