Ditch fast fashion in favour of sustainable clothing. Eat organically-produced food. Drive an electric car. While these environmentally-friendly attitudes are encouraged, they often overlook the fact that it can be very expensive to go green. More often than not, sustainable goods are more expensive than mass-market products. Sometimes way more than many people are willing to pay.
Despite the fact that these products are supposed to use less packaging and follow sustainable manufacturing processes, environmentally-friendly products can more than double the price of conventional products. At the supermarket, for instance, you can find dishwashing liquid soaps that range from $3.85 (normal) to a whopping $14.90 (eco-friendly) for a 500ml bottle. An online search reveals that organic apples cost four times as much as non-certified ones. Head to your local Scoop shop and you’ll easily pay double what you’d normally pay for cereal, and without packaging.
However, a Nielsen study found that millennials (ages 22-35) and Gen Zs (ages 16-21) are willing to pay substantially more for eco-friendly products. These days, 80% are willing to pay more, compared to 66% back in 2015. The Covid-19 crisis has only increased environmental awareness, with 55% of consumers saying they’re more likely to purchase environmentally-friendly products.
Most of us are willing – and able – to pay a sustainability markup of about 10%, and maybe up to 30%. This pricing could be well-accepted in the mass market, and thus increase the distribution of sustainable products dramatically. However, we’ve all seen that it can sometimes be very expensive to go green. But what is it based on, and what is the real cost of going green?
The Green Gap
Eco-friendly goods show up in a variety of categories, from energy to food and clothing. The production process is supposed to minimise the ecological and social impact, while still be economically viable to produce.
The biggest reason we as consumers pay a premium is quality and safety. These include healthy ingredients (ie. no hormones) and organic ingredients. Other concerns include sustainable packaging materials and social responsibility, such as fair farming and no harmful emissions or byproducts.
Research from Kearney shows that sustainable products are an average of 75-85% more expensive, and markups vary widely. The highest markups are in fashion, beauty, and health, where things like lotions and creams have markups over 200%. Sustainable fashion line markups range from 150-210% depending on the brand (more for luxury brands).
Sustainable food is marked up anywhere from 40-140%; some processed vegetable products marked higher than raw products. Organic canned tomatoes may go for 130-140% higher, compared to fresh organic tomatoes which are marked up by up to 50%.
While most of us would want to shop with sustainability in mind, some of us can’t afford to when the markup is 75-85% more. This gap between the set prices and what the mass market will tolerate is called the green gap.
The cost of the green label
All that markup only makes us ask: does it really cost that much more to make things environmentally-friendly? To answer that, we need a breakdown of the production costs.
Here are the root causes of the high markups:
- Production markups start from obtaining the raw material to all of the steps needed to produce the final product. For example, making a T-shirt begins with growing cotton, followed by weaving, colouring, sewing, and packing. There’s a higher cost of production for organic materials too, including more expensive labour, smaller crop yields, and more space.
- Brand owner costs consist of costs needed to create a branded product and a profit margin.
- Certification markups are also built into the final price. Yes, there’s a fee for the documentation of eco certification, such as for organic or fair trade.
- Volume markups means you pay more because there’s less of the item in the market.
- Wholesale and retail markups comprise all downstream costs and profit margins.
No doubt companies are tight-lipped about their finances, arguing that revealing such information would undermine their competitiveness. These days, more and more consumers are simply wondering if this is all just greenwashing.
Is it just greenwashing?
Not surprisingly, the first steps of the value chain – raw materials, energy, and labour – have the biggest impact on sustainability. This is especially true of conventional products in food and fashion. Interestingly, the part of the value chain that has the biggest impact on sustainability for the end product accounts for only 10-30% percent of the final product cost.
This means that if companies kept the green markup to this range, then most consumers would be able to afford ecologically sustainable goods. In essence, buying green doesn’t have to be that expensive.
Surprisingly (or not), the biggest markup of 80% for non-food (70% for food) products are markups for profit margins. This means the highest increases are from steps that have little or no impact on sustainability. They’re just being added as a premium when the products are distributed to consumers.
Of course, companies have the right to determine their own markup. However, determining whether it’s fair is bound to be subjective. If prices are several times higher than the cost of goods sold, then consumers have the right to ask if making goods for only an exclusive segment is truly ethical or just hollow marketing.
It shouldn’t be expensive to go green
It’s far easier for us to adopt environmentally-friendly habits by driving less, being more energy efficient, recycling, and reducing food waste. But being a green consumer is not as easy to do. Especially not when the poor are being priced out of sustainable and ethical consumer options.
While environmentally-friendly production does tend to cost more, the price passed on to consumers could be much lower. These arbitrary pricing structures could be hindering mass adoption of green products.
No matter how many eco-friendly straws, sneakers, garments or tinned tomatoes are available, their high pricing will always leave the poor and middle-class people with not much of a choice. And when consumers are forced to make trade-offs between affordability or helping the environment, the environment almost never wins.