Calculating Costs Correctly – Difficult, But Possible

In traditional accounting, natural and social capital is not considered. “Calculate Correctly” by the Freiburg Regionalwert AG changes that.

Economic profit and loss accounts are of resounding importance when it comes to raising capital, pricing and assessing operating success. Therefore, these would have to be extended to include sustainability factors, risks would have to be recorded and evaluated, and performance would have to be rewarded. “This requires methods and instruments that are suitable for practical application,” the project report, which was published in November 2019, reads.

The research and development project “Calculate Correctly”, which should also include those figures and values “that enable a real assessment of ecological and social as well as regional economic performance factors”, was launched by Regionalwert AG in 2017 in cooperation with Die Agronauten. The aim was to map the operations of four farms in the region as completely as possible and at the same time to optimise the recording effort and manageability for the farm managers.

A complex matter

The project was ambitious, as the Agronauts admit: “The evaluation of sustainability performance is a complex matter and the monetisation of ecological and social services in an overall account is very costly.”

But in the final report the authors are satisfied: Great progress has been made in the identification of performance indicators for recording the sustainability performance of agricultural enterprises, in the setting of threshold values and in the monetarisation of services for more sustainability.

In this respect, the results of the project are likely to be of interest primarily to agricultural enterprises that have an interest in “presenting their services in a better and more differentiated manner and in the long term to promote a balancing of the values created through data collection”. “Calculate Correctly” offers an approach to “how sustainable management in agriculture can be differentiated, evaluated and ultimately compensated”. The project participants are optimistic that the application of the “Calculate Correctly” method could make a contribution to securing the livelihood of rural agriculture.

Where does the money come from?

One question remains open, however: where can the money come from that the farms need to finance the effort required to create added value? Here, Regionalwert AG and Agronauten point out possible variants. The starting point in the project was the identification of indicators for recording the sustainability performance of an agricultural enterprise. The step into accounting was then made by a monetary evaluation of sustainability performances. The remuneration of sustainability performances could be financed by a fund.

Other variants include write-ups, write-offs and risk provisions with their long-term corrective influence on corporate management as well as specific consideration in tax assessment.

Role model True Cost study

In order to achieve this goal, the example of the authors of the similar British “True Cost” study will probably have to be followed. Regarding the “true costs of food production” they had, among other things, recommended:

  • Recognize the value of integrated approaches and the calculation of true costs in the search for good solutions, avoid solutions to individual problems whenever possible.
  • Develop campaigns that encourage industry and politicians to make the true costs of food production visible.