The true cost of food

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.

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.