Can True Cost Accounting Tell Us More Than a Price Tag?
40 McNuggets for $13.99 sounds like an unbelievable deal. So, maybe it is.
Groups like the Sustainable Food Trust are on a mission to demonstrate how, in the current commodity food system, big corporations can offer shockingly low prices and still rake in profits because they cut corners at every step along the supply chain, offloading long-term costs onto the public while duping them into thinking their dinner was a bargain.
For example, companies pay wages too low to support families, shifting a portion of their labor costs onto taxpayers (in the form of nutrition benefits and housing subsidies). They concentrate hundreds of thousands of chickens in one place, and when waste pollutes waterways, taxpayers pay to clean them up. Ammonia from the concentration of animals in confinement leads to high rates of asthma in surrounding communities, raising healthcare costs for neighbors.
“When you add up all of these hidden costs, cheaper chicken isn’t so cheap after all,” the narrator says in the video “A Tale of Two Chickens,” produced by the Sustainable Food Trust.
But is it really possible to add those costs up? And even if you could, would it lead to meaningful changes in the system?
Proponents of True Cost Accounting, a framework to holistically evaluate the impacts of food production systems, say the answer to both of those questions is yes. And the movement is gaining traction among global non-profits, academics, and forward-thinking businesses. In January 2020, the Johns Hopkins Center for a Livable Future published an academic report on True Cost Accounting that summarized publications and approaches that currently exist and outlined opportunities for further research. In May 2021, an anthology of essays called “True Cost Accounting for Food” that includes real world examples of applying True Cost Accounting to food system change and features prominent contributors like Kathleen Merrigan and Ricardo Salvador will be released. (Fun fact: one of the most high profile proponents of TCA is His Royal Highness, Charles, Prince of Wales. Prince Charles spoke about TCA at a 2013 conference in London and is the “patron” of the Sustainable Food Trust.)
Experts say the framework is a compelling tool that could inform future food policies, business practices and consumer choices in a way that tackles many of the biggest issues of the day — like the climate crisis, racial justice, hunger and obesity and economic inequality — at once. But it also lacks uniform metrics, has yet to be widely applied in real-world scenarios and requires policymakers and CEOs to embrace a complexity and depth of analysis that is far beyond the current norm. And in the private sector, companies externalize their costs for a reason. Getting business leaders to care about their impacts and to make changes that will likely affect their bottom line is almost always an uphill battle.
Here’s what you need to know about True Cost Accounting and how it might contribute to building a better food system in the near future.
What Is True Cost Accounting?
In compiling the Johns Hopkins report, research associate Anna Aspenson found that while most shared values and principles, definitions of True Cost Accounting (which is often referred to as TCA) vary, especially in terms of scope.
“A good working definition for me is that True Cost Accounting is an initiative aimed at expanding our current economic methods for understanding the diverse impacts of various [food] production systems,” Aspenson said.
Many groups take the idea of “capital” and reframe it to include not just goods and money, but other forms of “capital,” like social, human and natural. And a huge component involves measuring what food companies call “externalities.” These are negative effects of activities within the supply chain, like pollution, biodiversity destruction and worker health issues, which companies are not held responsible for.
“Ideally, what you would have in a True Cost Accounting system is a measure of the cost of doing certain things, and that includes secondary costs. So let’s say you put a bunch of antibiotics into a system. Then, we’re looking at the cost of treating antibiotic-resistant diseases later on and trying to make some cost assessment of that externality,” explains Urvashi Rangan, Ph.D., a sustainable food systems expert and the chief science advisor for FoodPrint. “Assessing what we call ‘externalities’ that are not accounted for in the cost of doing business or in the price tag are important.”
On the flipside, Barbara Gemmill-Herren, Ph.D., said that measuring and including what she calls “positive externalities” that benefit the public — such as producing nutrient-dense foods, conserving biodiversity, or reducing greenhouse gas emissions — is just as important to TCA.
Gemmill-Herren is a sustainable food systems professor at Prescott College and a senior associate for the World Agroforestry Centre in Kenya. Previously, she joined the United Nations’ Food and Agriculture Organization to coordinate pollinator work globally and then led an initiative to promote agroecology. That initiative led her to TCA, as a possible tool for communicating the benefits of agroecological methods.
“Conventional agriculture produces higher yields…through inputs replacing ecosystem services and then a lot of negative externalities,” she said. Many people she encountered in agriculture policy used yields as the primary measure of performance, but what if you looked beyond yields, she thought, especially given yields are higher than necessary in countries like the US? “I know this from pollination, that if you really run an accurate ecosystem on ecological principles, it can generate positive externalities. [It’s true] for pollinators in Kenya, and they’ve found the same in New Jersey, that organic farms can have an incredible diversity of bees, including rare and endangered bees. The crops are full of flowers and full of nectar, and they’re not getting hit by pesticides. So respecting the positive externalities of agriculture, I think, has to be part of the whole movement for change.”
How Does True Cost Accounting Work?
Of course, getting from this philosophical idea of accounting for the many impacts — both positive and negative — of various systems to a tool that can actually be applied is tricky. (We should mention that our idea of a FoodPrint is basically a consumer-facing form of TCA, since we encourage people to take into account all of the impacts of their food choices, from animal welfare to social justice and public health.)
In the Johns Hopkins report, Aspenson outlines various frameworks that have been developed, and some of the work overlaps. Many organizations in the field are working to apply the TEEBAgriFood Evaluation Framework, which is the most used (despite its unwieldy name). In September, the Global Alliance for the Future of Food (GAFF) published a report with guidance on how to apply the overarching framework. The same month, guidelines to help businesses use the framework were produced by a coalition including the Natural Capital Coalition, the UN Environment Programme, and the European Union, and the Natural Capital Coalition is also doing TCA trainings for businesses in Brazil and Mexico.
Still, a lot of the work is guidance and reports. How is it actually applied on the ground?
GAFF has funded a few studies that apply the framework, including one on corn production in Minnesota. And Gemmill-Herren cited a few examples that came out of work done by the UN Environment Programme and funded by the EU. In Indonesia, a team studied and presented the benefits of investing in agroforestry over palm oil plantations using a TCA framework. “It really did convince the Indonesian government to incorporate a large investment in agroforestry in their five-year plan,” she said.
In Senegal, the government was considering taking out very large loans to intensify rice production using industrialized inputs and irrigation. To convince them otherwise, Gemmill-Herren led a study using TCA to show the impacts of that system compared to investing in alternatives. “They depend very heavily on rice and they import a lot, so you can understand how they want to ramp up production,” she said. But by applying a systems model, she was able to outline what repaying those loans with interest would mean for the country compared to what would happen if they invested the same amount of money in farmer training on agroecological approaches to rice production. “We could really document what the impact would be not just on the production of rice, but on many other aspects like women’s empowerment and youth employment. You look along the whole value chain and look at the idea of investing in smaller-scale rice mills and being able to employ the local community, and the local community being able to take some of the rice byproducts to feed livestock, for example,” she said. “This government has really…embraced agroecology and I think not only this one study but these kinds of studies help them to say ‘this is the way we should be going there.’”
These examples all relate to policy making, but TCA can also be applied by private businesses to evaluate their practices and make positive changes within their supply chains.
Eosta, an international organic produce distributor based in Europe, uses a system it developed using a TCA framework to evaluate its growers and communicate their process to consumers. The framework includes social, economic and climate impacts, organized into a “sustainability flower.” Each grower’s practices and scores across the metrics measured in each petal, like biodiversity and health, are then made available online. For example, Hugo Sanchez grows organic apples and pears for Eosta in Argentina. His sustainability profile details his use of compost for soil health and calculates what it calls the “benefit for society” that improved soil creates, among other impacts.
“I think the question is: When does it go from internal accounting for a company to a marketing plan?"
Rangan says other companies, like Danone (makers of Dannon yogurt and other products), are working on some version of this kind of accounting behind the scenes. “Danone is a company that’s really dedicated themselves to this effort. A lot of that is going on in the background. The company wants to know where the real savings are and where the real expenditures are, and in many ways, it’s True Cost Accounting,” she said. Of course, while some companies are truly mission-driven and operate based on principles that drive them to minimize negative impacts, most will externalize costs as often as they can if it helps their bottom line. Except, as consumer attention to how food impacts health, workers, and climate change increases, companies may see accounting for negative impacts and improving their practices as potentially profitable. For example, Eosta specifically lays out the fact that the sustainability flower is used to monitor and manage farmer practices but also to market “the added environmental and social value to help farmers capitalize on their social and environmental performance.”
“I think the question is: When does it go from internal accounting for a company to a marketing plan? It’s really important because that provides an important foundation for them making these kinds of claims to the public,” Rangan said. For example, Chipotle’s recent impact tracker is an attempt to market how the company operates differently compared to others and how it is improving its performance on several different environmental and health impacts. As more restaurants add metrics like carbon labeling to their menus, TCA could make it possible for them to go deeper.
The Future of True Cost Accounting
The systemic nature of TCA evaluations can be both a strength and a limitation. One challenge is convincing governments and companies to actually value all of these elements (like fair wages and health outcomes) and another is actually coming up with a number to compare the “true cost” of a food like a McNugget.
“Being able to put a cost on something can be a valuable tool in getting to change, especially policy change,” Rangan said. “That said, there are some things you just can’t put a value on. Social justice is one of those things that’s pretty difficult to put a dollar value on, so in those cases, it may be that you need to do some other semi-quantitative or qualitative assessments in order to communicate accurately what the value or benefit or the cost is.”
That kind of assessment might be valuable in a policy discussion but is much harder to boil down to a price tag. And then, if you are able to come up with a number, and it’s clear that a system is costing the public on some front, what then?
Waiting around for companies to respond to consumer pressure likely isn’t enough. Some TCA supporters advocate for a “polluter pays” model that would essentially try to get the companies to internalize those “externalities.” But Aspenson said especially when it comes to impact on human lives and on climate change, that kind of model won’t be enough, either. “We might have some money in our bank from the polluter, but this is a question of survival. It’s like our house is on fire and we’re counting which pennies to save,” she said. “We don’t want to get paid for someone’s chance to degrade irreplaceable resources.”
What Aspenson advocates is using TCA evaluations to argue for much deeper structural changes to the food system. “Economic arguments are incredibly useful in our current policy making system, but we need to have this long-term, common goal of economic and cultural change, because capitalism just won’t save us. It got us into this current situation, and I think True Cost Accounting needs to reckon with that. What does an accounting system look like that uses practical economic terms, but also supports that long-term goal of economic change and deep change?” In other words, McNuggets shouldn’t be more expensive, they should be history.
Top photo by Dusko/Adobe Stock.