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Food and agriculture systems generate a variety of environmental, health, social, and economic impacts that are not generally reflected in the prices consumers pay for food, referred to as externalities in economics. True Cost Accounting (TCA) is an evolving, holistic framework for measuring and valuing the positive and negative externalities of the food system.
TCA seeks to make the impacts of food production, processing, distribution, and consumption more visible to support improved decision making by policymakers, farmers, and consumers and reduce the true costs of food. Drawing from the four-capitals framework of the TEEBAgriFood Evaluation Framework, TCA assesses four key capitals: natural, human, social, and produced.
The agrifood system generates myriad positive and negative externalities, says Salman Hussain, Coordinator The Economics of Ecosystems and Biodiversity for Agriculture and Food initiative (TEEBAgriFood).
Common examples of positive externalities include a beekeeper incidentally providing a benefit to neighboring farmers when their bees pollinate the farmers’ crops and community cohesion. Examples of negative externalities include emissions from use of fuel in farm machinery, water pollution from fertilizer runoff, and healthcare costs for workers in unsafe conditions.
Though invisible in market prices, the costs of externalities across agrifood systems are nonetheless borne—just rarely by those who create them. Instead, they are passed on to the environment, workers, consumers, and society more broadly.
Environmental costs show up in the 30 percent of greenhouse gas emissions that agriculture produces, soil degradation, and biodiversity loss. Workers in food and farming systems face risks like pesticide exposure and heat-related illness and death.
Consumers bear rising rates of diet-related diseases and issues that are linked to modern food environments. 2.5 billion adults suffer diet-related illnesses, 733 million people live in hunger, and 2.8 billion people are unable to afford a healthy diet. And these burdens are often disproportionately carried by vulnerable populations who face higher exposure to environmental risks, poor health outcomes, and economic instability.
The hidden environmental, health, and social costs of global agrifood systems amount to roughly US$12 trillion each year, according to a U.N. Food and Agriculture Organization (FAO) report that Lauren Baker, the Deputy Director of the Global Alliance for the Future of Food, calls a “startling call to action.” A Rockefeller Foundation study attributes US$1.1 trillion unaccounted-for costs to human health, US$900 billion to environmental and biodiversity damage, and US$100 billion in unaccounted livelihoods.
TCA evaluates four forms of capital—natural, human, social, and produced—reflecting the environmental, health, social, and economic dimensions of agrifood systems. The eco-agri-food system is like a puzzle, Alexander Müller, Study Leader for TEEBAgriFood, tells Food Tank. One only understands the full picture when all the pieces are considered together unclear.
TEEBAgriFood established the four-capital framework in 2018 with contributions from more than 150 researchers and experts across 30 countries. It now underpins most True Cost Accounting assessments used today.
Natural capital refers to the stock of physical and biological resources and ecosystem functions that sustain life and enable food production. In agriculture, this includes land, water, soil, biodiversity, and atmospheric systems.
Social capital captures the networks, institutions, and shared norms that enable cooperation and collective action within societies. This can include labor conditions, fair wages, worker protections, community well-being, and the broader social impacts of food production, such as rural livelihoods, job creation or loss, and community stability.
Human capital refers to individuals’ knowledge, skills, health, and capabilities. This includes farmers’ expertise, agricultural training and education, food system innovation, and the health outcomes associated with both food production and consumption.
Produced capital includes the manufactured and financial assets that support economic activity. This encompasses physical infrastructure such as buildings, machinery, and irrigation systems, as well as financial and intellectual capital that enable food production, processing, distribution, and retail.
The goal of TCA is not to increase retail prices, according to Adrian de Groot Ruiz, Co-Founder of True Price, a Dutch social enterprise that helps identify and measure products’ social and environmental costs. Rather, TCA seeks to reveal information that can ultimately help improve the way food is made and reduce the true costs of food, De Groot Ruiz tells Food Tank.
When externalities go unmeasured, they remain unaccounted for in policy decisions, private purchases and markets fail to prevent or address them. Failing to put a value or price negative impacts “creates a dishonest pricing scheme and perpetuates farming systems which destroy our planet and cause a catastrophic impact on public health,” says Patrick Holden, Founder and CEO of SFT.
By identifying and valuing externalities, TCA can help governments, businesses, and investors design policies, legislation, incentives, and investments that reduce harmful impacts, reward practices that generate public benefits, and support food systems in which nutritious food is accessible, workers are compensated fairly, and consumers can make informed choices.
As detailed in FAO’s reports, The State of Food and Agriculture 2023 and 2024, identifying and assessing all hidden costs across agrifood systems is resource- and data-intensive, requiring collaboration between political, economic and social actors and prioritization of the most decision-relevant impacts.
To be effective, TCA must be incorporated into national and international policy frameworks, accounting standards, and performance evaluation systems, supported by standardized metrics that allow impacts to be measured consistently across food value chains, according to government bodies and industry experts.
Some organizations and researchers advocate for policies under which governments tax activities that impose environmental or social harm so market prices reflect their full costs, alongside subsidies or incentives for practices that generate positive externalities such as improved soil health or ecosystem protection. Ultimately, according to Nature Food, TCA calls for a fundamental change to the valuation of food.
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Photo courtesy of Ed Wingate, Unsplash
