True pricing of sustainable food  

In the Netherlands we still don’t pay the true price of our food. The actual prices, taking into account the costs for a more sustainable way of production, would be a lot higher than the prices we’re paying now. But with people already struggling to make ends meet with higher costs for living – how do we make sure the costs for a more sustainable method of production are fairly distributed between farmers, governments, companies and consumers? As first speaker at the IFFI anniversary event, Barbara Baarsma, professor of Applied Economics at the UvA, explains how the economy and food chains could be more sustainable. “We should prepare for much higher food prices, especially for unsustainable and unhealthy food.”

Roughly about 10 percent of our income is spent on food. “European statistics show that food prices in the Netherlands in 2022 are below European Union average. Where the general price level of all consumer goods and services in the Netherlands is higher than the EU average, this does not apply to food. This is still the case, even after the huge increase in food prices in 2022 after the Russian invasion of Ukraine.”

An important reason for not paying the actual price for our food is that the environmental costs are largely unpriced, according to Baarsma. “It is a fundamental flaw of our food system that the costs of greenhouse gas emissions, nitrogen deposition, water consumption, loss of biodiversity, chemical pollution and soil depletion are neglected. We therefore do not pay the actual cost of food. Farmers who invest in more sustainable practices provide essential ecosystem services, such as drought resistance or pest management. We all benefit from this. Farmers shouldn’t be the only one to pay for these costs.”

New revenue models are necessary to make a more sustainable way of food production affordable for farmers. “One of the possibilities is to work with shorter food chains. The current export-oriented food production makes it more difficult for farmers to realize sufficient margins, because exports are usually bulk production with stiff price competition in an international market. As a price taker, the individual farmer has no choice or bargaining power. On the world market, it’s difficult to add value to products with a low ecological footprint. Short chains give farmers the opportunity to showcase their quality products to buyers. The milk then does not end up in an anonymous puddle, but in distinctive packaging that show the farmer invests in matters such as biodiversity. Another possibility is carbon farming. Carbon sequestration in trees and agricultural soils is a potential source of income for farmers. Regenerative farming makes the soil healthier and by planting more trees and shrubs, farmers can also store more carbon. The extra stored greenhouse gasses can be sold by the farmer as carbon credits. He can use the proceeds to invest in sustainable practices.”

Government regulation on sustainable production will increase, leading to higher food prices as well. “Whether in the form of nitrogen standards, carbon taxes or tradable water rights: these regulations will raise the price of food. Scientists estimate that the current non-priced environmental costs are nearly double the current total global food consumption. We will have to think about how we can implement this possible doubling to actual food prices in a fair way.”

All players will have to bear part of the costs for a more sustainable food chain. “The government should, however, distribute the costs fairly. This could be done by returning the proceeds of environmental taxes to the food chain in the form of subsidies for sustainability and to lower-income households in the form of lower income taxes.”

There are different ways to ease the pain for lower-income households. “With the proceeds from a carbon tax, income taxes for these households could be lowered. The same applies to the proceeds of a different kind of tax that would internalize the negative effects of food: a combined tax for unhealthy food, pricing sugar, fat and salt.” Costs of health care have been increasing for years for households, and these costs will rise in coming years. Prevention becomes more and more important. “Stimulating people to eat healthier helps to bring down the health care costs and reduce the unjust difference in life expectancy between lower and higher income groups.”

“By pricing the external environmental and health effects of food, it will become more attractive to eat freshly produced and sustainable food, and to choose for local ingredients instead of vegetables and fruit that is produced somewhere far away. So, true food pricing is necessary. Implementation can and must take place with taking into account the position of vulnerable groups.”

Not only farmers have to invest in more sustainable production methods, the same goes for the farm input and food processing industry. However, they also find it’s hard to value sustainability. According to Baarsma chains should collaborate in order to achieve sustainability goals. “Bigger players from further up and down the food chain have to be willing to invest in sustainable farming. These companies could then include the reduced emissions, water use or pollution among farmers in their annual report and use it to comply with, for example, a net zero emission pathway that they have mapped out or to comply with stricter government regulations.”

In her opening session Barbara Baarsma will discuss the possibilities for the ingredient industry in further detail. Come and listen to her take on sustainable food pricing at the Anniversary IFFI Event, September 21st, from 9:45 till 10.30 hrs.

Barbara Baarsma
Professor of Applied Economics at the UvA