The true cost of food
Does True Cost Accounting offer an opportunity for the organic food sector? A discussion with the scientific team formed of Prof. Tobias Gaugler, Prof. Jan Niessen, Dr Amelie Michalke, Lennart Stein, Benjamin Oebel, and Tim Andreae from Nuremberg Technical University and the University of Greifswald.
Price is a hot topic – inflation, rising energy prices, and lots of other factors are causing more and more customers to choose more economical products and brands. That trend is also evident in natural-food retail. Is what’s known as “True Cost Accounting”1 an opportunity for the organic food sector to keep existing customers and attract new ones?
This scientific team researches and teaches at the Faculty of Business Administration at Nuremberg Technical University. In the degree track in “Management in the Organic Sector,” young people learn skills for transforming the food system and making it viable for the future. The team serves as leading experts on True Cost Accounting for initiatives like the EU’s FOODCoST project. FOODCoST will run until 2026, and was already introduced at BIOFACH in 2023 with the “Echt” [“Real”] true price supermarket. The team will be highlighting True Cost Accounting again at several events for BIOFACH 2024.
The EU FOODCoST project began more than a year ago. Are there any early findings you can share?
The objective of the FOODCoST project is to further develop True Cost Accounting (TCA) and standardise it throughout Europe.
The Penny supermarket chain’s introduction of its “True Cost” campaign attracted immense attention to the topic in 2023. The first scientific findings from that event will be introduced at forums like BIOFACH 2024 in Nuremberg. Intriguing research results on true costs from other case studies (including on catering in away-from-home settings) are expected over the course of 2024.
Current market prices don’t match true prices. How would prices change, specifically – including a comparison between organic and conventional production?
The life cycle assessment (LCA) method, also known as environmental accounting or life cycle analysis, yields the true price of various environmental impact factors. Depending on how environmentally harmful a production chain is, higher or lower “externalities” result2.In general, you can say that animal-based foods are much more costly than plant-based ones, because of their longer process chains. Also, organic production methods are closer to nature than conventional agriculture, and thus are less costly on average.
Our publication Michalke et al. (2023)3, which distinguishes among not just various products but various production types, shows that the producer’s price for 1 kg of beef would have to increase by between EUR 9.60 and EUR 11.49, while 1 kg of milk causes external costs of EUR 0.72 to EUR 0.84. By comparison, 1 kg of green beans generates costs of only 9 to 34 cents. That would be only the external cost up to the farm gate, meaning it doesn't include the costs added for processing and transport in subsequent steps.
Price labels that made indirect ecological costs transparent informed visitors about the true price of apples and bananas. © Technische Hochschule NürnbergTrue Cost Accounting signifies social justice, since the true cost is paid by the consumer and not by society as a whole. On the other hand, it also means that a lot of the population would no longer be able to afford certain products. Doesn’t that lead to a different injustice?
Wherever possible, True Cost Accounting is supposed to follow the “polluter pays” principle. It’s true that as a scientific group, so far we’ve only communicated about true prices directly in the store4, since that’s the most understandable way for most people. But we don’t by any means recommend marking up all products immediately to their true cost. For the moment, we’re only trying to make the existing problem of hidden costs more visible, and to raise awareness of the problem among the general public, and especially among people in government.
True Cost Accounting should be implemented as early as possible in the value chain, so that the externalities generated over the course of a product’s life cycle are truly reduced. Of course that would necessarily also affect food prices. But in the long run, it should decrease other costs that the general public is already paying in the form of such things as higher water prices, so it would relieve people’s pocketbooks in other ways.
But one thing is clear: introducing TCA always has to go together with a socially responsible implementation for consumers and a duly appreciative remuneration of producers. The goal should be that everybody can afford to eat in a way oriented to something like the Planetary Health Diet – one that’s thus healthy for both people and the planet – and that producers should be remunerated fairly for their work. But of course we’ll achieve that goal only by way of an appropriate political and legal context5.
Is True Cost Accounting a chance for the organic sector to win back old customers and recruit new ones?
We can easily imagine that possibility, if it’s framed in a more comprehensive campaign, or even better, in a positive approach. That could work if the organic food sector presents the work done by the organic actors in its value chain as added value – for instance with a theme like “Our prices include diverse added value for you, the climate, the bees and our farmers”. At the moment there are approaches for communications and campaigns using such ideas at Germany’s Association of Organic Food Processors (AöL) and the National Association for Natural Foods and Natural Products (BNN). Ideally, this kind of approach would be combined with a further development among retailers that would be fun and sexy.
What chances do you foresee of True Cost Accounting being generally accepted? What legal and political context would have to be created?
The most important thing for now is to view True Cost Accounting as a tool that supplies a transparency that is currently almost entirely absent from value chains for food. So at the consumer level, we view TCA as more of an instrument for information and transparency. Here customers can be alerted with second price labels or other additional information about the indirect environmental costs of a product. That will clearly indicate the differences between different product groups (animal and plant) and production processes (conventional and organic), and buyers can make well-informed decisions.
Research sees the biggest leverage coming especially from mandatory reporting by companies, and from the use of TCA findings as a basis for legal and political decisions, with the associated change in conditions. On that basis, we can establish positive and negative incentives throughout the value chain, leading to a reduction in externalities. Specifically, making externalities transparent with TCA could be implemented and made mandatory at the corporate level by the CSRD (Corporate Sustainability Reporting Directive).
Conditions could also be established at the national and especially the European level, for instance at the level of tax policy, with changes in the value added tax. We suggest 0% VAT on organic plant products and 19% on conventional meat. Restructuring agricultural subsidies, with prohibitions or taxation on materials with especially high externalities (such as ingredients of fertilisers or pesticides) could also establish incentives for a sustainable transformation of the agricultural and food systems.
But that would require a harmonised True Cost Accounting method that was recognised throughout Europe, to serve as a generally applicable basis for decisions. We and colleagues at the Universities of Oxford, Bonn, and Wageningen are working on that in the EU’s FOODCoST research project.
True Cost Accounting also reveals social injustices in food production, like underpayment of labourers. What connections or opportunities do you see here with the German Supply Chain Act and the EU’s CSDDD draft currently under discussion6?
The concept of True Cost Accounting plays a very clear, decisive role here in supporting companies in complying with these laws. The underlying method of life-cycle analysis includes considering ecological data from every step in the process throughout the value chain. That ecological consideration is currently being expanded to include social factors like a fair wage and forced labour. The quantitative approach of TCA can thus reveal hotspots anywhere in the value chain – it creates transparency.
The “Echt” [“True”] True Price Supermarket was a hit at BIOFACH 2023. Prof. Tobias Gaugler of Nuremberg Technical University (left) joined his team Victoria Vogel (student assistant) and Lennart Stein (research assistant) to illustrate the concept of True Cost Accounting. © Technische Hochschule NürnbergLooking ahead towards BIOFACH 2024 – what was the response to the True Cost Supermarket that you and your team presented at BIOFACH 2023?
BIOFACH 2023 saw the premiere of the “Echt” true price supermarket that Prof. Jan Niessen and I created for scientific communication for Nuremberg Technical University.
The response was thoroughly positive! We not only got into interesting conversations and further discussions with visitors in the moment, but they expressed an interest for further events, which then led to a big road show for the supermarket.
It turned out that a vivid presentation of food mock-ups in a supermarket setting triggered a lot of interest among passers-by. The price labels that made the indirect ecological costs transparent (for instance for apples, bananas, milk, or minced meat) encouraged people to reflect.
On top of that, anybody interested could contribute to the research themselves by participating in an eye-tracking study in the Research Corner on the perception of second price labels for true costs. It was interesting that this kind of science communication appealed to both experts and lay people.
Source:
[1] True Cost Accounting is a way of calculating cost by taking the full cost to society into account. True cost includes the impact of the entire food production chain on society and the environment. That means factoring in aspects like the consumption of natural resources, losses to biodiversity from more intensive agriculture, and food-induced health costs. See, from Germany’s Federal Centre for Nutrition (in German), True Cost: Wahre Kosten – wahrer Nutzen. https://www.bzfe.de/nachhaltiger-konsum/grundlagen/true-cost-wahre-kosten/
[2] “Externalities” are costs or benefits that impact not the party causing them, but other persons who are not involved. These external effects result during the consumption or production of a good, and are not included in the market price.
[3] Michalke, A., Köhler, S., Messmann, L., Thorenz, A., Tuma, A., & Gaugler, T. (2023). True cost accounting of organic and conventional food production. Journal of Cleaner Production, 408, 137134. https://doi.org/10.1016/j.jclepro.2023.137134
[4] For instance, with the “Echt” True Price Supermarket at BIOFACH 2023 or in the “True Cost” campaign in August 2023 with the Penny chain
[5] For more information, see Michalke, A., Stein, L., Fichtner, R., Gaugler, T., & Stoll-Kleemann, S. (2022). True cost accounting in agri-food networks: A German case study on informational campaigning and responsible implementation. Sustainability Science, 17(6), 2269-2285. https://doi.org/10.1007/s11625-022-01105-2
[6] The EU’s “Supply Chain Directive”, the Corporate Sustainability Due Diligence Directive (CSDDD), is currently being debated in a trialogue among the EU Commission, the EU Parliament and the EU Council. The draft provides that companies can be held liable for violations of environmental and human-rights standards anywhere in the supply chain. Companies must ensure that their supply chains do not include child labour, slavery, worker exploitation, environmental pollution, environmental destruction, or loss of biodiversity.
