ORGANIC FOOD MARKETING: PANACEA OR PROBLEM?

• Sponsoring Institution: National Institute of Food and Agriculture
• Project Status: COMPLETE
• Funding Source: NRI COMPETITIVE GRANT
• Reporting Frequency: Annual
• Accession No.: 0212738
• Grant No.: 2008-35400-18716
• Proposal No.: 2007-04465
• Project Start Date: Jan 1, 2008
• Project End Date: Dec 31, 2012
• Grant Year: 2008
• Program Code: [61.0]- (N/A)

Recipient Organization
OHIO STATE UNIVERSITY
1680 MADISON AVENUE
WOOSTER,OH 44691

Performing Department
AGRICULTURE, ENVIRONMENTAL AND DEVELOPMENT ECONOMICS

Non Technical Summary
The market for organic foods appears to have been facilitated by the introduction of the National Organic Program (NOP). Opportunities to deliver value added segregated crops abound. Food processors are responding to demand for multi-ingredient foods with organic content. Yet the adoption of certified organic practices remains low in many regions and crop/livestock systems. Given concerns over consistent supplies, food processors, food service operations and retailers appear willing to turn to imported ingredients and food products leading to a ten-fold international trade deficit for organic products. This project will evaluate the evolving market for organic foods, considering aspects of consumer demand, market intelligence, marketing strategies and international trade. We hope to further facilitate organic markets by better understanding the relevant market and trade dimensions.

Animal Health Component

80%

Research Effort Categories

Basic

20%

Applied

80%

Developmental

(N/A)

Classification

Knowledge Area (KA)	Subject of Investigation (SOI)	Field of Science (FOS)	Percent
604	6110	3010	30%
607	6120	3010	30%
611	6199	3010	40%

Knowledge Area
611 - Foreign Policy and Programs; 604 - Marketing and Distribution Practices; 607 - Consumer Economics;

Subject Of Investigation
6110 - Economy of the United States and sectors thereof; 6120 - International economy and sectors thereof; 6199 - Economy, general/other;

Field Of Science
3010 - Economics;

Keywords

certified organic, nop, food labels, market orientation, national

list, international trade

Goals / Objectives
Goals The NOP is having a pronounced impact on the market for multiple-ingredient organic foods. The supply chains for such products are complex. Agribusinesses active in, or considering entry into, these chains require precise market intelligence and a better understanding of the market and international trade impacts of the NOP. These issues are the focus of this project. However, these issues are not unique to organic food markets. Many other quality characteristics such as origin, scale of agribusiness, functional characteristics, etc. present similar market and trade issues. Our intent in this project is to use the organic market as one illustration of an increasingly common phenomenon within U.S. and international food markets - the development of public and private quality standards. Objectives 1. Evaluate consumer motivation and willingness to pay for multiple-ingredient organic foods 2. Determine the relative organic market orientation of certification agents, food processors, food service operations and retailers 3. Track the use of organic, nutrition and other quality messages on food product labels 4. Describe the level of organic standard rapprochement Expected Project Output Deliverables from the project will include: a student dissertation, academic presentations, journal articles, outreach talks and publications, lay/industry reports, and the development of a comprehensive web site to distribute research findings to farmers, agribusinesses, policy makers and trade officials. Output will assess: 1. Consumer motivation and behavioral drivers influencing the purchase of organic foods 2. A documentation of food processor, food service operation, retailer and certification agent market orientation 3. A cross-country comparison of the evolving use of organic, nutrition and other product positioning claims on food labels 4. A detailed comparison of the approval process for organic ingredients contained within standards, characterizing the level(s) of rapprochement Insights gained from this research will be especially valuable in evaluating the market and trade implications of organic standard reform, in developing marketing strategies, forming optimal food quality management strategies and policies, and providing a better understanding of the role of market intelligence in the operation of organic supply chains. Tool development and measure validation will strengthen future research in this area. The research should also provide a model for other studies of food quality standards, including local, natural, functional, etc.

Project Methods
1. Evaluate consumer motivation and willingness to pay for multiple-ingredient organic foods Consumer demand for multiple-ingredient organic foods will be assessed using economic experiments and Conjoint Analysis (CA). In year 1, consumers will be randomly identified and intercepted during grocery store visits. Posed in a face-to-face interview format, they will complete an experiment and make choices between two multi-ingredient food products that differ in a number of attributes identified on the product label. Attributes that describe the level of organic content (zero, less than 70%, 70-94%, 95-99% and 100%); location of production of the food and key ingredients (nearby town, state, U.S., international, or unidentified); type of firm producing the food product (small firm, store brand, national brand); and the presence or absence of product nutritional claims. Product price also will be varied. Each respondent will evaluate 7-10 product pairs. 2. Determine the relative organic market orientation of certification agents, food processors, food service operations and retailers A mail survey will be administered to samples of organic food processors, food service operations and retailers (year 2). Based on industry data, and the tracking of innovative organic foods a sampling frame will be designed to stratify by business type, national and regional firms, chain/independent, product breadth, level of innovation of food products, etc. We will select a total of 800 U.S.-based NOP-certified agribusinesses. A 4-phase mailing protocol will be used (Dillman, 2007). The survey will explore organic market orientation scales investigating who collects, adds value to, and distributes market intelligence and trend information. 3. Track the use of organic, nutrition and other quality messages on food product labels A new products will be used to document current product offerings in a range of categories (see table 2) that vary in single- and multiple-ingredient format and level of processing, and in the degree of self-sufficiency of ingredients for the U.S. and other nations. A common finding in recent consumer surveys suggests that nutrition is a key motivation in purchasing organic foods (72% of adopters believed organic foods have more nutrients in the 2005 Whole Foods survey, compared to 31.5% of those who don consume organic foods). A database with nutritional information at a product level will permit detailed comparisons to be prepared. 4. Describe the level of organic standard rapprochement The research team will track and compare evolutions in the NOP, other nations organic standards (e.g., Canada), and international organizations standardization efforts (IFOAM and Codex). This research will involve Internet searches of government documents, dialogues with the relevant certification agencies and companies. A focus on commercial availability and the review procedures of the National Organic Standards Board will promote a dynamic, timely and rich analysis within which comparisons of permitted ingredients can be made.

Progress 01/01/08 to 12/31/12

Outputs
OUTPUTS: PI has retired, no report to submit. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Not relevant to this project.

Impacts
PI has retired, no report to submit.

Publications

• No publications reported this period

Progress 01/01/11 to 12/31/11

Outputs
OUTPUTS: Various phases of the project were advanced during 2011, including: Continued tracking of innovation data for multiple-ingredient certified organic foods; on-going outreach and interactions with stakeholders; development and implementation of a national survey of consumers; and preparation of manuscripts. A novel contribution of this project is the real-time tracking of certified organic food and beverage innovations using a subscription-based database. We continue to monitor key trends in the diffusion of organic marketing strategies (including price, product reformulation, brand/firm interactions and additional label messages - e.g., the use of local claims). PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: This research explores the impact of expanded organic markets for both farmers and consumers. Understanding the marketplace for organic products provides farmers with information that will be useful to help evaluate new and emerging enterprise and marketing options. It can be especially helpful for small and mid-size farms and food processors because these smaller units can be more competitive in this market area due to the ability to differentiate their products and receive higher prices than for non-differentiated agricultural commodities and food products. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
The National Organic Program (NOP) is a combined public and private quality assurance certification and audit system. Many consumers value organic products not just because they perceive the products to be healthier, but also because they perceive them to be more environmentally friendly, and more supportive of small scale agriculture and local rural communities. To be organic under the NOP, the crop must come from a farm or other operation that is certified by a state or private agency accredited by USDA. The NOP holds implications for organic supply chains. Yet, much of U.S. organic food is imported, and consumers must be willing to trust the organic certification system of our trading partners if they are to fully value organic products. Despite improvements in trade relations developed under regional or multilateral agreements such as NAFTA and the WTO, cooperation amongst national-level regulatory agencies in designing food standards remains rare. Our research will help to understand the certification and audit systems for both domestic and international production.

Publications

• Hu, Wuyang, Marvin T. Batte, Tim Woods, and Stan Ernst. "Consumer preferences for local production and other value-added label claims for a processed food product." European Review of Agricultural Economics 2011; doi: 10.1093/erae/jbr039.
• Stanton, John L., Neal H. Hooker and Salnikova Ekaterina. 2011. A Comparison of Process and Ingredient Claims on US and EU Food. Romanian Distribution Committee Magazine. 3(3): pp 8-11
• Shanahan, Christopher J., Neal H., Hooker and Tekle Atalay. 2011. Pricing Food Quality Attributes: Dissecting Food Products. HSB Working Paper. 11-4. Available online: http://www.sju.edu/academics/hsb/resources/workingpapers/ April. 25 pp
• DiMarcello, Nicholas and Neal H. Hooker. 2011. US Organic Food and Beverage Innovations: Trends 2009-2010. HSB Working Paper. 11-1. Available online: http://www.sju.edu/academics/hsb/resources/workingpapers/ April. 15 pp

Progress 01/01/10 to 12/31/10

Outputs
OUTPUTS: Various phases of the project were advanced during 2010, including: Continued tracking of innovation data for multiple-ingredient certified organic foods; regional consumer survey article submitted; on-going assessment of international organic import data; on-going outreach and interactions with stakeholders; development of a survey of organic certifying agencies for implementation in 2011; development of a national survey of consumers for implementation in 2011; and preparation of manuscripts. A novel contribution of this project is the real-time tracking of certified organic food and beverage innovations using two subscription-based databases. We continue to monitor key trends in the diffusion of organic marketing strategies (including price, product reformulation, brand/firm interactions and additional label messages - e.g., the use of local claims). A proprietary international organic trade database is being used in two case study categories (bananas and soy). A pending report documents the share of the domestic certified soy market that is imported. A second report will document the joint use of fair trade and organic claims in the banana market including the distribution of certification agents involved. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: This research explores the impact of expanded organic markets for both farmers and consumers. Understanding the marketplace for organic products provides farmers with information that will be useful to help evaluate new and emerging enterprise and marketing options. It can be especially helpful for small and mid-size farms because these smaller units can be more competitive in this market area due to the ability to differentiate their products and receive higher prices than for non-differentiated agricultural commodities. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
The National Organic Program (NOP) is a combined public and private quality assurance certification and audit system. Many consumers value organic products not just because they perceive the products to be healthier, but also because they perceive them to be more environmentally friendly, and more supportive of small scale agriculture and local rural communities. To be organic under the NOP, the crop must come from a farm or other operation that is certified by a state or private agency accredited by USDA. The NOP holds implications for organic supply chains. Yet, much of U.S. organic food is imported, and consumers must be willing to trust the organic certification system of our trading partners if they are to fully value organic products. Despite improvements in trade relations developed under regional or multilateral agreements such as NAFTA and the WTO, cooperation amongst national-level regulatory agencies in designing food standards remains rare. Our research will help to understand the certification and audit systems for both domestic and international production.

Publications

• Batte, Marvin T. 2010. "Consumer-Driven Changes in Food Marketing Channels: Organics and Sustainable Food Systems in the United States: Discussion". American Journal of Agricultural Economics, 92 (6): xxxx-xxxx, Forthcoming.
• Ie, Pauline S., Debra Van Camp, Neal H. Hooker and Yael Vodovotz. 2010. "Functionality Comparison of Organic and Conventional Waxy Corn Starches." Poster presented at IFT Annual Conference. Chicago, IL. July 18-21.
• Chang, Ching-Hsing, Neal H. Hooker, Eugene Jones and Abdoul Sam. 2010. "Organic and Conventional Milk Purchase Behaviors in Central Ohio." Forthcoming in Agribusiness: An International Journal. 26(0): 1-19.
• Van Camp, Debra, Pauline Ie, Noah Muwanika, Neal H. Hooker and Yael Vodovotz. 2010 "The Paradox of Organic Ingredients." Food Technology. November: pp. 20-29.

Progress 01/01/09 to 12/31/09

Outputs
OUTPUTS: Various phases of the project were advanced during 2009, including: Continued tracking of innovation data for multiple-ingredient certified organic foods; regional consumer survey article submitted; on-going assessment of international organic import data; on-going outreach and interactions with stakeholders; and preparation of manuscripts. A novel contribution of this project is the real-time tracking of certified organic food and beverage innovations using two subscription-based databases. We continue to monitor key trends in the diffusion of organic marketing strategies (including price, product reformulation, brand/firm interactions and additional label messages - e.g., the use of local claims). A new report documents the most recent trends (Muwanika and Hooker, 2009). In October and November 2008 consumers in Ohio and Kentucky were surveyed to further evaluate consumer preference and willingness to pay for various attributes of multi-ingredient food products. In particular, organic certification and local production branding were studied using a series of choice experiments. Preliminary results suggest that organic certification provides a significant and sizable willingness to pay, although there was an indication of some confusion as to the meaning of the NOP organic logo. For instance, consumers were no more likely to purchase a product with the NOP organic seal unless it also contains the words "100% organic". Continuing analyses will explore the relationship between organic certification and local food production as well as other food attributes such as a logo indentifying the food as a product of a small family farming association member. Three manuscript have been submitted to peer review in scholarly journals. A proprietary international organic trade database is being used in two case study categories (bananas and soy). A pending report documents the share of the domestic certified soy market that is imported. A second report will document the joint use of fair trade and organic claims in the banana market including the distribution of certification agents involved. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: This research explores the impact of expanded organic markets for both farmers and consumers. Understanding the marketplace for organic products provides farmers with information that will be useful to help evaluate new and emerging enterprise and marketing options. It can be especially helpful for small and mid-size farms because these smaller units can be more competitive in this market area due to the ability to differentiate their products and receive higher prices than for non-differentiated agricultural commodities. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
The National Organic Program (NOP) is a combined public and private quality assurance certification and audit system. Many consumers value organic products not just because they perceive the products to be healthier, but also because they perceive them to be more environmentally friendly, and more supportive of small scale agriculture and local rural communities. To be organic under the NOP, the crop must come from a farm or other operation that is certified by a state or private agency accredited by USDA. The NOP holds implications for organic supply chains. Yet, much of U.S. organic food is imported, and consumers must be willing to trust the organic certification system of our trading partners if they are to fully value organic products. Despite improvements in trade relations developed under regional or multilateral agreements such as NAFTA and the WTO, cooperation amongst national-level regulatory agencies in designing food standards remains rare. Our research will help to understand the certification and audit systems for both domestic and international production.

Publications

• Muwanika, Noah and Neal H. Hooker. 2009. U.S. Organic Food and Beverage Innovations: Trends in 2008. AEDE Report 0121-09. Available online http://aede.osu.edu/resources/docs/pdf/OX9VXJIR-IPZO-4S6Q-0L2IWH33YA9 3YE0M.pdf 7 pp
• Hooker, Neal H. and Marvin T. Batte. 2009. Organic Food Marketing: Panacea or Problem Poster presented at Project Directors meeting. Milwaukee, WI. July 25

Progress 01/01/08 to 12/31/08

Outputs
OUTPUTS: Various phases of the project were advanced during 2008: 1. Tracking of food innovation data for multiple-ingredient certified organic foods. 2. Consumer survey administered. 3. Food processor survey under development. 4. Preliminary assessment of international trade data. 5. On-going outreach and interactions with stakeholders. 6. Preparation of manuscripts. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: Agribusinesses (producers, processors and retailers) both conventional and organic; policy makers; organic researchers PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

Impacts
A novel contribution of this project is the real-time tracking of certified organic food innovations using two subscription-based databases. We are able to monitor key trends in the diffusion of organic marketing strategies (including price, product reformulation, brand/firm interactions and additional label messages - e.g., the use of local claims). Two manuscripts developing holistic methodologies to track such complex marketing mixes have been published. Additional hedonic price analysis is comparing the value of various synergistic claims. In October and November 2008 consumers in Ohio and Kentucky were surveyed to further evaluate consumer preference and willingness to pay for various attributes of multi-ingredient food products. In particular, organic certification and local production branding were studied using a series of choice experiments. Preliminary results suggest that organic certification provides a significant and sizable willingness to pay. Continuing analyses will explore the relationship between organic certification and local food production as well as other food attributes. A survey of food processors (both organic and conventional) will be administered in autumn 2009. Preliminary instrument development is underway, a category will be selected and the instrument pilot tested during the summer. A proprietary international organic trade database is being assessed using two case study categories (bananas and soy). If successful, this project will be extended through additional grant applications. The goal is to monitor the nature of organic imports using customs data and to assign market values to organic and fair trade claims. Two main outreach events were held in conjunction with the USDA Organic Working Group and organized in collaboration with the Farm Foundation, Dawn Thilmany (Colorado State University) and the awardees of two other NRI-Markets and Trade organic projects (Hikaru Peterson, Kansas State University and Ted Jaenicke, Pennsylvania State University). These roundtable meetings were held in Chicago, IL at the April OTA All Things Organic conference and in Washington, DC at ERS. Agency, stakeholder and academic presenters provided updates of policy programs and research topics. Additional outreach events and publications are planned for 2009.

Publications

• Two manuscripts were published, several others are under review/to be submitted in 2009: Sporleder, Thomas L., Neal H. Hooker, Christopher J. Shanahan and Stefanie Broring. 2008. Innovation in Food Products: First-Mover Strategy and Entropy Metrics. International Food and Agribusiness Management Review. 11(3): pp. 49-65 Shanahan, Christopher J., Neal H. Hooker and Thomas Sporleder. 2008. The Diffusion of Organic Food Products: Toward a Theory of Adoption. Agribusiness. An International Journal. 24(3): pp. 369-387