Farming News - True Cost Accounting: Spending our way towards sustainability

True Cost Accounting: Spending our way towards sustainability

14 Jul 2014

This  is part one of a two-part article investigating True Cost Accounting (TCA), one of a range of concepts touted as a means to make agriculture more sustainable in the long-term, using the power of the markets to drive change. The concept was presented to MPs at a meeting in Parliament last months, but a number of key thinkers have questioned the feasibility and appropriateness of measures such as TCA.

A .pdf of the full piece will be available to download with the second part of the story, which takes a critical look at TCA and the market-based ideas that underpin the mechanism.


From the dire warnings that climate change, once an abstract and distant issue, is already impacting on crop yields in Europe, to evidence from scientific experts that the world’s most commonly used agricultural insecticides are bad for life at every level of ecosystems, it is clear that the agricultural paradigm needs to change.


Action must be taken to adapt to the immediate effects of climate change, whilst reining in agriculture's contribution to pollution which is driving it; worldwide, the sector emits 12,700 Mt Carbon Dioxide equivalent each year – almost a quarter of global greenhouse gas emissions – and the UN expects this to grow by 30 percent before 2050. According to the FAO, after coal fired power generation, agriculture has the highest impact per sector on the environment when measured in monetary terms.


Linnet numbers have plummeted in Britain since the 1970s

In the words of Dr Jean-Marc Bonmatin, author of an IUCN-commissioned report on systemic insecticides which was published last month, "Far from protecting food production [conventional agriculture] is threatening the very infrastructure which enables it, imperilling the pollinators, habitat engineers and natural pest controllers at the heart of a functioning ecosystem."


So how, then, do we drive the fundamental changes that analysts from all quarters claim is desperately needed? Clearly, this is one of the most challenging issues facing humanity, given both the scale of the problem and the vested interests resisting change.


Some 'environmental economists' believe they may have found the answer – a market based mechanism that, by estimating the cost to society and the environment of detrimental practices and including it in production or retail costs, could out-price agriculture's more damaging elements.


True Cost Accounting is a means of addressing the 'negative externalities' of current agricultural production methods. Under the present food system, the costs of impacts on the environment and public health from agriculture are not met by food producers, but by the public or the environment itself.  As polluters are not forced to pay for their pollution, and there is no reward for those making extra efforts to produce food sustainably, environmental economists argue that there is therefore no impetus for a large-scale greening of agriculture.  

Background to True Cost Accounting: How we all pay for pollution


Patrick Holden of the Sustainable Food Trust is a leading advocate of the dirigiste concept. He sets the context thusly, "This economic system privileges unsustainable practices by redistributing the costs of their damaging impacts from the private sector to the public sector. So, for example, we pay for the cost of cleaning pesticide and fertilizer residues out of our water, in our water bill, when this cost should be more appropriately borne by the polluter."


The flip-side to this is that sustainable food producers have to pay more to produce food ethically and sensitively; their continued relevance relies on convincing customers to pay extra for the environmental services they provide, which, Holden claims, has resulted in the 'organic premium', used by the establishment to denounce sustainable food as elitist.


Holden and his supporters believe that, if some of the 'true costs' of food production can be identified and included into production methods, then green agriculture – which has benefits that exist outside of the market place – would win out, and a widespread greening would become a necessity for those wishing to remain competitive.  


Now that the more damaging side-effects of the current food system are becoming common knowledge, and its limitations more apparent, the Sustainable Food Trust believes that "the era of cheap food is ending."


The era of 'cheap food' could be coming to an end

Though in recent years, the proportion of household budgets spent on food has dropped, the UN has predicted a startling reversal; a 40 percent increase in the cost of food by the end of the next decade. Even Tesco CEO Philip Clarke admitted last year that the cost of food is rising.

True Cost Accounting: MPs hear evidence of negative externalities


At a meeting of the All-Party Parliamentary Group on Agroecology held in Westminster on Tuesday 10th June, speakers from the Sustainable Food Trust, the New Economics Foundation and RSPB made the case for true cost accounting to assembled MPs and policy makers. The meeting was following up on a Sustainable Food Trust event in December 2013, at the Royal Geographical Society in London.


At the December event, Dr Pete Myers of Environmental Health Sciences issued further stark reminders of the fragile and invidious position in which modern agriculture finds itself, and the costs currently being externalised. He warned that only a small fraction of chemicals used in agriculture have been independently studied for health effects. Myers stated, "The tools we have used to tell us what's safe and what's not are deeply flawed… they don't reflect the last 20 years of molecular genetics [or] the complexity of mixtures or cocktail effects."


In Parliament last month Patrick Holden said, "It's easier [now] to make a business case for farming in a sustainable way."


Holden said externalities – a term that was initially the preserve of economists – is becoming more widely understood, and can be applied to food production as the downstream consequences of different actions that are "not paid for where they are effected."


Holden said that applying True Cost Accounting to food production could drive a range of positive changes, from providing public health benefits (as Dr Myers pointed out in December, current understanding of the effects of conventional farming methods may well be the tip of an iceberg, or as he described it, a far-off mountain range), to making the case for employing more people in agriculture (addressing the social externalities of different business choices), to environmental protection. He suggested the market mechanism could lead business in a direction that is acceptable to the public at large, not just shareholders.


Aniol Esteban from the New Economics Foundation, however, tempered the enthusiasm of the other speakers. Esteban cautioned that "The market is thought of as something that will answer our questions for us, but economics is a social science based on judgements – it is highly subjective. Economics is not going to answer the question of 'what do we want our land to be used for?'"


Esteban argued that, whilst factoring in certain environmental or ecosystem features, or social impacts that are not part of the market – but for which a figure can more readily be estimated – is useful to frame an argument, the total value of an 'ecosystem service' or aspect of a community viewed in this way will always be much larger than the parts of it that can be described in monetary terms. He said, "No market based mechanism can or should ever replace this core stance."


Esteban claimed "Power is another issue" that must be addressed for rebalancing measures like True Cost Accounting to stand a chance of driving change. He reminded those present that the vested interests and lobbyists who inform agricultural decision making and drive the research agenda are unlikely to consent to any change in direction of the food system that will not be to their benefit.


The NEF speaker qualified his support for the Trust's vision, "I'm very worried that people have such faith in market-based solutions and it's often the only thing considered in cost-benefit analyses. Revealing hidden costs and benefits can be helpful – but it's a very dangerous game."


Continued in part two available here