True Cost Accounting: A Lens for Shifting Food System Perspectives and Practices
By Professor Harpinder Sandhu, Federation University Australia
December 9, 2022
The ecological footprint of food production, trade, processing, transport, and consumption is expanding rapidly. There is also a growing realization that many agrochemicals used in food production, protection and processing are harmful to human health. In addition, issues such as animal welfare, migrant labor, and inequity in food and farming systems are becoming increasingly recognized in world news. Despite global efforts to produce more food to meet the nutritional demands of all humans, more than 800 million go hungry every day, and over 3 billion people cannot afford a healthy diet. Meanwhile, food production and distribution are subject to the effects of ongoing global crises such as climate change, pandemics, and war.
In short, both the impacts of the global food system and the threats it faces are growing at a fast and furious rate. However, to date, the industry response toward resolving these environmental, social and governance (ESG) issues has been neither fast nor sufficient.
Two major issues confront the agriculture and food sector. First, agriculture and food are part of global trade. Agriculture annually adds USD 3.7 trillion in value to the global economy. Food has become one of the world’s leading tradable commodities, like minerals, timber, or metal. But in trading food as a commodity, the food industry loses sight of the connections between food, the natural environment, culture, diets, and people. For example, a few food types, such as grains, oilseeds, sugar, corn, and coffee, are valued disproportionately for global trade.
The second issue is that when farmers are part of such a globally interconnected system, they become some of the most vulnerable participants in the food value chain, left wide open to risks of disruption such as extreme weather events, political conflicts, and health crises. In response to these pressures, farmers tend to produce more by increasing efficiency and reducing risks. As a result, they may end up growing a narrower range of crops, or buying more land (if feasible) in order to operate more economically. Such practices push small-scale farmers out of business, and unsustainable farming practices using large amounts of agrochemicals and energy become a norm. Causing spikes in both food insecurity levels and greenhouse gas emissions, these trends have massive negative social and environmental impacts.
Professor Harpinder Sandhu
To address these issues, we need to transform food systems to become more resilient and valuable for both people and nature. Such a transformation requires us to understand the full-scale impacts and dependencies of current food systems, zooming in to investigate the way food is produced, and zooming out to examine the broader impacts of food trade, processing, distribution and consumption on planetary and human health.
We can accomplish this by using a True Cost Accounting (TCA) approach known as The Economics of Ecosystems and Biodiversity for Agriculture and Food (TEEBAgriFood). TEEBAgriFood is a comprehensive and foundational TCA framework to measure all impacts and benefits in terms of the four types of capital –natural (biodiversity, ecosystems, land, soil, air, water, etc.), social (social networks, norms, rules, etc.), human (skills, health, etc.) and produced (finance, production, etc.). This approach accounts for a variety of ESG indicators and expresses the measurements in terms of monetary value, which can then be reflected in profit and loss statements of farm accounts, agribusiness accounts, and national accounts. Applying the TEEBAgriFood framework can improve understanding of the negative impacts of food systems, as well as the benefits, and facilitate development of policies and practices to reduce harm and establish more resilient solutions.
Zooming in: TCA and local food systems
TCA can allow business and policy leaders to zoom in on various local and regional food and farming systems to examine the impacts on all four types of capital, and the opportunities that each system may offer as well. One example is an assessment of farming practices in India, supported by the Global Alliance for the Future of Food. Using the TEEBAgriFood framework, TCA is being applied to compare the following farming systems:
Natural farming focuses on production of sufficient and diverse types of food by managing soil fertility through crop rotations, bioremediation of soils, and natural pest controls to manage diseases and pests.
Tribal farming is defined as traditional farming methods with low levels of input and output, producing food primarily for self-consumption.
Chemical farming includes high levels of inputs, such as pesticides, fertilizers, genetically engineered seeds, irrigation, and heavy machinery, while producing high levels of output.
Initial results from a TCA analysis of these systems demonstrates that a natural farming approach produces substantial economic benefits for farm households, enhances social capital, and protects human health and the environment. Full peer-reviewed findings of this study will be published in early 2023.
Zooming out: TCA and the global food system
TCA can also be used to zoom out from local food systems to examine food value chains that are often spread all over the globe, with impacts and dependencies including transport, processing, packaging, distribution, and consumption. In response to climate risks, food businesses and fast-moving consumer goods (FMCG) companies are signing pledges to reach net zero by 2050 and are working to develop strategies to reduce their greenhouse gas emissions.
We can promote TCA as a tool to help measure not only emissions but also other externalities in natural, produced, social, and human capital. Such externalities are not being examined widely enough by food businesses, many of which currently focus on ESG measurement exclusively. Because ESG measurement is limited to capturing easily quantifiable inputs, it misses out on the system’s complexity, often leading to unreliable ESG ratings. Moreover, it does not allow measurement of impacts and outcomes. TCA is a sharper, more refined tool, based on systems thinking, and it allows measurement of impacts and outcomes that can be reflected in company account books and shared with investors and shareholders.
We need to develop local food systems that cater to the needs of local people and promote diet diversity by producing healthy and nutritious food in a way that conserves local environments. Similarly, global food businesses need to focus on developing resilience against global risks in food value chains. In both cases, TCA provides the path to shift food systems to become more sustainable for both people and the planet.
All photos –with the exception of the header image– are credited to Z Sandhu.
Professor Harpinder Sandhu
Professor Harpinder Sandhu is an ecological economist whose transdisciplinary research focuses on measuring social, human and natural capital to transform agriculture and food systems towards sustainability.