Should Food’s Environmental Damage Be Included In Its Purchase Cost?

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What would food cost if its environmental damage were to be factored into its actual retail price? If grocers and manufacturers took into account the environmental impact of meat, milk,  cheese, and other foods, they would actually cost much more than is normally required today.

The practical application of that idea was recently exposed on behalf of a German discounter, Penny. A study conducted by the University of Augsburg recalculated costs for a total of 16 own-brand products in the retail chain. In addition to the regular production costs, they also figured the effects of greenhouse gases during production, the consequences of overfertilization, and energy requirements.

The German chain will now display those prices in its new, sustainable store in Berlin’s Spandau district.

Food’s Environmental Damage: Climate Change, Eutrophication, & Loss of Biodiversity

Food supply chains are one of the main contributors to several pressing environmental problems, such as climate change, eutrophication, and loss of biodiversity.

For example, for products with relatively low environmental impact ingredients, such as soft drinks, packaging production can be the main contributor to the overall environmental impact. In contrast, for products with high-impact ingredients, such as cheese, the relative contribution from packaging to the overall environmental impact is usually small.

Transportation fleets transfer products between supply chain’s centers and are one of the important factors which increase environmental impacts. Green supply chains with forward and reverse logistic consideration are currently being considered to offset food’s environmental damage.

Unlike current food prices, the true costs of food products also include the environmental and social costs incurred during food production, also known as negative externalities. The real price consumers are paying for agricultural greenhouse gas emissions is at the core of our existential climate crisis. On a more local and personal level, that could mean new costs on a water bill for treating drinking water that has been contaminated with fertilizers.

A press release from the Rewe group describes how the true cost accounting not only calculates the price of a foodstuff based on its direct production costs but also expresses how the foodstuff impacts ecological or social systems in monetary terms. When applied to food prices, consumers see the actual price of their food and its relationship to other systems beyond just the checkout, and this helps them to understand what long-term effects individual products are having not just on their financial circumstances but on the health of the planet as well.

Due to the increasing awareness of climate change, depletion of natural resources, and increasing world population, companies in the agri-food sector need to redesign their existing supply chains and take into account both the economic and environmental impact of their operations.

Penny’s Problem is across Consumer Culture

The University of Augsburg study, titled, “Global Climate Impacts of Agriculture: A Meta-Regression Analysis of Food Production,” is forthcoming from the Journal of Cleaner Production. In it, pricing effects are significant, especially for meat and animal products. The price of meat from conventional rearing would have to rise by 173% if the hidden costs were taken into account.

“Environmental damage is currently not included in the food price. Instead, it is a burden to the general public and future generations,” Tobias Gaugler, who led the research at the University of Augsburg, states.

Here are some of the calculations at which the team arrived when considering the environmental impact of foods.

• Milk = +122%
• Gouda cheese = +88%
• Mozzarella cheese = +52%
• Bananas = +19%
• Potatoes and tomatoes = +12%
• Apples = +8%
• Organic meat = +126%

Most organic product surcharges, however, were consistently somewhat lower than for conventionally manufactured goods.

Gaugler adds:

“Current food pricing does not reflect the costs incurred by the environmental impact of nitrogen, greenhouse gases, and energy production – or does so only inadequately. Nevertheless, damage to the environment does incur costs, which are simply hidden. Our calculations demonstrate this true price gap, although we do not have the data to account for other important aspects, such as animal welfare or the effects of multi-resistant germs. I am pleased that this discussion is no longer confined to scientific circles and is now part of people’s daily lives. And I’m very excited to see whether this dual pricing initiative will have a steering effect.”

“We have to make clear the true costs of consumption,” Rewe’s CEO Stefan Magel says, so consumers can be truly informed while shopping. “As a company in a very competitive market, we certainly are a part of the problem,” he admits. He hopes that including the environmental costs in visible pricing for customers will start conversations about finding environmental solution. “Sustainability is becoming a more important factor when choosing a store.” Magel is an executive board member of Retail Germany of the REWE Group and COO of Penny.

Magel did want to be clear that Penny’s customers do not need to pay that “true price” of food right now, though.

Final Thoughts

Food supply chains are increasingly complex and dynamic due to increasing product proliferation to serve ever diversifying and globalizing markets as a form of mass customization. The results of such globalization are flows of raw materials, ingredients, and products as well as the need to satisfy changing and variable consumer and governmental demands with respect to food safety, animal welfare, and environmental impact.

Transparency in the food supply chain is essential to guarantee food quality and provenance to all users of food and food products. Intensified information exchange and integrated information systems involving all chain actors are needed to achieve transparency with respect to a multitude of food properties.

According to the prediction of the Food and Agriculture Organization, food supply must increase by almost 70% by 2050, with tremendous consequences in terms of land depletion, natural resource use, and greenhouse gas emissions. The current agri-food system is incapable to cope with this raising demand meanwhile preserving the environment. There is urgent need to reorient the food system onto a more sustainable trajectory: producers should pursue more conscious and environmentally friendly practices and consumers should account for sustainability issues while making their daily food consumption decisions.

The present food system faces major challenges in terms of sustainable development along social, economic, and environmental dimensions. These challenges are often associated with industrialized production processes and longer and less transparent distribution chains. Due to the complex nature of food production and consumption system, quantifying the impacts of food supply chains on biodiversity is challenging.  A potential answer to this dilemma might be furnished by short food supply chains and local productions, which feel less the effect of international restrictions and which, since their rooted presence in the territory, could produce fewer environmental impacts.