Why the organic community should fall in love with true prices – Interview with Adrian de Groot Ruiz

As founder of the social enterprise „Impact Institute“ the Dutch-Mexican economist Adrian de Groot Ruiz looks at the hidden social and environmental costs in production chains. Why true prices could change the economy as we know it and how they help the organic community, he explains in our interview.

organic-market.info: Adrian, could you elaborate: What is a „true price“?

Adrian de Groot Ruiz: To explain that, you have to know that „external costs“ exist. For us, they are the real objectors of sustainability. Basically, these are unpaid social or environmental costs of production. If, for example, hazards to public safety, soil depletion or child labour are involved, this causes costs for our society. Although these costs are an old concept, they have only started to reach public consciousness about ten years ago.

How does this change anything?

Only, when you put these externalities into the equation you will obtain the „true costs“ of a product. Usually, these are not included in the market or retail price – they are seen as a collateral damage of our markets. Luckily, if „true costs“ are the problem, „true prices“ can be the answer in the search for a sustainable economy.

Who is interested in this concept in reality?

At True Price we work with different partners like not-for-profit-organizations, large industrial companies, retailers or labour unions to determine, in a very scientific manner, which true costs a product or a certain policy decision might entail for society and the environment. In doing that we don’t aim to make things more expensive.

But it happens?

Of course this happens, because a producer can’t internalize all the external costs through efficiency increases, especially when it comes to social benefits. But our focus is to lower the „true costs“ dramatically by avoiding negative effects. Since it can’t be our aim to keep doing what we are doing by just paying a higher price.

Can you give an example of how you work?

For the Dutch based NGO Hivos we looked at rose production in Kenya and tried to find out, which external costs should be lowered in the first place. Such flower farms have very limited budgets for improvement and we had to look very closely at where to achieve the most positive results with the least possible investment. When roses are transported by ship rather than by airfreight this makes a big difference for the climate change impact, for example.

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Where else does it make sense to know the true price?

In Mexico, we looked at coffee: We found that organic farmers can increase their yields to similar levels as conventional farming without polluting the soil and water while increasing their income through climate smart agriculture (CSA) techniques. This can reduce the true costs by more than 80%. Suddenly, the „true price“ of this organic coffee is not so far away from the current market price and it all seems more manageable. Yes, there will also be some higher prices, but frankly, at the moment food is simply very cheap.

However, one problem remains: Conventional methods are easy to apply and profitable. How can we calculate and choose true prices and not lose in our economy?

One possible way are certificates like Fair Trade or labels of organic associations, which help producers setting a fair price for their voluntary efforts. From a consumer perspective labels might not be perfect, but our calculations show that their specifications usually have a very large, positive influence on the actual costs.

One problem that remains, is that markets are often not efficient: Although, consumers would be willing to pay a higher price, this willingness is lost somewhere along the production chain. As it is the case with roses: They are normally sold in large-scale auctions where there is hardly a distinction between different production methods.

At the EU Organic Congress there were discussions on whether more social standards should be included in the EU Organic Regulation. How do you feel about this?

Of course, from the consumer perspective it would be valuable to know that the organic banana you bought wasn’t harvested by children or underpaid workers. Social problems like these have not been at the core of the organic movement until now. But I also understand why it might be better to keep the standards simple and rather cooperate on some of these issues with others. Many products already feature an organic as well as a Fair Trade label, and I think this is also a good option.

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You said, labels aren’t perfect. How do you guarantee uninfluenced results when certain results are of great value to your partners?

That is an important point. We try to stay as independent as possible by working with a variety of different partners, from governmental clients to the private sector. Also we offer third party auditing if needed.

If societies as a whole are paying the true price of child labour or pollution, why isn’t there more interest by governments to establish a „true price“ economy?

Of course, it would be great if governments were regulating more into this direction. For example, we see that UN treaties on human rights or corporate accountability can set certain standards. Especially for the environmental side, these conventions could be much stronger. I’d say we can’t wait for politicians to get active, because these processes take too long. Instead, we have to find incentives for producers to calculate their true price anyway.

If an organic trader came to you and asked for a review, where would you first look for hidden social and environmental costs?

I think retailers who offer their products on shelves have the biggest impact. Yes, it is important how a retailer treats his employees or how energy-efficient the company’s building is. But with his product range as well as where and how his produce was made, he takes most of the important decisions. I think organic retailers have one big advantage there: They have a great argument for eliminating some of the products a conventional retailer just has to offer to their clients.

You say, the organic community should have a love affair with true prices. What is the incentive for them, since they already do a lot?

The organic market is growing, there are a lot of players involved and more and more brands claim to do better. It is very difficult to stand out in this noise. True prices help with that, because they give your customer a clear value proposition.

Will there be some unpleasant surprises too?

Of course there will be some inconvenient truths in finding out the the real costs, also for the organic community – when it comes to their yields, for example. But I am convinced that conventional producers will be confronted with a lot more inconvenient truths. Transparency in the market allows producers with a truly better impact to authenticly differentiate themselves.