Who will pay the 'true price'?

The future of True Cost Accounting in Food, Farming and Finance

A debate at the highest level on True Cost Accounting in agriculture, food and finance took place on 04 December 2018 in Waddinxveen. Among the prominent debaters was Queen Máxima, from her expertise as an economist. Minister Carola Schouten, the President of the Nederlandsche Bank Klaas Knot, and Marjan Minnesma of the Urgenda Foundation also took part, along with other representatives of the financial world, business and science. The debate discussed how 'true prices' can ensure significant changes in the food system and the economy as a whole, in a broader sense.

10 conclusions from the debate:

  1. The implementation of True Cost Accounting makes sustainable and healthy food more affordable, while unsustainable and unhealthy food becomes more expensive.
  2. Hidden costs should not be recovered from the consumer, but at the beginning of the chain, as this ensures the quickest sustainability and a direct reduction in costs.
  3. The government must ensure that harmful inputs become more expensive, according to the generally accepted principle: the polluter is held accountable.
  4. The government needs to reallocate subsidies and tax benefits that are currently going to polluting companies like Shell, so that they end up with sustainable companies.
  5. If you make the system more sustainable, consumers will eat healthier while maintaining the same spending pattern: more fresh vegetables, less meat and and less processed food, as is now the case in Denmark.
  6. According to recent research (The Lancet, 2019), the transition to a more plant-based diet is the way to save the climate and rein in the global obesity epidemic. And that corresponds exactly with point 5.
  7. The cost of poor nutrition for health should be included in True Cost Accounting models. The cost of obesity alone is $3 trillion a year worldwide, more than the total cost of climate and environmental damage of food production.
  8. Do not force farmers in developing countries to depend on extremely expensive agrochemicals, but help them capitalise on soil fertility, with an emphasis on the use of labour instead of capital. This is how you give them a more sustainable business model that ensures broader prosperity.
  9. Making the food system more sustainable ensures greater social cohesion in poor areas, revitalisation of the countryside and a healthier political climate, as evidenced by projects in the Netherlands, Spain and elsewhere.
  10. There is no time for delay, we need to work together, as a 'coalition of the willing'. The greatest threats to the future of humanity are the climate, the health crisis and soil fertility. With True Cost Accounting, we can focus on these.

Debate report: the central question

The central question in the major Eosta debate on True Cost Accounting[i] and the sustainability of the food system was presented by Queen Máxima: how do you create a sustainable business case around 'true prices', where the extra costs are not borne by poor farmers and poor consumers?

In developing countries, citizens now spend two-thirds of their income on food, in contrast to only 10% in developed countries. If prices goes up, this can lead to serious political unrest, Máxima indicated. 'Just look at Paris', confirmed Felix Prinz zu Löwenstein, the figurehead of sustainable agriculture in Germany. The price of diesel has gone up by seven cent, and riots have broken out throughout the city.' Queen Máxima nodded: 'That's what I mean.'

Debate report in de Volkskrant newspaper

In the debate report published by de Volkskrant (see here), journalist Pieter Hotse Smit focuses on these and similar questions. It was agreed that the government and banks have a responsibility, but during the debate it became clear that they cannot or will not take on this responsibility yet. During the debate, top directors of ABN Amro Bank and ASR indicated that their bank is working to take sustainability and True Cost calculations into account when making financing decisions, but that this is still in its infancy. Klaas Knot, director of the Dutch Central Bank, argued in favour of a stronger role for the government. But Minister Schouten, who was also present, argued against this: she kept referencing to the consumer, and emphasised the impotence of government within a European context. This caused great impatience among entrepreneurs such as Volkert Engelsman, activist Marjan Minnesma and Professor Jaap Seidell: 'We cannot sit still. We are on a sinking ship.' Read it here: https://www.volkskrant.nl/kijkverder/2018/voedselzaak/artikelen/maxima-n....

Blueprint for a successful transition

What remains underexposed in the Volkskrant report are the various concrete solutions and ideas that were also presented during the debate. Together they form a promising blueprint for an economic transition that could also significantly benefit consumers and farmers in developing countries. If you implement True Cost Accounting correctly, external costs will be reduced, and welfare and public health will improve. This could generate hundreds of billions. In addition, inspiration and meaning would return to the economy, which would have major political effects, as has already been demonstrated in practice.

Will food become twice as expensive? No!

Calculations carried out by the FAO, the United Nations World Food Organisation, have indicated that the hidden costs of food production are about the same as the market value. This means that, on average, food would be twice as expensive if all of the current hidden costs were charged to consumers. But this only applies if you charge all the costs to consumers, without changing the system. This is exactly what we do not want, Volkert Engelsman stressed. The longer you wait to make it more sustainable, the higher the costs become.

It is much cheaper to prevent pollution and damage at the start of the chain, than to clean up the pollution and repair the damage at the end of a long production chain. What we want is to make the entire system more sustainable, so intervening at the outset reduces the hidden costs. Then, in theory, the true price of food can even go down.

The price of harmful additives must be increased

Not the price of the food, but the price of harmful additives must be raised, said Felix von Löwenstein. Governments can see to this. For example, between 1984 and 2009, Sweden levied a tax on fertilisers because they affect soil quality and the environment. This levy resulted in a significant reduction in fertiliser use and partial replacement of fertiliser by organic fertiliser. The revenue generated by such a levy can be strategically targeted to further green the food sector and make it more sustainable. (Sweden lifted the levy in 2009 under pressure of the economic crisis, but there have been many calls to reintroduce it.)

Governments must provide the right economic incentives

Volkert Engelsman asked Minister Schouten to urgently adjust the distribution of subsidies and tax benefits. Currently they now go to fossil fuels (Shell again made a record unencumbered profit of 23 billion dollars in 2018) and polluting technologies. By doing so, the government is subsidising the problem, instead of the solutions.

Jaap Seidell added: 'If the government stimulates the production of healthy food, just as it is now taxing tobacco, you will earn it back as a government. But at the moment we are making the unhealthy diet more affordable than the healthy diet.'

Seidell, Von Löwenstein and Englishman were supported by the Director of De Nederlandsche Bank, Klaas Knot. He noted that, in the current economy, there are no incentives to invest in green and climate-friendly projects. Knot argued for greater government intervention, specifically in relation to the climate. The oil and gas industry now has billions worth of stranded assets on its balance sheet, oil that cannot even be pumped if we want to stay under a catastrophic two degrees warming.

True prices: consumers benefit in terms of welfare and health

Denmark has shown that imposed sustainability (or internalisation of hidden costs) is possible without any increase in the cost of living. In 2007, it was decided in Copenhagen that the entire food supply of the Danish public sector should become organic by 2015. This proved possible with equal costs. The effect of the changeover was that people started eating more fresh food and less meat. Seidell: 'If you change the price of externalities, the diet will also change.' And that not only provides an environmental benefit, but also major improvements in health and lifestyle.

A large-scale dietary change can promote good health and save the climate

According to recently published scientific research in The Lancet, which has become world news, a transition to more plant-based food is the best way to prevent millions of deaths and save the climate. In this light, the recent Dutch increase in VAT on fresh fruit and vegetables, which according to broad scientific insight should be the spearhead of our food policy in terms of both health and sustainability, is a staggering measure. See here for an article about the publication in the Lancet: https://www.theguardian.com/environment/2019/jan/16/new-plant-focused-di....

Literally gain billions on health

During the debate, Professor Jaap Seidell pointed out that the cost to health as a result of poor industrial nutrition exceeds the cost of the total environmental damage caused by global food production. 'There is an epidemic of diabetes and other preventable diseases caused by lifestyle and diet. The annual cost of obesity alone is now USD 3 000 billion per year. These costs must be included in the hidden costs of food production. That is not happening now.' By way of comparison, the total hidden environmental costs of food production amount to approximately USD 2100 billion per year, according to a FAO report from 2014.

Bad food has the worst effect on the poorest people

According to Seidell, it is precisely the low-income groups that are victims of poor nutrition, because the unhealthiest food (soft drinks, fast food) is now the cheapest, as a result of externalisation. Seidell: 'If you let people in poor countries like Mexico eat bad food, you ultimately won't be able to pay the price. In Mexico, the obesity problem is now even worse than in the US. This is not only about the cost of care, it also concerns the enormous loss of labour productivity.'

Seidell continues: 'The same applies for working conditions in agriculture. In South Africa or India, working with pesticides has caused many health problems for farm workers. If you become blind there, it means huge expenses. That is why it is so important to also take health into consideration. Nowadays, the emphasis is often only on energy and the environment.'

A revenue model for poor farmers in developing countries

Queen Máxima asked about a working business model for poor farmers in developing countries which takes all these aspects into account. During the debate, it was made clear that the mass production of soya and palm oil is a disastrous model in this respect.

Jaap Seidell: 'Mass production of soy and palm oil is the most profitable option for companies. This is why there is now palm oil and soy in all processed supermarket products. But it is incredibly bad for the ecology and social fabric of society in developing countries, and here it is included in unhealthy food. When health is taken into consideration with True Cost Accounting, it immediately becomes more profitable to produce healthy food.'

Dutch soy projects lead to land theft and murder

Felix zu Löwenstein added that the large monocultures in developing countries are profitable only for the "happy few". Poor people, on the other hand, literally lose their reason to live. The soils and the living environment are affected. Recent investigative journalism has shown that so-called sustainable soy projects in which the Netherlands is involved in Brazil have led to deforestation, land-grabbing and murder in the Amazon region: https://www.groene.nl/artikel/duurzaamheid-is-slechts-een-verhaaltje.

Don't make poor farmers dependent on very expensive additives

It is therefore a fallacy, according to Felix zu Löwenstein, to want to support poor farmers in developing countries by subsidising Western agrochemical giants: the result is that we make those poor people dependent on extremely expensive chemicals, seeds and technologies that have been developed to farm with much capital and as little labour as possible. At the same time, labour is cheap and largely available to these poor farmers, unlike capital. For this reason, three states in India have already decided to switch to 100% organic production: Sikkim, Mizoram and Kerala.

Solution: Help poor farmers to capitalise on healthy soils

Volkert Engelsman, CEO Eosta, suggested a solution that he himself has pursued since Eosta was founded in 1990: help farmers in developing countries to capitalise on healthy soils and maintain them with sustainable agricultural techniques such as composting. This results in lower external costs and - thanks to access to the Western organic market - extra income in addition to the local market.

Eosta's projects with farmers in Kenya, Costa Rica and elsewhere show that such an approach can enrich and further develop an entire community. One example is the biological ginger and turmeric project of Aldo Ramirez in Peru, which was originally a very poor enterprise, but thanks to his entrepreneurship and the cooperation with Eosta, the business can take his native region to a higher level. The Nature & More website (www.naturandmore.com) has numerous examples.

Return of inspiration, identity and meaning

An important effect of sustainability is a return of inspiration, meaning and identity to the economy. Volkert Engelsman of Eosta: 'You can't be proud of 20 hectares of monoculture of soybeans in your village. But you can be proud of a strong and sustainable company that enriches the local community in a variety of ways.'

Jaap Seidell said that he works with food projects in the poor districts of Dutch cities, which not only ensure that people eat healthier and more plant-based food, but that there is also greater social cohesion and that people feel more rooted.

Large-scale rural revival

Willem Ferwerda, who set up large-scale investment projects on soil remediation all over the world with Commonland, gave a striking example. In the extremely dry high plateau of southern Spain (Altiplano Estepario), Commonland has a project of 630,000 hectares, the objective of which is to restore the severely impoverished soil and make the area flourish again. This involves hundreds of farmers and entrepreneurs. Ferwerda: ‘That project has had a tremendous social impact. The Spanish countryside has been slowly emptying everywhere else in Spain, but here people have once again become proud of their region and have returned.’

A remedy against right-wing extremist populism?

The feeling of solidarity that sustainability brings has even had an important political effect. This was seen in the regional elections in Andalusia held on 2 December 2018. 'The new extreme right-wing party VOX unexpectedly received 10% of the votes, but in the Altiplano Estepario they got almost no votes. So the political effect can also be significant.'

Hence a sustainable economic transition can become the way to curb the global wave of politics based on fear and mistrust. The feeling of uprooting and distrust in society, which has manifested politically all over the world, has its roots in the economic system of externalisation.

There is no more time for delay

Minister Schouten pointed out in the debate that European rules and WTO rules are obstructing hard interventions. But Marjan Minnesma, Peter Blom of Triodos Bank and other speakers insisted that there is no time for delay.

Marjan Minnesma: 'We need to move to zero emissions within 50 years if we want to avoid a catastrophe. We have tested the idea of self-management in the business world for fifteen years. It doesn't work. It is now time for real action.'

Jaap Seidell: 'Rabobank has calculated that, if we continue as we are today, the health costs will no longer be bearable in 2030. There is no more money for other things. We will no longer be able to provide for health care, nor will we be able to do something about climate change. That is a bleak picture of the future.'

Peter Blom of Triodos Bank: We don't have to promote green any more. It is time to punish 'brown'. The green economy is now well able to promote itself very well. Hard measures are needed to change the mindset. '

When the going gets tough, the tough get going

Volkert Engelsman therefore advocated action by a coalition of the willing of changers: companies, banks and NGOs.

'We have to focus on our circle of influence, on what we can do. Change always comes from a small minority, never from the large masses. We only have a small window of opportunity and we must use it.'

If you don't go along with this, you're going to seriously lose out, concluded Engelsman . 'It's no longer about whether you believe in sustainability or not. We are now talking about the RAROCs of the financial world, the Risk-Adjusted Returns on Capital. These determine the creditworthiness of companies and governments. These determine where the big money will flow, and what the future economy will look like.'

'The greatest risks are climate, soil fertility and health. Biodiversity and social capital are also important, but much more difficult to quantify. Let us therefore now prioritise climate, soils and health in True Cost Accounting. When the going gets tough, the tough get going.'

[i]True Cost Accounting and Sustainability

True Cost Accounting is a form of accounting in which the hidden costs for the environment, people and society (in economic terms: 'external costs') are included in balance sheets and profit calculations. In the case of sustainable production, these hidden costs are by definition lower - otherwise there would be no question of integral sustainability. If you include the hidden costs in the accounts, non-sustainable business processes become more expensive and sustainable products become relatively much more affordable. In this way, companies are encouraged to work more sustainably, while consumers in turn are encouraged to consume more sustainably.