Organic produce has come under increasing pressure since the start of the war in Ukraine. Due to inflation and rising food prices, the cheaper, conventional product often wins the race to the shopping cart. Some claim that sustainable agriculture is not crisis-proof because it produces too expensive products and too little yield. But is the calculation correct? "True-cost accounting" adds up the social and environmental costs that food production causes. Some adjustments need to be made to the cash register.
Organic food often costs more than conventional food because organic farming usually means more work for the farmers and the yield is generally lower than in conventional farming.
Follow-up costs - well hidden
What is missing from this calculation, however, are the costs that food production causes through environmental degradation and damage to health. These "hidden" costs (also known as "true" or "consequential" costs) do not appear in the product price.
We still have to pay for them: in the form of taxes, health insurance contributions or other levies. But not all of this goes into our own account. Nature often pays the price, or soil health. It is not uncommon for people in the Global South to be left holding the bag. Or future generations. Food producers would have to significantly increase the prices of their products if they had to pay for the damage caused by their production methods themselves. Conventional products would then be much more expensive.
Example - consequential costs of agriculture
When agricultural workers spray pesticides on a field, they put a strain on their health and the healthcare system. The Food and Agriculture Organization (FAO) estimates 3,000 euros per agricultural worker over 10 years for consequential health costs.
The pesticides end up in the groundwater and the waterworks bear the costs. They spend billions of euros every year on drinking water treatment to remove the pesticide residues. However, the damage is actually caused by agriculture.
The EU's "Common Agricultural Policy" supports our food producers with billions in public money every year. The EU currently still largely supports unsustainable cultivation methods. It is therefore partly responsible for the damage and has to repair it afterwards with even more public money.
A price correction is necessary: 'True Cost Accounting'
The United Nations, theSustainable Food Trustand an increasing number of companies and universities have started to calculate the consequential costs of certain foods. Calculating these costs is not trivial. The "True Cost" initiative is developing methods and standards to make it easier for companies to calculate their "true costs" (see guide).
The missing items on the receipt
- Greenhouse gases and air pollution
- Food waste
- Soil mining
- Water pollution
- Insect mortality and loss of biodiversity through the use of chemicals
- Health costs (e.g. due to antibiotic resistance, cardiovascular diseases, high blood pressure, diabetes, tooth decay, malnutrition or obesity)
- Increased cancer risk due to nitrate in drinking water
- High water consumption in water-scarce regions (e.g. for fruit and vegetables), etc.
How much should food really cost?
Researchers at the University of Augsburg have calculated the additional costs resulting from greenhouse gas emissions, nitrogen pollution and energy consumption and have added these to the German trading prices from 2016.
Nitrogen input from fertilizers has the greatest impact, followed by resource-intensive feed cultivation, metabolism and animal husbandry.
According to their calculations, conventional animal products should be three times as expensive! And this is despite the fact that this calculation still does not take factors into account (e.g. seasonality and regionality, pesticide residues, loss of soil quality). By contrast, the price premium for organic plant-based products is only 6 percent. To be fair, it has to be said: Since organic products are generally more expensive, the mark-ups are naturally lower. Nevertheless, if we take all costs into account, organic products are much cheaper for us as a society than conventional ones.
Calculation task
Take your last till receipt in your hand. Choose 6 products for each of the categories shown in the diagram and calculate the mark-ups in percent from the diagram. Add them to the amount you paid. Would your purchase decision change?
The 'basics' of economics
The price of a good results from its supply and demand. The cheaper a good is offered, the more of it is demanded and sold.
Over 70 percent of people opt for the cheaper option when shopping. However, this reality does not contradict the true-cost approach. In order to steer production towards sustainable farming methods, pricing the social and ecological damage caused during production would be an ingenious tax instrument. In addition, speculation with food on the stock exchange and the associated price fluctuations should be questioned.
Some banks are already leading the way: They invest specifically in companies that operate ecologically and socially, including organic farmers. Social and ecological costs are included in the companies' balance sheets, but also in the assessment of creditworthiness.
True costs - how can it work?
Let's assume that the EU designs the agricultural support system according to the motto "Those who cause environmental damage must pay for it. Those who reduce it will be rewarded for it."
Taxes onCO2 emissions and the application of nitrogen are conceivable, and this at the beginning of the value chain. Farmers, fertilizer and seed producers, energy suppliers and processors bear the costs of their environmental destruction. Consumers and society as a whole are not burdened.
The tax revenue would be returned directly to the producers: The more sustainably they operate, the higher their income from subsidies. The EU would specifically finance those promising cultivation methods that cause fewer follow-up costs.
Example - future-oriented management
Agroforestry systems are areas that are used for both forestry and agriculture: Trees are combined with crops such as wheat. Elsewhere, forest land is also used for grazing animals. Among other things, agroforestry systems increase biodiversity, soil protection and carbon sequestration, improve animal welfare and create multiple sources of income for farms.
For imported products that do not have the "true" price, a "compensatory levy" could be paid on import into the EU so that domestic farmers remain competitive. For one of the cost items, namely greenhouse gas emissions, the Carbon Border Tax will gradually move towards true costs from 2023.
True-cost accounting would significantly strengthen sustainable businesses. It would be an incentive for other companies to also focus on sustainability.
Example Ireland
Inthe Burrenregion of Ireland, farmers combine the management and conservation of their grassland and heathland. Traditional extensive grazing livestock farming remains attractive for farmers, as measures to protect the landscape and ensure good water management are partially financed. They also receive money for successful implementation - i.e. for every visible result in nature. Since the start of the funding program, they have been able to reduce soil erosion and protect water resources, for example.
Example UK
With its "post-Brexit" agricultural support system, the United Kingdom is focusing on more nature conservation. Farmers receive payments for soil development, pesticide reduction, afforestation, etc. Although the new support system has also been criticized, it is a step in the right direction. The EU can learn from it.
True pricing - Is an upward price correction socially justifiable?
There is no question that food must remain affordable for the poorer population. The overall balance of "true pricing" is positive. If true pricing were a geopolitical reality, we as a society would have to spend less money on food overall.
Sustainable production would become affordable with the right subsidies, and as a result, so would its products. The prices for organic and conventional products would continue to converge. The demand for organic and plant-based products would increase. As meat, including hidden costs, would be considerably more expensive, meat consumption would fall. If we switched to predominantly plant-based foods, we would save immense amounts of greenhouse gases.
Due to the current environmental impact of agriculture, a social conflict has arisen between farmers as climate sinners and environmentally conscious consumers. This could be defused. For example, food could be given a label that shows the type and severity of environmental damage to help consumers make the right purchasing decisions.
It is better to avoid environmental damage in the first place than to clean up and pay for the damage afterwards. After all, it is not uncommon for damage to ecosystems to take centuries to regenerate.
So if you really put everything into one calculation, one thing becomes crystal clear: it is not sustainable goods that are too expensive, but conventional goods that are too cheap!
Sources
- That's why BIO is more expensive, Die Umweltberatung Stadt Wien
- The true cost of food, University of Augsburg, 2020
- True Cost True Cost, Federal Center for Nutrition Germany, 2019
- The true cost of our food, Misereor, 2022
- Farm subsidy plan 'risks increasing the UK's reliance on food imports', The Guardian, 2022
