Business models and strategies for the internalization of externalities in agri-food value chains

Abstract Current food systems have significant negative environmental, social, and economic impacts. Externalized costs and benefits create false market incentives favoring less healthy and unsustainable options. Transitioning to sustainable agri-food systems requires that businesses internalize these externalities. Internalization of externalities (IOE) is often addressed through policy measures and regulatory initiatives. However, IOE can also be carried out through business models (BMs) and strategies which involve creating positive externalities, mitigating/preventing negative ones, as well as ensuring fair distribution of risks, costs, and benefits. Accordingly, sustainable and innovative BMs and strategies offer pathways to achieving IOE. This paper identifies existing sustainable and innovative BMs and strategies and explains how they can achieve IOE. Using an integrative literature review methodology, we reconcile both economics and business literature approaches. We subsequently carry out two levels of analysis including abductive coding and interrelationship evaluation. The paper explores the characteristics of BMs and strategies that address IOE, using the well-known concept of value and introduces a conceptual framework for categorizing business models and strategies for the internalization of externalities (BM4IOE). The article initiates a discourse on the role of BMs in the IOE within agri-food value chains and provides insights into how businesses can develop and implement models that effectively internalize externalities, thereby enhancing sustainability and driving innovation in the transition of agri-food systems.