Source: PURDUE UNIVERSITY submitted to NRP
CONSUMER AND AGRIBUSINESS MARKETING
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
COMPLETE
Funding Source
HATCH
Reporting Frequency
Annual
Accession No.
0197989
Grant No.
(N/A)
Cumulative Award Amt.
(N/A)
Proposal No.
(N/A)
Multistate No.
(N/A)
Project Start Date
Jun 1, 2003
Project End Date
Sep 30, 2004
Grant Year
(N/A)
Program Code
[(N/A)]- (N/A)
Recipient Organization
PURDUE UNIVERSITY
(N/A)
WEST LAFAYETTE,IN 47907
Performing Department
AGRICULTURAL ECONOMICS
Non Technical Summary
In recent years, a pronounced trend has developed toward a more demand driven marketplace; however, research and development and subsequent new product introduction can be a costly venture. This project investigates consumer and/or producer demand for new and quality differentiated agricultural goods in order to assess the viability and profitability of new marketing ventures and technological developments.
Animal Health Component
60%
Research Effort Categories
Basic
35%
Applied
60%
Developmental
5%
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
6036230209010%
6046230301010%
6075010301050%
6096110301020%
6106230301010%
Knowledge Area
603 - Market Economics; 607 - Consumer Economics; 609 - Economic Theory and Methods; 604 - Marketing and Distribution Practices; 610 - Domestic Policy Analysis;

Subject Of Investigation
6110 - Economy of the United States and sectors thereof; 6230 - Marketing systems and sectors thereof; 5010 - Food;

Field Of Science
2090 - Statistics, econometrics, and biometrics; 3010 - Economics;
Goals / Objectives
The primary objective of this research is to investigate consumer and/or producer demand for new and quality differentiated agricultural goods in order to assess the viability and profitability of new marketing ventures and technological developments. Examples of new and quality differentiated consumer goods include: foods with enhanced safety attributes, genetically modified foods, organic foods, soy-based foods, foods with enhanced nutritional or functional characteristics, etc. Examples of producer goods include: new genetically modified seed varieties, new insurance designs, ultrasound technology in livestock production, remote sensing technology, etc. Specific objectives of this research include: 1) Develop and compare existing methodologies for estimating consumer and producer demand for novel agricultural goods. 2) Determine external validity of survey and experimental methods. 3) Incorporate demand estimates from survey and experimental methods into market-level models to determine welfare implications of technological developments and agricultural policies. 4) Explore the role of rationality and risk on consumer decision making.
Project Methods
To carry out the first objective, a number of activities will be undertaken. Demand for several neoteric goods will be estimated using the following methods: a) contingent valuation, b) conjoint analysis, and c) experimental auction. These methods will be investigated in the following contexts: a) hypothetical mail/phone survey, b) non-hypothetical mail/phone survey, d) non-hypothetical laboratory experiments, and e) non-hypothetical in-store experiments. Willingness-to-pay estimates and/or predicted market share for the novel goods will be compared across methods to determine the convergent validity of the various methods and contexts. In addition to these existing methodologies for estimating demand for novel goods, extensions of previous methods and entirely new approaches will be explored. In addition, predictions from each of these methods are in need of comparison with actual purchase behavior when a new product is introduced for sale - i.e., the external validity of each approach needs to be assessed. To determine the external validity of the demand elicitation approaches, we will work closely with retail outlets such as grocery stores and will compare predicted market share from survey or experimental approaches to actual transaction data collected from a grocery store. Because many new products have associated public policy ramifications, it is important to be able to model the effect of new products or technology on market prices and producers and consumer welfare. Development of such models requires collection of various types of information including: consumer response to a given policy or technological development, producer response to a given policy or technological development, potential administrative costs of a policy, and structural market parameters such as elasticities of supply and demand. Consumer attitudes toward novel goods are likely affected by a number of factors including their attitudes toward risk. For example, consumer acceptance of steam pasteurized meat likely depends on attitudes toward and perceptions of the risk of food borne illness. In addition to risk, there are other social-psychological issues affecting attitudes toward buying new products. Many of these issues do not conform to economic rationality, but nevertheless have important implications for predicting future success of a new product. To carry out objective 4, the following activities will be undertaken: 1) survey and experimental methods will be used to elicit individual's preferences for risk, 2) theoretic and econometric models will be used to explore the effect of risk preferences on willingness-to-pay and willingness-to-buy novel goods, 3) experimental methods will be used to identify and determine effect of social-psychological factors on choice of novel goods.

Progress 10/01/03 to 09/30/04

Outputs
A number of projects have been undertaken to complete this research. Several studies have been conducted to investigate consumer demand for beef with different quality attributes. This work has also focused on methdological developments in estimating consumer demand. Several other studies are also underway to investigate consumer demand for genetically modified food. A number of findings have resulted. We found that many consumers are willing to pay premiums for increased beef quality, in particular certified angus beef products. Products such as natural beef produced without growth hormones or antibiotics are highly demanded by niche segments of the population. Methologically, results suggest that hypothetical valuation questions lead to over-statements of individuals total values, but are reasonably accurate in predicting values for marginal changes in beef quality. We also found that theoretically equivalent auction mechanisms can lead to divergent valuation estimates. In work studing consumer acceptance of GM food, we elicited consumer willingness to accept compensation to consume a GM food using an incentive compatible auction mechanism in three US states: California, Florida, and Texas and in two European countries: England and France. Results indicate that information on environmental benefits, health benefits, and benefits to the third world significantly decreased the amount of money consumers demanded to consume GM food; however, the effect of information varied by type of information and location. We find that initial attitudes toward biotechnology have a significant effect on how individuals responded to new information.

Impacts
This research investigates consumer and/or producer demand for new and quality differentiated agricultural goods and assesses the viability and profitability of new marketing ventures and technological developments. This marketing research is assisting agricultural producers and agribusinesses in determining potential profitability of selling new goods or modifying existing products.

Publications

  • Mark, D.R., J.L. Lusk, and M.S. Daniel. Recruiting Agricultural Economics Graduate Students: Student Demand for Program Attributes. American Journal of Agricultural Economics. 86(February 2004):175-184.
  • Norwood, B., J.L. Lusk, and M. Roberts. Ranking Crop Yield Models Using Out of Sample Likelihood Functions. American Journal of Agricultural Economics. 86(November 2004)1032-1043.
  • 10. Jaeger, S.R., J.L. Lusk, L.O. House, C. Valli, M. Moore, B. Morrow and W.B. Traill. Acceptance of Genetically Modified Foods: Non-Hypothetical Experimental Markets. Food Quality and Preference. 15(2004):701-714.
  • Hudson, D. and J.L. Lusk. What You Dont Know Can Cost You: A Web Based Experiment in Price Discrimination. Review of Agricultural Economics. 26(Fall 2004):392-403.
  • Hudson, D. and J.L. Lusk. Graduate Agribusiness Management Programs: Supply Meets Demand. Review of Agricultural Economics. 26(Fall 2004):418-422.
  • Lusk, J.L., L.O. House, C. Valli, S.R. Jaeger, M. Moore, B. Morrow, W.B. Traill. Effect of Information about Benefits of Biotechnology on Consumer Acceptance of Genetically Modified Food: Evidence from Experimental Auctions in United States, England, and France. European Review of Agricultural Economics. 31(July 2004): 179-204.
  • Roosen, J., J.L. Lusk, and J.A. Fox. Transatlantic differences in Consumer Preferences. Euro Choices. 3(2004)26-32.
  • Lusk, J.L. and J.D. Anderson, Effects of Country-of-Origin Labeling on Meat Producers and Consumers. Journal of Agricultural and Resource Economics. 29(August 2004):185-205.
  • Lusk, J.L. and D. Hudson. Effect of Monitor-Subject Cheap Talk on Ultimatum Game Offers. Journal of Economic Behavior and Organization. 54(July 2004):439-443.
  • Lusk, J.L. and D. Hudson. Willingness-to-Pay Estimates and Agribusiness Decision Making. Review of Agricultural Economics. 26(Summer 2004):152-169.
  • Lusk, J.L. and E. Cevallos. Factors Influencing Demand for a Producer-Owned Beef Retail Outlet. Journal of Agricultural and Applied Economics. 36(April 2004):97-112.
  • Lusk, J.L. and T.C. Schroeder. Are Choice Experiments Incentive Compatible? A Test with Quality Differentiated Beef Steaks. American Journal of Agricultural Economics 86(May 2004):467-482.
  • Lusk, J.L., Ty Feldkamp, and T.C. Schroeder. Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods. American Journal of Agricultural Economics. 86(May 2004):389-405.
  • Hudson, D. and J.L. Lusk. Activists and Corporate Behavior in Food Processing and Retailing: A Game Theoretic Approach. Journal of Agricultural and Resource Economics. 29(April 2004):79-93.
  • Hudson, D. and J.L. Lusk. Risk and Transaction Costs in Contracting: Results from a Choice-Based Experiment. Journal of Agricultural and Food Industrial Organization. 2(February 2004):1-17.


Progress 06/01/03 to 11/01/03

Outputs
A number of studies are underway investigating consumer demand for new and differentiated agricultural products. First, several experiments have been performed in the US and Europe investigating consumers' attitudes toward genetically modified foods. The study is looking at the effect of these preferences on trade policy and is investigating the determinants of consumer acceptance of genetically modified foods. Results of the project indicate consumers in England and France demanded much greater compensation to consume genetically modified foods than US consumers. These findings hold important implications for the United States and European Unions positions in international trade negotiations and point to a greater need for theoretical work incorporating heterogeneity in consumer preference in models of international trade. Research results also indicate that information on environmental benefits, health benefits, and benefits to the third world significantly decreased the amount of money consumers demanded to consume GM food; however, the effect of information varied by type of information and location. Another ongoing project focuses on consumer perceptions of and demand for various beef quality attributes and the effect of demand elicitation method on valuation estimates. The primary result from this research is the valuations are not generally invariant to procedural change; bids from auctions are significantly lower than valuations implied from choices. We also find that consumers are willing to pay significant premiums for beef quality, in particular certified angus beef. Another project focused on estimating the costs and benefits of Country of Origin Labelling. We find that the way in which the USDA impliments the policy will have a major influence on who benefits and is harmed by the policy. A survey investigating consumer demand for certification programs in pork production is being developed. Another project aimed at investigating international and cultural differences in consumer decision making behavior is being developed.

Impacts
This research investigates consumer and/or producer demand for new and quality differentiated agricultural goods and assesses the viability and profitability of new marketing ventures and technological developments. This marketing research is assisting agricultural producers and agribusinesses in determining potential profitability of selling new goods or modifying existing products.

Publications

  • Lusk, J.L. "Effect of Cheap Talk on Consumer Willingness-to-Pay for Golden Rice." American Journal of Agricultural Economics. 85(November 2003):840-56.
  • Lusk, J.L. "Using Experimental Auctions for Marketing Applications: A Discussion." Journal of Agricultural and Applied Economics. 35(August 2003):349-360.
  • Lusk, J.L. R. Little, A. Williams, J. Anderson, and B. McKinley. "Utilizing Live Animal Ultrasound to Improve Livestock Marketing Decisions." Review of Agricultural Economics. 25(2003):203-217.