Agriculture Reference
In-Depth Information
4. Conclusion
In this chapter, we study the determinants of consumption choice between organic and
conventional alternatives for two staple foods, milk and eggs. In addition to prices,
consumer shopping behavior and demographic characteristics, we incorporate store format
choice into our analysis to reflect variation in consumption choice among households
patronizing different store formats. Using A.C. Nielsen Homescan data, we examine three
store formats, value-oriented, supermarkets and high-end, for the duration of periods of
recent major market transitions in the U.S. organic food markets.
The Homescan data recorded from our analyzed market confirm three common
observations on consumption choice of organics for milk and eggs: 1) a rapidly growing
demand for organics, 2) a trend of organic market transition from high-end specialty stores
to general store formats, especially value-oriented stores, and 3) a sizable reduction in
organic price premium for all retail outlets. Several key findings emerge from our regression
analysis. First, we find much statistical support that the degree of loyalty within each format
matters in terms of making organic choices. However, the patterns of association are very
different and depend critically on the product, the time-period, the format being studied,
and the sensitivity of price premiums on organic products. Our results strongly suggest that
the market for organic foods remains very dynamic and inherently risky for upstream
suppliers trying to gauge proper levels of commitments to organic supply. Unsurprisingly,
we observe considerable price sensitivity to organics in the value-oriented formats
suggesting that low price premiums are required to stimulate demand in these stores.
Additionally, we found evidence of “Cadillac pricing” in the latter period for eggs: higher
organic price premiums are associated with an increased likelihood of an organic purchase.
We also find income, families with preschool children and organic penetration rate in other
items purchased at the same shopping trip have positive impacts on choosing organic milk
and eggs over their conventional alternatives. Finally, we find mixed results from other
demographic factors, except that the elderly prefer conventional to organic on milk and eggs
consumption.
In sum, we have presented a close connection between store format choice and consumption
choice of organics. We show that store format choice, prices, as well as quality perception
are important to consumer's choice between organic and conventional food products. We
have also documented the evidence from the actual purchase data on the impacts of recent
economy down turn as well as marketing expansion made by Wal-Mart and others. These
results provide useful insights for farmers and retailers in their marketing and developing
decisions on organic agriculture.
5. Acknowledgment
We thank Ephraim Leibtag and Biing-Hwang Lin at Economic Research Service of the U.S.
Department of Agriculture, and the A.C. Nielsen Company for supplying key data for this
study.
6. References
Bell, D. R., T. Ho, & C. S. Tang. (1998). Determining Where To Shop: Fixed and Variable
Costs of Shopping.
Journal of Marketing Research
35 (3), pp. 352-369.
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