Valuing environmental, social, and ethical benefits using choice modeling: a comparison of the implicit price of food attributes for rural and urban consumers

Sue May Yen and Paul J. Thomassin McGill UniversityPresented at the ICABR ConferenceJune 24-27, 2012Ravello Italy

Outline of the Presentation

Objective of the presentation Theory of consumer purchases and

food attributes Choice modeling experiment Results and implications Conclusion

Objective

To compare the willingness to pay of rural and urban consumers for food commodities that have health, environmental, and social attributes

Consumer Theory

Consumers will try to maximize their satisfaction given their budget constraint – choice

Multifunctional aspects of food Choice of food product is a trade-off

between various elements of a product or service – ex. food safety, environment, time, ethical issues

Consumer Theory – Con’t.

Food as a product contains both private and public good dimensions

Private good dimension Public good dimension Risk reduction – public good Risk decisions are influenced by:

information, past experience, demographic background, comprehension, and believes

Choice Modeling Experiment

Survey approach – choose among product alternatives

Each product has a set of attributes associated with it

Respondents will choose the product that maximizes their well-being

Three products were evaluated: Milk, Tomatoes and Pork

Choice Modeling Experiment – con’t Attributes common to all goods included in the

experiment:Price, Health, and Environmental Impact

Attributes specific to a particular good:Location of Production (Milk)Product Appearance (Tomato)Animal Welfare (Pork)

Surveyed 500 urban households – Response rate 81% - Usable response rate was 80%.

Surveyed 500 rural households –Response rate of 77% - Usable Response Rate was 76%.

Sample Question

Implicit Prices for Milk Attributes ($/2Litres)

Variable Rural Urban

GM HealthEMS HealthOrganic Health

$0.12 [0.00, 0.27]$0.13 [0.07, 0.22]$0.08 [0.01, 0.16]

$0.18 [0.08, 0.30]$0.12 [0.08, 0.17]$0.08 [0.04, 0.14]

GM EnvironmentEMS EnvironmentOrganic Environment

Not significantNot significant$0.10 [0.01, 0.16]

$0.09 [-0.02, 0.17]$0.02 [0.00, 0.05]$0.05 [0.02, 0.08]

Montreal RegionAnother ProvinceOutside of Canada

$0.81 [0.44, 1.40]-$0.51 [-1.04, -0.12]-$0.90 [-1.57, -0.47]

$0.41 [0.18, 0.70] -$0.36 [-0.66, -0.11]-$0.70 [-1.06, -0.42]

Implicit Prices for Tomato Attributes($/Kg)

Variable Rural Urban

GM HealthEMS HealthOrganic Health

$0.13 [0.05, 0.23]$0.22 [0,15, 0,35]$0.09 [0.03, 0.16]

$0.22 [0.14, 0.32]$0.14 [0.10, 0.19]$0.07 [0.03, 0.11]

GM EnvironmentEMS EnvironmentOrganic Environment

Not significantNot significant$0.10 [0.05, 0.17]

Not significant$0.05 [0.03, 0.08]$0.06 [0.04, 0.10]

GM AppearanceEMS AppearanceOrganic Appearance

$0.13 [0.05-0.23]$0.04 [0.00-0.10]$0.08 [0.03, 0.15]

$0.06 [0.00, 0.13]Not significant$0.04 [0.00, 0.08]

Implicit Prices for Pork Attributes ($/Kg)

Variable Rural Urban

GM HealthEMS HealthOrganic Health

$0.48 [0.19, 1.03]$0.40 [0.23, 0.28]Not significant

Not significant $0.59 [0.38, 1.01]$0.29 [0.13, 0.57]

GM EnvironmentEMS EnvironmentOrganic Environment

Not significant$0.16 [0.05, 0.34]$0.27 [0.12, 0.56]

Not significantNot significant$0.35 [0.20, 0.64]

GM Animal WelfareEMS Animal WelfareOrganic Animal Welfare

Not significantNot significant-$0.14 [-0.39, 0.02]

Not significantNot significantNot significant

Willingness to Pay for a Tomato

Using the models derived for the choice experiment it is possible to estimate the consumers willingness to pay for a tomato with different attributes.

For example: Rural consumers would be willing to pay $0.70/kg more for an EMS tomato that had a 5% reduction in risk to human health, a 3% reduction in its environmental impact, with a 10% decrease in its appearance, while urban consumers would be willing to pay $0.85.

Summary of Results

The health attribute was more significant to both rural and urban consumers than the environmental attribute.

Both rural and urban consumers were willing to pay for local production with rural consumers willing to pay almost twice as much.

Rural consumers are willing to pay more for appearance than urban consumers.

Animal welfare is not a large concern for either rural or urban consumers.