Academic journal article Journal of Agricultural and Applied Economics

Discovering Niche Markets: A Comparison of Consumer Willingness to Pay for Local (Colorado Grown), Organic, and GMO-Free Products

Academic journal article Journal of Agricultural and Applied Economics

Discovering Niche Markets: A Comparison of Consumer Willingness to Pay for Local (Colorado Grown), Organic, and GMO-Free Products

Article excerpt

Demand for value-added products is highly segmented among different types of consumers. In this article, we assess consumer preferences for local, organic, and OMO-free potatoes in order to discover their potential niche markets. We identify sociodemographic characteristics that affect consumer preferences and compare the effects of different attributes on consumers' willingness to pay. Results suggest that the attribute "Colorado grown" carries a higher willingness to pay than organic and GMO-free attributes.

Key Words: Colorado grown, GMO-free, local product, niche market, organics, payment card, willingness to pay

JEL Classifications: D12, Q13

The recent farming crisis nationwide associated with declining commodity prices and weather-related yield problems has forced farmers to rind new markets for their commodities through value-added marketing. To discover the right niche market is a complicated task because demand is highly segmented among consumers who may be concerned with different attributes (such as local, organic, eco-labeling, and other specialty types). Baker deals with the case of market segmentation for apples, showing that there are different types of apple consumers, from those who are strongly concerned about food safety to those who are extremely price sensitive. The current study uses contingent valuation (CV) techniques to value different attributes and to identify sociodemographic characteristics that affect consumer response to such attributes. CV has been widely used in the consumer economics literature to value consumer response toward different attributes and food safety. Examples include Blend and Van Ravenswaay and Wessells, Johnston, and Donath.

We will focus our attention on the potato sector, addressing the issue of what message producers should convey to consumers in order to get the highest premium for their product. Potatoes are the most economically significant crop in the U.S. produce industry, providing farmers with nearly $2.7 billion revenue in 1999 (USDA-ERS). Colorado ranks as the fourth largest potato producing state in the United States (Colorado Department of Agriculture), with a production equal to 28,130 thousand pounds (about one fifth of the total crop of Idaho, the largest producer). The bulk of Colorado potatoes is currently produced in the San Luis Valley (SLV) in the southwestern part of the state. The growers in the SLV have been suffering from market prices that are lower than break-even points, a situation that has decreased grower profitability and sustainability over the past few years. Coupled with this is the manner in which potatoes are packaged and displayed relative to other crops such as vegetables and fruits, transmitting a low value-added image to the consumer. (Bananas, apples, tomatoes, prepackaged salads, and grapes have overtaken the potato as the star revenue generator in grocery stores nationwide [USDA-ERS].) In addition, consumers do not find the potato appealing in terms of nutritional value, appearance, or freshness.

Colorado potatoes are grown with all the necessary conditions to create a high-quality value-added product (including the use of environmentally friendly conservation techniques in the SLV that contribute to the disabling of many pests and reduction of pesticide usage). However, consumers are unable to differentiate the Colorado potato from the competition. As a result, producers are looking for labeling strategies to differentiate and create a niche for these local potatoes, increasing both sales and small operating margins. Within the limits of the case study described above, the objective of this article is to elicit consumers' willingness to pay (WTP) for a labeled value-added potato that could be marketed as organic, GMO-free, or Colorado grown. We will compare the corresponding consumers' WTP for these different attributes as well as the different sociodemographic factors that affect consumer response. …

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