True Cost Accounting with Dr. Michael Duffy

True Cost Accounting with Dr. Michael Duffy

Dr. Michael Duffy works as an Extension Economist in farm management at Iowa State University. He is the Director of Graduate Education in Sustainable Agriculture. Dr. Duffy is currently responsible for the annual land value survey, cost of crop production estimates, Iowa farm costs and returns publication, and he is state leader for the Extension Farm Financial Planning Program. His research activities include determinants of farm profitability, small farms, soil conservation, integrated pest management, and sustainable agriculture. Prior to joining Iowa State, he worked as an economic researcher for the USDA in Washington, D.C.

Douglas Gayeton: Can you describe what “true cost accounting” is?

Dr. Michael Duffy: As it’s generally used, it’s accounting for all of the costs and benefits that are
included in a decision.

Douglas: I would imagine that a lot of those costs are off-the-book costs, and that they’re hard to track and to find.

Michael: Right, and that’s where you get into the notion of externalities. It’s important to remember that economics is a series of dichotomies. We have public and private costs, we have costs and benefits, we have quantifiable and non-quantifiable, we have long run and short run, so there’s a variety of different ways that we can use these decisions and account for them.

Douglas: It seems that knowing the actual true cost of something would be pretty difficult to assess.

Michael: That’s right. I did a paper with a student several years ago where we tried to look at measuring what the external costs were of our agricultural production, and it just gets really, really complex. How far do you go? What are you accounting for? How do you separate effects of agriculture from general environmental effects and so forth? It’s extremely complex.

Some people say that what we should be doing is actually conducting lifecycle assessments, which give us the opportunity to track a cost during the entire production of something. In fisheries, they’re trying to use traceability, which is keeping track of a fish the moment it comes out of the water, including what type of gear was used to catch that fish, where it was caught, and then adding to that data every step of processing until it reaches the consumer. This allows for there to be greater accountability.

Douglas: Do you think there’s a real cost that we pay for cheap food as a society?

Michael: Definitely. There are the costs of cleaning out clogged roadway ditches, the costs of fixing reservoirs that are silting in, the cost of food recalls, the costs of having to paint your house more often because it’s being sandblasted with soil in the air, the costs of paying taxes to support farm programs that encourage certain types of production systems and lead to all kinds of problems. There are definitely costs that are not being realized by the decision makers. Cheap is cheap in the sense of “out of pocket,” but it’s not cheap in the sense of total cost of the actions.

Douglas: Do you think there is a possibility we can shift the way in which we farm in this country?

Michael: I definitely do. We need to educate people, but we also need to enforce antitrust laws and make sure that we support public funding for research and development. Three or four chemical companies do almost all of our seed research now. We’re funding and sponsoring research that fosters bigger and bigger operations, instead of trying to look at research that’s size-neutral or favors smaller farmers. You may be doing unbiased research, but what you’re researching is definitely influenced by who’s giving you the money.
I think we can change. We didn’t get here overnight and we’re not going to change overnight, but this is a ship that we can start turning. I do a lot of work with beginning farmers and I try to encourage them to not try to fight the big guys, but try to move in and take advantage of this local movement, of marketing through the Internet, and of all kinds of new emerging opportunities.

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