In our work with corporations, we have seen TVoF’s potential for sharpening executives’ assessments of choices and trade-offs, and for encouraging bolder, essential changes in business strategy and processes. This can lead to better communication and collaboration with external stakeholders.
Below is a TVoF analysis our team at BCG completed for a single food item, the chocolate chip cookie. While not exhaustive, this illustration does demonstrate how even a simple product-level analysis can be a powerful new way to find solutions and tackle challenges in a complex food system.
The True Value of a chocolate chip cookie
For our illustration, we traced the true value of a cookie made from ingredients sourced from multiple countries and sold in the UK. As shown in the figure below, the retail price of the cookie is around $0.55 with a cost of goods sold (COGS) of $0.33. This price represents the consumer’s view of the value of a cookie (the price they’re willing to pay) but it does not account for many hidden costs. For instance, we calculated six externalities: GHG emissions, water scarcity, food waste, health impacts from empty calories, air pollution, and the social costs of underpaid cacao farm workers. The TVoF cost is calculated at $0.89, of which 63% are hidden costs.
Doing a full TVoF at the product level can be complicated because the maturity of methods differ depending on the externality that is being analyzed. Still, for the cookie manufacturer, this analysis could influence big value chain decisions, such as sourcing and supplier relationships and product formulation.
This ‘farm to fork’ analysis of direct and indirect, and positive and negative impacts associated with a cookie can be applied to any type of product. TVoF establishes a comprehensive baseline for revealing hidden costs and a common language for performing cost-benefit analysis. Further refinement of TVoF’s methods will make it easier for companies to routinely integrate economic, social, health and environmental factors into their strategic and operational assessments of business opportunities and risks, and in performance reviews.
Every CEO of a major company is under pressure to demonstrate they have a strategy for food system sustainability and an execution plan. Internal use of TVoF’s multidimensional analyses will encourage executives to think differently and collaborate more effectively with peers in multiple functions. TVoF can be used to create a broad and integrated view of a company’s sustainability agenda, and to help CFOs make investment decisions. It can provide leaders of research and development with a framework for evaluating future portfolio moves. And it can provide a simplified but critical analysis for boards of directors.
Externally, investors, advocacy organizations and the media are keenly interested in understanding the value-creation potential and risk profiles of businesses. TVoF is a new source of data that can be used in public reporting and communications.
As businesses, the UN, governments and NGOs work towards achieving their individual and collective sustainability ambitions, TVoF will be essential to envision the systemic changes that are needed and to evaluate progress. Sharing a common analytical tool can accelerate progress. Still, corporate leadership is critical to advance TVoF’s use and efficacy. Read the full report here.