Natural Capital What Is the True Cost of Food?

A kilogram of new potatoes this week costs just €1.29 in some German supermarkets. But is that the whole story? Not by a long shot. Environmental costs are almost always completely ignored. Some, though, are trying to change that.
Soya bean harvest in Brazil.

Soya bean harvest in Brazil.

Foto: Andre Penner/ AP

One-and-a-half kilograms of new potatoes for just €1.29 ($1.47), lettuce on special this week for just €1.49: The bargains from the weekend grocery shopping pile up on the kitchen table. Strawberries, at €3.99 per kilo, are still pretty expensive, but the season hasn't really started yet. So how are these prices arrived at, and do they reflect the products' true value?

The prices of bananas, beef, bread and other foodstuffs are determined primarily by supply and demand -- and sometimes by subsidies, quotas and price speculation. But the prices do not include contributions made by nature. These contributions include such things as the use of clean water or fertile farmland. Harmful chemicals, gases or polluting particles emitted during production are likewise not factored into the price, neither for producers nor consumers.

"Natural capital quite often is free. And quite often it's undervalued because it's free," says Richard Mattison, CEO of Trucost. His company has taken on the task of putting a price tag on nature. Using mathematical models, Mattison and his co-workers are attempting to identify the value lost when companies destroy or pollute the environment. "We make sure that the value of these natural systems is recognized," Mattison says. Trucost's calculations are intended to help companies optimize their production processes, assist investors in gauging environmental risks and allow scientists to better research the economy's dependence on natural resources.

George Monbiot believes this is the wrong way to go. This approach, the British author and environmentalist said in a 2014 lecture, "is not to protect the natural world from the depredations of the economy." Monbiot believes that putting a price tag on the environment is akin to subordinating its protection to capitalism. Principles such as commercialization and the pursuit of economic growth, he says, have been extremely damaging to the living planet. Approaches like that of Trucost, he believes, are now trying to present those same principles as the planet's salvation.

But for Mattison, the link between natural resources and monetary investment is clear. "In places where trees have been cut down, we've seen big droughts and the consequence of those droughts means you have to spend money. It's real money that you're spending: financial capital because you've lost natural capital."

What Does Nature Cost?

How, though, can deforestation, water pollution or damaging emissions be converted into money? "If you value water correctly, it would be correlated with scarcity," Mattison says. Doing so would mean that "products that rely on a lot of water in places where water is scarce would become more expensive." That, though, frequently isn't the case. "For example, in Jeddah (located in the Saudi Arabian desert) the price of water is three cents per cubic meter and in Copenhagen the price of water is more than $7 per cubic meter." Often, he says, subsidies are to blame for such radical disparities in the cost of water. Trucost seeks to include such factors in its calculations.

Mattison and his colleagues also try to put a number on other forms of environmental damage, such as the effects of air pollution on humans and nature. In China, for example, harmful emissions cause economic damage worth 5 to 10 percent of the country's gross domestic product, Mattison says. Those costs come in the form of additional medical expenditures because of respiratory disease, damage to buildings caused by acid rain and poor harvests. "Crop yield in China is on average 7 to 15 percent less than the global average," he says. "In other words, you need more land to create crops because of the air pollution."

On the strength of this approach, the company has calculated how much more a package of breakfast cereal, a bottle of fruit juice or a piece of cheese would have to cost if the demands on nature were considered. The result: cereal would cost 49 cents more, juice around 16 cents and cheese as much as a euro. The calculations for the three foodstuffs were made using standard median values. Were the products belonging to a specific brand to be examined, the results would be more varied. Prices differ depending on where and how a product is produced. Furthermore, it is impossible to include every environmental factor down to the last detail. The calculations would be far too complex.

For all three foodstuffs in the sample calculation, water is the decisive factor. For cereal, it is needed to farm the grain, for juice production it is necessary to grow fruit and cows need it in the production of milk for cheese. Farmers pay for the water, but Mattison says the price they pay doesn't necessarily reflect its true value. If one takes into account the availability of water at the production site, it has a significant effect on the price. For cereals, for example, the price varies between €3.29 and €4.68, depending on water supply.

Difficult Calculations

For Trucost CEO Mattison, however, variables like that are no reason to refrain from carrying out such analyses. His company even works together with the Food and Agricultural Organization (FAO) of the United Nations. Together, they are developing guidelines that are aimed at providing assistance when it comes to estimating the amount of natural capital used in food production. In a joint report, Trucost and the FAO have calculated how much natural capital is used in the production of different crops and meat products, depending on where it was produced. Here too, significant differences were found.

Costs for agriculture in Brazil, for example, are often particularly high because much of the land used for both agriculture and grazing was once covered by the Amazon rain forest. The high cost of poultry farming in Indonesia, by contrast, can be traced back to the emissions of greenhouse gases, which is particularly extreme there. When it comes to cereal farming, Germany is ranked poorly because of the relatively large amounts of fertilizer used.

Fairy Dust

But can such calculations have an influence on the production of foodstuffs and other products? For Mattison, the aim is the promotion of a new way of thinking that will ultimately result in more sustainable production. "I wouldn't say that in every case food should become more expensive. I would just say that we need to lower the true cost of food." His company is preparing the groundwork for that to happen.

Environmentalist Monbiot, though, doesn't believe that putting a price tag on nature will solve any problems at all. Money, he says, is not some kind of "fairy dust that you sprinkle over all the unresolved problems." Instead, he says, the idea of natural capital will simply increase the power of those who have money.

Trucost CEO Mattison also admits that the calculations themselves won't change much. But he believes that change will come once damaging incentives are eliminated -- such as subsidies for fossil fuels, excessive fertilization and water in arid regions. "In Saudi Arabia, they used to have a very significant subsidy for water. In fact, they used to give water for free for dairy farming and the cows were sprinkled every day with water. That water was created via desalinization, a very expensive process and very damaging to the environment as well because it is very carbon intensive."

In some cases, Mattison says, reliance on natural resources can be significantly reduced by returning to traditional, more sustainable production methods. Unilever, for example, trained 400,000 tea farmers in various countries to spread tea-plant clippings on their fields. The method saves both fertilizer and money.