Potato Marketing Factors Affecting Organic and Conventional Potato Consumption Patterns

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1 1 Potato Marketng Factors Affectng Organc and Conventonal Potato Consumpton Patterns Yue, C. 1, Grebtus, C. 2, Bruhn, M. 3 and Jensen, H.H. 4 1 Unversty of Mnnesota - Twn Ctes, Departments of Appled Economcs & Hortcultural Scence, St. Paul, MN, USA 2 Unversty of Bonn, Insttute for Food & Resource Economcs, Department of Agrcultural & Food Market Research, Bonn, Germany 3 Unversty of Kel, Department of Agrcultural Economcs, Kel, Germany 4 Iowa State Unversty, Center for Agrcultural & Rural Development, Ames, IA, USA Abstract In producng potatoes the treatment for dsease and pests could be more dffcult and costly for organc producers than for conventonal. Hence, consumers atttudes and wllngness to pay for organc potatoes need to be consdered n a grower s choce of producton technologes. A bvarate probt model and cluster analyss were appled to survey data to evaluate factors that nfluenced Germany consumers consumpton patterns for conventonal and organc potatoes. The results show that consumers assocate organc potatoes wth healthy ngredents, trustable orgn and food safety. But a lack of varetes and nferor appearance of organc potatoes lmt consumer nterest n the organc products. Wth regard to soco-demographcs, consumers wth hgher educaton level and wth chldren n the household tend to consume organc potatoes more often than consumers wth lower educaton and no chldren n the household. Cluster analyss results group potato consumers nto three dfferent market segments: Trustng of ndustry, Health-orented and Prceorented segments. These results suggest adoptng dfferent marketng strateges to promote fresh potatoes to the dfferent market segments. Keywords organc, potatoes, consumpton patterns I. INTRODUCTION The demand for organc products around the world s developng quckly and shows mpressve growth rates. As a result, organc farmng s one of the fastest growng segments n agrculture today [1, 2]. One of the largest markets for organc food products n Europe s Germany. Due to an ncreasng consumer demand organc products reached n Germany a market share of 32% n 2006, whch equals a turnover of 4.6 bllon Euros out of 14.3 bllon Euros turnover n Europe [3]. Aganst ths background, ths paper focuses on organc and conventonal consumpton patterns n Germany,.e. what factors are affectng the consumers demand. Organc produce and fruts are among the most demanded products n organc markets. As potatoes are very popular n Germany and account for almost 50% of the overall German per capta produce consumpton [4] ths paper focuses on organc and conventonal potatoes, respectvely. What makes organc farmng potentally attractve are the possble hgher fnancal returns. But, smlar to other produce, the rsk of organc potato producton s hgher than that of conventonal producton [5]. Pmentel [5] estmated the costs of organc potato producton to be about 50% hgher and the yeld about 50% lower than those of conventonal potato producton. Due to the hgher rsks and costs assocated wth organc potato producton, producers must charge a premum to make ther busness proftable. The prce premum obtaned for organc potatoes s about 73% hgher than that of the prce of conventonal potatoes [6]. Other produce n the Unted States and Europe [2] show smlarly hgh premums for produce at farm level. In order to mantan consumers wllngness to pay these prce premums and to develop producton and marketng strateges we have to understand ther choces. It s necessary to know whch product characterstcs consumers value the most. Moreover, we have to nvestgate what dfferences exst between those who consume conventonal and organc potatoes; and why some consumers are motvated to pay more for organcally grown potatoes, whereas others are not. The obectve of the present study s to

2 2 nvestgate what factors affect conventonal and organc potato consumpton and how these factors support the adopton of dfferent marketng strateges. Research related to organc potato consumpton s sparse. For the U.S. market, Bernard et al. [7] nvestgated consumers wllngness to pay for Non- GM foods when an organc opton s present, but the products ncluded n ther study were processed foods such as potato chps, nstead of fresh produce. Lourero and Hne [8] studed consumers wllngness to pay for local, organc and GMO free potatoes. Although they ncluded consumers atttudes towards potato freshness and nutrton, mportant atttudes toward certan product characterstcs such as appearance, varety, etc. were not ncluded n ther study. Among studes of European consumers, Magnusson et al. [9] nvestgated consumers preferences for organc mlk, meat, potatoes and bread and found that consumers were satsfed wth the avalablty of organc foods and perceved organc foods as healther than conventonal counterparts. The consumers n ther study consdered the prce premum to be the maor obstacle to ther purchase of organc foods. Our study dffers from the prevous research because we use a statstcal approach (bvarate probt model) that enables us to make a drect comparson of consumpton patterns between organc and conventonal potatoes. Data on consumer purchase decson-makng for organc and conventonal potatoes from Germany provdes good evdence on a fresh product wth economcally sgnfcant sales. Moreover, we are able to nclude several product attrbutes that enable targeted marketng efforts and, eventually, successful product development. The comparson allows us to determne drectly what motvates consumers to enter the market (the extensve market) as well as purchase more organc potatoes once n the market (the ntensve market). The results provde evdence on how consumers perceve qualty characterstcs of potatoes, factors mportant for purchase decson-makng and how socodemographcs affect ther consumpton patterns. The bvarate probt analyss plus the addtonal market segmentaton study through cluster analyss provde mportant mplcatons for marketng strateges fresh organc potato growers may adopt n dfferent market segments. The remander of the paper s as follows. Secton 2 descrbes data and methodology. Secton 3 presents the results and secton 4 gves conclusons and marketng mplcatons. A. Data II. DATA AND METHODOLOGY The data come from a prvate household survey we conducted n 2004 n a medum-szed cty n Northern Germany usng questonnare-based face-to-face ntervews. The survey ncluded questons on purchase patterns and frequency of consumpton of conventonal and organc potatoes, atttudes and socodemographcs. All respondents were older than 18 years. The sample was randomly derved from a socal address regster and conssted of 260 partcpants. B. Bvarate probt Consumers consumpton patterns for conventonal and organc potatoes are expressed n two categores: consumpton less than once a week and consumpton more than once a week. We use the two categores to measure the correspondng degree of satsfacton consumers derve from ther consumpton of the two types of potatoes. A bvarate probt model s used to estmate the probablty of consumers consumng more than once a week or less than once a week because the dependent varables are categorcal and because each partcpant was asked about consumpton practces for both conventonal and organc potatoes. In contrast to the unvarate probt the bvarate probt accounts for the possblty that the consumpton patterns mght be correlated: consumers who are frequent conventonal potato consumers mght be more (or less) lkely frequent organc potato consumers. Consumers satsfacton derved from consumng potatoes depends on measurable factors ncludng ther use of certan qualty attrbutes (potato producton methods, packagng, appearance, orgn, etc.) to make the potato purchase decson and ther socodemographcs (e.g. educaton). The bvarate probt

3 3 yelds estmates of parameters on these product and consumer characterstcs. Furthermore, t captures the correlaton between the consumpton patterns. The specfcaton of the bvarate probt model s Con Con Con Con Con Con U = X ' α + ε, y = 1 f U > 0, y = 0 otherwse Org Org Org Org Org Org U = X ' α + ε, y = 1 f U > 0, y = 0 otherwse Con Org E[ ε X ] = E[ ε X ] = 0 Con Org Var[ ε X ] = Var[ ε X ] = 1 Con Org Cov[ ε, ε ] = ρ (1) where = 1, L,215 U ; the term s the latent unobservable satsfacton level for consumer derved y from consumng type of potato; s the observed y consumpton frequency wth =1 meanng consumer consumes more than once a week and y =0 meanng consumer consumes less than once a week; = Con, Org wth Con meanng conventonal and Org meanng Organc; ε s are the random dsturbance tems and they are assumed to follow bvarate normal dstrbuton wth mean zero, standard devatons equal to one and correlaton between Org ε Con ε and equal to ρ, whch s to be estmated; α s the coeffcents of the explanatory varables to be X estmated; and s a vector of explanatory varables ncludng consumers atttudes and consumers socodemographc characterstcs. The emprcal specfcaton of the satsfacton functon underlyng the bvarate probt model makes reference to both consumers use of product characterstcs to make the potato purchase decson and consumers soco-demographc characterstcs. The satsfacton functon s formulated as follows: The bvarate probt model based on the emprcal representaton of the latent non-observable utlty functon n (2) s estmated usng maxmum lkelhood method. C. K-means cluster analyss In addton to the bvarate probt model estmaton, cluster analyss s used to do a market segmentaton analyss,.e. to nvestgate the relatonshp between consumers potato consumpton patterns and ther atttudes. A k-means cluster analyss was carred out to assgn respondents to groups wth as much smlarty wthn and dfference among the groups as possble. K-means ([10]) s one of the smplest algorthms to do cluster analyss. The algorthm s goal s to mnmze the followng obectve functon: K n J = x c = 1 = 1 ( ) 2 2 (3) ( ) x c where s the dstance between a data ( ) x pont c and the cluster center, s an ndcator of the dstance of the n data ponts from ther respectve cluster centres (also called centrod); K s the number of clusters; and n s number of data ponts. The dstance we use here s Eucldean dstance. A. Descrptve statstcs III. RESULTS The summary statstcs of the partcpants consumpton patterns of conventonal and organc potatoes, ther use of product characterstcs to make the potato purchase decson and soco-demographcs are defned n Table 1. U = α + α Servce + α Packdesgn + α Packsze + α Pr ce + α Health α Nutrents + α Taste + α Brand + α Orgn + α Freshness α NutrtonInf + α Varety + α Appearance + α Safety + α Label Chld Educaton Income Age Gender + α16 + α17 + α18 + α19 + α10 + α21 Household + ε (2)

4 4 Table 1 Summary statstcs Varable Varable Descrpton Mean Conventonal Organc Numbers of persons Household n HH b a The oldest partcpant s 86 years old and the youngest partcpant s 20 years old. b The smallest household has 1 person, the largest household has 5 persons. Conventonal potato consumpton, 1=more than once a week, 0= less than once a week Organc potato consumpton, 1=more than once a week, 0=less than once a week Dummy varables equal to 1 f partcpant thnks the product characterstc s mportant to make the purchase / consumpton decson, Standard Devaton Servce Packagng desgn Packagng sze Prce Health Ingredents , otherwse. Taste Brand Orgn Freshness Nutrton nformaton Label Varety Appearance Food safety Chldren Number of chldren n household (HH) = school less than 8 years; 2= school 8-10 Educaton years; 3= school years; 4= unversty degree Monthly household NetIncome: 1=less than Income 400 ; 2=400 to 800 ; 3=800 to 1300 ; =1300 to 1800 ; 5=1800 to 2300 ; 6=more than 2300 Age Age n nteger years a Gender 1=female, 0=male The results show that 78% of the partcpants consume conventonal potatoes more than once a week and 32% consume organc potatoes more than once a week (Table 1). Most partcpants thnk taste (83%) and appearance (75%) are mportant to make the potato purchase decson. In contrast, packagng desgn (15%) and brand (27%) are less mportant. The average age of the partcpants s 43 years old and 55% are female. As we expected, the proporton of partcpants who consume organc potatoes more than once a week s less than the proporton of partcpants who consume conventonal potatoes more than once a week. The Wald test of proporton ndcates that the proportons are sgnfcantly dfferent from each other B. Impact of consumers use of product characterstcs and soco-demographcs on ther organc and conventonal potato consumpton patterns Consumers use of qualty characterstcs and ther soco-demographcs determne ther consumpton patterns of organc and conventonal potatoes. The estmaton results are presented n Table 2. Note, the value ρˆ, the estmated correlaton between conventonal potato consumpton and organc consumpton, s estmated to be 0.25 (P-value=0.11). The postve correlaton ndcates that consumers who consume conventonal potatoes more frequently are also more lkely to consume organc potatoes more frequently, but the correlaton between the consumpton patterns s not sgnfcant at the 0.10 sgnfcance level. The results n Table 2 show that partcpants use of product characterstcs to make the potato purchase and ther soco-demographcs affect the consumpton of conventonal and organc potatoes n dfferent ways. Partcpants use of potato ngredents (Ingredents) to make the purchase decson has a.05); partcpants who consder ngredents of potatoes to be mportant consume organc potatoes more often. Although the atttude towards ngredents affects partcpants purchase of conventonal potatoes n a negatve way, the effect s not statstcally sgnfcant. Partcpants may thnk organc potatoes have more healthy ngredents than conventonal potatoes [8].

5 5 Rankng potato orgn as an mportant attrbute s postvely assocated wth more frequent consumpton of organc potatoes. Table 2 Estmaton of bvarate probt model for potato consumpton patterns Varable Conventonal potatoes Organc potatoes Parameter P-value Parameter P-value estmates estmates Intercept *** 0.00 Servce Packagng desgn 0.60* Packagng sze Prce Health Ingredents ** 0.04 Taste Brand Orgn *** 0.01 Freshness Nutrton nformaton 0.53** Label -0.61** * 0.10 Varety ** 0.04 Appearance 0.47* * 0.10 Food safety -0.54* * 0.10 Chldren * 0.05 Educaton ** 0.04 Income Age 0.02** Gender Household * 0.10 ˆρ *** sgnfcant at the 1% level; ** sgnfcant at the 5% level; * sgnfcant at 10% level. Provdng nutrton nformaton such as recpes for potato dshes, avalable at the potato counter, has a sgnfcant and postve effect on conventonal potato consumpton frequency, but no statstcally sgnfcant effect for organc potatoes. Labels, such as seals of approval, have a sgnfcantly negatve effect for consumpton of both conventonal and organc potatoes, results that suggest that consumers who care about these types of labels are less lkely to consume potatoes. The varable Varety affects the consumpton of organc potatoes sgnfcantly n a negatve way: partcpants who lke purchasng specal knds of potatoes are lkely to consume organc potatoes less often. Atttudes towards appearance of potatoes and the mportance of food safety affect partcpants consumpton of conventonal potatoes and organc potatoes n the opposte way. Those who thnk potato appearance to be more mportant consume conventonal potatoes more often and organc potatoes less often. However, less than perfect appearance assocated wth organc potatoes s also assocated wth reduced use of pestcdes. Prevous studes (e.g., [11]) showed smlar results for golden delcous apples. Those who consder food safety to be mportant are lkely to consume organc potatoes more often and conventonal potatoes less often. Among soco-demographcs factors, the number of chldren at home (Chldren) has a postve effect and the sze of household has a negatve effect on the consumpton of organc potatoes. That s, households wth chldren are lkely to consume more organc potatoes whle larger households tend to consume less organc potatoes. Educaton level (Educaton) has a postve effect on the consumpton of organc potatoes: the partcpants who have a hgher educaton level tend to consume organc potatoes more often. Age affects conventonal potato consumpton sgnfcantly postvely: older people are lkely to eat more conventonal potatoes. C. Market segmentaton of potato consumers In order to enable producers to develop marketng strateges for specfc consumer segments, we analyze n ths secton how consumers atttudes nfluence ther potato consumpton behavour usng cluster analyss. Therefore, ntervewees were asked about ther general atttudes on the food ndustry, producton methods and locaton, towards food prce versus food qualty, health concerns, etc. They receved a statement battery contanng opnons such as Food ndustry guarantees good qualty, I would prefer the

6 6 purchase of local products, Healthy det s very mportant, I choose the foods I buy very carefully and Expensve food has a better qualty and had to evaluate every statement on a 5-pont Lkert-Scale (5=I strongly agree, 1=I strongly dsagree). We appled a k-means cluster analyss to group the partcpants based on ther opnons and to nvestgate the effect on the respondent s choce of organc potatoes and conventonal potatoes. A three cluster soluton gves the best results. In cluster 1 (n=91), called the Industry-trustng group, the partcpants trust the food producton process more than the other two clusters; they thnk the food ndustry can provde them wth healthy food to eat so they do not care about the orgn of products too much, nstead, they care about the taste of food more than the producton methods. The partcpants n cluster 2 (n=77), the Health-orented group, are very concerned about ther health, they would rather buy expensve food to avod contamnants, they are concerned wth the orgn of food very much and they prefer to buy local food. The partcpants n cluster 3 (n=47), the Prceorented group, care about the prce of food very much; they beleve that cheap food has equal qualty to expensve food and that an ncreasng prce does not nsure better taste; at the same tme they do not trust the food ndustry. To see how these three groups dffer n ther choces of organc potatoes and conventonal potatoes and n ther soco-demographcs we conducted ANOVA and MANOVA 1 analyses. The results are shown n Table 3a and 3b. We can see that the three groups do not dffer sgnfcantly n ther consumpton patterns of conventonal potatoes (P-value=0.77) but they do dffer n consumpton of organc potatoes (Pvalue<0.01). The three groups also dffer n ther number of chldren at household (P-value=0.06), educaton level (P-value<0.01), ncome level (Pvalue=0.07), age (P-value <0.01), and gender (Pvalue=0.03). The Health-orented partcpants consume organc potatoes sgnfcantly more often than those n the other two groups. The average number of chldren n ths group s the hghest; the partcpants n ths group are most educated compared wth those n the other groups; the partcpants have 1 ANOVA s unvarate analyss of varance and MANOVA s multvarate analyss of varance. hgher ncome and they are older that those n the other two groups. The proporton of females n ths group s also the hghest. Table 3a Potato consumpton patterns and socodemographcs of clusters Group Varable Std. Dev. Std. Dev. Prce-orented (n=47) Std. Dev. Industrytrustng (n=91) Healthorented (n=77) Mean Mean Mean Conventonal Organc Chldren Educaton Income Age Gender Household Table 3b Potato consumpton patterns and socodemographcs of clusters Group Varable Conventonal 0.77 Test results ANOVA P-value MANOVA P-value Organc <0.01 <0.01 Chldren 0.06 Educaton <0.01 Income 0.07 Age <0.01 Gender 0.03 Household 0.15 <0.01 The proporton of partcpants who consume organc potatoes more than once a week n the Industry-trustng group s the lowest among the three groups. Ths group has the youngest partcpants and the lowest percentage of females. The Prce-orented group has the hghest consumpton of conventonal potatoes compared wth the other two clusters. Only 13% of these households have chldren lvng n the

7 7 household. The educaton level s the lowest as s the ncome level. Ther age s comparable wth the Healthorented consumers. The MANOVA results show that the three groups dffer n the consumpton pattern of potatoes n general (P-value<0.01) and also dffer n the partcpants overall soco-demographcs (Pvalue<0.01). IV. CONCLUSIONS AND MARKETING IMPLICATIONS Our comprehensve study of consumpton patterns of conventonal and organc potato consumers usng survey data from Germany one of the countres wth the hghest share of organc produce provdes useful nformaton for organc potato growers. The results from a bvarate probt estmaton of conventonal and organc potato consumpton patterns have mportant marketng mplcatons. Frstly, consumers assocate organc producton methods wth healthy ngredents, trustable orgn and food safety. Hence, n promotng organc potatoes the health benefts due to certan ngredents of organc potatoes, the orgn of producton and food safety aspects of organc potato producton should be especally emphaszed. Secondly, less perfect appearance s not desred / favored by potato consumers, and mght even prevent some consumers from choosng organc potatoes. Organc potato producers need to take consumers lmted tolerance of nferor appearance nto account durng the producton process. Addtonally, consumer educaton and promoton through recpes and tps for use may mprove the market for organc potatoes wth nferor appearance. Snce the consumers wth lower educaton are less lkely to choose organc potatoes, nformatve or persuasve marketng strateges (or consumer educaton) that can enhance ther knowledge about the advantages of organc producton mght be useful to ncrease the sale of organc potatoes n ths partcular group of consumers. In addton, the results ndcate that households wth chldren are a maor market for organc potatoes. Promoton campagns should contnue to emphasze how organc potatoes are benefcal for chldren n order to keep and even enlarge ths market. Addtonally, a cluster analyss shows that there are some market segmentatons among potato consumers. The consumers n the Health-orented segment consume organc potatoes more often than the Industry-trustng and Prce-orented segments. Dfferent marketng strateges should be adopted by organc potato growers. For the Health-orented group, organc potato growers can contnue to focus on the health benefts brought by organc potato consumpton. The organc potato growers can ncrease the prce premum approprately to get hgher proft but they wll not lose the market snce ths group of consumers s not qute as senstve to prce. For the Industry-trustng group, organc potato growers could emphasze the lack of chemcal resdues used n organc producton systems and enlarge the potental organc market by attractng more consumers by ncreasng Industry-trustng consumers awareness of potental drawbacks of conventonal producton and the benefts of organc producton. The Prceorented group does not trust the food producton system and they consder the hgh prce premum to be the maor obstacle that prevents them from buyng organc potatoes. Lowerng the prce margn for organc potatoes to some degree (of course the prce should be beyond the cost of producton) or ncludng sales promoton every now and then mght gan a large market from ths consumer group. However, future research should focus on quantfyng consumers wllngness to pay for desred potato attrbutes to gve more detaled recommendatons to producers. ACKNOWLEDGMENT Ths analyss took place whle Carola Grebtus was a Post- Doctoral Research Fellow at the Center for Agrcultural and Rural Development, Iowa State Unversty, Ames, Iowa, USA. REFERENCES 1. U.S. Department of Agrculture, Economc Research Servce (2007) Organc Agrculture Brefng Room Commsson of the European Communtes (2005) Organc Farmng n the European Unon, facts and Fgures. Report G2EW-JKD, Brussels. m,

8 8 3. ZMP (2008a) Deutschland st größter Markt für Bo- Lebensmttel n Europa. /agrarwoche/marktgrafk/2008_02_08_zmpmarktgrafk. asp, ZMP (2008b) Ernährungstrends n Deutschland von 1996 bs chen/verbraucher/2008_01_02_pro_kopf_verbrauch_ Deutschland.asp, Pmentel, D (1993) Economcs and Energetcs of Organc and Conventonal Farmng. Journal of Agrcultural and Envronmental Ethcs 6(1): Roddy, G, Cowan, C, Hutchnson, G (1994): Organc Food: A Descrpton of the Irsh Market Brtsh Food Journal 96 (4): Bernard, JC, Zhang, C, Gfford, K (2006) An Expermental Investgaton of Consumer Wllngness to Pay for Non-GM Foods When an Organc Opton Is Present. Agrcultural and Resource Economcs Revew 35(2): Lourero LM, Hne, S (2002) Dscoverng Nche Markets: A Comparson of Consumer Wllngness to Pay for Local (Colorado Grown), Organc, and GMO- Free Products Journal of Agrcultural and Appled Economcs 34(3): Magnusson, MK, Arvola, A, Hurst, UK, Södén, P (2001) Atttudes towards organc foods among Swedsh consumers. Brtsh Food Journal 103(3): MacQueen, JB (1967) Some Methods for classfcaton and Analyss of Multvarate Observatons. Proceedngs of 5-th Berkeley Symposum on Mathematcal Statstcs and Probablty, Berkeley, Unversty of Calforna Press, 1: Yue C, Jensen, HH, Mueller, DS, Nonnecke, GR, Bonnet, D, Gleason, ML (2007) Estmatng Consumers Valuaton of Organc and Cosmetcally Damaged Apples. HortScence, 42(6): Correspondng author Author: Carola Grebtus Insttute: Department of Agrcultural and Food Market Research Insttute for Food and Resource Economcs Unversty of Bonn Street: Nussallee 21 Cty: Bonn Country: Germany Emal: carola.grebtus@lr.un-bonn.de