1. Willingness-to-Pay for Natural, Organic, and
Amer. Assoc. of Wine Economists
Bordeaux, France
June, 2016
Willingness-to-Pay for Natural, Organic, and
Conventional Foods: The Effects of Information
and Meaningful Labels by
Wallace Huffman, ISU, and Jonathan McFadden, ERS

2. Introduction
Increasingly popular foods are those labeled as “Organic” and “All Natural”
Organic Food
Popularity has been enhanced by implementation of the U.S. National Organic Plan
in 2002, establishes a strictly process-based standard
- Produced without excluded methods: synthetic chemicals, biotechnology, irradiations,
- Produced with National List of Allowed Substance, but not those Disallowed:
synthetic fertilizers and pesticides, growth hormones, antibiotics
- Farm must have an Organic Production Plan certified by a USDA NOP certifying agent
Foods produced under the NOP: 100% or ≥ 95% organic ingredients can be labeled as
“Organic” and carry the USDA’s organic food seal;
≥ 70% organic ingredients can only carry “Made with Organic (up to 3 Ingredients); no USDA Organic seal or statement “Made with Organic Ingredients.”
All-Natural Food
Seems to be growing consumer sales, but good data are not available
-lacks a set of guidelines or legally-binding standard; no certification process
the USDA has informal policy, e.g., no artificial flavors, coloring, chemical
preservatives
the FDA suggests no artificial or synthetic substances
Some consumers are confused about differences between organic and all natural foods
Moreover, organic and natural foods are “credence goods”

3. Objective: To test for food label and information treatment effects reflected in consumers’ WTP for organic, all-natural and conventional foods To carry out the project, we identify a random sample of adult consumers, years of age in the Des Moines area and obtained agreement that they would come to a central location an participate in an ISU project assessing consumers’ preference on food. -Subjects were paid $65 for participating; about 75 minutes of time; 102 total -We collected socio-econ-demographic information from each subject - Experimental commodities 3lbs of red delicious apples, 1 ¼ lb fresh broccoli 12 grade A large eggs -Subjects receive information from food labels and 5 information treatments, including a no-information base line Some findings: -Subjects on average are WTP the most for organic and the least for conventional products -Information treatment effects matter, sometimes in complex ways -Household attributes, esp the age of children affect WTP premiums for organic and all natural foods

4. Figure 1: Commodity Labels for Apples, Eggs, and Broccoli

5. Packaged Information Perspectives
(i) An organic food industry perspective on organic food,
(ii) Independent, third-party, verifiable perspectives on organic foods,
(iii) Natural food industry perspective on “natural” and “all natural foods,” and
(iv) Independent, third-party, verifiable information on natural foods
Each perspective limited to x11” sheet of paper and organized under the following headings: General Statement; Production Standards; and Nutrition, Taste and Appearance to ease information processing by subjects
[See Handout]
Information Treatments
A no information baseline
(ii) The natural food industry perspective
(iii) The natural food industry perspective plus independent, 3rd party perspective on
natural foods
(iv) The organic food industry perspective
(v) The organic food industry perspective plus independent, 3rd party perspective on
organic foods

6. Figure 2: Subject Activities in a Session

8. Econometric Model

13. Conclusions and Implications ●Organic and all-natural foods serve niche markets, but we find a large and diverse set of subject demographic effects on WTP premiums, suggesting a shift to a broader base of consumers ●The addition of independent organic information to the organic food industry information reduces the premium for organic relative to conventional foods ●But, the addition of independent natural information to the natural food industry information increases the premium for natural relative to conventional foods ●We find surprising positive effects on WTP premium for organic food relative to conventional and natural foods after subjects receive the natural food industry perspective; but no effect of the organic food industry perspective on WTP premium for all-natural foods. -The organic food industry seems to have benefited from vague food labels and low quality natural food information -It seems that the natural food industry might gain from an objective food standard and meaningful labels

14. ●Subjects who regularly read food labels in deciding to purchase new food are willing to pay premium for organic and all-natural foods relative to conventional foods;
● Subject’s pre-experiment information about organic foods significantly increased the premium of organic over natural foods
● Subject attributes affect the organic food premium, and number of children by age generally matter for the premium for O/C, N/C and O/N foods

15. Table 7: Zero Bids across Commodities and Types
Conventional
All-Natural
Organic
Apples
2 (1.9%)
3 (2.9%)
Eggs
4 (3.9%)
1 (1.0%)
Broccoli
0 (0.0%)
The first number in each cell is the count of zero bids. The second number in parentheses expresses each count as a fraction of the 102 bids per commodity and type.

16. Figure 3: Information Treatment Effects on WTP Differences

17. Switching from all-natural Switching from organic to
Table 6: Expected Value of Third-Party Information
Switching from all-natural
to conventional
Switching from organic to
Conventional
Apples (per 3 lbs.)
$2.90
$2.97
Eggs (per dz.)
$0.06
$0.00
Broccoli (per 1.25 lbs.)
$0.26
$0.10
Premium gains in the first column are calculated from sample sizes of 55, 36, and
50 subjects for apples, eggs, and broccoli (respectively). Premium gains in the
second column are calculated from sample sizes of 49, 36, and 50 subjects for apples,
eggs, and broccoli (respectively). The zero valuation of third-party information in
switching from organic to conventional eggs arises because the percentage switching
is zero, i.e., the number of subjects “buying” conventional who received third-party
organic information equals the number of subjects “buying” conventional who received
the organic industry information treatment.