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Fi Europe 2022

Determining the true cost – and value – of food

Article-Determining the true cost – and value – of food

© AdobeStock/Syda Productions Determining the true cost – and value – of food
The true cost of our food – and its negative impact on the environment and health – is not reflected in current food prices. However, with the right changes, global agriculture can be a valuable driving force for sustainability. Marjan van Riel of Rabobank discusses how food industry stakeholders can make this happen.

With the global population already having passed the eight billion mark, the food industry has a clear challenge: to feed more people and to do so more sustainably, all while lowering its carbon emissions, increasing biodiversity, and improving access to nutritious food.

While the food system is an emitter of carbon emissions, it is also a unique sink in sequestering carbon both in land and in vegetation. According to a 2022 report by the Intergovernmental Panel on Climate Change (IPCC), the mitigation potential of carbon sequestration in agriculture is almost as big as that of wind or solar energy. There is therefore ground for optimism – provided, of course, this potential is realised.

“That is also one of the reasons why, at Rabobank, we are looking at how we can support the food value chain and different actors in rewarding these kinds of ecosystem services,” said van Riel, business manager of food and agriculture at Rabobank International, speaking at Fi Europe in Paris in December.

“Can we give farmers credits for changing their practices in a way that they sequester more carbon in the soil or the vegetation growing on their lands? Can we help consumers in making transparent what the effects of their transactions are in terms of carbon emission effects? And can we help processors and other members of the food supply chain to decarbonise their supply chains?”

‘You can’t manage what you can’t measure’

It is important that food companies look at their footprint across the entire agri-food value chain when identifying how they can improve their sustainable credentials, van Riel said.

Ninety-five percent of the emissions reported by many retailers and food packaging companies, for instance, come from their suppliers further down the value chain, she said. If they are to reduce their emissions, they must therefore do so at the supplier level.

Another crucial element is knowing which metrics to measure – “because you can’t manage what you can’t measure” – and which methods to use. However, this is not always simple.

Comparing the carbon emissions of cow’s milk with soy milk reveals that soy milk has the lower carbon footprint, for instance, and is the more sustainable choice. But carbon emissions are not the only metric that matters; the food industry has a responsibility to feed the world healthy and nutritious food. Comparing cow’s milk and soy milk using a nutrient density index that calculates macro- and micronutrients (fat and protein but also vitamins and minerals) shows that cow’s milk is the richer and more nutrient-dense product.

“So, if we combine those two elements and put CO2 scores on a nutrient density basis, [...] milk may have lower emissions when you take into account all the nutrients it provides.

“This means it is not an easy question. It is not a one-dimensional question, it is a complex issue that has to balance different perspectives on the sustainability side, nutrient side, and many other issues like price,” said van Riel.

Should the price of food reflect its true cost?

According to one UN estimate that quantified the cost of unhealthy diets (such as treating cardiovascular disease, type 2 diabetes, and diet-related cancers) and food production (such as greenhouse gas emissions, land use, water pollution, and ammonia emissions), the true cost of food is nearly $20 trillion. However, food expenditure sits at around $9 trillion.

The true cost is therefore much higher than current food prices. However, increasing the final cost of a product three-fold to account for these externalities is neither feasible nor desirable for businesses or consumers.

How, then, can we create the right incentives to purchase sustainable products or implement true pricing that reflects the true value of food – without pricing products out of consumers’ reach?

Making information available for true cost and benefit accounting is one first step. Such transparency means buyers are aware of the true cost and can therefore reward frontrunners through their purchasing decisions, thus redistributing the costs and benefits, risks and returns, van Riel said.

This is already happening at a consumer level, with the Nutri-Score and Eco-Score front-of-pack labels in Europe enabling consumers to make better food choices. However, while these tools aim to simplify the process, they do not always make the decision-making process easier, she noted.

Sustainable purchases and decision-making: A complex process

Image credit: Angelique CachiaDetermining the true cost – and value – of food

Van Riel gave the example of several products from a Colruyt supermarket in the Netherlands that bear the Nutri-Score label, which rates products from A to E for healthiness, and the Eco-Score, which does so for sustainability. (Other retailers around Europe, such as Lidl, are also piloting these front-of-pack labels.)

Choosing the best milk product would be relatively easy: one product has both the lowest price and the best nutrition and sustainability scores. However, choosing a cheese is more difficult: one sliced cheese, priced at €7.38 per kilo, is rated D by Nutri-Score and C by Eco-Score, while another, rated C by Nutri-Score and D by Eco-Score, costs €14.20 per kilo.

Such front-of-pack tools are therefore useful to inform and empower consumers, but cannot be the only means by which the food industry actors improves the environmental or health impact of food.

The true value of food: First steps for food manufacturers

What does the true value concept mean for food suppliers and manufacturers, and how can they begin to put it into practice?

The first step is to begin measuring the impact of the products in their portfolios. Armed with this information, a supplier can show its manufacturer and retailer clients how the sustainable ingredients will improve not only their economic performance but also their performance through, for example, improved Nutri-Score and Eco-Score ratings, said van Riel.

Taking a holistic and long-term view is also important.

“You need to make sure that steering in one direction is not counterbalanced in the other wrong direction on another issue,” she said. “Taking those steps forward might already give you tangible levers to differentiate incentives and, with that, guide behaviour both in the value chain for other players and at a consumer level.”

However, she recognised that the process is complicated because the “puzzle” is hugely complex with many different possible targets. Today, attention is focused on carbon emissions, but water usage and biodiversity may become equally important points in the future.

The buyers of commodities and ingredients – suppliers, manufacturers, and retailers – need to pay attention to the efforts farmers are making in reducing carbon emissions and to reward them accordingly, van Riel said.

“A lot of farmers do know what the options are to reduce emissions and to produce more sustainably but they don’t see a business case,” she said.

It also works in the other direction. “Retailers need to set their own goals and push suppliers to change accordingly,” she added. “The question is always, can they transfer increased costs back to the consumers? In a lot of cases, they can’t. So, it will be a matter of mixing out the whole portfolio and having a business model for any part of the value chain, and also for themselves.

“You can’t only give discounts. And in the end, there will also be benefits but it might be in other parts of society. Governments also come into play in making sure that boundaries are set and there is a redistribution of the benefits.”