A Meta-Analysis of Geographical Indication Food Valuation Studies: What Drives the Premium for Origin-Based Labels?

By Deselnicu, Oana C.; Costanigro, Marco et al. | Journal of Agricultural and Resource Economics, August 2013 | Go to article overview

A Meta-Analysis of Geographical Indication Food Valuation Studies: What Drives the Premium for Origin-Based Labels?


Deselnicu, Oana C., Costanigro, Marco, Souza-Monteiro, Diogo M., McFadden, Dawn Thilmany, Journal of Agricultural and Resource Economics


We conduct a meta-analysis of studies estimating price premiums for agricultural products differentiated by Geographical Indication (GI). Models accounting for differences across product characteristics (food categories) and institutions (PDO, PGI, trademarks) explain a large portion of the variance in estimated premiums. Specifically, GIs capture the highest percentage premium in markets for products with short supply chains and relatively low added value (e.g., agricultural commodities). The premium is lower for wine and olive oil, where alternative means of product differentiation (e.g., branding) exist. Controlling for product characteristics, GIs adopting stricter regulations (PDO) yield larger premiums than less regulated ones (PGI).

Key words: food valuation, geographical indications (GI), meta-analysis, price premium, Protected Designations of Origin (PDO), Protected Geographical Indications (PGI), trademark

Introduction

Agricultural and food products have long been associated with unique characteristics and heritage aspects affiliated with their location of origin. Geographical names have been used since classical times to identify products of exceptional quality; for example, historical documents reveal that olive oils from Baetica were acclaimed in Rome (Blázquez, 1992). Through the ages, a number of products identified by their name of origin emerged and, more recently, have established a niche in food and beverage markets. Well-known examples of Geographical Indications (GIs) are the wines of Bordeaux and Porto, the cheeses of Parma and Rochefort, and the hams of Parma and Bayonne. Food products are often associated with geographic names with distinct agro-ecological conditions, representative animal breeds and plant varieties, or unique human capital and traditions that come under the general concept of regional terroir (see Josling, 2006).

In an increasingly industrialized and standardized food market, GI labels may assure consumers of a more genuine, unique, and higher quality food (Broude, 2005) while offering producers an opportunity to differentiate their products and perhaps obtain higher prices. Thus, one measure of a GI label's success might be based on the price differential between a GI product and its commodity-Oana like competitors in the market.1 A casual inspection of existing studies estimating the premium for GI labels suggests that their statistical and economic significance may vary substantially, as does the nature of the products and markets in which GIs have been used. Examples include wines from specific viticultural areas in America, Australia, and New Zealand; Jamaican rum and Blue Mountain coffee; and Basmati rice and Darjeeling tea from specific regions in India (Costanigro, Mittelhammer, and McCluskey, 2009; Schamel and Anderson, 2003; Das, 2006; Gautam and Bahl, 2010; Paus and Revirón, 2011).

These heuristic observations raise a simple but important question: what are the critical factors determining a GI premium? The most important one, product quality, has been studied extensively in the collective reputation literature as an endogenous firm choice (see Winfree and McCluskey, 2005, for a summary). We expand the more recent literature examining how different market characteristics or policy institutions, generally exogenous to the producers, influence the effectiveness of GI-based product differentiation (Menapace and Moschini, 2012; Costanigro, Bond, and McCluskey, 2012). This study analyzes the empirical literature on GIs in order to establish a link between the GI premium and specific product and market characteristics or institutions. Three major dimensions are considered: (1) broad food categories and the degree of food processing and product prices; (2) the existence or absence of an alternative differentiation mechanism (i.e., branding); and (3) the institutional and legal environment regulating the use of GIs.

To assess which factors influence price premiums in GI products, we compile a dataset of studies valuating GI across the world and conduct a meta-analysis regression. …

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