CONSUMERS WILLINGNESS TO PAY FOR ORGANIC LEAFY VEGETABLES IN ABEOKUTA SOUTHWEST NIGERIA: EVIDENCE FROM DOUBLE BOUNDED DICHOTOMOUS CHOICE APPROACH

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1 CONSUMERS WILLINGNESS TO PAY FOR ORGANIC LEAFY VEGETABLES IN ABEOKUTA SOUTHWEST NIGERIA: EVIDENCE FROM DOUBLE BOUNDED DICHOTOMOUS CHOICE APPROACH ABSTRACT Adekunle, C. P. Akerele, D., Adekunle, A. K. and Amodemaja T. S. Department of Agricultural Economics and Farm Management, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria. *Corresponding author Phone number: The use of dichotomous choice (DC) method in explaining the willingness to pay (WTP) in contingent valuation studies is a common method in Economics. Research has shown that double-bounded dichotomous choice methods provide statistically superior outcomes than single bounded methods, given appropriate sampling design. High levels of pesticide and chemical fertilizer residuals in leafy vegetables have been reported to be detrimental to health. Consumers often do not totally trust the safety of leafy vegetables because the chemical residue levels are difficult to be fully checked and controlled. Organic leafy vegetables which are known to be free of synthetic agro-chemicals bring a new option for consumers. This study seeks to evaluate current status of organic leafy vegetables consumption and explaining consumers willingness to pay a premium price for organic leafy vegetables in Abeokuta, southwest, Nigeria. Primary data were collected and the sample size was 179 respondents. The data were analyzed with descriptive statistics and Contingent Valuation Method (CVM) under double bounded dichotomous choice approach. The result showed that 70% of the consumers were willing to pay a premium price for the selected organic leafy vegetables. Although, the proportion of the consumers who were willing to pay the premium price generally decreased with increases in price. It is concluded that bid price, prior knowledge and income were the significant factors influencing respondents willingness to pay a price premium for the selected organic leafy vegetables in the study area. INTRDUCTION The role of organic agriculture in providing much needed food and income is gaining wider recognition (Van- Elzakker et al. (2007)). The market of organic vegetable is growing as the number of people who are willing to eat organic food free of chemical residues and pay a premium price. The future of organic agriculture to a large extent depends on consumer demand and their motive for paying extra price for vegetables free of chemical residues. However, a consumer-oriented approach is very important in understanding the market for these products. This is a complex process determined by factors such as quality production, infrastructure, certification, market environment and policies (Aryal, 2008). It is also important to understand consumer decision-making regarding these products and seek strategies about how the consumption can be improved. Production and marketing strategies of vegetables free of chemical residues are determined principally by consumer beliefs, attitudes, responses and the willingness to pay a premium price. Organic products are credence goods, consumers may not know whether a product is produced using conventional or organic methods unless they are told so (Giannakas, 2002). Thus, awareness and knowledge about these products are critical in the consumer demand decisions. Krissoff (1998) concluded that consumers purchase organic products because of a perception that the products are healthier, safer and more environmentally friendly than conventionally produced alternatives. Food safety, human health, nutritive value, taste, freshness, appearance, and other sensory characteristics influence consumer preferences for organic food products (Makatouni, 2002; Bonti-Ankomah and Yiridoe, 2006). The move to organic agriculture is practiced in Nigeria though the issues of food adequacy still hold sway for a large number of consumers. The consumption of organic foods in Nigeria constitutes a very small percentage foods constitutes only few percent of total food consumption of the country (Dipeolu et al., 2009). However, the demand for organic leafy vegetables has increased in recent years. Issues related to food safety and hygiene have become increasingly important to Abeokuta people, particularly the urban consumers in Abeokuta found that leafy vegetables were the most important in their daily meal and are willing to pay premium price for organic foods. Hanemann et al. (1991) demonstrated that, using maximum likelihood solutions with double-bounded dichotomous choice strategy is statistically more efficient technique than a single question. In other words, explaining whether a consumer is willing to pay a higher bid if consumer respond "yes" to the initial bid, or willing to pay a lower amount if they respond "no", provides a more accurate information which, if the bid selection strategy is correct reduces the variance of estimated WTP. CVM has widely expanded into many fields such as recreation, hunting, water quality (Mitchell and Carson, 1989) to health economics, transportation, safety and cultural economics (Venkatachalam, 2004). Specific techniques in contingent valuation method include payment cards, bidding games, open ended and dichotomous choice. This study uses double bounded dichotomous choice contingent valuation method (DBDC- CVM) because it s has higher efficiency as well as more information than single bounded approach (Hanemann et NJAFE VOL. 12 No. 1,

2 al., 1991). Some of the recent studies that employed double bounded choice include Ara (2002), Rodríguez et al. (2007), Abdullah and Jeanty (2011) and Claudy et al. (2011). This study therefore examine consumers willingness to pay for organic leafy vegetables in Abeokuta southwest Nigeria using double bounded dichotomous choice Contingent Valuation Method (DBDC-CVM). The broad objective of this study was to capture consumers overall perception about organic leafy vegetables and their willingness to pay for organic leafy vegetables. Specifically, the objectives of the study were to ascertain consumers' awareness, attitude and perceptions about organic leafy vegetables, assess consumers willingness to pay (WTP) for organic leafy vegetables, and identify factors influencing consumers willingness to pay (WTP) a premium price for organic leafy vegetables. MATERIALS AND METHOD The study was conducted in Federal University of Agriculture, Abeokuta (FUNAAB), Federal College of Education, Osiele and Moshood Abiola Polytechnic, Ogun State, Nigeria. FUNAAB is the birth place for the organic agriculture movement in Nigeria (Dipeolu et al., 2009), hence the choice of the location for the study. Primary data were collected by means of a structured questionnaire and a total of 179 consumers were randomly selected for the study area. Structured questionnaire was used to generate information on the consumers, socioeconomic characteristics, awareness and past experiences about organic products, purchasing preference for organically produced leafy vegetables and willingness to pay for selected organically leafy vegetables. To explain elicit consumers willingness to pay for organic leafy vegetables, contingent valuation method was applied to find out how much an individual consumers were willing to pay by using survey questionnaire as used by Mitchell and Carson (1989). Double bounded dichotomous choice contingent valuation method (DBDC-CVM) was used for this study because it is more efficient and it provides more information than single bounded (Hanemann et al., 1991). Using double bounded approach, consumers were asked two questions. Question format was Are you willing to pay any reasonable amount of money for organic leafy vegetable that has no chemical residue. Each question has two choices: yes or no. If yes in the first question, higher amount of bid was given in the second question; otherwise, lower amount with no. Therefore, one of four abilities of consumer can be: 1. Yes Yes (YY), 2. Yes No(YN), 3. No Yes (NY), 4. No No (NN). According Hanemann, et al. (1991) and Hai, et al. (2013), the probability of answering Yes for both questions is expressed Pr yy (B, B u ) = Pr[B WTP, B u WTP] Eq(1) = Pr[B WTP/ Bu WTP]Pr[B u WTP] Eq(2) = PrB u WTP = 1 F(B u ) Eq(3) Where Pr yy = the probability of answering Yes Yes B = the price in the first question B u = the higher price in the second question WTP = Willingness to Pay F = Cumulative Distribution function (CDF) The probability of answering Yes followed by No in question (2) is: Pr yn (B, B u ) = Pr[B WTP < B u ] = F(B u ) F(B) Similarly, probabilities for answering No Yes and No No are: Pr ny (B, B d ) = Pr[B d WTP < B] = F(B) F(B d ) Pr nn (B, B d ) = Pr[B > WTP, B d > WTP] = F(B d ) where B d = lower price in the second question Eq(4) Eq(5) Eq(6) The maximum likelihood estimation is applied to estimate the likelihood of either of the responses. Given a sample size of 179 consumers, where B i, B u d i, B i are bids used for the ith consumer, the log likelihood function was specified as: n lnl = {yy i lnpr yy (B i, B i u ) + yn i lnpr yn (B i, B i u ) + ny i lnpr ny (B i B i d ) 1 + nn i lnpr nn (B i B i d )} Eq(7) NJAFE VOL. 12 No. 1,

3 where yy, yn, ny and nn are dummy variables. If one consumer answer yes yes (yy) for two questions, then yy = 1, so others will be zero. In order to explain WTP, standard double bounded model Hanemann et al., (1991) was used. Therefore, WTP is generally expressed by function: WTP ij = α + σbid ij + λx i + ε it Eq(8) Where: α = intercept of the model Bid = proposed price given to consumer σ = the coefficient of Bid X i = the vector of socioeconomic variables of ith consumer λ = the coefficients of X i i = individual ith consumer j = kind of leafy vegetables The three kinds (3) of leafy vegetables used in this study were Celosia spp (green vegetable), Chocorus olitorius- (chocorus) and Teliferia occidentalis (fluted pumpkin) because of their high consumption volume among other leafy vegetables. Payment vehicle designing (Designing Bid Amount) In this study, designing hypothetical prices (bids) to apply double bound dichotomous was based on the questionnaire pretest and the prices of the conventional vegetables in the markets (N50/ bundle, an assumption that the bundles were of equal weight). Each consumer was asked to answer one of the four random bid questions set below to minimize the bias of starting bids. Table 1 presents the distribution of the double-bounded WTP responses for the three specified organic leafy vegetables. In terms of the different structure of bid prices of 50%, 40% and 30% increment. The bid designs captured the WTP ranges quite well. The proportion of the consumer who were willing to pay the bid generally decreased with increases in price. This was confirmed by the fact that the higher starting bid price was less likely to generate a "Yes/Yes" response and more likely to produce a "No/No" response. Figure 1 showed the structure of the bidding system used for this study. It was a reflection of the bid system as shown in Table 2. Table 1: Bid system for selected organic leafy vegetables Questionnaire versions Conventional Price First bid Second bid (N/Bundle) (N) (N/Bundle) Higher amount Lower amount A B C RESULTS AND DISCUSSION Socioeconomic characteristics of the Respondents As a background to this study, Table 2 presents the socioeconomic characteristics of the consumers variables of the respondents. Socioeconomic characteristics of the consumers are important factors that determine willingness to pay. These include age, gender, marital status, level of education and household size among others. The results were summarized in Table 2 which showed the age structure of the consumer and the modal age group was years with a frequency of 55.8% while 24.6% were above the age of 50 years. Gender is an integral part of the socioeconomic characteristics and Table 2 showed that 54.2% were male while 45.8% were female. Marital status is an important factor which determines the volume factor determining the extent of awareness of organic products consumed. Married consumers were more likely to have prior knowledge of organic products than unmarried Consumers. 59.2% were married which showed that majority of the consumers had families to take care of. The levels of education of consumers were assumed to influence the level of awareness and perception of organic leafy vegetable consumption. However, the more education consumers were more likely to be aware and willing to pay a premium price for organic leafy vegetable. 26.8% of the households had NCE/OND, 46.9% had HND/ B.Sc, 26.3% had PhD. Moreover, 87.7% of the Married consumers had an average family size of 6 people per household. Consumer income is an important factor influencing effective willingness to pay a premium price for organic leafy vegetable. The results showed that 90% received a monthly income of N200,000 and or an average per capita income of N33,333. it was concluded that consumers had greater willingness to pay a premium price for organic leafy vegetable. NJAFE VOL. 12 No. 1,

4 Awareness of organic leafy vegetables Table 3 showed that about 78.8% of the consumers have had a prior knowledge of organic leafy vegetables. It further showed that about 64.2% of those who indicated that they were aware of the organic leafy vegetables before the year 2000 and about 53% of the consumers saw for the first time organic leafy vegetables after the year Also, among those who were aware of the organic vegetables, only 79.9% percent of them had eaten organic leafy vegetables and 30.2% do eat it regularly. 74.9% of the consumer reported that they are aware of the nutritional value and health safety of organic leafy vegetable. Table 2: Socioeconomic characteristics of consumers Variable Frequency Percentage (%) Age(years) < Gender Male Female Marital status Single Married Divorced Widowed Household size > Years Working experience and above Ethnicity Yoruba Igbo Hausa Religion Christianity Islam Traditional Level of Education NCE/OND HND/BSC MSC/PHD Monthly Income 50, , , , > 200, Table 3: Knowledge and experience of consumers about organic leafy vegetables Measures Frequency Percent Prior knowledge Yes No Seen organic vegetable before Yes No What year < Eaten organic vegetable before Yes No What year < How often do you eat it Regularly Daily Weekly Fortnightly Monthly Aware of nutritive value Yes No Source of information about organic vegetable Friends Radio Television Internet Hospital Others Distribution of consumers by perception of organic leafy vegetables In general, consumers perceptions about the organic leafy vegetables are very positive. More than 50% of the consumers reported that the price of organic products compared with conventional one is reasonable. However, in NJAFE VOL. 12 No. 1,

5 the recent days, organic leafy vegetables compete with conventional alternatives in the market. Evidence from Table 3, the consumers agreed to the perceptional statements posed to them during the study. Table 4: Perceptions about organic over conventional leafy vegetables Perceptional statement SA A D SD I S.D±X It is expensive ±2.22 It is tastier ±2.13 It has no difference in taste ±2.49 It has no harmful effect ±2.30 It is nutritionally deficient ±2.14 Organic vegetables have larger leaves ±2.28 Organic vegetables are more nutritious ±2.10 Organic vegetables are medicinal ±2.23 Organic vegetables are free from food additive ±2.13 Consuming organic vegetables prevents pesticide ±1.97 contamination. Organic vegetables have low storage life ±2.43 Organic vegetables are readily available ±2.22 Organic vegetable help conserve the environment ±1.72 Note: SA-Strongly agree, A-agree, SD-Strongly disagree, D-Disagree, I-Indicisive WTP for selected organic leafy vegetables and its determinants Table 5 indicated that about 85% of the consumers are willing to pay a premium price for organic leafy vegetable, while 15% were not willing to pay. They were later asked to respond to the double-bounded dichotomous choice questions with two bid prices: a starting bid and a follow-up bid. Table 5: Percentage of consumers who are willing to pay a price premium Frequency Percent Yes No Distribution of the double-bounded WTP responses Table 6 presents the distribution of the double-bounded WTP responses for the specified organic leafy vegetables. In terms of the different structure of bid prices, the proportions of consumers were distributed nearly equally to the bid structure of versions A, B and C, respectively. The bid designs in Table 1 captured the WTP ranges quite well. The proportion of the consumers respondents who were willing to pay the bid generally decreased with increases in price. This was confirmed by the fact that the higher starting bid price was less likely to generate a "Yes/Yes" response and more likely to produce a "No/No" response. Table 6: Distribution of willingness to pay responses for the double-bounded dichotomous choice Percentage of Respondents (N=179) Leafy Vegetables Yes Yes Yes No No Yes No No Total Green Vegetable: Celosia spp 33 (18.4%) 44 (24.6%) 78 (43.6%) 24 (13.4%) 179 (100%) Corchorus: Corchorus olitorius 33 (18.4%) 50 (27.9%) 59 (33.0%) 37 (20.7%) 179 (100%) Fluted Pumpkin: Teliferia occidentalis 20 (11.2%) 57 (31.8%) 81 (45.3%) 21 (11.7%) 179 (100%) Note: "Yes/Yes" indicates Yes and Yes response in the first and second bid, respectively. "Yes/No" indicates Yes and No response in the first and second bid, respectively. "No/No" indicates No and No response in the first and second bid, respectively. "No/Yes" indicates No and Yes response in the first and second bid, respectively. Figures in parentheses are the percentage of the possible outcomes. Mean/median WTP for organic leafy vegetables The mean and median WTP were calculated by using the estimated parameters from the constant-only bid function, which restricted all the explanatory variables except the bid variable. Thus, the parameter estimates were contained in the intercept and bid variables in the model. However, to calculate the mean and median WTP, it was necessary to assume the cumulative probability distribution of WTP response. The distributions that various studies have used to estimate the double-bounded CVM include the logistic, log-normal, log-logistic and normal distributions. Since, the possible values of WTP for organic products were positive, the probability distributions NJAFE VOL. 12 No. 1,

6 that fit the log-likelihood function were limited to the non-negative distributions, including log-normal and loglogistic (Bateman, et al., 2002). In order to select the appropriate probability distribution with the WTP data, which is one with the best goodness of fit to the sample data, the value of the restricted model of log-likelihood function, leaving only the constant and bid terms, was employed (Hanemann et al., 1991). The result of the mean/median WTP in Table 5 shows that consumers were willing to pay a mean price of N73.30, N64.65 and N80.64 per bundle for green, corchorus and fluted pumpkin respectively. This means that consumers would pay around 35-40% higher for organic leafy vegetables than conventional ones sold in the markets. The mean willingness to pay for fluted pumpkin was higher when compare to the other vegetables. Table 7: Mean/median WTP for organic leafy vegetable Measures Green Vegetable: Celosia spp Corchorus: Corchorus olitorius Fluted Pumpkin: Teliferia occidentalis WTP Lower Upper bound WTP Lower Upper WTP Lower Upper bound Mean Median % CI of mean WTP (±N/bundle) ±1.82 ±1.72 ±1.91 Note: 1. Median WTP = e α 2. Mean WTP = e (α+0.5σ2 ) 3. 95% Confidence interval of the WTP mean is calculated by using estimated parameters 4. Unit price is N50 per bundle. Determinants of willingness to pay Table 8 showed the result of the logit regression model. The results showed that the bid price, prior knowledge, safety issues and income were significant in all the three models. Moreover, In the first regression model for green, it was showed that bid price, prior knowledge, safety issues, concern issues, level of education and income were significant at p<0.01, p<.1, p<0.05, p<0.01, p<0.1 and p<0.01 respectively. The bid price and concern issues were negative and this was is in conformity with the a priori expectations. The implication of this was that as the bid price increases, the consumers willingness to pay decreases. Also, the significance and negative relationship between WTP and concern issues implied that factors other than price such as taste, odour and shelf life influenced consumers WTP. However, prior knowledge, income and level of education were significant at p<0.1, p<0.01 and p<0.1 and were positive implying that the higher the prior knowledge, income and level of education of the consumers, the increase in WTP. In the second model, it was showed that bid price, prior knowledge, organic consumption, income and level of education were significant at p<0.05, p<0.1, p<0.01, p<0.05, p<0.1 respectively and were all negative except income. The implication of this results is that the decrease in prior knowledge, organic consumption and level of education, the increase in their WTP corchorus. This was totally contrary to the a priori expectation. Table 8: Estimates of double bounded logit model Celosia spp Corchorus olitorius Teliferia occidentalis Variables Coefficient Standard error Coefficient Standard error Coefficient Standard error Bid (σ) -.285*** ** *.039 Prior Knowledge (X1).770* * *.437 Safety issues(x2).175** **.853 Concerned issue(x3) -.143*** Organic consumption (X4) *** **.107 Age (X5) Gender (X6) Household Size (X7) Monthly Income (X8) 4.24*** ** **.635 Level of Education (X9) 0.496* * Constant (α) Number of observation (179) Log likelihood Wald chi2 (11) 83.25*** 77.48*** 88.61***. Note: *p<0.1, **p<0.05, ***p<0.01 denote significant at 10, 5 and 1% respectively In the third model, it was showed that bid price, prior knowledge, safety issue, organic consumption and income were positive and significant with the WTP for fluted pumpkin. This implied that the consumers who had no prior knowledge, safety issue and have consume organic leafy vegetable before were willing to pay more for organic leafy vegetable. One possible explanation for this result was that the consumers of organic products appreciate the quality of organic products because of their previous purchase experience. They were thus less concerned about NJAFE VOL. 12 No. 1,

7 price movements than other consumers. In order to evaluate the performance and goodness of fit of the models, wald test was used. The wald tests for green, corchorus and fluted pumpkin which was significance at p<0.01 showed that explanatory variables used were generally suitable and important. CONCLUSION AND RECOMMENDATION This study assessed consumers willingness to pay for three organic leafy vegetables. The results showed that attitude towards organic leafy vegetables were positive. It was shown that 70% of the consumers were willing to pay a premium price for the selected organic leafy vegetables. However, the proportion of the consumers who were willing to pay the bid generally decreased with increases in price. This was confirmed by the fact that the higher starting bid price was less likely to generate a "Yes/Yes" response and more likely to produce a "No/No" response. Also, consumers were willing to pay a mean price of N73.30, N64.65 and N80.64 per bundle for green, cochorus and fluted pumpkin respectively. This means that consumers would pay about around 35-40% higher for organic leafy vegetables than conventional ones sold in the domestic markets. It was concluded that bid price, prior knowledge, safety issues and income were significant factors influencing consumers willingness to pay a premium price for the selected organic leafy vegetables. Therefore, policy issues aimed at encouraging consumers willingness to pay for organic leafy vegetables should focus on increasing widespread awareness programmes. REFERENCES Abdullah, S. and Jeanty, P. W Willingness to pay for renewable energy: Evidence from a contingent valuation survey in Kenya. Renewable and Sustainable Energy Reviews, 15: Ara, S Environmental Evaluation of Organic Rice: A Case Study in the Philippines. M. Sc Thesis, org/shihomi/mathesis Aryal, K. P General perceptions of producer, traders and consumers about organic products in Kathmandu valley. In P. Chaudhary; K. Aryal and D. Tharu (ed.), Proceedings of International Workshop on Opportunities and Challenges of Organic Production and Marketing in South Asia, NPG, Kathmandu, Nepal, pp Bonti-Ankomah S. and Yiridoe, E. K Organic and conventional food: A literature review of the economics of consumers perceptions and preference. Final Report. Organic Agriculture Centre of Canada. Nova Scotia Agricultural College, truro, Nova Scotia, Canada. Claudy, M. C., Michelsen, C. and O Driscoll, A The diffusion of microgeneration technologies assessing the influence of perceived product characteristics on home owners willingness to pay. Energy Policy, 39: Dipeolu, A. O., Philip, B. B., Aiyelaagbe, I. O. O., Akinbode, S. O. and Adedokun, T. A Consumer awareness and willingness to pay for organic vegetables in South West, Nigeria. Asian Journal of Food and Agro-Industry Giannakas, K Information asymmetries and consumption decisions in organic food product markets. Canadian Journal of Agricultural Economics. 50(2002): Hai, N. M., Moritaka, M. and Fukuda, S Willingness to Pay for Organic Vegetables in Vietnam: An Empirical Analysis in Hanoi capital. Journal of Faculty of Agriculture, Kyushu University. 58 (2), Hanemann, M., Loomis, J. and Kanninen, B Statistical Efficiency of Double ed Dichotomous Choice Contingent Valuation. American Journal of Agriculture Economics, 73(4): Krissoff, B Emergence of U.S. organic agriculture - can we compete? American Journal of Agricultural Economics. 80(5): Makatouni, A What motivates consumers to buy organic food in UK? Results from a Mitchell, R. C. and Carson, R. T Using Surveys to Value Public Goods: The Contingent Valuation Method. Research for the Future, Washington D. C, The Johns Hopkins University Press Rodríguez, E., Lacaze, V. and Lupín, B Willingness to Pay for organic food in Argentina: Evidence from a consumer survey. Contributed Paper prepared for presentation at the 105 th EAAE seminar, International Marketing and International Trade of Quality Food Product, Bologna, Italy, March 8 10, 2007 Van-Elzakker, B., Parrott, N., Chola Chonya, M. and Adimdao, S Organic Farming In Africa in H. Willer and M. Yusseffi (Eds.) The World of Organic Agriculture: Statistics and Emerging Trends. Bonn, IFOAM, pp Venkatachalam, L The Contingent valuation method: a review. Environmental Impact Assessment Review, 24: NJAFE VOL. 12 No. 1,