Abstract
In response to dramatically increasing adoption in consumer markets, the National Organic Program (NOP) initiated novel labeling standards for food products in the US in 2002. This program is a particularly relevant standardization effort for multi-ingredient processed foods. Rather than a simple binary message (organic or not), gradations of organic content are now codified. No existing published study evaluates consumer willingness to pay or motivation to purchase in response to such a rich organic label. This article presents evidence of the impact of the NOP through analysis of data collected in seven central Ohio, USA grocery stores. Results suggest that consumers are willing to pay premium prices for organic foods, even those with less than 100% organic ingredients. The magnitudes of WTP premia varied significantly among consumer groups, suggesting that targeted marketing may be effective for organic merchandisers. ©2006 Elsevier Ltd. All rights reserved.
Generated Summary
This study investigates consumer willingness to pay (WTP) for multi-ingredient processed foods with varying levels of organic content, following the implementation of the National Organic Program (NOP) in the United States. The research utilizes a customer intercept survey conducted in traditional grocery stores and a specialty natural foods grocery store to analyze consumer preferences and the impact of the NOP on WTP. The study employs a payment card method to estimate WTP for various food characteristics, including the level of organic content. Regression analysis, specifically a two-stage hurdle model, is used to understand the factors influencing consumers’ decisions to pay a premium and the amount of the premium they are willing to pay. The research aims to provide insights into consumer demand for multi-ingredient processed organic foods and assess the impact of consumer awareness of the NOP on WTP for these products.
Key Findings & Statistics
- The US organic industry experienced substantial growth, with sales increasing from $5.5 billion in 1998 to an estimated $13 billion in 2003.
- The market was projected to grow to over $32 billion by 2009.
- Consumption of organic foods increased by 20% per year.
- In the study, 199 surveys were completed in traditional grocery stores, and 102 surveys were completed in a specialty grocery store.
- Specialty grocery shoppers were younger and had higher household incomes than traditional grocery shoppers.
- Specialty grocery shoppers were less likely to have children, more likely to be vegetarian or vegan, and more highly educated.
- The mean WTP for pesticide-free cereal was $0.33 per box.
- The mean WTP for 100% organic cereal was $0.45 per box.
- The mean WTP for GM-free cereal was $0.39 per box.
- The mean WTP for less than 70% organic ingredients cereal was $0.15 per box.
- Specialty grocery shoppers indicated a mean WTP that was 100% larger for GMO-free foods, and more than 50% larger for 100% and 95% organic foods, locally grown foods, and pesticide-free foods.
Other Important Findings
- Consumers are willing to pay premium prices for organic foods, even those with less than 100% organic ingredients.
- The magnitudes of WTP premia varied significantly among consumer groups.
- Specialty grocery store consumers generally exhibited a higher willingness to pay for organic products compared to traditional grocery store consumers.
- Consumers with children were less likely to pay a premium for pesticide-free cereal.
- Consumers with higher education levels were less likely to pay a premium for less than 70% organic ingredients.
- Consumers with a higher health concern index were more likely to pay premiums for food with lower levels of organic content.
- Awareness of the NOP seal had a positive effect on the probability of being willing to pay a premium across all categories except for enhanced flavor.
- The NOP seal did not significantly impact the magnitude of premium paid.
- Producers may find it more profitable to produce for the lesser organic content categories rather than paying substantially higher prices for selected inputs.
Limitations Noted in the Document
- The study’s method of consumer selection does not comprise a random sample.
- The results may not be generalizable to the entire population of consumers, but only to the shoppers of the specific stores and the times sampled.
- The study acknowledges that the difference in survey administration creates difficulties in comparing the two store types.
- The study does not address how the NOP seal influences consumer choice for enhanced flavor.
Conclusion
The study underscores the growing consumer interest in organic food products and the impact of the National Organic Program (NOP) on consumer behavior. The findings suggest that the NOP’s provision for multi-ingredient foods with varying levels of organic content offers value to consumers, allowing them to choose from an array of products to select the one that is utility maximal. However, it is important to note that the NOP seal, while positively influencing the likelihood of paying a premium, did not significantly impact the premium’s magnitude. The results suggest the potential for an increased range of production and pricing strategies for multi-ingredient organic foods. As consumer knowledge of organic production methods increases over time, consumer WTP for alternative levels of organic content is expected to change. Similarly, as the organic supply chain develops, the costs of higher organic content products will likely decrease relative to lesser organic content alternatives.