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Accounting for all the pluses and minuses in food systems

True cost accounting approaches do not just look at the usual financial metrics but enable the user to understand the broader human, social and ecological impacts of their food systems activities.

food economics illustration
Ekapol Sirachainan

The economic foundations of today’s food and agricultural systems continue to be dominated by a singular focus on productivity and increased yields.

This has distorted what is valued in assessments of how food is produced, sourced, processed, traded, sold and eaten. Moreover, it has led to the mass production of commodity crops and the proliferation of unsustainable practices — such as clear cutting to expand production, intensive livestock production, environmental contamination through pesticide and fertilizer use, soil degradation and more. The way these practices are pushing up against planetary boundaries and undermining human, animal and ecological health inevitably threatens a business’s bottom line.

There is an imperative for agri-food businesses to course correct, shift to operate from a values-driven proposition and, in doing so, shore up their operations against the looming risks they face.

One immediate way progressive food company leaders are doing this is by applying true cost accounting to their operations: assessing and measuring the negative impacts and positive benefits of their business practices and taking stock of their dependence on ecological and human resources.

True cost accounting approaches do not just look at the usual financial metrics; they also enable organizations to understand the broader human, social and ecological impacts of their food systems activities. By gaining this full picture of impacts, better decisions can be made in the short term and the longevity of businesses can be safeguarded over the long term.

Today, pollution, ecological degradation, diabetes, farmworker exposure to toxins, displacement of Indigenous peoples and more are largely unaccounted for on business balance sheets. At the same time, the positive externalities — carbon sequestration, pollination services, health and wellbeing and vibrant cultural traditions — also go unappreciated. Without a standardized way of capturing these impacts, sustainability efforts are being jeopardized.

True cost accounting approaches do not just look at the usual financial metrics; they also enable organizations to understand the broader human, social and ecological impacts of their food systems activities.

Business leaders operating in the food industry rely on a consistent and reliable source of ingredients and raw materials. With a more comprehensive and systemic understanding of their agri-food value chain in place — showing, for example, where soil health is in jeopardy — leads to smarter decisions that can futureproof companies by ensuring long-term supply chain resilience.

Olam International, a major food and agri-business company, provides an interesting example of the true cost accounting approach in action.

Olam developed an Integrated Impact Statement (IIS) to create a way for the company to understand how business and investment decisions impact natural, social and human forms of capital. Up until now, the company’s impact on the land and biodiversity (natural capital) or the benefits gained from workforce skills and talent (human capital) were not captured in the company’s financial performance.

Another good example is the work of Eosta, an organic food distributor based in the Netherlands, which decided to use true cost accounting principles to understand how it could pay warehouse workers and harvesters in Burkina Faso a living wage.

Eosta researched the work of mango supplier Fruiteq and the resulting study showed that the company could bring every single one of the 199 workers in a mango supply chain out of poverty by increasing the price of mangos by just 2 cents. When the mangoes went on sale in Germany in 2020, with this message communicated through the promotional materials, consumers were enthusiastic about the effort and more than 100 tonnes of organic living wage-branded mangoes were sold through only a few points of sale. Eosta now has new plans for living wage pineapples.

For others who also want to take an integrated approach to food sector assessment, concrete and innovative tools, such as the TEEBAgriFood Framework developed by the United Nations Environment Programme (UNEP), with support from the Global Alliance for the Future of Food, can provide businesses with an immediate way to assess how their food systems operations impact people, society, the environment and natural resources.

This implementation guide, launched last year, provides a step-by-step guide to applying true cost accounting, based on the foundational TEEBAgriFood Framework. It can be used for free and on any scale, from a single ingredient you source to your whole operations, allowing users to comprehensively analyze current practices and make informed decisions for the next quarter and beyond.

Ultimately, echoing the Dasgupta Review on the Economics of Biodiversity, it's never been more important to change how we think, act and measure economic success to protect and enhance our prosperity and the natural world. 

For food and agriculture businesses that want to build resilience and to understand how sustainability can go hand-in-hand with profitability, now is the time to start measuring what matters; to adopt new tools that deliver a better understanding of the many interdependencies across your agri-food value chain.

As we can see from the launch of the Sustainable Markets initiative at Davos in 2020 to the growing popularity of the Wellbeing Economy Alliance, more consumers, investors and shareholders are coming together and looking for sustainability and environmental harm reduction to be reflected in the food they buy and the businesses they support.

Continuing on with "business as usual" approaches to decision-making is too risky — for people, the planet and for the companies that care about our collective future. Accounting is an immediate place where change can happen.

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