Progress 12/15/07 to 12/14/12
Outputs
OUTPUTS: In the past year of the project "Strategic Procurement and Marketing Behavior by U.S. Food Processors and Retailers," seven outputs were accomplished, with each briefly described below: (1) Published paper on imports as a source for organic procurement by U.S. food retailers: In an article appearing in the January 2011 issue of the American Journal of Agricultural Economics, I found that supermarkets are relying on imported organic products for retailing and that the level of imports is linked to the prominence of the retailer's organic store brands. (2) Dissertation proposal and successful comprehensive exam on the topic of brand choice in the bagged salad sector: A graduate student under my supervision was given the formal go-ahead to investigate brand choice in bagged salad. The results should allow us to estimate the value to U.S. consumers of retailers offering their own store brand of organic bagged salad. (3) Dissertation proposal and successful comprehensive exam on brand-quantity choices in the organic carrot sector: A second graduate student under my supervision was given the go-ahead to investigate the bagged carrot sector. This research aims to provide a methodological breakthrough allowing us to model brand choice and quantity choice simultaneously. (4) Presentation on organic price premiums: A the joint annual meeting of the Agricultural and Applied Economics Association and the Northeast Agricultural and Resource Economics Association, I presented preliminary research on how organic price premiums were affected by market level macroeconomic conditions. The preliminary research, which focuses on multi-ingredient food products, shows that economic indicators do indeed influence the organic price premium for some, but not all, organic products studied. (5) Collaborative agreements with USDA/ERS to study organic brand choice and price premiums. The preliminary research listed above in (2) and (3) has been turned into a formal collaboration agreement between me and researchers at the USDA's Economic Research Service. This research collaboration started this year, but will continue for several more years. (6) Paper submission on private label organic milk: A working paper on pricing in organic milk, an output listed under last year's report, was submitted to a journal for possible publication. (7) Draft working paper on firm clusters in the U.S. organic processors and handlers: Using data from two surveys of organic food handlers (defined as processors, wholesalers, brokers, and other middlemen firms), we have conducted quantitative research that investigates the formation of geography-based firm clusters and the impact that the firm clusters have on firm-level performance measures. This working paper is nearly ready for submission. PARTICIPANTS: 1. U.S. Department of Agriculture, Economic Research Service 2. New York University, the new academic home of Carolyn Dimitri (a co-principal investigator on this project) 3. Penn State's Survey Research Center TARGET AUDIENCES: Our target audience includes researchers in the agricultural and applied economics profession. PROJECT MODIFICATIONS: Our initial plans were modified when the target mailings for our planned survey of U.S. food retailers were reduced to about 1,000 mailed surveys from the 5,000 originally anticipated. The reason for the lower number was unreliable contact information for the smallest food retailers. The decrease is not believed to affect market coverage in any significant way. Our unused survey budget was redirected to in-store data collection to support a case study regarding issues of organic food access and availability.
Impacts
This project had three main results: 1. Based on the project-funded survey of U.S. food retailers, our study found that almost one-third of U.S. food retailers charge slotting fees for certified organic food products. Slotting fees, payments made by food manufacturers to food retailers to secure shelf space for new products, had not previously been documented for organic food products. Econometric results from an ordered response model suggest that a number of firm-level attributes do influence slotting fees in a manner that is mostly consistent with the economic efficiency rationale and partly consistent with the market power/strategic behavior rationale. 2. Our survey also found linkages between organic imports and organic private labels (store brands). According to our survey, imported organic products composed, on average, 19 percent of a retailer's total organic sales, and organic private label sales composed 17 percent of total organic sales. Our econometric results show that the percentage of a store's organic imports has a positive and significant impact on the percentage of organic food sales coming from private label products. Conversely, our results likewise show that a store's percentage of organic sales from private label products has a positive and significant impact on the percentage of organic imports. Jointly, these finding imply that retailers may be turning to imports to meet rising demand for organic products. Secondly, it may suggest that, for cost reasons, imported organic products may be an important source for private label offerings. 3. We used organic food as a case study to provide insight into the availability of a sustainably produced (but not necessarily marketed) food. Using newly collected data set and mapping techniques, we find that stores that carry a wider range of organic products are located in neighborhoods with populations that are both highly educated and affluent. Neighborhoods with a higher proportion of African American households have little access to organic food. Bivariate correlation coefficients find that the relationship between education and organic food access increases as the level of education rises, that median household income is positively associated with organic food availability, and that the relationship between the proportion of African American residences is weakly and negatively correlated with organic food availability. These results represent a first step towards exploring potential links among availability, access, and consumers.
Publications
- Jaenicke, E. C., C. Dimitri, and L. Oberholtzer. 2011. Retailer Decisions About Organic Imports and Organic Private Labels. American Journal of Agricultural Economics 93(2): 597-603.
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Progress 12/15/10 to 12/14/11
Outputs
OUTPUTS: In the past year ending January 2012, the project team's efforts were beginning to wind down, and the main emphasis was on data analysis, presentation, and writing. Outputs during this time included the following: Conference presentations: Marasteanu, I. J., E. C. Jaenicke, and C. Dimitri. "Slotting Fees for Organic Retail Products: Evidence from a Survey of U.S. Food Retailers." Selected paper presented at the Agricultural and Applied Economics Association Annual Meeting, Pittsburgh, Pennsylvania, July 24-26, 2011. Mirsch, L., Carolyn Di., and L. Oberholtzer. "Access to organic food in Manhattan, NY and Washington D.C." Annual meeting of Society for Agriculture and Human Values. Montana. June 2011. C. Dimitri and L. Oberholtzer. A spatial analysis of access to local, organic, and healthy food in Manhattan, NY, 139th APHA Annual Meeting, Washington, DC, October 29 - November 2, 2011. Invited presentations Jaenicke, E. C. "Organic Foods Meet Big Retail: Organic Imports, Private Labels, and Slotting Fees." Invited seminar presented at the U.S. Department of Agriculture, Economic Research Service, Washington, D.C., February 18, 2011. PARTICIPANTS: New York University, the new academic home of Carolyn Dimitri (a co-principal investigator on this project) and Penn State's Survey Research Center. TARGET AUDIENCES: Our target audience remains researchers in the agricultural and applied economics profession. In 2012, we expect to continue to present our research at academic conferences, and we intend to push our written work through publishing pipelines. PROJECT MODIFICATIONS: Previously, we augmented our retailer survey data with in-store data collection to investigate issues of organic food access and availability. The date collection is complete, and there are no further modifications to the project.
Impacts
Based on the project-funded survey of U.S. food retailers, our study finds that almost one-third of U.S. food retailers charge slotting fees for certified organic food products. Slotting fees, payments made by food manufacturers to food retailers to secure shelf space for new products, had not previously been documented for organic food products. Prior research on slotting fees emphasizes two economic rationales, one focused on the role that slotting fees play in establishing an efficient allocation of shelf space for new products, and the other focused on how slotting fees can be used strategically to price discriminate or otherwise increase rents to parties with more bargaining power. Econometric results from an ordered response model suggest that a number of firm-level attributes do influence slotting fees in a manner that is mostly consistent with the economic efficiency rationale and partly consistent with the market power/strategic behavior rationale. The second main outcome from the project stems from newly collected data of in-store organic food availability in New York City. Recent "food movement" trends focus on the dual goals of increasing access to food and improving the sustainability of producing and marketing food. One problem embedded in the dual goals is that improving access relies on low priced food, while increasing sustainability of the food system necessarily raises prices. Further complicating the discussion is the fact that while the definition of a sustainable food system is intuitive, it also vague, which does not make an analysis of sustainable food simple. Thus, in this project, we use organic food as a case study to provide insight into the availability of a sustainably produced (but not necessarily marketed) food. Using our new data set and mapping techniques, we find that stores that carry a wider range of organic products are located in neighborhoods with populations that are both highly educated and affluent. Neighborhoods with a higher proportion of African American households have little access to organic food. Bivariate correlation coefficients find that the relationship between education and organic food access increases as the level of education rises, that median household income is positively associated with organic food availability, and that the relationship between the proportion of African American residences is weakly and negatively correlated with organic food availability. These results represent a first step towards exploring potential links among availability, access, and consumers.
Publications
- Jaenicke, E., C. Dimitri, and L. Oberholtzer. 2011. Strategic behavior of food retailers: private label organic products. December 2011. American Journal of Agricultural Economics pp. 597-603
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Progress 12/15/09 to 12/14/10
Outputs
OUTPUTS: Between February 2010 and February 2011, the project team's efforts were spent (a) generating outputs and analyses based on data from the grant-funded survey of U.S. food retailers, and (b) gathering new supplemental data to investigate organic marketing by retailers at a greater level of detail. Outputs during this time included the following: (1) Principal paper presentation: Jaenicke, E. C., C. Dimitri, and L. Oberholtzer, Retailer Decisions about Organic Imports and Organic Private Labels. Invited paper presented at the Agricultural and Applied Economics Annual Meeting, Denver, Colorado, July 25-29, 2010. (2) Invited presentations: Jaenicke, E. C., Organic Foods Meet Big Retail: Organic Imports, Private Labels, and Slotting Fees. Invited presentation January 14, 2011, Department of Agricultural Economics and Rural Sociology, Penn State University, University Park, PA. Invited presentation, February 17, 2011, U.S. Department of Agriculture, Economic Research Service, Washington, DC. (4) NAREA/AAEA organized symposium paper proposal: Jaenicke, E. C., and C. Dimitri, Recessionary Economic Conditions and the Market for Packaged Organic Foods. Submitted to the Joint Annual Meeting of the Northeast Agricultural and Resource Economics Association and the Agricultural and Applied Economics Association, Pittsburgh, PA, July 24-26, 2011. PARTICIPANTS: (1) U.S. Department of Agriculture's Economic Research Service (ERS). A senior analyst at ERS now on leave at New York University, Carolyn Dimitri, is a co-principal investigator on this project. (2) Penn State's Survey Research Center. TARGET AUDIENCES: Our target audience remains researchers in the agricultural and applied economics profession. In 2011, working papers will be presented at various agricultural economics departments and conferences. Proposed presentations are planned at the 2011 annual meeting of the Agricultural and Applied Economics Association, jointly held with the Northeast Agricultural and Resource Economics Association. PROJECT MODIFICATIONS: The retailer survey data is being supplemented by in-store data collection to create a measure of consumer access to organic food, both domestically produced and imported. We have targeted Manhattan, NY, as our city to focus on. The data collected are being used to create an index of organic food availability by store type and by location. This new index will be investigated on its own, and in conjunction with the survey data and Homescan data of consumer purchase in New York City.
Impacts
From February 2010 to February 2011, outcomes from our research project enhance our understanding of strategic marketing and procurement practices by U.S. food retailers pertaining to organic foods. More specifically, outcomes from our research this past year focus on two retailing topics: (1) links between the intensity of importing organic food and the prevalence of private label (i.e., store brand) organic products, and (2) payment of slotting fees from manufactures to retailers for shelf placement of organic packaged products. (1) Linkages between organic imports and organic private labels. Results from our survey or U.S. food retailers show that retailers imported organic products compose, on average, 19 percent of a retailer's total organic sales. They also show that, on average, organic private label sales compose 17 percent of total organic sales. Our econometric results show that the percentage of a store's organic imports has a positive and significant impact on the percentage of organic food sales coming from private label products. Conversely, our results likewise show that a store's percentage of organic sales from private label products has a positive and significant impact on the percentage of organic imports. Jointly, these finding imply that retailers may be turning to imports to meet rising demand for organic products. Secondly, it may suggest that, for cost reasons, imported organic products may be an important source for private label offerings. (2) Our survey of U.S. food retailers also asked about slotting fees paid for product placement. Of the 159 useable responses to this survey question, 68.6 percent of retailers said they paid no organic slotting fees, 15.7 percent said organic slotting fees were lower, 10.1 percent said they were equal, and 6.7 percent said they were higher than non-organic products. Our econometric results show that a number of store-level factors are positively associated with the amount of slotting fees. More often than not, these identified factors are consistent with an efficiency rationale of slotting fees (i.e., that slotting fees improve the efficient allocation of shelf space and cover risk-associated costs of shelving new products). There is less evidence to support an alternative rationale for slotting fees, namely that they are manifestations of market power and price discrimination.
Publications
- Jaenicke, E. C., C. Dimitri, and L. Oberholtzer. 2011. Retailer Decisions about Organic Imports and Organic Private Labels. American Journal of Agricultural Economics 93:7 pp.
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Progress 12/15/08 to 12/14/09
Outputs
OUTPUTS: In 2009, this project moved forward a great deal. In March, a 45-question survey was administered by Penn State's Survey Research Center, who conducted follow-up activities through the summer and delivered processed survey data in September. The overall response rate was 25 percent. However, underlying this combined rate was a 39 percent response rate from natural food co-ops and a 17 percent response rate from traditional supermarkets and grocery stores. Outputs for 2009 included the following two items. (1) Company profiles. A large number of survey respondents replied positively to the research team's offer to send a two-page profile of survey results tailored to a company's category for total sales. These profiles were developed, written, and delivered by email to participating food retailers in December 2009 and January 2010. (2) AAEA Principal Paper Proposal. In December, the research team joined with two organic food related research teams likewise funded by USDA NRI to submit a Principal Paper Proposal for the 2010 annual meeting of the Agricultural and Applied Economics Association (AAEA). The overall session proposal was titled "Consumer-Driven Changes in Food Marketing Channels: Organics and Sustainable Food Systems in the United States," and the specific paper proposal from our research team was titled "Strategic behavior of food retailers: private label organic products." Collectively, our team received news in January 2010 that our Principal Paper proposal was accepted. PARTICIPANTS: (1) U.S. Department of Agriculture's Economic Research Service (ERS). A senior analyst at ERS, Carolyn Dimitri, is a co-principal investigator on this project. (2) Penn State's Survey Research Center. TARGET AUDIENCES: One target audience is researchers in the agricultural and applied economics profession. The invited principal paper session on organics at the 2010 annual meeting of the Agricultural and Applied Economics Association is a prime event to reach this audience. A second target audience is food retailing industry participants. We have already sent survey respondents two-page profile summaries, and we have also promised them a full report in 2010. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
Our ongoing project intends to make impacts in five main areas. In 2009, preliminary outcomes have been developed in the first two areas. (1) Characterizing and analyzing the how food retailers are procuring and marketing organic products locally. Preliminary results suggest 41 percent of organic milk, 36 percent of organic cheese, and 18 percent of organic fresh vegetables are procured locally. (2) Increasing role of private label organic products. Private label products are items produced and packaged by third parties but sold under a retailer's name with a retailer's label. Based on total sales categories for all food retailer respondents to our survey, our preliminary results show that the amount of private label organic offerings generally increases as sales increase. The breakdown of percentages of food retailer respondents that offer private label organic products, listed by total sales category, follows. Under $12 million in sales: 9 percent of respondents in this category offered private label organic products, $12-20 million in sales: 30 percent, $20-50 million in sales: 47 percent, $50-100 million in sales: 78 percent, $100-500 million in sales: 61percent, Over $500 million in sales: 90 percent. Outcomes in three additional areas below are not ready for reporting. (3) Prevalence of imported organic food items. (4) Strategic marketing of organic products. (5) Organic procurement and supply chain issues.
Publications
- No publications reported this period
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Progress 12/15/07 to 12/14/08
Outputs
OUTPUTS: This project is still in the survey design and data collection stage. Therefore, there are no published outputs to date. One preliminary but important step was accomplished in January 2009, when a senior project associate was hired to oversee day-to-day operations of the project. A second output was the completed development of a survey instrument that is aimed at U.S. food retailers. This survey will be used as the basis for analysis of supermarkets' procurement and marketing behavior. That survey instrument now has approval from Penn State's Office of Research Protections and, with the help of Penn State's Survey Research Center (SRC), the survey now "in the field." The survey instrument has 45 questions and has already been sent to 1,000 U.S. food retailing companies in early March 2009. Responses are currently being collected and processed by the SRC. PARTICIPANTS: Along with Penn State's SRC, who was mentioned above, the only other major participant is the U.S. Department of Agriculture's Economic Research Service (ERS). A senior analyst at ERS, Carolyn Dimitri, is a co-principal investigator on this project. TARGET AUDIENCES: Target audiences include peers in the agricultural and applied economics profession, industry participants such as supermarket companies, industry observers such as public and private sector research agencies and associations, and organic suppliers, including organic farmers. PROJECT MODIFICATIONS: There is only one significant project modification to date: The size of the survey target group has been reduced. The survey of U.S. food retailers was originally planned to target up to 5,000 food retailers who buy and sell organic food. The target group was to include the biggest food retailers, small or independent retailers, and natural food stores and coops. After acquiring databases and directories of food retailers, we found that contact information on the small and independent retailers was incomplete. Therefore, we modified the survey to target 1,000 food retailers. The new target group includes large to medium size supermarket chains as well as natural food stores and coops.
Impacts
As the project is still in its preliminary stages, we can only talk about potential outcomes and impacts. This survey, aimed at organic food procurement and marketing, is the first of its kind. For this reason, we expect that the analysis of the survey data will have wide-ranging impact for industry participants and observers interested in organic markets. We expect to produce a wide range of outputs, including reports for lay readers as well as academic papers for marketing scientists and economists. These reports should address the following broad research objectives: (1) to characterize and analyze the procurement activity for organic foods by U.S. food retailers; (2) to investigate strategic behavior of food retailers in the organic marketing channel; and (3) to compare, contrast, and analyze the organic food procurement and marketing behaviors of food retailers and certified organic food processors and distributors.
Publications
- No publications reported this period
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