WILLINGNESS TO PAY FOR ORGANICALLY PRODUCED AND FUNCTIONAL FOODS

1. WILLINGNESS TO PAY FOR ORGANICALLY PRODUCED AND FUNCTIONAL FOODS RiniMukhopadhyay1, Vicki McCracken1, Joan Ellis2 WSU School of Economic Sciences1 WSU Department of Apparel Merchandising, Design and Textiles2 Funded by CAHNRS Undergraduate Research and Creative Projects Grant ABSTRACT There has been a steep rise in the demand for organic food products from $1 billion to $14 billion in the last 14 years (Forbes, 2010). Though the cost of producing organic food products is higher, consumers value locally or organically produced foods. This is because they perceive those products to be healthier, more environmentally friendly or more supportive of small scale agriculture and local rural communities than their conventionally produced counterparts (Darby et al, 2006). The overall objective of this research was to determine the impact of factors like organic and functional product preferences, beliefs about organic and functional products, and demographic variables on a consumer’s willingness to pay (WTP) for organically produced apples and milk, and flax seed bread. MULTIPRODUCT BIDDING PROCEDURE ANALYSIS RESULTS • Data was collected through a consumer intercept model in a regional chain grocery store • Participants bid on four distinct products • organic apples, milk, organic milk and flax seed bread • Bidding occurred in two rounds - one product in the first round and 3 products (simultaneously) in the second round • Only one randomly selected product was binding in the second round • Products had to be purchased if the drawn price was lower than the bid price • Participants completed a questionnaire after the experiment • 143 usable observations with 60 variables from survey questions. • Variables were classified into groups of related components and • Principal Component Analysis (PCA) was performed on each of the groups • From each group the component with the highest Eigen value was extracted. • These components represent the principal factors for the WTP models. • The following critical components were identified • Credibility of the store (Credence) • Preference of the consumer (Preference) • Visual appearance of the products (Appearance) • Size of the household (Size) • Family income (Income) • Environmentally friendly Products. (Environment) • These components represent the principal factors which may influence WTP: • Regression analysis for willingness to pay (WTP) was then carried out, using these components and additional socio-economic information provided by participants Price Offer *Principal components for each product considered in this research. Random Determination of Buying Prices * The variables that are significant (t-value ≥ 1.80) are in bold. Price Offer ≥ Random Drawn Price Price Offer < Random Drawn Price DISCUSSION • Generally the results suggest that the largest impacts on Willingness to Pay included the general importance of price, previous purchase of product, the amount usually purchased, where the participant usually shopped, the importance of nutrition, and specific information about the consumer such as their Race/Ethnicity, Education, Age. • The importance of included variables, however, varied across products. • The specific variables that were most often significant are • Which store milk was usually purchased • Previous amount and purchase of milk • Food Nutrition Information. • Education, Race and Age of individuals purchasing organic products • Field Price for all four products • GENERAL HYPOTHESES TEST CONCLUSIONS • Hypothesis I: Results support hypothesis • Factor - Which store (includes natural food market) is significant. • Hypothesis II: Results support hypothesis • Factors - Education, Race, Age and Income of consumers were significant. • Hypothesis III: Results support hypothesis. • Factor - Food Nutrition was significant. • Hypothesis IV: Results not support hypothesis • Factor - Food Info was not significant... No Buying Obligation Buying Obligation • GENERAL HYPOTHESES • Consumers who tend to shop at natural food types of stores have a higher WTP • Consumers with younger children or with higher income have higher WTP • Health conscious consumers have a higher WTP for functional foods • Environmentally conscious consumers have higher WTP for organic foods