True Cost Accounting vs. Green Premium: Shaping the Future of Agro-Food Innovation

22/06/2023 - Ivoro Ventures

By Pedro Álvarez CEO Ivoro Ventures

After reading the article that Bill Gates just posted on Linkedin from COP28 “How innovation is the key to tackling emissions and improving human welfare at the same time”, I found myself contemplating the juxtaposition of the Green Premium and True Cost Accounting in the realm of agro-foodtech.

In the realm of agro-foodtech innovation, the Green Premium has become a central theme, representing the additional cost associated with adopting sustainable and environmentally friendly technologies. However, to fully appreciate the economic landscape of these innovations, we must delve into the concept of True Cost Accounting. This debate presents a nuanced perspective on the necessity of the Green Premium and how it compares to the externalities generated by conventional, non-green technologies.

 The Green Premium: A Necessary Investment

 1. Environmental Externalities of Non-Green Technologies:

Conventional agro-food technologies often generate externalities, such as greenhouse gas emissions, soil degradation, and water pollution, that are not reflected in their market price.

The Green Premium, therefore, can be viewed as a necessary investment to offset and mitigate the true costs of these externalities, ensuring a more holistic economic evaluation.

 2. Long-Term Economic Viability:

Sustainable agro-foodtech solutions, despite their Green Premium, contribute to the long-term economic viability of the food system.

By considering the broader environmental and social impacts, the Green Premium becomes an investment in the resilience and sustainability of the agro-food sector.

 3. Shifting the Paradigm:

Embracing the Green Premium is part of a paradigm shift towards acknowledging the true value of sustainable practices.

True Cost Accounting involves integrating the external environmental and social costs into the pricing mechanism, aligning more closely with the principles of sustainability.

True Cost Accounting: Unveiling Hidden Costs

 1. Externalities of Non-Green Technologies:

Non-green technologies often create externalities, including resource depletion, pollution, and health impacts, that are not accounted for in their market prices.

True Cost Accounting aims to unveil these hidden costs, providing a more accurate reflection of the environmental and social impact of conventional practices.

 2. Incentivizing Sustainable Practices:

By incorporating externalities into the cost equation, True Cost Accounting creates a level playing field for sustainable agro-foodtech innovations.

This incentivizes businesses and consumers to make choices that align with long-term environmental and social sustainability goals.

 3. Holistic Economic Evaluation:

True Cost Accounting promotes a holistic economic evaluation that goes beyond immediate financial considerations.

It encourages stakeholders to consider the broader impact of technologies on ecosystems, human health, and societal well-being.

The Intersection: Green Premium vs. True Cost Accounting

At the intersection of the Green Premium and True Cost Accounting, a dynamic debate unfolds. While the Green Premium signifies an upfront investment in sustainable innovation, True Cost Accounting advocates for a comprehensive evaluation that includes externalities in the pricing mechanism.

As we navigate the evolving landscape of agro-foodtech, finding the equilibrium between the Green Premium and True Cost Accounting becomes imperative. Acknowledging the true costs of conventional technologies and investing in the Green Premium of sustainable alternatives are essential steps towards fostering a resilient, environmentally conscious food system. This dynamic interplay between economic realities and sustainable futures will shape the trajectory of agro-foodtech innovation, influencing how we produce, consume, and account for the food we put on our tables.