Title: COOL and consumers' willingness to pay in the fresh produce industry : some initial impressions from the field
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Title: COOL and consumers' willingness to pay in the fresh produce industry : some initial impressions from the field
Abbreviated Title: Working paper - International Agricultural Trade and Policy Center ; 04-1
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Language: English
Creator: Sterns, James
Publisher: Institute of Food and Agricultural Sciences
Place of Publication: Gainesville, Fla.
Publication Date: 2004
Copyright Date: 2004
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WPTC 04-1


i -ional Agricultural Trade and Policy Center



COOL AND CONSUMERS' WILLINGNESS TO PAY IN THE
FRESH PRODUCE INDUSTRY SOME INITIAL IMPRESSIONS
FROM THE FIELD
By
James Sterns, Lisa House, John VanSickle and Allen Wysocki
WPTC 04-1 February 2004


WORKING PAPER SERIES


i~fr


UNIVERSITY OF
FLORIDA


Institute of Food and Agricultural Sciences


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INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER


MISSION AND SCOPE: The International Agricultural Trade and Policy Center
(IATPC) was established in 1990 in the Food and Resource Economics Department
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of
Florida. Its mission is to provide information, education, and research directed to
immediate and long-term enhancement and sustainability of international trade and
natural resource use. Its scope includes not only trade and related policy issues, but also
agricultural, rural, resource, environmental, food, state, national and international
policies, regulations, and issues that influence trade and development.

OBJECTIVES:

The Center's objectives are to:

Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
publications
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets









COOL and Consumers' Willingness to Pay in the Fresh Produce Industry Some
initial impressions from the field



James Sterns, Lisa House, John VanSickle and Allen Wysocki



Abstract

The debate about Country-of-Origin labeling (COOL) has centered on the projected
benefits and costs of its implementation. This study uses data from a Vickery
auction (n=320) to estimate willingness to pay for COOL. Preliminary findings
suggest, on average, consumers value COOL, are not homogenous, and prefer fresh
produce grown in the U.S.


Authors are
Assistant Professor, Associate Professor, Professor and Assistant Professor,
respectively, Food and Resource Economics Department
IFAS, University of Florida
P.O. Box 110240, Gainesville, FL 32611-0240

The International Agricultural Trade and Policy Center, Food and Resource
Economics Department, University of Florida/IFAS provided funding for this
research, http://www.iatpc.fred.ifas.ufl.edu/


Selected Paper prepared for presentation at the Southern Agricultural Economics
Association Annual Meeting, Tulsa, Oklahoma, February 18, 2004







Copyright 2004 by Sterns, House, VanSickle and Wysocki. All rights reserved. Readers
may make verbatim copies of this document for non-commercial purposes by any means,
provided that this copyright notice appears on all such copies.









COOL and Consumers' Willingness to Pay in the Fresh Produce Industry Some initial
impressions from the field

James Sterns, Lisa House, John VanSickle and Allen Wysocki

A Selected Paper for presentation at the Southern Ag. Econ. Association Meetings
Tulsa, OK, February 14-18, 2004

Introduction

The 2002 Farm Bill includes provisions for Country of Origin Labeling (COOL),

which will require retailers to inform consumers of the country of origin for several fresh

commodities. The debate on these provisions has centered on the potential benefits as

they relate to the anticipated costs of implementing this legislation. In order to help

inform this debate, the authors of this paper initiated a research project on consumer

preferences for COOL. More specifically, the research project's primary objective is to

measure the degree to which consumers are willing to pay for fresh produce with labeling

that identifies products by their country of origin, and/or if this willingness is affected by

the particular country of origin.

As this research is on going, this paper offers limited insights and no conclusive

findings. However, an initial review of the data collected to date does suggest that there

may be price differentials (i.e., differing levels of willingness to pay) based on

information about the country of origin of fresh produce.

Background

With the public debate about the costs and benefits of COOL continuing both in

the trade press and in the halls of the U.S. Congress, researchers are beginning to publish

findings on consumer demand and willingness to pay for COOL products. However, to

date, this literature is still rather limited, particularly for the fresh produce industry.









There have been a number of symposia and sponsored workshops on topics closely

related to COOL. Examples are the FAMPS-coordinated workshops in January 2002, The

Economics of Assurance and Traceability in the US Food System, and in March 2003,

Emerging Roles for Food Labels: Inform, Protect, Persuade, and the ERS/Farm

Foundation sponsored conference in January 2003, Product Differentiation and Market

Segmentation in Grains and Oilseeds: Implications for an industry in transition. Specific

published studies that have researched COOL include a comprehensive background

report by the General Accounting Office, a consumer survey that interviewed consumers

at grocery stores in Colorado in order to assess preferences for COOL with beef products

(Loureiro and Umberger), and a mail survey of Louisiana households that estimated

consumers' support for mandatory COOL (Schupp and Gillespie). Other studies have

examined the potential structural and economic impacts of COOL (Carter and Zwane;

Grier and Kohl).

Although all of this literature helps inform the debate about COOL, definitive

conclusions about the full costs and benefits of COOL remain elusive. This paper and the

research from which it is drawn are intended to contribute to this end goal.

Data and methods

This paper reports preliminary data from personal interviews and an experimental

auction conducted in three different markets to estimate the willingness of consumers to

pay for labeling for country of origin. The three markets were Gainesville, Florida,

Lansing, Michigan, and Atlanta, Georgia. A total of 360 observations were collected,

148 in Gainesville, 77 in Lansing, and 135 in Atlanta. Twenty-one observations from the

Gainesville data, fifteen from Atlanta, and four from the Lansing data were deleted due to









missing data or respondents not meeting the necessary conditions of age between 25 and

65 years and being the primary shopper. The total usable observations are 320. Table 1

shows the demographic profile of the 320 respondents and compares this to U.S. Census

data. The participants were older, had higher incomes, had lower minority representation

and were more educated than the average U.S. citizen. A high proportion of the sample

was female (88.6%), which was expected as the research protocol requested that only

primary shoppers be included in the sample population. Since there are clear

discrepancies between the demographic profiles of the 320 respondents relative to the

U.S. census profiles for all consumers, the observations reported in this paper must be

treated with caution.

Table 1: Demographic summary of respondents

Category U.S. Census Sample
Average (%) Average (%)
Age
25-34 27 10.0
35-44 31 42.2
45-54 26 36.6
55-65 16 11.3
Race
White 75 86.9
Black or African American 12 7.8
Asian 4 1.9
Other 9 3.4
Ethnicity
Hispanic 12 3.4
Income
<$15,000 15.2 2.9
$15,000 $24,999 13.2 6.4
$25,000 $34,999 12.3 8.7
$35,000 $49,999 15.1 11.9
$50,000 $74,999 18.3 25.0
$75,000 $99,999 11.0 17.6
$100,000 or above 14.1 27.6
Education
Bachelors Degree or higher 24 63.8









Some College 27 26.0
High School Degree (or equivalent) 29 9.3
Less than High School 20 0.9


The respondents were recruited through local civic organizations, and these

organizations were compensated for these efforts and for supplying meeting facilities in

which to conduct the studies. During a two-hour session, each respondent participated in

two auctions, and then completed a questionnaire about his/her produce buying habits

and stated preferences for fresh produce and labeling.

The auctions were modeled as random 5th price auctions (Vickery) such that each

respondent bid on identical products that differed only in the information provided by

labels on some of the available products. This type of experimental method for valuation

of consumer demand is used because it provides robust measures of consumer

willingness-to-pay in a non-hypothetical market. This method has advantages over

typical survey methods when attempting to elicit willingness-to-pay measures (Fox et

al.). With experimental methods, as opposed to survey techniques, the incentive structure

is designed such that participants will reveal their true valuation of a good (Shogren et

al.).

The first phase of the initial auction involved endowing the participants with one

pound of either apples or tomatoes and $10 cash and then having the participants bid on

how much they would be willing to pay to exchange their unlabeled fresh produce (either

apples or tomatoes) for an equal amount of apples or tomatoes labeled "Grown in the

United States." Considerable efforts were made to closely match all other visible

attributes between the fruit that was endowed to the participants and the labeled fruit

(e.g., size, degree of coloring and blemishes, variety).









152 participants were given one pound of apples and the average bid to exchange

one pound of unlabeled apples for one pound of apples labeled "Grown in the United

States" was $0.47. Thirty-three of the respondents (i.e., 21.7%) were not willing to pay

anything to exchange their apples. Figure 1 shows the frequency of willingness to pay to

exchange apples.

In the second phase of this auction, respondents were then informed where their

pound of apples was grown and asked to bid again to trade their apples (location now

known) for the pound of apples labeled "Grown in the U.S." Participants were either told

their apples were from Chile (67 participants: 21 each in Gainesville and Lansing, and 25

in Atlanta), China (42 participants: 17 in Gainesville, 25 in Atlanta), or New Zealand (43

participants: 21 in Gainesville, 22 in Atlanta). Average willingness-to-pay declined in

the cases of Chile ($0.40) and China ($0.46), but increased when the apples were from

New Zealand ($0.86). However, there were differences between the cities. For the

apples from Chile, the average willingness-to-pay to trade the Chilean apples for apples

identified as Grown in the United States increased to $0.48 in Gainesville and $0.49 in

Atlanta and decreased to $0.22 in Lansing. For the apples from China, the average

willingness-to-pay to trade the Chinese apples for apples identified as Grown in the

United States decreased to $0.20 in Gainesville and increased to $0.63 in Atlanta. For the

apples from New Zealand, the average willingness-to-pay to trade the New Zealand

apples for apples identified as Grown in the United States increased to $0.63 in

Gainesville and increased to $1.07 in Atlanta. Willingness-to-pay to exchange apples

when the source is known is shown in Figures 2, 3 and 4.









Figure 1


Percent of respondents willing to trade one pound of
apples from unknown source for apples labeled Grown in
the United States

25%
20%
15%
10%
5%
0%





Amount Willing to Pay



Figure 2


Percent of respondents willing to trade one pound of
apples from Chile for apples labeled Grown in the
United States


30%
25% -
S20%
S15% -
0 10%
0 5%
0%






Amount Willing to Pay









Figure 3


Percent of respondents willing to trade one pound of
apples from China for apples labeled Grown in the
United States


30%
25%
20%
15%
10%
5%
0%


oO-


Amount Willing to Pay


Figure 4


Percent of respondents willing to trade one pound of
apples from New Zealand for apples labeled Grown in the
United States


50%
40%
30%
20%
10% -
0% -


41 C9
$0 (^
^- ^~


Amount Willing to Pay


11


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$0


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Similarly, 168 participants were given one pound of tomatoes and the average bid

to exchange one pound of unlabeled tomatoes for one pound of tomatoes labeled "Grown

in the United States" was $0.52. Fifty-three, or 31.5%, of the respondents were not

willing to pay anything to exchange their tomatoes. Figure 5 shows the frequency of

willingness-to-pay to exchange tomatoes.

Participants were then informed where their pound of tomatoes was grown and

asked to bid again to trade their tomatoes (location now known) for the pound of

tomatoes labeled "Grown in the U.S.". Participants were either told their tomatoes were

from Mexico (93 participants: 47 in Gainesville, 25 in Lansing, and 21 in Atlanta) or

Canada (75 participants: 22 in Gainesville, 26 in Lansing, and 27 in Atlanta).

Average willingness-to-pay increased in the case of Mexico ($0.90) and

decreased in the case of Canada ($0.36). When comparing respondents among cities, the

average willingness-to-pay to trade the Mexican tomatoes for tomatoes identified as

Grown in the United States increased to $1.23 in Gainesville and $0.77 in Lansing, while

it decreased to $0.41 in Atlanta. For the tomatoes identified as Grown in Canada,

average willingness-to-pay to trade the Canadian tomatoes for the tomatoes labeled

Grown in the U.S. increased to $0.57 in Gainesville and decreased to $0.21 in Lansing

and $0.33 in Atlanta. Willingness-to-pay to exchange tomatoes when the source is

known is shown in Figures 6 and 7.









Figure 5


Percent of respondents willing to trade one pound of
tomatoes from unknown source for tomatoes labeled Grown
in the United States


35%
30%
25%
20%
15%
10%
5%
0%


' ^3
-10"


Amount Willing to Pay


Figure 6


Percent of respondents willing to trade one pound of tomatoes
from Mexico for tomatoes labeled Grown in the United States


45%
40%
35%
30%
25%
20% -
15% -
10%
5% -
0% -


Amount Willing to Pay


I


^
11


~,nP


be
C\
$0


I


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Qd\
QO


~,n"


C N
,-" e^
^ ,^
y'~









Figure 7


Percent of respondents willing to trade one pound of
tomatoes from Canada for tomatoes labeled Grown in
the United States

50%
40%
30% -
20O%
10%
0%






Amount Willing to Pay








After completing the first auction, participants were then introduced to a second

auction. In this second auction, participants were shown one-pound sets of apples or

tomatoes, with each pound from a different country. In the case of apples, participants

were shown five one-pound sets of apples, one pound each from the United States, Chile,

China, New Zealand, and Canada. In the case of tomatoes, participants were shown four

one-pound sets of tomatoes, one each from the United States, Mexico, Canada, and the

Netherlands. Participants were then asked to bid how much they would be willing to pay

for each individual pound of apples (or tomatoes) as if they were in the grocery store and

that was the pound of apples (or tomatoes) that was available for purchase. It should be

noted that participants who bid on apples in the first auction, were presented with choices









for tomatoes in the second auction, while those who bid on tomatoes in the first auction

were presented with choices for apples in the second auction.

Average willingness-to-pay (n=168) for a pound of apples was highest for U.S.

apples ($1.19/pound) compared to $0.92 from Canada, $0.86 from New Zealand, $0.58

from Chile, and $0.44 from China. Willingness-to-pay did differ between Gainesville

(n=69), Lansing (n=51) and Atlanta (n=48) participants as shown in Figure 8.

When given a choice of tomatoes from four different countries, average

willingness-to-pay (n=152) for a pound of tomatoes was highest for U.S. tomatoes

($1.31/pound), compared to $0.96 from the Netherlands, $0.91 from Canada, and $0.81

from Mexico. Willingness-to-pay did differ between Gainesville (n=59), Lansing (n=21),

and Atlanta (n=72) participants as shown in Figure 9.








Figure 8:


Willingness to Pay for Apples from Various Countries, by
City of Experiment


$1.50

" $1.00

I $0.50

$0.00


fI


* Gainesville
* Lansing
o Atlanta


Canada New
Zealand


Chile China


Country of Origin of Apples


Figure 9:


Willingness to Pay for Tomatoes from Various
Countries, by City of Experiment


$2.00 -
$1.50
$1.00 -
$0.50 -
$0.00


ea
*^-


* Gainesville
* Lansing
0 Atlanta


Country of Origin of Tomatoes


United
States









Impressions and Observations to Guide Further Research


As has been noted already, these data are preliminary and possibly non-

representative of all U.S. consumers. Once the research is complete, a more

comprehensive set of conclusions will be drawn. But from this initial research, several

impressions and observations are that:

* Consumers appear to respond to more information, but there appears to be
heterogeneous preferences among consumers, and hence, not all consumers react to the
same information in the same manner.


* Consumer perceptions about fresh produce from different countries of origin may vary
by U.S. geographic regions.


* Consumer perceptions about fresh produce from different countries of origin may vary

by type of produce (e.g., a tomato from a particular country may merit a price premium
while an apple from the same country may be penalized in terms of the price a
consumer is willing to pay for it).


* Previous exposure to COOL may increase consumer willingness-to-pay for US fresh
produce (i.e., the respondents in Gainesville, generally were willing to pay more for
U.S. grown produce, which may be a result of Florida's already well-established state-
mandated COOL program and the absence of such a state-level program in Michigan
and Georgia).


* On average, U.S. consumers likely favor U.S. grown fresh produce, and may even be
willing to pay a price premium for it.









References


Carter, C.A. and A. P. Zwane. "Not so Cool? Economic Implications of Mandatory
Country-of-Origin Labeling." Giannini Foundation of Agricultural Economics:
Agricultural and Resource Economics Update, 6(May/June 2003):5:5-7.

Fox, J.A., J.F. Shogren, D.J. Hayes, and J.B. Kliebenstein. "CVM-X: Calibrating
Contingent Values with Experimental Auction Markets." American Journal of
Agricultural Economics 80(August 1998):455-65.

Grier, K. and D. Kohl. "Impacts of US Country of Origin Labeling on US Hog
Producers." Guelph, Ontario: George Morris Centre, April 2003. Available at
www.georgemorris.org.

Loureiro, M.L. and W. J. Umberger. "Consumer Response to the Country-of-Origin
Labeling Program in the Context of Heterogeneous Preferences." Journal of
Agricultural and Resource Economics. 28(August 2003):2:287-301.

Schupp, A. and J. Gillespie. "Consumer Attitudes Toward Potential Country-of-Origin
Labeling of Fresh or Frozen Beef." Journal ofFood Distribution Research.
32(November 2001):3:34-44.

Shogren, J.F., J.A. Fox, D.J. Hayes, J.B. Kliebenstein. "Bid Sensitivity and the Structure
of the Vickrey Auction." American Journal ofAgricultural Economics.
76(December 1994):1089-1095.

United States General Accounting Office. "Country-of-Origin Labeling Opportunities
for USDA and Industry to Implement Challenging Aspects of the New Law."
Report to Congressional Requesters, GAO-03-780, August 2003.

Vickrey, W. "Counterspeculation, Auctions, and Competitive Sealed Tenders." Journal
ofFinance. 16(1961):8-37.




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