True Pricing anno 2020: where do we stand?

In July 2018, Kiempunt published an extensive background article on True Pricing: pricing of products that also includes all indirect costs such as environmental costs. In the meantime, one and a half years have passed and ABN Amro recently organized a meeting 'From loss model to earning model, the fair and true price of food' with important stakeholders in agrofood. Kiempunt gives you an update on the latest insights when it comes to true pricing and making our food production more sustainable.

4 routes

Pierre Berntsen, director of Agricultural Businesses at ABN Amro distinguishes 4 routes to make food production more sustainable in a profitable way:

1. More with less: more efficient production through technical innovation, something the Netherlands has traditionally been strong in
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2. Work differently: operate smarter without increasing costs
3. Financial incentives or compensation: subsidies or payments for farmers' efforts aimed at nature, climate, soil, biodiversity or landscape elements
4. The royal route: additional costs of sustainability incorporated into the price, so that all links in the food chain, including the consumer, pay for the additional costs of sustainability

Berntsen sees the fourth route as the most important for sustainability to be broadly supported and sustained.

Big interventions needed to increase sustainability

Professor Jack van der Vorst of Wageningen University argues that the pressure on the Dutch farmer arises from global developments such as climate change, overpopulation and overconsumption. Major interventions are needed to create a sustainable agrifood system. Michel Scholte of True Price expects that the government, under pressure from international treaties, will want to put a price tag on environmental costs such as CO2 emissions and nitrogen deposition, so that the prices of agricultural products become more realistic. The only question is how consumers will be persuaded to pay for sustainability and what steps will be needed in the chain.

Cooperation of all links

To get a real, fair price, the cooperation of all links in the chain is needed. In practice, this appears to present the necessary obstacles. In a world market for agricultural raw materials, the law of the lowest price applies and many Dutch people claim to consider sustainability important, but do not show it in their spending. The European internal market on the one hand gives a foothold with regulations - think of the obligatory printing of product and origin codes on eggs - but on the other hand controls and enforcement are often arranged at national level and this creates unfair competition. Supermarkets could perhaps steer more, but within the large supermarket organizations there are different interests, in which sustainability does not always win. People therefore see themselves more as a facilitator than a coordinator.

On the way to a uniform calculation

Toughly good steps have already been made when it comes to True Cost Accounting (TCA), reports Michel Scholte. The actual cost price of tropical agro-food products such as chocolate and rice can now be properly calculated. In the Netherlands this is now done for example for potatoes, tomatoes and pork in the multi-year program of the Top Sector Agri & Food. The most important hidden costs are the recovery costs, compensation costs, prevention costs and penalty costs. The next step is for the calculation method to be freely available to everyone. Then there must be an international standard for that method, so that you measure with the same yardstick in the global market.

How to calculate the costs of biodiversity loss?

Calculating the costs is done in different ways. Take the loss of biodiversity. You can quantify that through the mean species abundance measure (MSA). An MSA of 33% means that populations of native plant and animal species are one-third of their size in natural, undisturbed conditions. If you have contributed to that, you should restore your share or-if that is not possible-compensate elsewhere. Furthermore, you would have to take preventive measures to preserve what is there and pay a fine for the damage you have caused. In short: complex calculations, where steps still need to be made.

Government and industry chase each other

Because the hidden costs are becoming more transparent, both industry and government will have an instrument to set new standards. The expectation is therefore that governments will become more ambitious and will want to become more sustainable more quickly. Companies need to get serious about new revenue models that incorporate the hidden costs. Meanwhile, large companies such as Unilever and Philips are already making impact analyses and holding their customers and suppliers to them. This is logical when you consider that the costs of traceability are getting lower and lower and abuses are being spotted more quickly.

The consumer

It is often said that consumers are not willing to pay the real price of a product. True Price is investigating whether this is true with a physical True Price Store in Amsterdam, among other things. The expectation is that willingness depends on the type of consumer, the product and the season. Good information provision is essential. In Limburg there are already several locations where consumers are willing to pay a better price for the benefit of the farmer. Think of Community Supported Agriculture (CSA) initiatives, such as Share Weelde, a cooperative of farmers and citizens who set the price together. Or initiatives like Herenboeren and Boeren en Buren that are already active in various locations in Limburg. Also the fresh crate of People's Farm offers more space for farmers. An additional advantage for the farmer in the case of CSAs is that the risk is spread by a fixed contribution from the consumer at the beginning of the year. The consumer thus actually becomes a shareholder in the farm and gets a say in return.

5 opportunities for farmers

Katja Logatcheva of Wageningen University Research (WUR) has been studying price formation in the agro in the Netherlands and the EU for 10 years. She sees opportunities on 5 fronts for farmers to get a higher margin for their product:

1. More mutual cooperation: in sectors such as dairy, fruit and vegetables and pig farming, the results are better if parties join forces.
2. More cooperation between farmers: in sectors such as dairy, fruit and vegetables and pig farming, the results are better if parties join forces.
3. Produce a distinctive product: think of Tasty Tom tomatoes or Livar pork
4. Better responding to consumer needs: for example, growing other varieties at the season's end
5. Produce more cheaply: smart in the short term, but watch out for the race to the bottom
6. Better negotiations: this requires more insight into the costs and margins of other parties in the chain. To this end WUR is collaborating on the Food Chain Pricing Monitor, so that the discussion can be based on facts. The first report is expected in mid-2020.

In addition, the government can stimulate sustainability by protecting the internal market with import tariffs, as happens in Switzerland. Swiss farms are more sustainable and small-scale, and the income per kilo of product is higher than in the Netherlands or Germany. In Norway you see something similar: the cultural landscape is highly valued and determines the level of subsidies.

More information and knowledge exchange?

In the group Short Chains you can ask questions and connect with other Kiempunt members who are interested in True Pricing. In addition, in February 2020 a bootcamp took place from the LOF program in which Willem & Drees from Amersfoort presented their approach and showed how they calculate the environmental impact of their meal box. Their goal is to make climate-neutral eating possible for consumers. Food Squad also contributed to LOF's Bootcamp, an initiative where various companies and institutions bring together knowledge and expertise to enable healthy people on a healthy planet with food innovations. Both presentations are available for download in the group of LOF at Germ Point.

Sources: ABN Amro, From Loss Model to Earnings Model , Food Otherwise, LOF, Food Squad, Willem & Drees