True cost accounting: what’s the real price of your food?


Salt columnist and ecology and agriculture writer Sarah Smith takes a look at a new Sustainable Food Trust project that aims to highlight the true production cost of the food we put in our shopping baskets.

Supermarket price wars are driving down the cost of food as the big companies compete for customer share. On the whole falling prices are welcomed by consumers, especially at a time when budgets are tight. But, there comes a point when you have to wonder just how it’s possible to sell a loaf of bread, a pint of milk or a frozen ready meal at such knock-down prices.

Hidden costs

The answer to this is in part because many of the true production costs of our food are hidden. The shelf price may be influenced by the cost of the raw materials, labour and transport, but other factors, such as cleaning up the pollution caused by intensive agriculture, are excluded. The Sustainable Food Trust is promoting a project to raise awareness of the real costs of the food we buy. They are concerned that food producers are not held financially responsible for the environmental and social costs, or ‘externalities’, of their production systems.

Currently the price we pay for our food will have been decided by a combination of production costs, consumer demand and marketing strategies used by the retailers. Milk is an example that is making the news at the moment, with supermarkets cutting prices to a point where they are no longer paying dairy farmers enough to cover production costs. This has led to protests from the dairy industry and demands for a fair price to be paid before more farmers are driven out of business.

But, according to a recent study in New Zealand, a pint of milk would be much more expensive if the environmental and health costs resulting from pollution and greenhouse gas emissions associated with dairy farms were also factored in. The externalised costs of milk production aren’t paid for by the farmer, processor or retailer. This means they can be excluded from the price paid by the consumer, making the milk cheaper than it would be if all costs were integrated into the price. Instead costs such as cleaning up polluted waterways or healthcare bills resulting from antibiotic resistance, are picked up through subsidies, taxes and utility company bills. This lack of accountability is making intensive, industrial farming and food production more profitable than sustainable agricultural approaches.

True cost accounting 

The Sustainable Food Trust, along with other organisations, is trying to develop a system which quantifies all the costs, both negative and positive, associated with food production. This economic model has been called true cost accounting, and is being used to compare the overall costs of different food production systems. The Sustainable Food Trust sees true cost accounting as a way to stimulate debate among producers, consumers and policy-makers.

A key aspect of this accounting approach is that it emphasises both the negative and positive impacts that food production has on the environment, and social and health systems. In terms of negative externalities, food production practices can lead to soil degradation, habitat loss, contribute to greenhouse gas emissions and have become a factor in the obesity crisis developing in many countries.

Positive impacts

But farming and food processing may also contribute to local employment, and well managed agricultural land can have a positive impact on biodiversity and climate change mitigation. When all these factors are taken into account the real value of all food production systems, ranging from intensive, large-scale agricultural operations to small family-run farms can be compared. Having this data available would allow more informed decision-making by policy-makers and consumers with a view to penalising farmers and food producers who damage the environment, and providing incentives to encourage more sustainable practices.

The drawback

The major drawback associated with true cost accounting is its complexity. Some of the costs are relatively easy to put a price on. Water companies will include a charge for costs incurred in ensuring that agricultural chemicals are removed from the water they supply when they calculate water bills. Others costs are more difficult to quantify. The social and health costs of diet-related diseases can be estimated, but it’s much harder to calculate the overall environmental cost of converting an area of natural habitat to agricultural land. Because of the complexities involved, the Sustainable Food Trust is also calling for further independent research into the breadth of the externalities in food systems, and more effective methods of calculating their financial values.

Reconnecting and raising awareness

True cost accounting provides an innovative approach to placing monetary values on both the beneficial and detrimental impacts of different food production practices. The influence of major food corporations and complexities involved in true cost calculations mean that it will be a huge task to make this approach a reality in the food system. But, while the hidden costs may never be reflected in prices, the Sustainable Food Trust aims use true cost accounting to raise awareness among consumers of the value of the food they put in their shopping baskets, reconnecting them with the farmers and manufacturers who provide the meat, fruit and vegetables, and encouraging a more balanced approach to food waste.

Sarah Smith is a writer with a passion for pursuing the stories behind environmental and conservation issues, especially when those issues relate to the food we eat.



Photo credit: Karen from Flickr