Do the math: the real cost of our food

Freiburg / Br. Cheap is expensive. This is especially true for food. The prices at the supermarket checkout hide a large part of the cost of our food. We all pay them: with our taxes, our water and garbage fees and many other bills. The consequences of climate change alone are already costing billions.

The flood of pigs and manure

Conventional agriculture over-fertilizes many soils with mineral fertilizers and liquid manure. Too much nitrogen forms nitrate that seeps into the groundwater. The waterworks have to drill deeper and deeper to get reasonably clean drinking water. Soon the resources will be used up. Germany faces a fine of more than 800.000 euros each month to the European Union for the high levels of nitrate in the water. Nonetheless, factory farming and the flood of liquid manure continue. In the last 20 years, Germany has transformed from pork importer to largest exporter - with billions in subsidies from the state coffers. Every year 60 million pigs are slaughtered in Germany. 13 million land on the garbage heap.

In addition, there are residues of plant protection agents in the food, the deterioration of the overburdened soil, the energy expenditure for the production of artificial fertilizers and many other factors that pollute the environment and climate. 

Agriculture costs $ 2,1 trillion each year

According to a study by the UN World Food Organization FAO, the ecological follow-up costs of our agriculture alone add up to around 2,1 trillion US dollars. In addition, there are social follow-up costs, for example for the treatment of people who have poisoned themselves with pesticides. According to estimates by the Soil and More Foundation from the Netherlands, 20.000 to 340.000 farm workers die every year from poisoning from pesticides. 1 to 5 million suffer from it. 

In einer Study the FAO also puts the social follow-up costs of agriculture at around 2,7 trillion US dollars per year worldwide. In doing so, it has not yet taken all costs into account.

Christian Hiß wants to change that. The 59 year old grew up on a farm in southern Baden. His parents switched the business to biodynamic agriculture as early as the 50s. Hiß became a gardener and began growing vegetables on the neighboring property. In 1995, like most agricultural businesses, he introduced double bookkeeping in accordance with the Commercial Code and quickly realized: "Something is wrong there."

Calculate correctly

As an organic farmer, he invests a lot of time and money in maintaining soil fertility, in mixed instead of monocultures, changing crop rotations and green fertilization - i.e. the environmentally friendly cultivation of his land. “I cannot pass these costs on to the prices,” says Hiß. “The gap between costs and income widened.” So his profits have become less and less.

Those who produce their own fertilizer or grow legumes as catch crops to add nitrogen to the soil pay extra. "One kilogram of artificial fertilizer costs three euros, one kilo of horn shavings 14 and one kilo of self-produced natural fertilizer costs 40 euros," says Hiß.

Artificial fertilizers are produced in large quantities in Russia and Ukraine, among others. The employees of the factories there could hardly or not at all live from the low wages. The horrendous energy consumption for production not only affects the global climate balance.

Gardener Hiß, who studied social banking and finance, wants to include all these costs in the price of groceries.

The idea is not new. Since the beginning of the 20th century, economists have been looking for methods to include these so-called external costs in the balance sheets of companies, i.e. to internalize them. But how much is a healthy environment worth? What is the cost of fertile soil that can absorb and store water and is less eroded than the depleted areas of large agricultural companies?

Include follow-up costs in the prices

To get a more precise idea, Hiß starts with the effort. It calculates the additional effort for soil maintenance and other more sustainable farming practices for farmers. Those who use less heavy agricultural machinery ensure that the soil remains air-permeable and fewer microorganisms die. These in turn loosen the soil and increase its nutrient content. Farmers who plant hedges and let wild herbs bloom are given habitats for insects that pollinate crops. All of this is work and therefore costs money. 

In Freiburg, Hiß and some allies have them Regional value stock company founded. With the money from the shareholders, these farms, which they lease to organic farmers, are used to participate in the sustainable processing of food, trade, catering and gastronomy. 

“We invest in the entire value chain,” explains Hiß. In the meantime he has found imitators. Throughout Germany, five Regionalwert AGs have collected around nine million euros in share capital from around 3.500 shareholders. In doing so, they have participated in ten organic farms, among others. The securities prospectus approved by the Federal Financial Services Agency (BaFin) promises “social and ecological assets” as well as the preservation of soil fertility and animal welfare. The shareholders cannot buy anything from it. There is no dividend.

Corporations take part

Nevertheless, more and more large companies are jumping up. Hiß names the insurance company Allianz and the chemical company BASF as examples. “The big auditors like Ernst & Young or PWC also support Hiß in the accounting of services that organic farms provide for the common good. Four companies have so far been examined in more detail: For a turnover of around 2,8 million euros, they generate additional expenditure of around 400.000 euros, which has not yet appeared as income in any balance sheet. The Institute of German Auditors IDW also acknowledged that the operating profit and loss account must also take into account non-financial factors.

Regionalwert AG Freiburg works with SAP, among others Programs to measure added valueThat, for example, organic farmers create through their environmentally friendly cultivation methods. Over 120 key figures from ecology, social affairs and regional economy can be recorded and calculated for a financial year. For this, the regional value requires 500 euros net per year and operation. The advantages: Consumers can be shown what farmers are doing for the common good. Politicians can use the figures to redistribute the agricultural subsidies of around six billion euros annually, for example. If used correctly, the money would be enough to make agriculture more sustainable. On December 1st the Regional value performance calculation, with which farmers can calculate the added value in euros and cents that they create for society

The fourth look

In the Quarta Vista project, the international software company SAP has taken on the lead of the consortium. There, the experts develop methods with which the contribution of a company to the common good can be measured and proven. 

Dr. Joachim Schnitter, SAP project manager at Quarta Vista, mentions the first difficulty: “Many values ​​that a company creates or destroys can hardly or not at all be expressed in numbers.” The very question of how many euros a ton of clean air is worth can hardly be answered. Even possible environmental and climate damage can only be calculated in advance if one assumes that it can be remedied or otherwise compensated for. And: Later consequential damage is often not even predictable today. That is why Schnitter and his project team take a different approach: "I ask what risks we reduce or avoid if we behave in a more environmentally or socially responsible manner at one point or another". Avoiding risks reduces the need to set up provisions and thus increases the value of a company. 

With the CO2 certificates and the planned pesticide levy, there are initial approaches to allow those who cause them to share in the follow-up costs of their business. SAP assumes that “the future will force us to run companies more ecologically than before”. The group wants to be prepared for this. In addition, a new market is emerging here for software that makes the social and ecological effects of a company visible. Like many others, Schnitter is disappointed with politics. “There are still no clear guidelines.” This is one of the reasons why many companies are now moving ahead.

If you include the follow-up costs, “organic” is hardly more expensive than “conventional”

Project partner Soil and More has Sample calculations - Subdivided among other things according to the impact on soil quality, biodiversity, individual people, society, climate and water.

If one only takes into account the effects on soil fertility, the yield of one hectare of apple cultivation per year in conventional cultivation costs 1.163 euros, in organic cultivation 254 euros. In terms of CO2 emissions, conventional farming costs 3.084 euros and organic farming costs 2.492 euros.

"These hidden costs are now so enormous that they quickly fade the supposedly low prices of our food," writes Soil and More. Politicians could change that by asking the polluters to pay for the consequential damage, only subsidizing sustainable agriculture and lowering the VAT on organic products.

Gardener and business economist Christian Hiß sees himself on the right track. “We have been externalizing the costs of our business for more than 100 years. We see the consequences in forest dieback, climate change and the loss of soil fertility. ”If farmers and agricultural industry calculate correctly, supposedly cheap food from“ conventional ”agriculture becomes very expensive or the producers go bankrupt. 

“Bookkeeping”, add Jan Köpper and Laura Marvelskemper from GLS Bank, “only ever depicts the past.” However, more and more companies wanted to know how sustainable their business model is. Investors and the public are increasingly asking about this. Managers worry about the reputation of their companies with potential customers and investors. Christian Hiß makes his way to his SAP project partners. They would have read his book and quickly understood what it was about.

Info:

Climate Action Network: Association of investors who only want to invest in companies that meet the Paris climate targets: 

Regionalwert AG Citizens' Stock Corporation: https://www.regionalwert-ag.de/

To further develop reporting standards in the direction of regeneration & “thriveability” instead of sustainability: https://www.r3-0.org/

Projects Quarter vista, funded by the Federal Ministry of Labor and Social Affairs, project management company SAP, project partner Regionalwert, among others: 

BaFin: "Leaflet on dealing with sustainability risks"

Book: 

“Calculate correctly”, Christian Hiß, oekom Verlag Munich, 2015

“Ecologically renewing the social market economy”, Ralf Fücks and Thomas Köhler (eds.), Konrad Adenauer Foundation, Berlin 

"Degrowth for introduction", Matthias Schmelzer and Andrea Vetter, Julius Verlag, Hamburg, 2019

Note: Because the concept of Regionalwert AG convinced me, I have been supporting the project performance accounting for farmers in press and public relations since November 30, 2020. This text was written before this collaboration and is therefore not influenced by it. I guarantee that.