Jesse L. Strzok and Wallace E. Huffman
Iowa State University
The market for organic products has grown rapidly over the past decade, and such products are now available not only in specialty stores but also in large grocery stores, supermarkets, and big-box super stores. The objective of this study is to estimate consumer willingness-to-pay for organic foods with varying purity levels relative to conventional foods and test the power of socio-economic attributes of consumers to explain the willingness- to-pay premiums for organic food items. The study uses unique information collected from experimental lab auctions conducted on 129 adults 18-65 years of age. The commodities are coffee, maple syrup, and olive oil, which were available in different organic purity levels. The empirical results show that consumers are, in general, willing to pay significantly more for organic than conventional products but not for purity levels beyond the 95% organic standard set by the USDA. Consumers who had more education, were a college student, were a member of an environmental group, or were from a household with higher per-capita income were willing to pay significantly higher premiums for organic relative to conventional products. Given that it costs significantly more to produce, handle, monitor for truthful labeling, and display foods with 99% or 100% organic purity, especially for fruits, vegetables, grains, oilseeds, fresh meat, and eggs foods, relative to 95% organic products, the retail market for 100% organic purity is expected to remain small. Moreover, it seems that social welfare might increase if 100% organic produce were to be eliminated from US retail food stores.
Key words: Organic food, organic purity, willing to pay, random nth price auction, food labels, information effects, coffee, olive oil, maple syrup.