True Pricing: producing sustainably at a fair price

Item date:

11 July 2018

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Achtergrondartikelen

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Test with 5 entrepreneurs in Limburg

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Healthy food and the impact of food production are becoming increasingly important topics for consumers. People want to know what they are eating and want to understand what the impact is on their bodies and on the planet.
This is also reflected in figures from Rabobank: over the past five years, sales of organic food in the Netherlands have increased by an average of 10% per year, while the food market as a whole grew only 1% per year.

The business community is starting to respond better to the need for more information about the origin of food products and the method of production. For example, Nature and More labels its fruits and vegetables with a code, allowing consumers to trace the origin and meet organic growers virtually. This company also introduced the sustainability flower, to make all aspects of sustainability transparent for consumers, retailers and growers.

Sustainability flower

What sustainable manufacturing has to do with True Pricing

Producing sustainably is often more expensive, and that's still holding back mass adoption. At least, if you look at supermarket prices. This is where True Pricing comes in.

True Pricing is all about giving a complete picture of costs. Not only all visible costs, but also the hidden costs of production are identified. With hidden costs you can think of:

  • Costs for water purification that are required due to discharge of wastewater
  • Medical costs incurred due to air pollution or other environmental damage
  • Costs for raising levees needed because the water table is rising due to climate change

Hidden costs are passed on to society. Indirectly, therefore, consumers do pay for them through taxes or perceived damages.
This video puts it very clearly:

True Pricing makes all costs transparent, to help the consumer make a more informed choice. But making all costs transparent is not that simple. It often concerns long-term effects that are difficult to attribute to a specific activity of a company. What is the impact of that one farm or factory on soil and water quality? How do you measure that within a complex environment where many other factors also influence? And how do you put a price tag on that particular impact?

True Cost flower

Importer of organic fruits and vegetables Eosta commissioned Soil & More Impacts and EY (formerly: Ernst & Young) to make the benefits of organic production financially visible with the True Cost Flower. The dashboard provides policy makers with a tool to tax more harmful production methods and reward sustainable ones. This makes it clear that organic is not so much expensive. Current production methods are actually too cheap, because the hidden costs are not included in the price.

Miniflyer true cost

Idealism or economics

Banks, investors, pension funds and institutional investors will in the future not only judge companies by their financial performance, but also look at the impact on nature and society.
More and more politicians realize that organic production can save a lot of public spending. In Sweden, the tax on fertilizer has even been raised to 20% to discourage use and prevent soil pollution.
In the Netherlands 25% of the Dutch groundwater is polluted by agricultural chemicals, so here too the need to produce differently is great.

True Pricing in Limburg: potential in corporate catering

Province of Limburg had students of the Hotel Management School Maastricht research the market potential of the TCA principle among companies when it comes to the purchase of company catering. Buyers at 96 Limburg companies with 75 or more employees were questioned about this. The results showed that there is potential, particularly among companies who put sustainability and a socially responsible purchasing policy before price and convenience. Important preconditions for successful implementation include transparency and practical applicability of the TCA principle and communication about TCA to the end user.

In addition, Soil & More Impacts has done a project with five companies in Limburg to investigate the True Cost of their methods. The approach is to determine a 'fair' price of food and to investigate whether the chain partners are willing to pay together for the added value of a sustainably produced Limburg product. Five ambitious entrepreneurs discussed their business and social contribution. They are People's Farm (Maasbree), fruit and hop grower Roger Wouters (Reijmerstok), fruit grower Lion Kniest (Baarlo), bioteler Bioverbeek (Velden) and dairy farm Guido van Hoven (Eckelrade). These leaders not only supply food, they also indirectly provide services for the landscape and society. In doing so, they have an impact on soil fertility, soil water management, CO2 storage and biodiversity in the surrounding area. For the consumer, however, this is not yet visible and therefore he cannot appreciate the difference with other companies.

Discussion on price

Soil and More Impacts has made the cost calculations per hectare. If these costs were calculated back to a price per product you end up quite high, which would reflect an unrealistic 'market' price of vegetables, fruit and milk from Limburg. The calculation method according to the TCA principle is still under development. What is becoming clear is that negative externalities can now be quantified even better than positive ones.
The Province of Limburg is one of the first provinces to start working with this. Commissioner Hubert Mackus of Agriculture also wants to explain the importance of this in The Hague and Brussels. Mackus: "The discussion about price must be held by all of us, only then can we really make progress."

Continued with speed dates

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From the study, it became clear once again that all the costs incurred in producing food are disproportionate to the market price set by the market and currently paid by purchasing organizations and consumers. The system is no longer sustainable and will have to change.
As a next step, the Short Chains Working Group will start organizing speed dates between caterers and sustainably producing agricultural entrepreneurs.

Do you want to know more about these speed dates? Please contact Sanne Minten (sljn.minten@prvlimburg.nl) or Niek Theunissen (niek.theunissen@liof.nl) of the Working Group Short Chains.

If you want to know more about these speed dates, please contact us.

Download the advisory report of Hotel Management School Maastricht on the market potential of TCA

here.

Sources: True Cost Accounting Limburg, Eosta / Sustainable Business / Province of Limburg
Visual material: Eosta