How much do things really cost?

In late 2020, a street sign appeared in front of De Aanzet, a neat and charming grocery store in the center of Amsterdam. It read: “Welcome to the world’s first supermarket with real prices.” Inside, two types of prices were listed for potatoes, peppers, bananas, broccoli, bread, and many other foods. The “normal” price for tomatoes was €3.75 per kilo, while the “real” price was €3.97. The €0.22 difference represented the hidden costs of growing and transporting the tomatoes, in terms of carbon emissions, underpayment of workers, and use of water and land.

The actual prices had been calculated by True Price, an Amsterdam non-profit organization launched in 2012 by two friends, Michel Scholte and Adrian de Groot Ruiz. Scholte and de Groot Ruiz, a college debate champion and former assistant professor of finance, respectively, have worked with a variety of companies (a chocolate company, a chain of bakeries, banks, and fashion brands) to calculate the actual prices of several products. His association with De Aanzet (“The Impetus”) was the most public use of the idea yet. The matched pricing system presents buyers with information and options. It is possible to compare normal and true prices: if one brand of apple has a “real price gap” of €0.05 and another has a difference of €0.50, this suggests that the first apple comes from a more environmentally friendly producer and socially responsible. A buyer can then choose to pay full price for either product, in which case De Aanzet redirects the extra money towards projects that aim to remedy those damages.

Scholte and de Groot Ruiz met about fifteen years ago, through a student debating society. Scholte was studying sociology at Vrije University and working as a cleaner in the airport’s business class lounge; de Groot Ruiz was pursuing a Ph.D. in economics at the University of Amsterdam. They quickly discovered shared interests in behavioral economics, statistics, and the structural problems underlying poverty and environmental degradation. While still a teenager, de Groot Ruiz, an amateur physicist, had invented, together with two friends, a technology to harness the energy generated by ocean waves; he had learned that investors were not interested in such systems because the “business case” for developing them was so uncertain. This struck him as shockingly irrational. The real costs of fossil fuels (ecosystem collapse, sea level rise, extreme weather events) were extremely high, but they were also off the books, making the fuels seem unrealistically cheap by comparison.

While still students, the friends joined Worldconnectors, a Dutch think tank. There, they talked with colleagues about what economists call “externalities”: the costs, often environmental and social, that are not included in the transactions. Over time, the idea of ​​real prices crystallized. Politicians have shown an unwillingness to regulate business strictly enough to reduce environmental and social externalities in a fundamental way. But it might be possible to measure their scale and incorporate that information directly into prices. Scholte and de Groot Ruiz launched True Price in 2012, with the goal of accelerating progress toward corporate sustainability. The hope is that if companies and consumers have less illusions about how much things really cost, they can change the way they spend, sell and make.

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Maarten Rijninks, the owner of De Aanzet, first learned about real prices when he attended a conference given by Scholte in 2018. He now sees them as a way to reverse a destructive status quo so pervasive that we no longer see it as strange. . “If you go to buy something in a normal supermarket today, it will always be cheaper than the product in my store, which is organic and more expensive,” Rijninks told me. But this cheapness is an illusion: it is only possible if you ignore the real costs of the goods. “If you incorporate the actual prices, my product will also be cheaper,” Rijninks said. Since his store adopted the system, he told me, business has increased about five percent; many customers say they like it. “The problem is that customers don’t have the tools to reduce their social and environmental impact,” he said. “But they are willing to do it.”

Rijninks tells his clients that the system is an experiment in evolution. One problem, perhaps unavoidable, is that there are imperfections in the True Price data. Organizational analysts sometimes use regional averages, which may not capture the exact conditions surrounding a particular product; De Aanzet’s remediation schemes, similarly, are sometimes imprecise, so a client paying full price for a banana could end up financing irrigation work on a spinach farm. Within the next few years, Rijninks hopes to develop more targeted remediation projects with foreign suppliers and expand the range of products covered beyond fresh produce and breads. At the end of this year, the system will grow in another way: an association of organic traders plans to test the real prices in stores in the Netherlands.

At De Aanzet, consumers see actual prices for themselves, but elsewhere companies have used them for internal analysis. In 2013, the Dutch firm Tony’s Chocolonely asked Scholte and his colleagues to estimate the true costs of cocoa from Ghana and the Ivory Coast. They examined eight environmental and six social externalities, including air, soil, and water pollution; climate change; insufficient income; and child labour. West Africa, which supplies most of the world’s cocoa, has well-documented labor problems: in 2020, a University of Chicago study found that there were more than 1.5 million child laborers working in cocoa production in Ghana and Ivory Coast. . Child labor in this industry is prevalent despite repeated promises by major companies to solve the problem.

True Price tried to calculate the costs of all these externalities. He calculated that, in 2013, the average real cost of a kilogram of cocoa was €14.17. Most of this, €12.07, reflected social externalities. Tony’s Chocolonely was already trying to improve its sourcing, so its average actual cost was substantially lower, at €7.93, of which €5.99 was social costs; by 2017, when Tony’s commissioned another study from the nonprofit, the actual price had fallen to €4.52, with €2.93 reflecting externalities. Even if the costs are best guesses, not exactly “true”, Tony’s Chocolonely has found them useful for setting goals and evaluating the progress of their initiatives. The company pays above-average prices for beans, promotes more efficient and sustainable farming techniques, and runs a supply chain traceability initiative and child labor tracking system; it spends one percent of its annual income on investments in community infrastructure and lobbying for better legislation regarding supply chains. True Price found that compared to the cocoa industry average, the farmer cooperatives that supply Tony’s Chocolonely make more money, are safer, and have fewer child labor cases. If the company’s rate of progress continues, in the next few years the “real price gap” for Tony’s products could be zero.

Assigning specific figures to the costs of child labor or soil erosion requires a number of assumptions. First, of course, True Price must decide what costs to calculate. Its system consists of identifying the costs related to the violation of human rights, as defined by the United Nations, international treaties or other widely shared frameworks. This rights-based approach is uncompromising: the nonprofit rejects, in principle, the idea that job creation, consumer convenience, or shareholder value can be “worth” the infringement of human rights, including the right to inhabit a flourishing natural world. Companies that source products from areas where child labor is a problem, for example, can only lower their actual prices by reducing the number of child laborers involved in making those products. They cannot point to other benefits and say the net result is positive.

Other researchers have engaged in similar efforts. A team in Italy, focusing on the real price of meat, has estimated that the hidden costs per kilogram of beef, including its effects on human health and the environment, amount to about €19 per kilogram; this means that the annual hidden cost of beef consumption in Italy alone is around €36.6 billion. Researchers at the UK Sustainable Food Fund have calculated the equivalent cost of food for that nation: around £116bn each year. A 2021 report by the Rockefeller Foundation, based on research by True Price and academics from Oxford, Harvard, Cornell, and Tufts, found that once the hidden social and environmental costs are calculated, the true cost to the US food system is The US as a whole is at least $3.2 trillion per year, nearly three times the nation’s “normal” food expenditures of $1.1 trillion.

Paying triple the current price of food is not a viable strategy for consumers, companies or governments. But there are other ways to use real prices to drive reform. Over the last decade, the US federal government has spent an average of $16 billion annually on farm subsidies, with soybeans, corn, rice, and wheat being the most subsidized and produced. If receipt of these subsidies were made conditional on real cost reductions, producers would have an incentive to reduce some of the more destructive practices. And, as at De Aanzet, transparency about actual prices could spur change.

Simply talking about actual prices can be helpful. Products do not have a “true” price in the way that an element has an atomic mass. However, the questions raised by actual prices are not hopelessly subjective. Most people agree that we should ban the production of goods made by slaves and young children working in dangerous conditions. The research done at True Price and elsewhere simply suggests that we apply the same thinking to a broader set of issues: a living wage for adults, freedom from harassment, physically safe working conditions, environmentally sustainable production techniques, and so on. This is the most basic sense in which true prices are “true”: they capture the deep moral insight that human rights and the natural world should not be violated to produce cheap goods. Over time, better studies will refine our understanding of the costs of restoring freshwater ecosystems poisoned by fertilizer runoff, or of providing schools for farming families in rural Ghana. What we already know, however, is that excluding such costs from the prices of goods presents consumers, governments, and businesses with false information about the world. And this is a way of lying about nature, the economy and each other.

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