Consumer evaluation of environmental and animal velfare labelling: Estimating the willingness to pay for different types of eggs

Marginal willingness to pay for eggs carrying different labels is estimated using observed Danish purchase data on individual level. Among other things the labels indicate environmental features and different levels of animal welfare for the hens that produce the eggs. The data on eggs are part of a very comprehensive panel data set covering household purchases of non-durables during a five year period. For each family a wide range of background characteristics are available. Detailed data on eggs are available during the one year period from July 1999 to June 2000 used in these estimations, Compared to simple statistics, such as the average market share of different egg types, econometric estimations make it possible to disentangle the effect of labels from the effects of e.g. differences in prices. Discrete models such as the multinomial logit make it particularly simple to estimate the willingness to pay for different characteristics of goods, in this case different labels. Had the purpose been to estimate substitution effects, a continuous model would have been used instead. The estimations are conducted using the new and flexible Mixed Multinomial Logit model (MMNL) also known as Random Parameter Logit (RPL). Mixed multinomial logit allows heterogeneity among households by letting the parameters of the household utility functions be drawn from a common distribution instead of restricting them to be identical for all households. Estimating the parameters of the distribution of the parameters of the utility functions yields not only a measure of the marginal willingness to pay for different types of eggs, but also a measure of the degree of heterogeneity among the households. The eggs are divided into battery eggs (‘buræg’), barn eggs (‘skrabe æg’), free-range eggs (‘fritgående’) and organic eggs (‘økologiske’) and the marginal willingness to pay for the three last types relative to battery eggs are estimated. The marginal willingness to pay for different types of eggs turns out to vary whit the chain of stores in which the purchase is made. Econometric estimations using store-level data reveals that customers in some stores (e.g. Superbrugsen) are generally willing to pay for labels indicating environmental and animal friendly production methods, while customers in other stores (e.g. Bilka) are reluctant to do so. Combining data from many different stores leads to contra-intuitive results caused by the high level of heterogeneity among customers, prices and variety in the different stores. It is found that models allowing the consumers’ evaluation of the different labels to vary with background characteristics, such as the geographical location of the household residence, are significantly better than models ignoring background variables completely. Models allowing the evaluation to vary with attitudes, such as attitude to 1 branded goods, are also significantly better than the model ignoring these effects. The effect of the age of the main buyer is, in most cases, not significant. It is reasonable to expect the value of different labels to vary between households. Animal welfare may be very important to some households, but have little or no value in other households. These differences are perceived as ‘heterogeneity of preferences’ in the econometric model. The labels ‘barn eggs’ and ‘free-range eggs’ mainly indicates increased animal welfare, whereas the ‘organic’ label indicates a more environmentally friendly production as well as a higher level of animal welfare. Some households may also perceive the organic eggs as being healthier than other egg types because the hens are fed with organic feed. The heterogeneity of marginal willingness to pay for organic eggs can therefore be induced by differences in the perception and evaluation of at least three different attributes, whereas the heterogeneity of marginal willingness to pay for barn and free-range eggs is expected to arise only from differences in perception and evaluation of animal welfare. Data supports this hypothesis as the estimated heterogeneity of marginal willingness to pay is generally higher for organic eggs than for the two other egg types. More information in working paper #6: “Consumer Evaluation of Environmental and Animal Welfare Labelling: An Econometric Analysis on Panel Data Using Mixed Multinomial Logit” at www.akf.dk/organicfood

Disentangling Purchasing Motives from Socio-demographic Differences: The case of Organic Milk

Using a unique data set where an unbalanced panel of more than 1,000 households have reported their purchases of groceries in great detail over a period of six months it is shown that consumption of organic milk increases significantly with level of education, urbanisation and income. Age and presence of children in the household have no significant effects. Combining the purchase data with a questionnaire about attitudes towards organic production issued to the same panel shows that 51 per cent believes that organic production has a positive effect on the environment and 41 per cent believes in a positive effect on their own health. The level of trust in organic products generally increases with level of education, urbanisation and income. Including perception of organic goods in the estimation therefore reduces the effects of these socio-demographics, and thereby demonstrates the strength of this type of data combination. It turns out that both trusts in effect on environment and on health increases the probability of choosing organic milk significantly. The effect of trust in health is more than twice as big as the effect of trust in environment.panel mixed multinomial logit, labelling, characteristics model, health, environment, organic

Animal Welfare and Eggs – Cheap Talk or Money on the Counter?

We estimate revealed willingness to pay for animal welfare using a panel mixed logit model. We utilize a unique household level panel, combining real purchases with survey data on perceived public and private good attributes of different types of eggs. We estimate willingness to pay for organic eggs controlling for trust in a positive connection between the public good animal welfare and the organic label and the private good food safety also connected to the label. Our results suggest that in the real world, animal welfare plays a minor role in the demand for agricultural products.animal welfare, panel mixed logit, market purchase data, labelling, willingness to pay, altruism

Maintaining symmetry of simulated likelihood functions

This paper suggests solutions to two different types of simulation errors related to Quasi-Monte Carlo integration. Likelihood functions which depend on standard deviations of mixed parameters are symmetric in nature. This paper shows that antithetic draws preserve this symmetry and thereby improves precision substantially. Another source of error is that models testing away mixing dimensions must replicate the relevant dimensions of the quasi-random draws in the simulation of the restricted likelihood. These simulation errors are ignored in the standard estimation procedures used today and this paper shows that the result may be substantial estimation- and inference errors within the span of draws typically applied.Quasi-Monte Carlo integration; Antithetic draws; Likelihood Ratio tests; simulated likelihood; panel mixed multinomial logit; Halton draws

Consumer demand for orgnic foods : Attitudes, values and purchasing behaviour

The Danish market for organic foods is relatively mature, meaning that it does not suffer seriously from the supply shortages and barriers, which dominate most of the markets outside Denmark. The well-functioning Danish market makes it possible to collect and analyse reliable data on purchases. In an ongoing study we analyse consumer demand for organic foods in Denmark. The project is part of the Danish DARCOF centre and participating institutions include AKF, University of Copenhagen, GfK Denmark and CIRED, France. Our study distinguishes itself by being based on observations of stated as well as actual purchasing behaviour. The project applies information at the individual household level (utilising panel data of 2000 households’ daily purchases of a large number of organic as well as conventional foods during 1997-2001), which makes a detailed and informative approach possible. In addition, the modelling is supported by a questionnaire, surveying households in the very same panel (response rate 77%) for information on attitudes, stated values and food habits. Description of project, data and full questionnaire is available at www.akf.dk/organicfoods. In this paper, we identify important characteristics of consumers with high propensity to purchase organic foods, with special attention to the importance of valued organic product attributes

Hønen eller ægget?

Køber forbrugerne økologiske æg for at forbedre dyrevelfærden eller for at opnå en bedre sundhed for sig selv og familien

Documentation of CONCEPT questionnaires

The aim of this working paper is to summarise the information collected in the two questionnaires which are part of the project ‘The Viability and Stability of Demand: The Future Outlook for the Organic Market in Denmark (CONCEPTS)’

Information Provision to Consumers as an Instrument of Environmental Regulation

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Økologi med positiv klimaeffekt: Ja tak

Forbrugerne har stor tillid til, at økologiske varer bidrager til at reducere drivhuseffekten, og det påvirker til en vis grad deres indkøb

Digging deeper: How do different types of organic consumers influence the increasing organic market share?

The purpose of this paper is to investigate how sub markets with different degrees of maturity develop during a period of general organic growth, and how different consumer segments behave on these sub markets. The paper uses actual purchasing behaviour of six consumer segments with different attitudes towards food in general and organic production and products in particular. The data is from the Danish market for organic foods, which is one of the most mature markets in the world. The segmentation splits consumers into a positive and a non-positive half, each half consisting of three different segments. The estimations show that the development in general organic consumption varies between segments, and that their behaviour varies between sub markets. The positive half of the population has driven the overall growth in organic budget share at the Danish market over the period 2005 to 2007, while the other half have not changed their consumption significantly. The results indicate that for the most dedicated organic consumers, the organic budget share may be approaching a saturation point for some types of food, but also identifies other types of food which still have a growing organic budget share, even among the most dedicated consumers. The combination of attitudes and actual behaviour for a large number of consumers is new, and the results provide a valuable contribution to the ongoing investigation of organic consumers, and provide new nuances to the understanding of the latest organic growth.organic budget shares, organic consumers, consumer segments, latent class analysis, demand