NATIONAL DEMAND FOR FRESH ORGANIC AND CONVENTIONAL VEGETABLES: SCANNER DATA EVIDENCE. Feng Zhang, Chung L. Huang, Biing-Hwan Lin, James E.

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1 NATIONAL DEMAND FOR FRESH ORGANIC AND CONVENTIONAL VEGETABLES: SCANNER DATA EVIDENCE Feng Zhang, Chung L. Huang, Bng-Hwan Ln, James E. Epperson Authors Afflatons: Feng Zhang s a Ph.D. canddate and graduate research assstant, Department of Agrcultural and Appled Economcs, the Unversty of Georga. Chung L. Huang and James E. Epperson are professors, Department of Agrcultural and Appled Economcs, the Unversty of Georga. Bng-Hwan Ln s an agrcultural economst, Economc Research Servce, U.S. Department of Agrculture. Contact nformaton: Feng Zhang 207 Conner Hall, Unversty of Georga, Athens, GA Emal: fzhang@agecon.uga.edu Selected Paper Prepared for Presentaton at the Amercan Assocaton Agrcultural Economcs Annual Meetng, Long Beach, CA, July 23-26, 2006 Copyrght 2006 by Feng Zhang, Chung L. Huang, Bng-Hwan Ln, and James E. Epperson. All rghts reserved. Readers may make verbatm copes of ths document for non-commercal purposes by any means, provded that ths copyrght notce appears on all such copes.

2 Abstract Usng AC Nelsen scanner data on U.S. household consumpton of selected fresh vegetables from 1999 to 2003, ths study provdes an overvew of the organc fresh vegetable market by nvestgatng market shares and prce premums of selected organc fresh vegetables and estmatng the nterrelatonshp between consumer demand for organc and conventonal fresh vegetables. The lnear Almost Ideal Demand System was found to ft the data best among other dfferental demand models. Keywords: demand systems, scanner data, organc, fresh produce, prce premum 2

3 Natonal Demand for Fresh Organc and Conventonal Vegetables: Scanner Data Evdence Introducton Concerns over health and envronment degradaton have motvated US consumers to consume more organc produce n recent years. Sales of organc commodtes n natural food stores approached $3.3 bllon n 1998, compared wth $2.08 bllon n In response to the growng popularty of organc tems, conventonal supermarkets and mass market merchandsers have added shelf space for organc fruts and vegetables. In 2000, for the frst tme, more organc food was purchased n conventonal supermarkets than n any other venue. In 2003, 47 percent of organc foods were sold through conventonal channels, 44 percent were sold through natural food stores, and nne percent were sold through drect and other marketng channels, e.g., farmers markets, restaurants, exports (Organc Trade Assocaton, 2004). Organc foods are now takng market share from conventonal foods. To facltate the marketng of organc foods, Congress passed the Organc Foods Producton Act of 1990 to establsh natonal standards for organcally grown commodtes. However, fnal rules for systematc mplementaton of natonal organc standards had not come nto force untl recently. In October 2002, the new USDA standards for organc food were mplemented wth an 18-month transton perod. Accordng to USDA standards, organc producton s defned as A producton system that s managed n accordance wth the Organc Foods Producton Act and regulatons n ths part to respond to ste-specfc condtons by ntegratng cultural, bologcal, and mechancal practces that foster cyclng of resources, promote ecologcal balance, and conserve bodversty (Natonal Organc Program, 2002). The new USDA standards for 3

4 organc food, by standardzng organc producton and buldng consumer confdence n organc products, are expected to facltate further growth n the organc foods ndustry. Although organc food sales make up a small porton of total food retal sales n the Unted States, some organc frut and vegetable categores have hgher market penetraton rates than others. For example, n 2002 organc fresh frut and vegetable sales accounted for 4.5 percent of total fresh frut and vegetable sales (NBJ, 2003). Natural Foods Merchandser reported that sales of packaged fresh produce had the hghest growth rate among sales of all organc products durng , expandng 26 percent to $364 mllon. Conventonal supermarkets accounted for three-fourths of ths total. The number of new organc produce tems ntroduced n retal markets has more than doubled over a decade, from 14 n 1993 to 30 n 2003 (USDA, ERS, 2005). In addton, organc produce has the hghest market value among all organc foods. Produce accounted for 42 percent of U.S. organc food sales n 2000, accordng to the market research frm Packaged Facts (Packaged Facts, 2000). Even though the mplementaton of organc standards and ncreasng publc awareness of organc food s helpful n promotng organc fresh produce sales, more affordable prces are also mportant for long-term growth of the organc produce market. Consumers are expected to purchase more organc produce as the prce premum for organc produce s reduced. On the other hand, farmers expect a suffcent premum to warrant producton of organc produce as organc producton usually nvolves relatvely hgh producton costs. In the Organc Farmng Research Foundaton (OFRF) s 2001 survey of organc farmers (Walz, 2004), 41 percent of respondents reported recevng prce premums on all tems sold, and 71 percent receved a premum on at least half of tems sold. When asked about the crcumstances that made t dffcult to receve prce 4

5 premums, lmted local demand for organc tems n some areas (e.g., rural areas) and prce competton from conventonal tems (e.g., corn and strawberres) were some often cted reasons. An analyss of trends n prce premums and prce elastctes of demand can provde nsght nto relatve changes n supply and demand for organc products and a clearer sense of market maturty and the lkelhood of further growth. Results of ths research can be valuable for farmers and retalers of fresh produce. For farmers, f they know the prce premums of dfferent varetes of fresh produce, they can allocate resources accordngly. For retalers, knowng target consumers and ther response to prce nformaton can help n formulatng more effectve marketng strateges. The man obectve of ths study s to shed lght on trends wthn the fresh vegetable market and nvestgate consumer demand for fresh organc vegetables relatve to conventonal ones usng AC Nelsen Homescan data. The paper s organzed as follows. The frst secton encompasses a revew of the relevant lterature on organc produce demand. In the second secton, we ntroduce how dfferent demand models can be nested and tested wthn a general dfferental demand system framework. The formaton of the tme seres data, organc shares and premums, and trends are descrbed n the thrd secton. The fourth secton presents the estmaton results and dscusson. The last secton ncludes research mplcatons. Lterature Revew The prce premum of organc produce, the percent ncrease over conventonal prces, s an mportant measure to assess the market growth potental of organc produce. A part of the prce premum s compensaton for hgher producton and dstrbuton costs 5

6 on the supply sde. The other part comes from the demand sde, whch reflects the addtonal amount consumers are wllng to pay for organc produce. Exstng studes (Oberholtzer et. al., 2005; Sok and Glaser, 2001) on prce premums of organc produce, lmted by data, manly focused on the prce premums at the farmgate and wholesale levels usng the average prces reported to regonal trade assocatons (manly Boston and San Francsco markets). Usng wholesale prces n the Boston area durng 2000 to 2001, Sok and Glaser (2001) found that the organc premum averaged 130 percent of the conventonal prces for broccol, 125 percent for carrots, and only 10 percent for mesclun. Oberhotzer (2005) recorded a smlar pattern for these three organc produce tems usng 2000 to 2004 data. However, as Sok and Glaser (2001) ponted out, the conclusons do not necessarly reflect the entre ndustry as the prce relatonshps between organc products reflect prce movements of only three vegetables n one partcular wholesale market. If and when more organc produce moves through termnal markets, the data may provde a better ndcaton of ndustry trends. Snce consumers are the fnal lnk n the marketng channel, knowng the trend of prce premums for the man organc produce tems at the retal level can enable us to better understand the degree of maturty of the organc market. To date, only a few studes have focused on the nterrelatonshp between demand for organc food and conventonal food. Usng U.S. monthly supermarket AC Nelsen scanner data for the perod from September 1990 to December 1996, Glaser and Thompson (1998) found own-prce elastctes for selected frozen vegetables (broccol, green beans, green peas, and sweet corn) range from to -2.27, ndcatng that small changes n prce elct large changes n quantty purchased. Response to prce change s two to three tmes as senstve as for conventonal counterparts. Despte large standard 6

7 errors, there appears to be a tendency toward asymmetry n cross-prce responses: changes n organc quantty as conventonal prces change are larger than changes n conventonal quantty as organc prces change. Usng monthly data from 1988 to 1999, Thompson and Glaser (2001) studed the demand for organc and conventonal baby food. Ther results suggest that reductons n organc prce elct lmted substtuton away from conventonal products. However, as market share grows over tme, the substtuton effect can be expected to ncrease. Any ncrease n conventonal baby food prces tends to boost purchases of organc baby food by a relatvely larger amount. Surprsngly, the expendture elastctes for both organc and conventonal baby food tems calculated from ther model dsplayed erratc varaton from to 5.44, but none of them were sgnfcantly dfferent from zero. In ths study, we nclude several top fresh vegetables n Amercans det n a demand system. The selected types take the lon s share of U.S. vegetable consumpton. Weak separablty of the demand for these fresh vegetables s assumed n our demand analyss. In addton, varous functonal forms of the demand system are compared and tested so that the most approprate functonal form s used to obtan relable estmated elastctes for economc nterpretaton. Dfferental Demand Systems The Almost Ideal Demand System (Deaton and Muellbauer, 1980), the Rotterdam model (Barten, 1964; Thel, 1965), and ther varants are probably the most commonly used functonal forms n emprcal demand analyss. The Rotterdam model s derved from a frst-order approxmaton to arbtrary Marshallan demand functons. The Almost Ideal Demand System (AIDS) n ts orgnal formulaton s derved from the 7

8 maxmzaton of an explct ndrect utlty functon or, equvalently, from the mnmzaton of an explct expendture/cost functon of prce ndependent generalzed logarthmc (PIGLOG) form. Snce these functonal forms cannot be nested wthn ther orgnal formulatons, t s mpossble to test one aganst the other. Therefore, n most demand analyses, t s often a practcal matter for researchers to choose a specfc functonal form. Usng a dfferental form of the lnear AIDS model, Barten (1993) showed that the lnear AIDS model, the Rotterdam model, and ther varants can actually be nested n a general dfferental model whch can be used to test the ft of dfferent models. The Rotterdam model, developed by Barten (1964) and Thel (1965), takes the followng dfferental form: (1) wd log q = θ d logq + π d log p = 1,2,..., n, where w ( w + w 1) / 2 represents the average expendture share for commodty = t, t wth subscrpt t standng for tme; log q log( q / q ) s the log change n the d = t, t 1 consumpton level for commodty ; and log p log( p / p ) s the log change n the prce for commodty. The term for the change n real ncome and can be wrtten as (2) d logq = w d log q. d = t, t 1 d logq s an ndex number (Dvsa volume ndex) The tme subscrpts mpled by the equatons are omtted for convenence. The demand parameters θ and π are gven by (3) θ = p ( q / y), π = p p /y) s, and s = q / p + q q / y, ( 8

9 where y s the total outlay or the budget and s s the (, ) th element of the Slutsky substtuton matrx, parameter θ s the margnal budget share of commodty, and π s a compensated prce effect. The constrants of demand theory can be drectly appled to the Rotterdam parameters. In partcular, we have (4) Addng-up θ = 1, π = 0, (5) Homogenety π = 0, (6) Slutsky Symmetry π = π. The Rotterdam model s a partcular parameterzaton of a system of dfferental demand equatons where demand parameters θ s and π s are assumed to be constant. However, there s no strong a pror reason that the θ s and π s should be held constant. By relaxng the margnal budget share parameter to be varable, Keller and van Drel (1985) further proposed the CBS (Central Bureau of Statstcs) model: (7) w d log q = ( β + w )d logq + π d log p, where β and π are constant coeffcents and β + w s the margnal budget share. Dfferent from the Rotterdam model, the orgnal AIDS model, n ts orgnal formulaton, s not a dfferental functon. It s specfed as (8) w = α + γ log p + β log( y / P), where P s a prce ndex defned by (9) P = α + α k log pk + 1/ 2 log pk log pl. log 0 k The addng-up restrcton requres that α =, β =, and γ = ; homogenety s satsfed when γ = 0 ; and symmetry s satsfed f γ = γ. l

10 The dfferental form of equaton (8), based on Deaton and Muellbauer s suggeston of substtutng the Dvsa Prce ndex w d log p = 0 for d log P, s (10) dw = β logq + γ d log p or (10a) w d log q = ( β + w ) d logq + [ γ w ( δ w )] d log p, where δ s the Kronecker delta equal to unty f To derve (10a) from (10), one can use the relatons = and zero otherwse (Barten, 1993). dw = w ( d log p + d log q d log y) and d log y = d log P + d logq. A fourth alternatve, the Natonal Bureau of Research (NBR) model (Neves, 1987), can be derved by substtutng θ w for β n (10a) so that t has the Rotterdam ncome coeffcents but the AIDS prce coeffcents. Specfcally, the NBR s (11) dw + wd logq = θ logq + γ d log p. Smlarly, equaton (11) can be rewrtten as (11a) w d log q = θ d log Q + [ γ w ( δ w )] d log p. The four models [equaton (1), (7), (10a), and (11a)] have the same left-hand sde varable wd log q and rght-hand sde varables d log Q and d log p. These models can be consdered as four dfferent ways to parameterze a general model. Margnal budget shares are assumed to be constant (.e., θ ) n the Rotterdam and NBR model but varable (.e., β + w ) n the AIDS and CBS. The Slutsky terms are consdered to be constants (.e., π ) n the Rotterdam and CBS and varables [.e., γ w δ w ) ] n ( the AIDS and NBR. The CBS and NBR can be consdered as ncome-response varants of the Rotterdam and AIDS, respectvely. 10

11 These four models are not nested, but followng Barten (1993), a general demand system can be developed whch nests all four. The general system s (12) wd log q = ( d + δ 1w ) d log Q + [ e δ 2w ( δ w )] d log p, = 1,2,..., n, where d = δ 1β + ( 1 δ1) θ and e δ 2γ + ( 1 δ 2 ) π = ; δ 1 and δ 2 are two addtonal parameters to be estmated. Note that (12) becomes the Rotterdam when both δ 1 and δ 2 are restrcted to be zero, the CBS when δ = 1 1 and δ = 0 2, the AIDS when δ = 1 1 and δ = 1 2, and NBR when δ = 1 0 and δ = 1 2. The demand restrctons on (12) are (13) Addng-up d = 1 δ 1, e = 0, Homogenety e = 0 and Slutsky Symmetry e = e. For applcaton to dscrete data, the specfcatons are approxmated by replacng w t by ( w t + w t 1) / 2, d log qt by log( q t / q t 1) and d log pt by log( p t / p t 1), where subscrpt t ndcates tme. Snce the four models have the same set of parameters and can be nested n the general demand system as four specal cases, the magntude of the maxmum lkelhood value can be used as a crteron to evaluate the goodness of ft of each nested model and the lkelhood rato test (LRT) can be used for model selecton. Data and Trends Consumpton data for organc and conventonal fresh vegetables were drawn from AC Nelson Homescan panel data from 1999 to The panel s natonally representatve of U.S. households and provdes food purchase data for at-home consumpton. Each week, a panel household scanned ether the Unform Product Code 11

12 (UPC) or a desgnated code (for random weght) for all of ther purchases at all retal outlets. The data nclude detaled product characterstcs, quantty, expendtures, and promoton nformaton as well as household ncome and demographc nformaton. We ncluded only those households whch reported purchases for at least 10 months n a year. There were between 7,124 and 8,833 households on the consumer panel for each respectve year durng the fve-year perod. To study the trend n organc consumpton and make consumpton data comparable, we kept only 2,845 households who stayed on the panel for all fve years. Consumpton data for these 2,845 households were aggregated weekly to gve 260 tme-seres observatons.. Four popular vegetables n consumers det, potatoes, tomatoes, onons, and lettuce, are consdered n the study. Classfed nto organc and conventonal, eght tems n total are ncluded n the demand system. Among these vegetables, tomatoes and lettuce are among the top organc vegetables purchased by U.S. consumers. Accordng to a Fresh Trends 2002 survey, tomatoes (37% of the respondents) and leafy vegetables (18%, mostly lettuce) are the two most popular organc vegetables purchased (June December, 2001) (Shaffer, 2002). The new USDA standards for organc food were mplemented n October 2002, so packaged organc vegetables wth UPC codes n AC Nelson data for 2002 and after are explctly labeled ether wth organc seal (USDA certfed organc) or organc clam (producer-clamed organc). In ths study, vegetables wth ether one of the two organc labels were regarded as organc. Organc vegetables sold n random weghts were dentfed by examnng ther names, whch are provded n the data. The budget shares and premums of the selected vegetables for the selected households are shown n Fgure 1. Although the organc fresh produce market s growng 12

13 fast, the share of organc vegetables n consumer vegetable expendtures s stll low compared wth those of conventonal counterparts. Among the four vegetables, lettuce has the hghest organc share whch accounts for 3.76% of total lettuce sales on average durng the fve-year perod. Tomatoes are n second place wth 3.74% of tomato consumpton devoted to organc. Organc onons and potatoes hold 1.50% and 1.10% of ther respectve markets when measured n value terms. Growth patterns of the selected organc vegetables, lettuce and tomato n partcular, are also dvergent durng the years from 1999 to The organc share of lettuce went up steadly, whle that of tomatoes decreased from 4.5% to 3.2%. There was not much change n organc share for onons and potatoes. For the overall organc share of consumer expendture on these four vegetables, the pattern suggests that after a slght declne n the frst four years, t began to pck up n Organc premums vary by vegetable. The largest organc premum was found for potatoes, wth organc prces about 75% hgher than conventonal potatoes and the premum rsng durng these fve years. The same pattern was found for onons wth organc premum rsng to 34% n 2003 from 11% n In contrast, for lettuce and tomatoes whch have relatvely hgher organc market penetraton, the organc premum appears to have declned for lettuce (from 36% to 26%) and remaned unchanged for tomatoes (around 13%). Estmaton Results As a result of the addng-up condtons, the full n n matrces of all fve demand systems are sngular by constructon ( n s the number of goods). Therefore, the fve demand systems were estmated by droppng the last equaton, the equaton for 13

14 conventonal lettuce. The parameter estmates are nvarant to whch equaton s omtted. As the 2,845 consumers appearng n all fve years are prce takers n the market, prces n the demand system can be treated as exogenous. The models were estmated by the maxmum lkelhood method wth homogenety and symmetry condtons mposed. The maxmum lkelhood values of the fve demand systems are reported n Table 1. The general demand system, of course, has the hghest maxmum lkelhood value because the two parameters, δ 1 and δ 2 are unrestrcted. It has a statstcally better ft to the data than any one of nested models. Among four nested demand systems, the lnear AIDS model s found to have the hghest maxmum lkelhood value. Because the four nested systems have the same set of parameters, the lnear AIDS model, wth the hghest maxmum lkelhood value, s found to ft the data better than the Rotterdam, CBS and NBR models and thus selected as the best one among four nested models. Only results based on the lnear AIDS model are reported and dscussed n ths secton. Elastctes The ncome elastcty and compensated prce elastcty of the lnear AIDS were computed as follows: (24) Income elastcty: η = θ / w or η = 1+ β / w, (25) Compensated prce elastcty: η = π / w or η = γ / w δ + w. Snce both expendture and compensated prce elastctes are functons of budget shares, they were computed at the sample means. The results are presented n Table 2 All ncome elastctes except that for organc lettuce are postve and sgnfcant at the 10 percent sgnfcance level. It s nterestng to note that, the ncome elastctes of all organc vegetables are hgher than those of ther conventonal counterparts whch 14

15 mples that gven an ncrease n the budget share on the four selected fresh vegetables, consumers wll allocate a hgher share of the budget to organc than to conventonal vegetables. All own-prce elastctes are negatve and statstcally sgnfcant. It s nterestng to note that the magntudes of own-prce elastctes for the organc vegetables are not always hgher than those for conventonal ones. For potatoes and tomatoes, ownprce elastctes of organc types are found to be hgher than those for conventonal types n magntude, whereas the opposte s found for onons and lettuce. The only commodty wth an elastc own-prce effect s organc potatoes. All other own-prce elastctes are less than one n magntude, mplyng nelastc consumpton wth respectve to own-prce change. The result contrasts wth that for frozen vegetables reported by Glaser and Thompson (1998) who found responsve own-prce elastctes for all four frozen vegetables, broccol, corn, green peas, and green beans. One should note that n Glaser and Thompson (1998) study, demand for organc and conventonal frozen vegetables was estmated wth a three-good system (organc, conventonal, and all else) for each vegetable, whch probably masks the substtuton effect of other vegetables and a substantal left-out group, fresh vegetables. Among all cross-prce elastctes between organc and conventonal vegetables, only organc and conventonal potatoes have a sgnfcant substtuton relatonshp. Postve and sgnfcant cross-prce elastctes mply that decreasng organc prce premums are lkely to boost consumpton of organc vegetables. The dfference n magntude also suggests asymmetry n the substtuton effect, mplyng that changes n the prce of conventonal potatoes tend to have a larger mpact on consumpton of organc potatoes than vse versa. Ths s consstent wth fndngs of Glaser and Thompson (1998) and Thompson and Glaser (2001). Because the cross-prce elastctes ( η ) are computed 15

16 as γ / w + w and γ are symmetrc, the asymmetry n cross-prce elastctes between organc and conventonal groups s not surprsng gven such contrastng dfferences n budget shares of the organc and conventonal vegetables. Postve cross-prce elastctes are also found between organc and conventonal onons, though they are not statstcally sgnfcant. For tomatoes and broccol, the crossprce elastctes are negatve but not sgnfcantly dfferent from zero. The cross-prce elastctes between demands for organc and conventonal fresh vegetables seem to suggest that demand for organc vegetables s not responsve to prce changes n conventonal vegetables except for some tems wth very low organc shares and hgh prce premums, such as potatoes. Concluson Usng AC Nelsen scanner data on selected fresh vegetable sales from 1999 to 2003, ths study analyzes consumpton patterns and prce premums for organc fresh vegetables and selects the best model to nvestgate the nterrelatonshp between consumpton of organc and conventonal fresh vegetables. The general dfferental demand system whch nests the lnear AIDS, the Rotterdam model, and ther varants can be very useful n selectng the best model. It can avod the bas of the parameter and elastcty estmates resultng from a suboptmal model. In ths study, lnear AIDS model was found to ft the fresh vegetable consumpton data the best among four nested models. The results of the analyss have several mplcatons for producers and retalers of fresh organc produce. Dfferences n organc premums among alternatve fresh vegetables are qute marked, wth the hghest relatve organc premum (potatoes) more 16

17 than fve tmes hgher than the that for lowest one (tomatoes). If the dfference cannot be fully explaned by the dfference n producton cost for organc farmng versus conventonal farmng, producers may be able to ncrease proft by allocatng more resources to organc vegetables wth hgher proft margns. Income elastctes for organc vegetables are found to be hgher than those for conventonal vegetables for all four vegetables ncluded n the model, whch suggests that f U.S. consumers were to ncrease expendtures on fresh vegetables, they would spend a larger porton of ther budget on organc vegetables. Wth the excepton of potatoes, all other vegetables are found to have nelastc own-prce effects and cross-prce effects between organc and conventonal vegetables, mplyng that a drop n the organc premum does not necessarly guarantee an ncrease n total organc revenues. Most organc vegetables are about 10 to 30 percent hgher n prces than conventonal counterparts except for some newly ntroduced organc vegetables wth relatvely thn market shares and hgh premums. The room for prce promoton of these organc vegetables s lmted. Consderng the fact that the fresh organc produce market s stll thn (the hghest organc share s less than 4% among the four vegetables n the study) but becomng more standardzed and accessble to the publc, we can expect that the market for organc fresh vegetables wll contnue to grow n the foreseeable future whle the organc premums are not lkely to drop much. Acknowledgement Research for ths paper was supported by USDA-ERS Cooperatve Agreement 43-3AEM The vews n ths paper are those of the authors and do not necessarly reflect the vews or polces of the US Department of Agrculture. 17

18 Reference Barten, A. P. Famly Composton, Prces, and Expendture Pattern. In Econometrc Analyss for Natonal Economc Plannng. P. E. Hart, G. Mlls, and J. K. Whtaker, eds., London: Butterworth, Barten, A. P. Consumer Allocaton Models: Choce of Functonal Form. Emprcal Economcs. 18(1993): Deaton, A., and Muellbauer, J. Economcs and Consumer Behavor. Cambrdge: Cambrdge Unversty Press, 1980 Glaser, L. K. and G. D. Thompson. Demand for Organc and Conventonal Beverage Mlk. Paper presented at the Western Agrcultural Economcs Assocaton annual meetng, held June 29 July 1, Glaser, L. K. and G. D. Thompson. Demand for Organc and Conventonal Frozen Vegetables. Paper presented at the Annual Meetng of Amercan Agrcultural Economcs Assocaton, Nashvlle, Tennessee, held Aug. 8-11, Keller, W. J., and J. van Drel. Dfferental Consumer Demand Systems. European Economc Revew 27 (1985): Nutrton Busness Journal (NBJ). The NBJ/SPINS Organc Foods Report Penton Meda, Inc. Cleveland, OH. Neves, P. Analyss of consumer Demand n Portugal, Memore de matrse en scences economques, Unverste Catholque de Louvan, Louvan-la-Neuve, Oberholtzer L., C. Dmtr, and C. Greene, Prce Premums Hold on as U.S. Organc Produce market Expands., U.S. Department of Agrculture, Economc Research 18

19 Servce (USDA, ERS). Outlook Report No. (VGS30801) 22 pp, May Organc Trade Assocaton (OTA). The OTA 2004 Manufacturers Survey Revew 2004 Packaged Facts. The U.S. Organc Food Market Shaffer, E. Organc Produce Sales Clmb. Fresh Trends 2002: Sok. E., and L. Glaser. Trackng Wholesale Prces for Organc Produce. Agrcultural Outlook. U.S. Department of Agrculture, Economc Research Servce, October 2001, avalable at Thel, H. The Informaton Approach to Demand Analyss. Econometrca 33 (1965): Thompson, G. D. and L. K. Glaser. Natonal Demand for Organc and Conventonal Baby Food. Paper presented at the Western Agrcultural Economcs Assocaton annual meetng, held July 9 July 11, U.S. Department of Agrculture, Economc Research Servce (USDA, ERS). U.S. Market Profle for Organc Food Products, February Washngton DC. Walz, E. Fnal Results of the Fourth Natonal Organc Farmers Survey: Sustanng Organc Farms n a Changng Organc Marketplaces. Organc Farmng Research Foundaton,

20 Fgure 1. Organc Budget Shares and Premums of the Selected Vegetables for Organc Budget Shares Potatoes Tomatoes Onons Lettuce Overall Relatve Organc Premums Potatoes Tomatoes Onons Lettuce

21 Table 1. Test Results for the Rotterdam Model, CBS, LA/AIDS, NBR and General Model * Model Restrctons Log Lkelhood 2[ L( θ ) L( θ )] a General Model no 6224 Rotterdam δ = 0 δ = CBS δ = 1 1 δ = Lnear AIDS δ = 1 1 δ = NRR δ = 0 δ = L ( θ * ) and L (θ ) are restrcted and unrestrcted maxmum lkelhood values, respectvely. 2 The table value for χ = at α =0.05 level. ( 2 ) a 21

22 Table 2. Compensated Prce Elastctes and Income Elastctes Evaluated at Means of Budget Shares (LA-AIDS model) for Both Organc and Conventonal Vegetables Commodty Group Compensated Prce Elastctes Potatoes Tomatoes Onons Lettuce Organc Conventonal Organc Conventonal Organc Conventonal Organc Conventonal Income Elastctes Potatoes Tomatoes Onons Lettuce Organc ** * ** * * Conventonal * ** ** ** ** ** Organc ** * * Conventonal ** ** ** ** ** Organc * ** ** Conventonal * ** ** ** ** ** Organc ** ** ** Conventonal ** ** ** ** Sngle and double astersks ndcates statstcal sgnfcance level at 10% and 5%, respectvely. 22

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