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Group Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 05-03
Title: When buying fresh apples and tomatoes will consumers pay extra to have country of origin labeling?
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Title: When buying fresh apples and tomatoes will consumers pay extra to have country of origin labeling?
Series Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 05-03
Physical Description: Book
Language: English
Creator: Mabiso, Athur
Sterns, James
VanSickle, John
Wysocki, Allen
Publisher: International Agricultural Trade and Policy Center, Institute of Food and Agricultural Sciences, University of Florida
Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2005
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Bibliographic ID: UF00089777
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.

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    Center information
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PBTC 05-03


I '-ional Agricultural Trade and Policy Center



WHEN BUYING FRESH APPLES AND TOMATOES WILL
CONSUMERS PAY EXTRA TO HAVE COUNTRY OF ORIGIN
LABELING?
By
Athur Mabiso, James Sterns, John VanSickle, & Allen Wysocki
PBTC 05-03 August 2005


POLICY BRIEF SERIES


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i~fr


UNIVERSITY OF
FLORIDA


Institute of Food and Agricultural Sciences









INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER


THE INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER
(IATPC)

The International Agricultural Trade and Policy Center (IATPC) was established in 1990
in the Institute of Food and Agriculture Sciences (IFAS) at the University of Florida
(UF). The mission of the Center is to conduct a multi-disciplinary research, education and
outreach program with a major focus on issues that influence competitiveness of specialty
crop agriculture in support of consumers, industry, resource owners and policy makers.
The Center facilitates collaborative research, education and outreach programs across
colleges of the university, with other universities and with state, national and
international organizations. The Center's objectives are to:

* Serve as the University-wide focal point for research on international trade,
domestic and foreign legal and policy issues influencing specialty crop agriculture.
* Support initiatives that enable a better understanding of state, U.S. and international
policy issues impacting the competitiveness of specialty crops locally, nationally,
and internationally.
* Serve as a nation-wide resource for research on public policy issues concerning
specialty crops.
* Disseminate research results to, and interact with, policymakers; research, business,
industry, and resource groups; and state, federal, and international agencies to
facilitate the policy debate on specialty crop issues.









When Buying Fresh Apples and Tomatoes Will Consumers Pay Extra to Have Country of
Origin Labeling?

Athur Mabiso, James Sterns, John VanSickle and Allen Wysocki


COOL in Fresh Produce

While disagreement continues over whether consumers value country-of-origin

labeling (COOL) of food products, Congress has introduced and deliberated several bills

that could make mandatory country-of-origin labeling (MCOOL) enacted law. As

stipulated in the agricultural marketing act of 1946 and amended in May 2002, COOL

will become mandatory for the fresh produce industry in September 2006 (U.S. Public

Laws, 2002). U.S. producers and marketers of fresh produce are, however, still unsure if

consumers are willing to pay a price premium for COOL and, if they are, how much they

will pay. In addition, it is not clear if the "U.S.A. Grown" label would fare well against

other country-of-origin labels.

Another issue up for debate concerns the factors that may be key determinants of

consumer willingness to pay (WTP) for COOL. A common hypothesis is that consumers'

food safety concerns, food preferences and perceptions about quality and standards are

key determinants of consumer WTP for COOL (Umberger et al., 2003). However, other

factors may have an impact on the WTP for COOL and this has not been tested

extensively (particularly in the fresh produce sector).

As U.S. producers of fresh apples and fresh tomatoes continue to contend with

rising import competition, various prospects of enhancing domestic demand for U.S.

fresh produce have been debated. One unexplored avenue is generic promotion of the

label "U.S.A. Grown." If consumers are willing to pay more for fresh produce labeled









"U.S.A. Grown" then promoting the label in the context of mandatory COOL policy

could be beneficial to U.S. producers. However, in order for generic promotion of the

label "U.S.A. Grown" to be plausible, its benefits would need to be shared across the

fresh produce industry and among all firms that take part in such a program.

Answers to these questions/issues are needed for more informed decision-making

by U.S. producers, marketers and policymakers. This paper specifically addresses these

issues surrounding COOL and presents research findings to empirically answer these

questions/issues.

Empirical Findings

This paper summarizes findings from a study conducted in Florida, Michigan and

Georgia, by the International Agricultural Trade and Policy Center of UF/IFAS. Using a

Vickrey (fifth-price sealed-bid) auction in conjunction with a written questionnaire, data

were collected in November 2003 to January 2004. Specifically, the Vickrey auction

collected data on consumers' actual willingness to pay (WTP) for "U.S.A. Grown"

labeling in fresh apples and fresh tomatoes, while the written questionnaire solicited

information on some of the factors influencing this WTP for COOL. In total, 311

observations were collected and used for the study.

Findings of the study show that surveyed consumers were willing to pay an

average price premium of $0.48 for one pound of fresh apples labeled "U.S.A. Grown"

over an identical pound of fresh apples without a country-of-origin label. Similarly, the

surveyed consumers were found to be willing to pay an average price premium of $0.44

for one pound of fresh tomatoes labeled "U.S.A. Grown" over an identical pound of fresh

tomatoes without a country of origin label. It was also found that 79% of the surveyed









consumers were willing to pay some price premium for the fresh apples labeled "U.S.A.

Grown". In the case of fresh tomatoes, 66% of the consumers surveyed were willing to

pay a price premium for "U.S.A. Grown" labeling, over the fresh tomatoes without

COOL.

When these average price premiums for fresh apples and fresh tomatoes were

tested for statistical equivalency, they were found to be equivalent. This implied that the

$0.04 difference was insignificant. Thus, it did not matter statistically what type of

produce was under consideration; consumers were willing to pay the same average price

premium for a "U.S.A. Grown" label on their fresh produce (when choosing between

labeled and identical but unlabeled fresh produce.)

As for the factors that determine consumers' WTP for the labeling "U.S.A.

Grown," it was established that consumers' concerns about food quality were prominent

determinants. Consumers who were more concerned about food quality were found to be

willing to pay more for produce labeled "U.S.A. Grown," implying that they view U.S.

fresh produce as having better quality than foreign fresh produce. In addition, the

consumers' location (i.e. state of residence) turned out to be a key determinant of how

much consumers would be willing to pay, as shown in Table 1. Consumers in Michigan

were willing to pay a considerably lower price premium than consumers in Georgia or

Florida. Interestingly enough, consumers in Georgia were found to be willing to pay

more for COOL in fresh apples than in tomatoes, while consumers in Florida exhibited

the opposite.









Table 1. WTP for produce labeled "U.S.A. Grown" by location
Gainesville, FL Lansing, MI Atlanta, GA Combined across
all locations
($/Lb) ($/Lb) ($/Lb) ($/Lb)
Apples 0.40 0.18 0.63 0.48

Tomatoes 0.68 0.19 0.38 0.44


The level of trust that consumers have for information they receive from U.S.

government agencies such as the FDA, USDA, EPA, etc. also turned out to be an

important determinant; similarly, consumers' food preferences (level of openness to

unfamiliar foods) was a statistically significant factor. Consumers who were more

trusting of the information they received from U.S. government agencies were likely to

pay a price premium for "U.S.A. Grown" labeling while those who were more open to

unfamiliar foods were less likely to pay. Consumer food safety concerns were also found

to be important. Consumers who rated themselves as more thoughtful about food safety

when purchasing fruits and vegetables were willing to pay more for produce labeled

"U.S.A. Grown." This implied that consumers viewed U.S. produce as safer. The

consumers' age was also found to be a significant variable, with older consumers less

willing to pay for the label "U.S.A. Grown."

In terms of country-to-country comparison, Table 2 gives a synopsis of the

findings that were made. Consumers had initially been asked to bid the price premium

they were willing to pay in order to exchange their unlabeled apples or tomatoes for

identical apples or tomatoes labeled "U.S.A. Grown." The average of this amount is

indicated in the first column of Table 2. The second column shows the amount that the

same consumers were willing to pay for produce labeled "U.S.A. Grown" after being told

where their unlabeled apples or tomatoes came from. Thus the difference between what










they were willing to pay before and after release of this foreign country information is

shown in the third column.

Table 2. Comparison of mean bids: U.S.A. Grown versus Other Country labels
Paired
Samples Number of
WTP for U.S. Label Mean Test Observations
Difference t-value
Before After
Information Information ($ Lb)
Apples
U.S.A. Grown versus No label 0.48 -136
U.S.A. Grown versus Chile 0.42 0.41 -0.01 -0.240 59
U.S.A. Grown versus China 0.37 0.46 0.09 2.658 39
U.S.A. Grown versus New
Zealand 0.71 0.88 0.17 2.043 38
Tomatoes
U.S.A. Grown versus No label 0.44 175
U.S.A. Grown versus Canada 0.34 0.38 0.04 1.475 67
U.S.A. Grown versus Mexico 0.58 0.93 0.35 4.432 86
U.S.A. Grown versus the
Netherlands 0.56 0.67 0.11 1.941 22
Note: Bold indicates statistical significance

Essentially, the third column displays how much more consumers were willing to

pay for produce labeled "U.S.A. Grown" compared to identical produce from the foreign

country that they were told their unlabeled produce came from. As shown in Table 2, in

most cases consumers were willing to pay more for fresh produce labeled "U.S.A.

Grown" over the foreign country fresh produce. Only in the case of Chilean fresh apples

versus U.S. fresh apples, were consumers willing to pay on average $0.01 less for a

pound of fresh produce labeled "U.S.A. Grown." However, this difference was

statistically insignificant (as shown by a t-value of -0.240). The difference in price

premiums for Canadian fresh tomatoes and U.S. fresh tomatoes was also statistically

insignificant, even though consumers proved to be willing to pay marginally more for

fresh tomatoes labeled "U.S.A. Grown."









Since different countries of origin were mentioned to different groups of

participating consumers, the sample size automatically became smaller for each direct

comparison of "U.S.A Grown" versus foreign country-of-origin. This information is

shown in the last column in Table 2. Consequently, these findings are less robust and

should be treated with caution. Further research with far larger sample sizes is needed in

order to substantiate these preliminary findings.

Conclusions

Several conclusions can be drawn from the findings made by the study. Firstly, U.S.

consumers were shown to be willing to pay a premium for fresh apples and fresh

tomatoes labeled "U.S.A. Grown," implying that they desire to know the origin of their

fresh produce. Thus, COOL is partially justified with respect to consumers' desire for

country-of-origin information; however, costs associated with implementing COOL need

to be calculated to see if they can be offset by the consumers' WTP.

Secondly, the study established that consumers' WTP for COOL in fresh apples

was statistically equivalent to that for fresh tomatoes. This suggested that consumers'

WTP for the label "U.S.A. Grown" is not produce-specific and may imply that generic

promotion of the label "U.S.A. Grown" would be a plausible way of enhancing domestic

demand for U.S. produce. The country-to-country comparison also showed that U.S.

consumers were willing to pay more for U.S. produce. Though preliminary, this finding

augments the concept that promoting the "U.S.A. Grown" label in fresh apples and

tomatoes would be beneficial to U.S. producers.

With respect to major factors of WTP for COOL, several were found, including

consumer food quality perceptions, food safety concerns, and regional differences within









the U.S. Most consumers viewed U.S. produce as safe and having better quality. This

implies that there is an advantage for U.S. producers if they promote the label "U.S.A.

Grown," because it could be developed into a recognizable image of high quality and

safety. Overall, "U.S.A. Grown" labeling in fresh apples and tomatoes was found to be of

value to U.S. consumers.


References

Umberger, W.J., Feuz, D.M., Calkins, C.R. and Sitz, B.M., "Country-of-Origin Labeling
of Beef Products: U.S. Consumers' Perceptions." Journal of Food Distribution
Research, 34(03) (2003):103-116

U.S. Public Laws, 2002, H.R. 2646 "The Agricultural Marketing Act of 1946", Sec.
10816, http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=107 cong public laws&docid=f:publ 171.107.pdf,
queried and accessed July 28, 2005




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