True Cost Accounting: transparency about the cost of food and food production
True Cost Accounting is alive. It’s a first step towards more sustainable production chains for food, fodder and non-food items because it sheds light on the unwanted side-effects of production chains and attaches a price to them. That’s the conclusion of researchers who carried out the True Cost Accounting quick scan.
“There are lot of initiatives going on in the Netherlands related to True Cost Accounting,” says Marieke Meeusen, project leader and research associate at Wageningen Economic Research. “We looked at almost 50 initiatives: 19 focused on the business-to-business (B2B) sector, 15 focused on the business-to-consumer (B2C) sector and 11 focused mainly on internal business operations.”
What is it?
True Cost Accounting (TCA) is about creating transparency within particular production chains about the sustainability impacts of those chains and their associated costs. This provides an insight into externalised costs and benefits. “Where are the problems in terms of sustainability?” says Meeusen. “Where are the social problems? And what do those problems cost in financial terms? This is something that market participants want clarity on. If they get that clarity, they can actually do something to address it. But the first step is to achieve transparency on those negative impacts.”
The negative impacts can affect the social or human sphere: issues around living wages and child labour would be one example. There can also be environmental impacts related to carbon emissions, water pollution or nitrogen. In the food production chain, the researchers noticed a lot of attention being paid to major commodities such as coffee, cocoa and bananas. There are both social and environmental issues related to those commodities. For the Dutch market, they studied specific Dutch foods: milk, potatoes, green beans and meat. The social issues these raise might relate to the environment, and with animal products there’s a focus on issues such as animal welfare.
Many of the Dutch initiatives include a calculation of a true price. Various methods are used for this. One is an economic approach (with marginal damage costs), while another is a more legal approach based on rights (remediation costs). The companies also see TCA as a way of informing consumers so that they can make a sustainable choice. One or two are also experimenting with passing the additional cost on to consumers. “But that’s very complicated, first of all,” says Meeusen. “And in the current economic climate, with food prices going up, it’s also not ideal to raise prices even further.”
The quick scan was carried out as part of the Public Private Partnership (PPP) ‘True Price: from Insight to Action’. “The partners felt they needed this kind of overview. It helps them identify other players in this space, make contacts and strengthen their network. Ultimately, TCA is a first step towards more sustainable production chains, and we’re also contributing to the mission of Wageningen University & Research to improve our quality of life,” says Meeusen.
PPP ‘True and fair price’ and PPP ‘True Price: from insight to action’
Food production comes with social costs that are not accounted for in food prices. The PPP ‘True and Fair Price for sustainable products’ does take these social costs into account to enable a true price to be calculated for food products. This is done by using True Cost Accounting (TCA), which calculates external costs and benefits. True Pricing is about determining and communicating the real price, and its objective is to reduce externalised costs.
The PPP ‘True Price: from insight to action’ places an emphasis on what different actors can do to ensure that food products have fewer negative social and environmental impacts.