True Cost Accounting makes hidden costs of food production visible

True Cost Accounting makes hidden costs of food production visible

Recently, Eosta, specialist in Organic AGF, has presented two first-time scoops: the first True Cost profit and loss account for a food business, and figures for hidden costs of the health impact of pesticide residues in fruit and vegetables for consumers. The results illustrate how externalization works.

The recent acquisition attempt by Kraft Heinz, offering $ 149 billion for Unilever, is a clear example of the mechanism of externalization. Unilever has a strong sustainability policy and strives for long-term, sustainable growth. However, in the current economic system, sustainability can result in higher production costs and lower short-term profits. Kraft Heinz wants to buy Unilever, cut off the costs associated with sustainability, thus generating easy short-term profit, with ecological and social destruction as a result.

Immoral system

"Fortunately, Paul Polman told them to bring their money somewhere else," says Volkert Engelsman, CEO and founder of Eosta. He feels a strong connection with Paul Polman, Unilever's CEO, in his ideal to bring ecology and economy into business. But Engelsman is radical, and opted for 100% organic production since 1990. He continues: "It is rather strange that our system still tolerates such a destructive approach as that of Kraft Heinz. Shareholders should not have the power to destroy ecosystems. True Cost Accounting is an indispensable tool to make this destruction visible and stop this kind of practice. "

True Cost Pilot

At the world's largest biological trade fair BIOFACH in Nuremberg, mid February, Engelsman presented the preliminary results of True Cost Accounting in Finance, Food, and Farming Pilot. This pilot was established together with accountancy company EY (formerly Ernst & Young), Soil & More and others, to reveal hidden costs in the food production chain. EY and Soil & More International performed the calculations. By 2016, Soil & More had already calculated the hiddeno costs on natural capital, but now social capital is also taken into account, specifically the impact of pesticide residues on consumer health. The impact of business operations on the health and personal development of employees and producers was also calculated.

14 cents health benefit per kilo of apples

The accountants showed that organic fruit had significant cost benefits on the impact on health, when compared to current, 'usual' fruit. The advantage was found to be greatest with organic apples: € 0.14 per kilo. For this calculation, the DALY (Disability Adjusted Life Years) concept of the WHO was used, complemented with figures from the European Food Safety Authority EFSA and Danish scientist Peter Fantke, based on a life-cycle analysis (LCA).

Eosta had already calculated the hidden costs of various producers in 2016 for the impact on natural capital: soil, climate (greenhouse gas), water and biodiversity. If these figures are added to the new figures for health, the total social benefit of organic apples compared to conventional apples is € 0.21 per kilo. Assuming that 81 million tons of apples are eaten globally, it has a significant impact: 17 billion euros for apples only.

German top politicians plead for action

Renate Künast and Klaus Töpfer, two well-known German politicians, former ministers, appreciated the pilot and insisted that the government should take measures to create a more equal playing field between responsible and less responsible companies. Künast, former chairman of the Greens, pleaded for a CO2 tax and other tax measures to allow polluters to pay. Töpfer, former Director of UNEP and nowadays Director of IASS Research Institute, emphasized the need for laws and policies to prevent destructive ways of doing business.
Profit and loss account

The pilot did not only look at product level, but also wants to calculate a True Cost business balance and profit and loss account for Eosta as a whole. Tobias Bandel, Managing Director of Soil & More, showed a graph of Eosta's preliminary profit and loss account on BioFach. The chart made it clear that the hidden costs and benefits can be relatively large relative to economic earnings. For example, Eosta has delivered about 1 million euros to social returns in fertile soils, as it supports its growers in biological soil management. How the comparison with similar current businesses is, is not yet known, but Bandel says: "As our True Cost Comparison at Product Level so far is positive for biological, we expect this to be seen at the consolidated company level."

Final result: practical dashboard

By the end of March, the pilot partners report on the results for Eosta. Thereafter, the pilot will continue to investigate the impact of True Cost Accounting on investment and financing decisions, together with Triodos Bank, and calculate for other companies such as the German Lebensbaum. "More work will be needed to make the models more accurate," said Engelsman. "The ultimate goal is to have a practical dashboard that will allow companies in the food sector to calculate their impact on natural and social capital relatively easily."

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About the international framework of the pilot

The 'True Cost Accounting in Finance, Food and Farming' pilot follows the framework of the Natural Capitol Protocol, published in 2016 by the Natural Capital Coalition (NCC). The NCC was established in 2012 with the aim of helping companies to measure and improve their impact on natural capital. Members of the coalition include Whole Foods, EY, FAO and the World Business Council for Sustainable Development (WBCSD), in which major companies like Nestlé, Unilever, Heinz Kraft and Cargill are based.

Participate? Sign up on the website of MVO Nederland.

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Study Notes4u
Study Notes4u

Thanks for such a nice information
Check my ACCA website ACCA Study Material

10 September 2020 12:22
Hanneke van Veghel, MSc
Hanneke van Veghel, MSc

Heel interessant! Voor mijn boek Eten met Geweten ben ik op zoek naar iemand die ik kan interviewen over true price. Een deel van mijn boek gaat over de consument bewust maken en te inspireren om beter te eten. Hebben jullie ideeën over wie hier geschikt voor zou zijn?

30 June 2018 20:02