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This trans-disciplinary study assesses total external environmental and health costs of modern agriculture in the UK. A wide range of datasets have been analysed to assess cost distribution across sectors. We calculate the annual total external costs of UK agriculture in 1996 to be pound 2343 m (range for 1990-1996: pound 1149-3907 m), equivalent to pound 208/ha of arable and permanent pasture. Significant costs arise from contamination of drinking water with pesticides (pound 120 m/year), nitrate (pound 16 m), Cryptosporidium (pound 23 m) and phosphate and soil (pound 55 m), from damage to wildlife, habitats, hedgerows and drystone walls (pound 125 m), from emissions of gases (pound 1113 m), from soil erosion and organic carbon losses (pound 106 m), from food poisoning (pound 169 m), and from bovine spongiform encephalopathy (BSE) (pound 607 m). This study has only estimated those externalities that give rise to financial costs, and so is likely to underestimate the total negative impacts of modern agriculture. These data help to identify policy priorities, particularly over the most efficient way to internalise these external costs into prices. This would imply a redirection of public subsidies towards encouraging those positive externalities under-provided in the market place, combined with a mix of advisory and institutional mechanisms, regulatory and legal measures, and economic instruments to correct negative externalities. Further work examining the marginal costs and benefits of UK agriculture would help to inform future policy development. (C) 2000 Elsevier Science Ltd. All rights reserved.