The True Price of Global Commodities

The production of soft commodities cocoa, coffee, tea and cotton leads to societal costs, such as underpayment of workers and soil degradation. One of the barriers for farmers, traders, retailers and consumers to reduce those costs is that they are invisible. For the first time, a public-private partnership with the world’s largest brands calculated what those costs are. Industry players can now use this information to reduce their costs with innovative projects, like agroforestry and yield improvement programs.

This project, which has calculated the societal costs of commodities, is an initiative of IDH, the Sustainable Trade Initiative, a public-private partnership facility, which co-invests in value chains with private sector companies, and True Price, a social enterprise specialized in impact measurement and valuation. IDH and True Price looked at whether the production of commodities leads to external costs. These are hidden costs to society that are not yet part of current market prices. For social costs issues like underpayment, health and safety accidents, child labour, forced labour, gender discrimination, harassment and lack of freedom of association were considered. Environmental costs covered land use, air, soil and water pollution, energy and material use. By adding these costs to the sales price, a ‘true price’ was calculated.

The first report released today, focuses on reducing the societal costs of cocoa from Ivory Coast, the world’s largest cocoa producer. Key findings include; the cultivation of sustainably certified cocoa beans results in a lower true price of about 15%. Improving yields and zero deforestation can reduce the true price further by about 30% and 5% respectively. The societal costs are considerably higher than coffee from Vietnam, tea from Kenya and cotton from India, which are calculated in upcoming reports.

Dave Boselie, ‎Senior Manager Learning & Innovation at IDH explains why from an IDH perspective the calculations were done: “These types of insights can help us set the investment agenda and facilitate collaboration with the private sector. By painting a picture of the major issues in the sector and their severity, IDH is able to quantify the impact of the issues now and over time, developing a targeted strategy that generates the most change. The results are also highly relevant for the other stakeholders in our partnership, including public sector and civil society organizations, who play a role in developing the enabling environment for sustainable commodity production.”

How generalizable are the results? The study had a limited scope as it was based on data from smallholder cultivation in Ivory Coast in 2014. Depending on data availability, averages were used and some societal costs could not be included. “Future impact research can improve the robustness of the results of this study and enhance future decision making around interventions and investment. However, value chain actors can already use the information to structure their existing efforts to reduce external costs”, explains Adrian de Groot Ruiz, Executive Director at True Price.

For more information on the true price of cocoa, click here for the report.