Functional Foods in the Marketplace: Willingness to Pay for Apples Enriched with Antioxidants

Transcription

1 Functonal Foods n the Marketplace: Wllngness to Pay for Apples Enrched wth Antoxdants Armenak Markosyan, Ph.D. Student, Graduate Research Assstant, School of Economc Scence and Internatonal Marketng Program for Agrcultural Commodtes and Trade (IMPACT) Center, Washngton State Unversty, Pullman, WA ; fax: ; emal: armenak@mal.wsu.edu Dr. Thomas I. Wahl, Professor and Drector, IMPACT Center, Washngton State Unversty, Pullman, WA Dr. Jll J. McCluskey, Assocate Professor and Food Polcy Fellow, School of Economc Scences and IMPACT Center, Washngton State Unversty, Pullman, WA Selected paper prepared for presentaton at the Amercan Agrcultural Economcs Assocaton Annual Meetng, Portland, OR, July 29-August 1, 2007 Copyrght 2007 by Armenak Markosyan, Thomas I. Wahl, and Jll J. McCluskey. 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: The attenton on so-called functonal foods has been growng as consumers become more concerned wth det and nutrton. Ths artcle ams to measure consumers response to apples wth naturally enrched antoxdant coatngs. Surveys were conducted n grocery stores n Seattle, Washngton and Spokane, Washngton. The results suggest that consumers have a somewhat postve atttude towards functonal foods n general and wth apples enrched wth antoxdants n partcular. A contngent valuaton technque was used to assess factors affectng consumers wllngness to pay for the apples wth antoxdant coatngs. Consumers n the Spokane grocery stores are more lkely to pay a premum for the new type of apples than consumers n Seattle. Consumers who look for a wde varety of product n choosng where to shop for food are more lkely to pay a premum for apples enrched wth antoxdants. Also, t s estmated that consumers, on average, are wllng to pay from 4% to 8% premum for these apples. Keywords: functonal food, wllngness to pay, antoxdants 2

3 How would you feel about apples wth wax coatngs enrched wth antoxdants? It was a queston that had many consumers n the grocery stores rased an eyebrow n surprse when they read t n the questonnare. Stop playng wth natural food! responded some. Sounds lke a great dea! responded others. Background and Motvaton The attenton drected towards so-called functonal foods has been ntensfyng as consumers become ncreasngly concerned wth det and nutrton. Functonal food s broadly defned as any food or food components that provde health beneft beyond basc nutrton (The Insttute of Food Technologes). Food processors are ncreasngly usng functonal food clams as a marketng tool. Products such as hgh fber breakfast cereals, orange juce wth added calcum, and vtamn-fortfed mlk are now wdely avalable n grocery stores. The functonal food ndustry has been growng rapdly over the last decade. Accordng to Nutrtonal Busness Journal, sales of functonal foods n the U.S. grew from $11.3 bllon n 1995 to $18.5 bllon n Ths accounts for 3.7% of the total food sales. The sales are projected to reach $49 bllon by Despte the rapd growth, functonal foods are not specfcally defned under Amercan law. Japan s the frst country that has a legal defnton for functonal foods, and t has one of the most advanced markets n the world for such products (CSPIR, 1999). In the U.S., regulatons on functonal foods fall under the authorty of the Food and Drug Admnstraton (FDA) whch regulates them under the same framework as conventonal foods. The FDA has nether a defnton nor a specfc regulatory rubrc for foods marketed as functonal foods. 3

4 Food processors contnuously try to apply health clams n marketng functonal foods. Ths puts pressure on polcymakers to develop approprate tools to protect consumers from false and msleadng health clams. Functonal foods as credence goods face sgnfcant challenges n polcy development arsng from nformaton asymmetry. Polces developed for functonal foods to date are dfferent n dfferent countres. Issues consdered n developng polces nclude factors nfluencng consumer preferences for these products and uncertantes n the markets for them. (Veeman, 2002) Therefore, t s crtcally mportant to shed more lght on how consumers perceve functonal foods and whether there wll be more demand seen for these products n the near future. When talkng about functonal foods, most thnk of processed food products. However, soon we may be able to see fresh fruts and vegetables marketed as functonal foods. An example s a new product, whch s a coatng to be appled on apples (and potentally other fruts). The coatng s enhanced wth specfc flavonods and stlbenes (antoxdants), whch are beleved to enhance the frut s health benefts. Ths artcle focuses on one such product, apples naturally enrched wth antoxdants. The objectve s to measure consumers response to apples wth naturally enrched coatngs. Specfcally, we estmate confdence ntervals for the possble premum consumers wll pay for ths product and analyze the factors that affect wllngness to pay (WTP). In the last few years there has been a great ncrease n research and thus advertsement of the benefcal effects of antoxdants. Antoxdants are substances that may protect cells from the damage caused by unstable molecules known as free radcals. Free radcal damage s beleved lead to cancer. Antoxdants nteract wth and stablze free radcals and may prevent some of the damage free radcals otherwse mght cause. Examples of antoxdants nclude beta-carotene, lycopene, vtamns C, E, and A, and 4

5 other substances. (Natonal Cancer Insttute, 2004) These compounds, often called phytonutrents, are present n most fruts and vegetables naturally. The consumpton of plls provdng these compounds has greatly ncreased n recent years. Indeed, ths would seem to ndcate that consumers are much more aware of the health benefts. There s also nformaton ndcatng that maxmum benefts are acheved when these phytonutrents are consumed n natural products (e.g. fruts, wne) rather than n plls. Sgnfcant evdence have been found that fruts and vegetables n combnaton have synergstc effects on antoxdant actvtes leadng to greater reducton n rsk of chronc dsease, specfcally for cancer and heart dsease. (Internatonal Food Informaton Councl, 2006) Lterature Functonal foods have captured some researchers attenton n the last few years. However, exstng lterature on functonal foods s stll scarce. Hu, et al. (2006) study consumers percepton of and wllngness to pay for credence attrbutes assocated wth canola ol n Japan. The results ndcate that consumers are wllng to pay more for organc or functonal attrbutes, but are wllng to pay less for genetcally modfed (GM) attrbutes. Maynard and Frankln (2003) employed a sensory evaluaton, wllngness-to-pay survey, and feasblty analyss to assess the commercal potental of cancer-fghtng dary products. Ther results suggest that proft potental exsts for producers servng nche markets va small-scale processng ventures. Households wth chldren and healthconscous consumers were, t appeared, most wllng to pay premums for "cancerfghtng" dary products. The authors argue that consumer demand and the legalty of health clams hnge on pendng medcal research outcomes. 5

6 West, et al. (2002) tred to assess consumers valuaton of functonal foods n Canada. The results from a Canada-wde survey suggest that Canadan consumers n general have postve atttudes towards functonal foods and may be wllng to pay a premum for them. However, they ndcate that a large proporton of respondents negatvely perceved GM and organc foods relatve to conventonal foods, after controllng for prce and health propertes. In the U.S., the Internatonal Food Informaton Councl (IFIC) has been trackng consumer perceptons of functonal foods snce In 2000 IFIC conducted a phone survey of 1000 ndvduals representng ethnc dversty and gender rato of the U.S. populaton. They ndcate that people are ncorporatng more foods wth functonal benefts nto ther det. Several mportant fndngs resulted from the survey. Consumers are aware of and convnced of the effects of nutrton and det on health. Top health concerns among the respondents were heart health (45%) and cancer (31%). There may exst a trend toward addng healthful ngredents n the det rather than avodng harmful ones. The report mentons the several demographc factors ncludng age, gender, ethncty, and martal status contrbute to choces about functonal foods. The majorty (82%) of the respondents were able to dentfy a functonal food and ts assocated health beneft. Survey Our research s based on a face-to-face survey that was conducted n September and October of 2006 at two grocery stores n Seattle, Washngton and one grocery store n Spokane, Washngton. All the stores had a varety of fresh produce ncludng both 6

7 conventonal and organc tems. A total of 730 questonnares were completed and used n the analyss. A questonnare was developed to elct consumer s response to naturally enrched apple coatngs. The frst secton of the questonnare ncluded questons about consumers awareness of antoxdants, atttudes toward nutrtonally enrched food and toward apples naturally enrched wth antoxdants, factors nfluencng ther choce of apples and choce of places to shop. Dchotomous choce contngent valuaton questons (wth follow-up) were ncluded as well to elct consumers WTP for apples wth naturally enrched coatngs. The second secton of the questonnare ncluded questons about the demographc characterstcs of the respondents, such as age, ncome, educaton, and presence of chldren n the household. The questonnare was randomly presented to the respondents n two dfferent formats. One type of the questonnare contaned the followng statement nformng about potental health benefts of antoxdants: Frut enhanced wth natural antoxdants wll mprove ts health benefts by helpng to prevent cancer, cardovascular and other dseases. The other type of questonnares contaned no such nformaton. Ths allows us to test the effect of postve nformaton on consumers atttudes toward naturally enrched apples and WTP for the product. In addton, the respondents were randomly presented wth four dfferent prce premums (dscounts) assocated wth naturally enrched apples: 5%, 10%, 20%, and 30%. Randomly presentng multple bds (.e. premums and dscounts) mproves statstcal effcency of our analyss. Demographcs of the sample are shown n table 1. The average age of the respondents was 45 years old. Sxty-one percent of the respondents were female. The 7

8 average sze of household was 3 members and 35% of the respondents had chldren under 18 n the household. Most of the respondents clamed to have hgher educaton degrees. Thrty one percent of the respondents had bachelor s degree, 27% had advanced or graduate degree, 28% clamed to have attended some college, 12% sad they had a hgh school dploma, and only 2% sad they have had some school. Mean and medan annual household ncome appeared to be wthn $40,000 and $79,999. Also, the majorty of the respondents were employed at the tme of the survey. Sxtytwo percent and 16% sad they were formally employed and self employed respectvely, 11% clamed to be retred, 5% were students, 4% - housewves, and 3% clamed to be unemployed. Survey responses suggest that consumers n general are aware of antoxdants and ther health benefts. One queston asked the respondents to express ther feelngs about nutrtonally enrched food (e.g. orange juce wth added calcum, hgh fber cereal). (See Q.3 n the Appendx) The respondents were gven 6 choces: very postve, somewhat postve, neutral, somewhat negatve, very negatve, and don t know. Overall, the feelng tended to be postve. Twenty-fve percent and 38% of the respondents sad they felt very postve or somewhat postve respectvely. Only 2% of the consumers surveyed felt very negatve about nutrtonally enrched food. These responses are also shown n table 2. If respondents expressed that they were somewhat negatve or very negatve, they were asked to explan why they felt negatvely. The most popular explanatons were: t s unnatural, t s better to get necessary nutrents naturally, addtves are not good for health, and organc food s more preferable. 8

9 Another queston asked the respondents to rate ther feelngs about apples naturally wax coated wth antoxdants. (See Q.8 n the Appendx) Here the percentage of postve responses was sgnfcantly lower and negatve responses sgnfcantly hgher. Ffteen percent and 27% of the overall customers surveyed sad they had very postve and somewhat postve feelngs respectvely. Nneteen percent felt somewhat negatve and only 6% felt very negatve about apples enrched wth antoxdants. Fnally, 28% were neutral and 5% sad they ddn t know. These responses are shown n Table 2 as well. Agan, customers who felt negatvely about apples enrched wth antoxdants were asked to explan why they felt that way. Several reasons were provded by the respondents. The most popular explanatons were: don t want to eat wax, t s unnatural, addtves to frut are not necessary, washng apples removes the wax, prefer food wth no addtves, don t have enough nformaton, t s better to get nutrents naturally, don t know, prefer organc, t changes the taste. Several questons were asked about the consumers shoppng behavor. (See table 3) Eghty fve percent of the respondents were prmary shoppers n ther household. The majorty, 58%, of the respondents clamed to shop 2 to 5 tmes a week. Twenty eght percent sad they shopped once a week, 8% sad they shopped daly, 5% and 1% sad they shopped once every 2 weeks and once a month respectvely. Another queston asked the respondents what s the most mportant factor to them n ther choce of where to shop for food. The optons gven were prce, qualty, varety, locaton, and other. Qualty was the most popular choce of the respondents wth 65%. Prce, varety, and locaton appeared to be roughly equally mportant to the consumers wth 16%, 12%, 12% and 17% respectvely. Four percent of the respondents lsted other factors, out of whch 98% 9

10 percent sad avalablty of organc food was the most mportant factor nfluencng ther choce of grocery stores. A queston was asked to understand the relevant mportance of hgh nutrton versus lower prces. The respondents were asked to evaluate ths tradeoff on a Lkert scale of 1 to 10, where 1 means hgh nutrent content s the most mportant and 10 means buyng food at the lowest prces s the most mportant. The average response appeared at 5.4. Contngent Valuaton Contngent Valuaton (CV) has been wdely used to elct ndvduals WTP for product qualty and envronmental benefts (e.g. McCluskey et. al., 2003; Donovan and Hesseln, 2004; Lourero et. al., 2006). There are two man approaches to the CV Method: snglebounded and double-bounded. The sngle-bounded method s a conventonal method of analyzng WTP. The respondent s asked only one dchotomous choce queston,.e. offered a sngle amount for a partcular good to whch the respondent should answer yes or no. On the other hand, double-bounded method offers a seres of bds: the respondent s asked to accept or reject some ntal amount then he/she s offered a premum (dscount) f yes ( no ) s chosen. (Hanneman, Looms, Kannnen, 1991). Hanneman, Looms, and Kannnen (1991) show that double-bounded method s an mprovement over sngle-bounded n terms of statstcal effcency. The CV queston n our survey was stated n the followng way: The average prce of apples s $0.99/lb. If you were gong to purchase apples today, and f apples wth wax coatngs whch are naturally enrched wth antoxdants were offered at the same prce than typcal wax coated apples, would you purchase them? (Yes/No) If the respondent answered yes to ths queston, then they were asked whether they would purchase the new type of apples f they were offered at a hgher prce (.e. 10

11 premum). On the other hand, f the respondent answered no to the ntal queston, they were asked whether they would purchase the new type of apples f they were offered at a lower prce (.e. dscount). Four sets of premums/dscounts where randomly presented to the consumers (5%, 10%, 20%, 30%). Emprcal Model The emprcal model for our research s derved from a random utlty model. An ndvduals utlty s a functon of a good and ncome. Indvduals utlty functon s broken nto an observable part and a random part. The observed part of the utlty s assumed to have a lnear functonal form and can be presented as (1) U 0 (0,Y;X) = V 0 (0,Y;X) + ε 0 = α 0 + ρy + Z 0 X + ε 0 U 1 (1,Y-P;X) = V 1 (1,Y-P;X) + ε 1 = α 1 + ρ(y P) + Z 1 X + ε 1 where U 0 and U 1 are the utlty functons when an ndvdual buys regular food (ndcated by 0) and functonal food (ndcated by 1) respectvely, Y represents ncome, X represents ndvduals characterstcs that affect the decson process, P s the prce of the extra prce of the functonal food ρ s the margnal utlty of ncome, ε 0 and ε 1 are..d. random errors wth mean 0. An ndvdual wll prefer the functonal food over the conventonal food f the utlty from the functonal food s greater than the utlty receved from the conventonal food,.e. (2) U 0 (0,Y;X) U 1 (1,Y-P;X) or α 1 + ρ(y P) + Z 1 X + ε 1 α 0 + ρy + Z 0 X + ε 0 After some smple operatons Equaton (2) can be wrtten as (3) W α + ρp + Z X ε 11

12 where α = (α 1 α 0 ), Ζ = (Ζ 1 Ζ 0 ), and ε = (ε 0 ε 1 ) that s assumed to have a logstc 2 dstrbuton wth mean 0 and varance ( ) 2 σ = π 3. Thus, the probablty that an ndvdual wll chose the functonal food over the conventonal food can be characterzed as (4) P(Buy Functonal Food) = P(α + ρp + Z X ε) = F(α + ρp + Z X) where F( ) s a logstc cumulatve dstrbuton functon. Our survey respondents can be dvded nto 4 groups: those who answered yes to both CV questons, those who answered no to both CV questons, those who answered yes to the frst CV queston (wth the ntal prce) and no to the second queston (wth the premum prce), and those who answered no to the frst CV queston and yes to the second queston (wth the dscount prce). Followng Equaton (4) probabltes of respondents beng n each group can be presented as follows. (5) P(Yes, Yes) = P(W 0 ε W U ε) = P(W 0 ε W U ε) P(W U ε) = P(W U ε) = F(α + ρp U + Z X) P(No, No) = P(W 0 ε W L ε) = P(W 0 ε W L ε) P(W L ε) = P(W L ε) = 1 F(α + ρp L + Z X) P[(Yes, No) or (No, Yes)] = P[(W 0 ε W U ε) (W 0 ε W L ε)] = P(W U ε W 0 ) + P(W 0 ε W L ) = F(W U ) - F(W 0 ) - F(W 0 ) - F(W L ) = F(α + ρp U + Z X) - F(α + ρp L + Z X) where P 0, P L, and P U are ntal, lower, and upper prces respectvely. Utlty s nonncreasng n prces and P L < P 0 < P U, therefore W U < W 0 < W L. Consequently, n Equaton (5) P(W 0 ε W U ε) = P(W 0 ε W L ε) = 1. 12

13 The log-lkelhood functon, therefore, s presented n Equaton (6). The ny varables d, d /, d are ndcators for each group. The soluton to the frst order yy yn nn condtons gves us maxmum lkelhood estmates for our parameters. (6) n lnl = { d = 1 + d nn yy lnf( α + ρp P ln( 1 F( α + ρp + Z' X ) + d L + Z' X )} yn/ ny ln( F( α + ρp P + Z' X ) F( α + ρp L + Z' X )) Data Table 1 gves a bref descrpton of the varables used n the estmated model. The varable representng Seattle s ncluded to test whether there s a sgnfcant dfference n consumers WTP between Seattle grocery stores and Spokane grocery store. Info s a varable whch represents the presence of a postve statement about antoxdants n the questonnare. Ths wll allow us to test whether the ncluson of ths partcular postve statement has a sgnfcant effect on consumers WTP. Also, we can test whether male shoppers wll pay more (or less) for apples enrched wth antoxdants by ncludng Gender varable n the model. The Educaton varable s ncluded to test the effect of educaton on shoppers WTP, n partcular whether havng a college degree (or above) affects the WTP. Further, we can test whether hgher ncome people would possbly pay more for the new type of apples by ncludng Income varable. Age may also be a sgnfcant factor n consumers WTP. In addton, an nteracton varable between age and educaton s ncluded to test whether older educated people have sgnfcantly dfferent WTP. The next set of varables capture ndvduals perceptons and preferences and ther effect on ndvduals WTP for apples naturally enrched wth antoxdants. One of the questons n the questonnare asked to rate the mportance of hgher nutrton n the 13

14 food aganst the mportance of low prce. The response to ths queston s ncluded as a varable n our model. Two varables have been created from the response to queston 4, whch asked to express feelngs about nutrtonally enrched food. One varable captures postve feelngs, and the other negatve feelngs. Three varables have been created from responses to the queston whch asked about feelngs wth regards to apples enrched wth antoxdants. The varables separately capture postve feelngs, neutral feelngs, and very negatve feelngs. Fnally, we can to test whether varous factors that affect consumers choce of where to shop also affects ther WTP for apples enrched wth antoxdants. In order to do that, four varables are ntroduced n the model. These varables capture each factor affectng the choce of where to shop for food: prce, qualty, varety, and locaton. Estmaton Results The model n (2) has been estmated usng MAXLIK module n GAUSS 7.0. To assess the sgnfcance of the model and the goodness of ft we performed a Lkelhood Raton test (LR) and estmate an R-square equvalent measure desgned specfcally for doublebounded logt models. The LR test statstc s LR = [ln L R ln L ], where L R represents 2 U the value of the restrcted log-lkelhood functon where all parameters but that of the bd and constant are set to zero; L U represents the value of the unrestrcted log-lkelhood functon usng all the parameters n the model. LR-statstc s qute large (268.43), so we reject the null hypothess that all the parameters n the model jontly equal to zero. Further, we employ the so-called sequental classfcaton procedure (SCP) to estmate a model ft measure equvalent to R 2. Kannnen and Khawaja (1995) show that the conventonal R 2 measures, such as McFadden Pseudo R 2 and Pearson Ch-Square are 14

15 not approprate for double-bounded logt models. They suggest usng the SCP that explctly takes the sequental, condtonal nature of the double-bounded model nto account. Table 5 provdes the maxmum lkelhood parameter estmates for the model. The offered bd s negatvely related to the WTP,.e. as the hypothetcal prce ncreases n the questonnare the probablty that a consumer would lke to purchase the product goes down. The varable representng that survey was conducted n Seattle stores appeared to be statstcally sgnfcant wth a negatve coeffcent. Thus, there s evdence that consumers n Seattle grocery stores are less lkely to pay premum for apples enrched wth antoxdants than Spokane shoppers. Educaton appeared to have postve statstcally sgnfcant effect on consumers WTP. Therefore, there s evdence that educated consumers are more lkely to pay premum for the new type of apples. In addton, the nteracton varable between age and educaton turned out to have a sgnfcant negatve effect on WTP. Thus, the data suggests that older and educated people are less lkely to pay premum. Consumers responses to the queston that provdes a tradeoff between hgh nutrtous food and low prce food ndcated a sgnfcant negatve effect on ther WTP for apples wth antoxdants. Therefore, consumers who prefer low prce food to hgher nutrtous food are less lkely to pay premum for enrched apples. Both varables representng consumers feelngs about nutrtonally enrched food appeared to be statstcally sgnfcant. It has been found that consumers who feel postvely about nutrtonally enrched food are more lkely to pay a premum for apples enrched wth antoxdants. In contrary, those who have negatve feelngs are less lkely to pay a premum. 15

16 Varables representng consumers general feelngs about apples enrched wth antoxdants also appeared to be statstcally sgnfcant n the model. Those who feel postvely and those who are neutral about apples enrched wth antoxdants are more lkely to pay a premum for them. On the other hand, consumers who feel very negatvely about apples enrched wth antoxdants are less lkely to pay premum for them. Furthermore, the estmaton results suggest that consumers who fnd prce as the most mportant factor n choosng where to shop for food are less lkely to pay a premum for apples enrched wth antoxdants. On the other hand, consumers who fnd varety as the most mportant factor n choosng where to shop for food are more lkely to pay a premum for apples enrched wth antoxdants. Mean WTP Followng procedures descrbed by Hanemann (1984 and 1991) the mean WTP for apples enrched wth antoxdants was estmated as 1 (7) WTP = ( ˆ α + Ζ X ˆ ) ˆ ρ Τhe results are shown n table 6. We use the ntal bd of $0.99 as a benchmark for estmatng the mean WTP. The mean WTP was estmated for the whole sample and for the Seattle and Spokane grocery stores separately. Mean WTP for the whole sample was found to be $1.059/lb wth ($1.036, $1.081) as a 95% confdence nterval. In other words, consumers on average are wllng to pay roughly a 6% premum for apples enrched wth antoxdants. Also, t can be sad wth 95% confdence that the mean WTP for apples enrched wth antoxdants falls between a 3.6% to 8.1% nterval. 16

17 The estmated mean WTP for the consumers n Seattle grocery stores s $1.037/lb wth ($1.012, $1.063) as a 95% confdence nterval, or roughly a 4% premum wth (1.2%, 6.3%) as a 95% confdence nterval. The mean WTP n the Spokane grocery store was estmated to be $1.123 wth ($1.076, $1.17) as a 95% confdence nterval, or a 12.3% premum wth (7.6%, 17.0%) as a 95% confdence nterval. Conclusons The purpose of the artcle was to examne consumers atttudes towards functonal foods and ther WTP for apples enrched wth antoxdants. Three rounds of face-to-face surveys have been conducted n the State of Washngton and a total of 730 responses have been receved. The results suggest that overall consumers have postve atttude towards functonal foods. Regardng apples that are enrched wth antoxdants, fewer of the respondents expressed postve feelngs than to functonal foods n general. We suggest that ths s due to the product beng a fresh produce as opposed to processed food products such as orange juce or cereal. The atttudes, nevertheless, were postve n general and the market does not seem to reject the dea of ths new product. The results of the double-bounded model estmaton suggest that educated consumers are more lkely to pay a premum for the product. Consumers who thnk varety s the most mportant factor n choosng where to shop for food are more lkely to pay a premum as well. On average consumers are wllng to pay up to 6% premum for apples enrched wth antoxdants. The 95% confdence nterval for ths estmate was found to be 3.6% - 8.1%. Also, there s evdence that consumers n regular Spokane supermarket are more lkely to pay a premum for the product then consumers n 17

18 supermarkets n Seattle. The estmated mean WTP n Spokane supermarket was between 7.6% and 17% whle the estmated mean WTP n Seattle supermarkets was between 1.2% and 6.3%. In our opnon, the man reason for ths can be that snce Seattle s a large growng market for organc produce, consumers are more skeptcal about functonal foods whch nvolve varous addtves. The major reasons some consumers reject the dea of apples enrched wth antoxdants are ther perceptons that wax n general s not pleasant for consumpton, addtves n food are unnecessary and sometme unhealthy, there s not enough nformaton about the product and ts safety, organc food s better and s more healthy, and addtves n frut are unnatural. The statement provdng postve nformaton about antoxdants ncluded n some questonnares dd not appear to have sgnfcant effect on consumers WTP. In our opnon ths was due to the fact that health benefts of antoxdants have recently been subject to a consderable publcty. Also, the survey respondents appeared to be qute knowledgeable about antoxdants. Concludng, we can say that there s a hgh possblty that more functonal foods wll be seen n the market n the near future. Therefore, more clearly defned polces need to be developed for functonal foods to avod false health clams n marketng them. In regards to apples enrched wth antoxdants, a careful marketng strategy can lead to ths product beng marketed n the near future. 18

19 Table 1 Demographc characterstcs of the respondents Number of Respondents 730 Average age (years) 45 Average household sze (number of members) 3 Proporton of the respondents Gender Male 39% Female 61% Chldren under 18 present n the household 35% Educaton (hghest level) Some school 2% Hgh School dploma 12% Some college 28% Bachelor's degree 31% Advanced degree or graduate degree 27% Household Income (n 2005) Less than $39,999 25% $40,000 - $79,999 37% $80,000 - $109,000 20% $110,000 - $149,000 11% $150,000 - $199,999 6% Greater than $200,000 2% Employment status Formally employed 62% Self employed 16% Unemployed 3% Retred 11% Student 5% Housewfe 4% 19

20 Table 2 Atttudnal questons about functonal foods How would you feel about Proporton of the Nutrtonally enrched food respondents Very postve 25% Somewhat postve 38% Neutral 25% Somewhat negatve 8% Very negatve 2% Don't know 2% Apples wth wax coatngs whch are enrched wth antoxdants Very postve 15% Somewhat postve 27% Neutral 28% Somewhat negatve 19% Very negatve 6% Don't know 5% 20

21 Table 3 Shoppng behavor of the respondents Proporton of the respondents Prmary shopper n the household 85% How often do you shop for food? Daly 8% Between 2-5 tmes per week 58% Once a week 28% Once every two weeks 5% Once a month 1% Most mportant factor n choosng where to shop for food Prce 16% Qualty 65% Varety 12% Locaton 17% Other (organc) 4% Importance of hgher nutrent content n food compared to buyng food at the lowest prce (1 = hgher nutrent foods are the most mportant 10 = lower prce s the most mportant)

22 Table 4 Descrpton of explanatory varables Varable Descrpton Seattle 1=Seattle, 0=Spokane Info 1=Presence of postve statement, 0=absence of postve statement Gender 1=male, 0=female Educaton 1=Bachelors degree and above, 0=otherwse Income Household ncome, 1 f ncome s more than or equal to $80,000 Age Reported age Age*Educaton Interacton varable between age and educaton X 1 Tradeoff between hgher nutrton and low prce food, contnuous scale of 1 to 10 (See Q.3 n the Appendx) X 2 Feelngs about nutrtonally enrched food, 1 f response s very postve or somewhat postve (See Q.4 n the Appendx) X 3 Feelngs about nutrtonally enrched food, 1 f response s somewhat negatve or very negatve (See Q.4 n the Appendx) X 4 Feelngs about apples nutrtonally enrched wth antoxdants, 1 f response s very postve or somewhat postve (See Q.8 n the Appendx) X 5 Feelngs about apples nutrtonally enrched wth antoxdants, 1 f response s neutral (See Q.8 n the Appendx) X 6 Feelngs about apples nutrtonally enrched wth antoxdants, 1 f response s very negatve (See Q.8 n the Appendx) X 7 Most mportant factor n choosng where to shop, 1=prce (See Q.13 n the Appendx) X 8 Most mportant factor n choosng where to shop, 1=qualty (See Q.13 n the Appendx) X 9 Most mportant factor n choosng where to shop, 1=varety (See Q.13 n the Appendx) X 10 Most mportant factor n choosng where to shop, 1=locaton (See Q.13 n the Appendx) 22

23 Table 5 Maxmum Lkelhood parameter estmates Parameter Coeffcent St. Error P-value α *** ρ *** Seattle * Info Gender Educaton * Income Age Age*Educaton * X * X ** X *** X *** X *** X *** X * X X ** X N 670 LR-stat R 2 equvalent *10% sgnfcance level, **5% sgnfcance level, ***1% sgnfcance level 23

24 Table 6 Estmates of mean WTP Sample WTP 95% Confdence nterval Full Sample Seattle Spokane $1.059 (5.9% premum) $1.037 (3.7% premum) $1.123 (12.3% premum) $ $1.081 (3.6% - 8.1% premum) $ $1.063 (1.2% - 6.3% premum) $ $1.17 (7.6% % premum) 24

25 Appendx Q.3 When purchasng food, how mportant s hgher nutrent content n food, compared to buyng food at the lowest prce? Please rate your feelng of mportance on a scale of 1 to 10, where 1 means hgher nutrent foods are the most mportant and 10 means buyng food at the lowest prce s the most mportant Q.4 How do you feel about nutrtonally enrched food, e.g. orange juce wth added calcum, hgh fber cereal, etc.? Very postve SKIP to Q.6 Somewhat postve SKIP to Q.6 Neutral SKIP to Q.6 Somewhat negatve Very negatve Don t know SKIP to Q.6 Q.8 Snce n washng apples they loose ther natural coatng, natural wax s used as a coatng to protect them. Frut enhanced wth natural antoxdants wll mprove ts health benefts by helpng to prevent cancer, cardovascular and other dseases. How would you feel about wax coated apples naturally enrched wth antoxdants? Very postve SKIP to Q.10 Somewhat postve SKIP to Q.10 Neutral SKIP to Q.10 Somewhat negatve Very negatve Don t know SKIP to Q.10 Q.13 What s the most mportant factor to you n your choce of where to shop for food? Prce Qualty Varety Locaton Other, please fll n 25

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