Q&A: Opportunity for 'true cost accounting' at UN Food Systems Summit

With the United Nations’ Food Systems Summit, Climate Change Conference of the Parties, and Conference of the Parties to the Convention on Biological Diversity all happening in the latter half of the year, conversations about the intersection of food production, health, and ecosystem services are firmly on the agenda.

Since 2015, the Global Alliance for the Future of Food has been working with stakeholders to value the benefits and negative impacts of food systems holistically.

One strong advocate of this approach is Pavan Sukhdev, the CEO at GIST and president at World Wide Fund for Nature who believes that “true cost accounting,” or TCA, can help evaluate externalities in food systems — given the growing threat of climate change along with the current rates of acute hunger and obesity — so everyone can recognize the real value of nature’s services.

Sukhdev sat down with Devex to explain what TCA is, the challenges of valuing public goods using market mechanisms, and why governments, corporations, and individuals all need to account for externalities in food systems today.

This conversation has been edited for length and clarity.

What’s the current problem with our food systems and how they are valued?

Today's food system is broken; [more than] 800 million people [are] still starving, 2 billion people are undernourished ... some of the same [number of] people are overweight. Food systems accounted for almost half of the greenhouse gas emissions. We use three-fourths of the freshwater availability. [Food systems] generate huge numbers of jobs, but those jobs are being lost because of the gradual industrialization of the food system.

So there's a lot that's going wrong with the food system and of course, sadly, according to the Global Nutrition Report, our diets have become the number one cause of disease, which means our food systems cost our health more than anything else does, including AIDS and tobacco. That's staggering.

And that's why I think food systems without “true cost accounting” are guaranteed to be a disaster. ... We have to look at all of the other dimensions.

Can you explain what true cost accounting is and what “externalities in food systems” means?

I think the crazy thing is that today, we understand the difference between price and value [as] price is what you pay, value is what you receive. But when we make decisions as policymakers or investors, we forget that because we're looking only at price, we don't recognize the value, for instance, that nature brings to the economy. Nutrients, freshwater ... we don't recognize those values and we lose them. And that's the challenge.

Unless you start accounting for the true costs and the true benefits that any system or any enterprise delivers, you will be forgetting all of those invisible values that don't actually trade in markets, because they are public goods and services. No tree or forest ever sent you an invoice for “here's my oxygen generation services.” But these are hugely valuable services. … Without air to breathe and food to eat, [it’s] quite difficult for us to live. 

We need to start reflecting that, and that means, let's do true cost accounting, which means measuring not just the financial profits of the company, but all of the impacts of a company; all its stakeholders, employees, the society in which it operates, nature which it makes use of, and measuring those in economic terms.

Surely we can decide what we eat, but look [at] what we are eating, and how it's being made, and what are the impacts of that on our own health, on the planet’s health, on soil, on water, on climate.

What have you learned from advising the private sector, governments, and other stakeholders using the TCA approach?

To be honest, governments should be the ones who are the most interested ... and sadly, they're not, because today's governments are not leaders, they're followers. They look to corporations to get the signal as to what should, and shouldn't be done. [As a corporation] if you internalize profits and externalize costs, you can make yourself look really good to your shareholders, but [the] reality is the society in which you operate is suffering as the result of your costs being externalized.

Corporations are not necessarily leading the charge; who is really leading the charge [are] investors, and investors realize that today's externalities in their portfolio are tomorrow's risks, and they are tomorrow's losses. I've been getting lots of queries from investors for our data and for our information on impacts because they're worried about today's externalities becoming risks and then losses.

Can you explain some of the challenges with this approach, given that it can be difficult to value public goods economically?

Markets are a nice mechanism. But markets only trade private claims; markets are not there to solve social problems, they're there to provide prices and equilibrate demand and supply of private goods. As it happens, some of the most valuable things in life — love, friendship, nature — are public goods so they're not traded in markets, and therefore you can't use market mechanisms to find prices for them.

The problem is how do we understand value in economic terms? Let's say we have open land [and] we plant the forest and it generates evapotranspiration and causes the clouds to rain. It doesn't mean that the value of that rainfall will come back to you because you planted the trees. … This is nature. … It doesn't necessarily mean that you would benefit from having invested in that. And this is where [the] government comes in … public goods are the commons, [it is] the job of governments to look after, in the interest of current and future generations of citizens.

What do you think could help food systems function better?

I think politics is the solution. I think people have to wake up. People should step up because this is about human health. This is about us getting nutrition from food. It is [the] right of every human being to have nutritious food, and for a system of profiteering to stop that from happening is unacceptable. So people have to rise up against this, that's the only way.

The classic problem of externalities is that even though theory recognizes them, nobody takes responsibility to manage them. So everyone's accepted an economic system which knows that there are externalities, which are outside of the economic systems purview, and yet there are costs being inflicted by those externalities, and nobody wants to be responsible. All I can say to humanity is let's grow up … with rights come responsibilities. You can't have the right to everything and the responsibility for nothing.

The system is blocked, the food system is broken, it needs fundamental change — the only way to change it is to account for it.

Update, July 12, 2021: This article has been updated to clarify that the Global Alliance for the Future of Food has valued the benefits and negative impacts of food systems holistically.

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