Consumers Willing To Pay a Premium for Organic Produce
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Consumers are buying organic food despite its generally higher price tag. Retail sales of organic food increased from $3.6 billion in 1997 to $18.9 billion in 2007, accounting for over 3 percent of total U.S. food sales. According to the Nutrition Business Journal, organic food sales could reach an estimated $24 billion in 2010. Among the organic food categories, fruit and vegetable sales were the largest ($6.9 billion), almost 37 percent of organic sales in 2007.
ERS researchers estimated price premiums for 10 popular fresh organic fruit and vegetables. These price premiums reflect consumers’ willingness to pay for attributes and additional production costs associated with organic foods, such as organic certification and the lack of pesticides during production.
Traditionally, organic premiums have been calculated using surveys that ask consumers how much more they would pay for organic foods over conventional foods. The ERS study, however, used actual consumer purchase data to estimate a pricing model that accounts for various product attributes, market factors, and consumer sociodemographics. Data were obtained from Nielsen, a market research firm that recruits a panel of households to record their food purchases from grocery stores and other retail outlets.
The research found that organic fresh fruit commanded a significant price premium, varying from 13 cents per pound for bananas in 2006 to 88 cents per pound for strawberries. The per pound premium for fresh vegetables ranged from 19 cents for onions and carrots to 54 cents for peppers. Organic price premiums converged in the range of 13-36 cents per pound for 7 of the 10 fresh produce items considered in the study. For fruit, the estimated organic premiums varied from 22 percent for oranges to 40 percent for strawberries. For vegetables, organic premiums varied from about 17 percent for tomatoes and carrots to 62 percent for potatoes.
Premiums reflect both consumer demand and available organic supply. Increased demand or tight supplies drive up price premiums, which, in turn, can translate into lower sales relative to the non-organic commodity, and this is true for some of the produce items examined. For example, potatoes commanded the highest organic price premiums and also accounted for a low share of total fresh potato sales (less than 1 percent). Similarly, carrots had one of the lowest organic premiums and a high organic share of the carrot market (11 percent). For other fruit and vegetables, such as onions and apples, this relationship is not as strong, inferring that many factors affect the magnitude of organic price premiums and market share.
This article is drawn from...
Organic Premiums of U.S. Fresh Produce, by Biing-Hwan Lin, Travis A. Smith, and Chung L. Huang, Renewable Agriculture and Food Systems, 2008, 23(3): 208-216.