When you go to a cinema, the movie may cost 5 euros, but this doesn’t cover the external costs like transportation, fuel to use, phone credit to call, snacks and drinks. Likewise, when we go grocery shopping, we only see the price indicated on the product. The shown price is an indication of one part of the costs incurred to produce it, but not the entire one.
To help us understand this more, let us follow the journey of a crop. We will use potatoes. If the potato is grown conventionally, it is sprayed with synthetic pesticides and the soil hosting it is covered with chemical fertilizers. This could have an effect on the soil over time in that the organisms that keep the soil alive are destroyed by the chemicals and this leads to the soil losing its ability to retain water. When it rains, soil erosion can occur and all the sprayed chemical substances are washed away as well which can find its way into canals, rivers, lakes and water streams. Aquatic life is affected by this as well as humans. The inability of soil to retain water due intensive chemical use may lead to soil erosion that could also cause flooding.
The community has to pay taxes on one hand, for water treatment to get rid of the toxic chemical substances and on the other hand, for damming or excavation to avoid flooding. In the end, these extra costs that are incurred are paid off by our taxes and then not reflected on the final prices that we see in the supermarket of conventional products.
Consumers don’t see that we pay for more external costs through our taxes for water pollution and waste-water facilities caused partly by unsustainable agricultural practices. That is why it is important to have True Cost Accounting (TCA): a transparency tool that makes the hidden calculations visible and shows the consumer the actual price of the product being purchased.
When you do TCA, you are able to assess the impact of a food system as a whole or a farm. One is able to get an adjusted cost of production by calculating the costs for fertilizers, tractors, seeds and also the ecological footprint or climatic impact of the chemical inputs used.
For instance, 1kg of nitrogen fertilizer produces 7kg of carbon dioxide. The market price of nitrogen fertilizer is about 25 cents per kg. If this 1 kg causes 7kg of carbon dioxide, the related climate cost has to be included. According to FAO, 1000 kgs of carbon dioxide is worth or causes damages worth around 100 euros. That results in 10 cents per kg of carbon dioxide, applied to nitrogen fertilizer, this hidden or external costs would lead to an increase of 70 cents per 1kg of nitrogen fertilizer, resulting in a true cost of fertilizer of 95 cent instead of 25 cent current market price.
There are organisations like Soil & More Impacts who calculate the total costs and benefits of production, including the hidden costs, of different production systems (organic and conventional systems) and show the findings.
Another way we look at TCA is in line with a farm’s future and profit margins. A big farm that is farming intensively may produce good profits in the first year, but not in 5 years. When the soil is being damaged and stressed, beyond capacity, there might be productivity gaps in 5-10 years as a result of deteorated soils.
“We use this risk assessment to show people the damage they do to their businesses by paying low prices and not investing in creating resilient soils, farms and systems. Even the buyer and trader will not be able to buy from a farmer who cannot deliver quality products in 5 years. This may not only cause ecological damages, but also financial ones. This way, banks increasingly include so-called natural capital risks in their credit-worthiness checks of farms and supply-chains”, shares Tobias.
Organic offers solutions to not only reduce the true cost but also increase the true benefits of farming, for example, biodiversity is created, soil’s ability to retain water is increased and carbon is sequestered. Organic and agroecology show solutions to farm in a way which costs us less and has less damage on our biodiversity. We need more than not applying fertilizers, we need sustainable practices e.g. mulching, crop cover, etc. They help in increasing the resilience of the soil and business aspects. It secures food security. Other systems may appear cheap but would not be able to produce food in the changing climate on the mid- and long-run. It is possible to have low costs and a positive impact. Organic is definitely part of the solution.
What can every-day consumers do to be more aware of hidden costs!
Give food more time! This includes what we shop and consume. Try to find out where your food comes from and the efforts used to produce it. Even when you drink a cup of coffee. There is a lot of sweat and hard work that goes into it that it is impossible for it to only cost a euro. When you buy organic and fairtrade products, at least you have the guarantee that you are consuming products that are having a positive ecological impact on the environment.
Table: Impacts of conventional farming and loss of productivity