Conventional Agriculture – More Expensive Than You Might Think

The view that conventional products are cheaper to produce than organic ones is wrong. The reason: the costs for society as a whole are not taken into account.

Organic products are generally more expensive than products from conventional agriculture. The costs of production are higher. But this is only true when viewed from a purely economic perspective. If external costs are taken into account, the picture changes. The Food and Agriculture Organization of the United Nations (FAO) initiated the project in 2014 to take into account the costs of agricultural production to society as a whole. Since then, many organisations have followed suit.

Full costing is required

The FAO describes its approach as follows: invisible resources (such as intellectual, human, social and natural assets) are not recorded in traditional financial balance sheets, and these need to be translated into a common currency in order to make strategic decisions about impacts and dependencies. Therefore, full cost accounting, also known as true cost accounting, total costs or overall burden, is required. These include non-marketable goods such as environmental and social goods in order to analyse the costs and benefits of business and/or political decisions.

There are many approaches that companies use to measure and assess their impacts and dependencies, to determine their decision-making and strategy, and to engage with stakeholders. Large consulting firms also use the advanced approach for cost calculation, risk assessment and help in decision making, according to FAO. The 2017 document “Millennials’ Inheritance Revisited” mentions “Total Impact Measurement & Management” (2013) by PricewaterhouseCoopers, “True Value” (2014) by KPMG and “Total Value” (2017) by E&Y. The FAO offers the Natural Capital Protocol, which complements all these approaches and provides a standardised framework for including natural capital in decision-making.

Costs are borne by the company

If this neutrally formulated approach is translated specifically into the world of organic producers, it reads like this: if synthetic mineral oil-based fertilizers, herbicides and pesticides are used in the production of food, external costs are incurred because this use has an impact on soil degradation and soil impoverishment, water pollution and climate change. These costs are incurred by the producer, but are borne by society as a whole.

In 2017, the Sustainable Food Trust’s study “The Hidden Cost of UK Food” applied this approach and came to a remarkable conclusion: for every pound spent on food by UK consumers, a further pound of consequential costs in the form of health and environmental damage is incurred. So if you look at the real costs, organic food is cheaper than conventionally produced food.

Difference between market prices and actual prices

In 2018, the working group “Markets for People” (Märkte für Menschen) at the University of Augsburg contributed to showing the delta between current market prices and actual prices. Their study “How much is the dish” came to similar conclusions as their colleagues from Great Britain: According to this study, the highest external effects or follow-up costs were associated with the production of conventionally produced products of animal origin (196% mark-up on producer prices), the second highest mark-up would result from conventionally produced dairy products (96%) and the lowest for organic food of plant origin (6%).

If the values of the CO2 footprint, the effort required for water treatment and soil erosion are known, any organisation or company can use the model presented by the FAO to calculate the hidden costs of a product, writes the Federal Centre for Nutrition (BzfE) of the Federal Agency for Agriculture and Food (BLE).