Volume 6, Issue 1

This paper provides estimates of U.S. demand for margarine and price-cost margins. Demand is estimated using a mixed logit model, which provides a flexible substitution pattern among products. We find that product characteristics, such as nutrient facts, package size and product forms, and household income and age composition are important determinants of demand for margarine. The estimated product-level price elasticities, which are defined as the percent change in market share corresponding to a one percent change in price, range from -1.85 to -6.34, while the cross-price elasticities vary from 0.01 to 0.98. The estimated price-cost margins vary from 28 percent to 58 percent depending on the assumption of industry conduct.

Extensive research exists on who does or might purchase organic food products, however little research has addressed either who values organic production methods when deciding what to eat, and correspondingly, who does not purchase organics regularly. This paper reports that values about organic farming often do not translate into corresponding stated preferences about organic food consumption behavior. The paradox is examined within the context of the consumers’ socio-demographic characteristics as well as through opinions and preferences related to food in their lives.Results show that consumer claims of buying organics and placing importance on organic production systems when deciding what to eat are highly correlated (.472 at 1% significance level; p<. 001). Organic consumers, however, comprise only slightly more than one quarter (27%) of the highly enthusiastic proponents of organic production methods. Our results corroborate existing research that well-educated persons and those who are primary household shoppers purchase organics most frequently. Additionally, women and those who are older, have higher incomes, and are more liberal, as well as respondents who claim food production knowledge also tend to buy organic food regularly.Regression and factor analysis show that those who value organic production systems when deciding what to eat may be ranked in the following order: the religiously observant, older and female respondents, persons of color, and those who claim food production knowledge. Results show that many of these organic system proponents are under-represented as buyers, in particular: the religiously observant, those for whom food plays an integral role in their lives, the less educated, and lower income and older respondents.More attention should be directed to people who value organic production systems yet do not purchase organics. This will enhance understanding of the transaction barriers that impede consumer participation in the organic market. How this population values organic production systems also has implications for the development of public policy related to sustainable and organic agriculture.

Government officials and other policymakers often face difficult decisions determining what information must be provided to consumers in the limited space available on food labels. An ideal label will cause consumers to make the same purchase that they would make if they had all relevant information, while an inferior label will induce a consumer to purchase a product he would not purchase if more information were available or to forgo purchasing a product that would have yielded positive consumer surplus. We present the design and results of an experimental auction that allows researchers to compare several alternative labels in order to determine the welfare loss from labels that do not adequately inform consumers. Further, we compare a set of candidate labels to assess whether one of the labels is better or worse at informing consumers.

In this paper we estimate the farmers' side welfare effects of a hypothetical regulatory scenario that would partially eliminate production contracts in the hog industry. Using the Agricultural Resource Management Survey (ARMS) data for 2004, farmers' production costs under different marketing arrangements are estimated and then used to recover their individual risk aversion parameters with the help of a structural expected profit maximization model. The results show that farmers who use production contracts are more risk averse than farmers who use spot markets or marketing contracts. The regulation that forces producers to market their hogs in a riskier marketing channel relative to the channel they themselves selected imposes large welfare losses on the affected farmers.

This paper studies the effect of private labeling on retailer competition -an issue neglected in literature until now. Once implemented, private labeling may well be less favorable to society than previously thought because it can encourage consolidation of the retail industry. Either with linear pricing (when goods are not loose substitutes) or with wholesale price discrimination (when goods are not loose substitutes), the vertical channel is inclined to promote a retail monopoly while consumers prefer some retail competition. This conflict of interest would not arise in the absence of private labeling.

The health-related problems caused by poor diet choices has elevated the policy importance of how to communicate nutrition information more effectively to consumers at the point of purchase. At the same time, food retailers want to provide their customers with nutrition information in the format their shoppers prefer. The shopping environment, which includes the provision of nutrition information, is a way that food retailers can differentiate themselves from the competition. In this article, we present a simple model of the demand for nutrition information and empirically evaluate consumer preferences for two different formats. We compare nutrition information on grocery store shelf labels in the Greater San Francisco Area presented in detailed and summary formats. The detailed nutrition information provides an explicit description of specific nutrients but may be more costly to process and difficult to understand. Summary nutrition information reduces processing effort but provides a condensed description of nutritional content. The results indicate that there are higher mean preferences for detailed nutrition labels but also a greater dispersion of preferences. Nutrition-conscious consumers are more likely to prefer detailed information. The summary format may benefit shoppers who are less likely to use other forms of information.

This work suggests that the range of parametric configurations which give rise to a strictly convex farm-retail price transmission function is wider than that identified by Azzam (1999). As a matter of fact, Azzam's implicit result (that is, a strictly convex aggregate demand function leads always to a strictly concave price transmission function) emerges only as a particular case of the result obtained here for large elasticity of aggregate demand and patient enough retailers.

Many industries have "match-maker" institutions that help agents make links to one another by reducing search costs. Such institutions are now emerging in niche farm and food markets. In this study I provide an explanation for such institutions with a theoretical model of a niche market channel involving a small producer, retailer, and variety-loving consumer. I focus on the process by which producers are connected to retailers, and show that search costs between producers and retailers can be an important fixed cost of entry. Reduced search costs result in a larger number of matches, and facilitate the growth of niche market channels selling on the basis of producer identity. I examine the role of consumer preferences, retailer bargaining power, and other key features of these markets.

Merchandising allowances are fees paid by manufacturers to retailers in order to encourage the allocation of in-store promotional activities to the manufacturers' brand. I use a three-stage game framework to formulate a vertical structural model, which endogenizes manufacturer, retailer, and consumer decisions in the presence of merchandising allowances. The model allows for non-linear vertical pricing contracts using merchandising allowances paid to retailers. This differs from previous work which has focused on franchise fees paid to manufacturers. The model is estimated using store-level weekly data from the ketchup industry. In addition to estimates of consumer taste parameters, the model also yields predictions of wholesale prices and the size (dollar value) of the merchandising allowances. Counterfactual simulations reveal that merchandising allowances lead to an increase in retail profits, a decline in manufacturer profits, a decline in consumer surplus, and reduction in total welfare.

Consumers are, in general, less informed than producers about the quality of agricultural goods. To reduce the information gap, consumers can rely on certification that ensures the quality and origin of the goods. Certification can be voluntarily adopted by a group of producers, as is the case for geographical indications. We model such a group as a club, and analyze the certification decision of the club and its welfare implication. We find that for intermediate values of certification costs, the industry and a club of a given size have divergent incentives, and there may be overprovision of certification. If club members can erect barriers to entry, an optimal size of the club exists. There may be a conflict between the efficient outcome (that maximizes the aggregate profit of the firms) and the equilibrium, which may be socially undesirable. In the absence of a barrier to entry, it is less likely that a club will emerge.