In economics, an externality is a cost or benefit that is not accounted for or represented in the price of a service or commodity. For example, pollution from a manufacturing process can be a negative externality or an externalized cost if there is no remediation of the pollution and the cost of that remediation is not included in the price of the product being produced. The idea is that the exclusion of the costs associated with the pollution from the price of the product does not mean that those costs do not exist, they have just been externalized.
In Marion Nestle’s recent Food Matters column in the SF Chronicle, she highlighted a few areas where costs are often externalized within the food system. That is to say, areas in which the demand for inexpensive food has led producers to externalize costs so they can offer lower prices at the grocery store. Some of these areas include: human costs, environmental costs, safety costs, and health and health care costs. Many current large-scale agricultural practices result in paying workers low wages for difficult or dangerous work, environmental pollution or resource consumption without replacement, crowded or unsanitary living conditions for animals, and subsidies (i.e., your tax dollars) that provide incentives to produce grains and corn (high fructose corn syrup, anyone?) instead of vegetables.
Now, we all like low prices and good deals at the store, but ignoring the external costs is not getting a good deal. This is why many people choose to buy organic products that are often more expensive than similar products that are not organic. In many respects the externalities of organic products are absent or greatly reduced, which is why the prices tend to be a bit higher. For me, buying organic, although sometimes harder on the wallet, is a more honest approach and acknowledgement of the true costs associated with my food.