- Farm Business Management: market study, value added
Demand for organic products in the U.S. market has seen fast, continuous growth. However, with less than 1 percent of U.S. farmland classified as organic, the organic industry in the United States, which has never kept pace with demand, heavily relies on imports (NSF, 2017). This situation mainly arises from two aspects. First, more people are purchasing organic food at a higher frequency because of the perceived health and environmental benefits. Second, many growers hesitate to transition their land from conventional to organic production due to potential losses during the three-year transitional period.
To address this challenge, the Organic Trade Association (OTA) developed a new partnership with the U.S. Department of Agriculture (USDA) in 2017 to encourage and guide farmers transitioning to certified organic production (OTA, 2017). Farmers in transition now can label their products as “certified transitional” or “transitional” after their operations have been inspected by an accredited certifying agent. However, questions arise about whether consumers will accept the new labeling and purchase “transitional” organic products.
This research aims to identify the economic opportunities for farmers by investigating consumers’ preference for the “transitional” label. We will estimate consumer willingness-to-pay (WTP) for the “transitional” label, test the message that best promotes the new label, and identify the market segments that are most willing to pay for the label. The results from this study will help farmers better identify marketing opportunities and help policy makers develop more effective policies to motive farmers toward organic production.
The purpose of this project is threefold: 1) to determine market potentials by eliciting consumer preference and attitude toward the “transitional” label by estimating their WTP; 2) to develop pricing and marketing strategies by identifying the messages that most effectively promote the “transitional” label; and 3) to identify target market segments by determining which consumer groups are most likely to support farmers transitioning to organic crops in the U.S. southern region.
Project objectives from proposal:
The ultimate goal of this project is to promote organic farming operations and enhance the organic food supply by assessing the market opportunities provided by NCTP. The success of NCTP will significantly reduce the barriers for conventional farms to transform to organic farming operations, increase farmers’ income, and satisfy the increasing consumer demand for organic products. We plan to test our hypotheses and accomplish the objective of this application by pursuing the following three specific aims:
1)Determining the market opportunities by eliciting consumer attitude and preference toward the “transitional” label through the estimation of their WTP.
We postulate that there is promising marketing potential for the transitional label due to the fast growth in domestic consumer demand for organic food. Also, we postulate that consumers have positive attitudes toward the transitional label, but their knowledge of the label is limited. In addition, we postulate that consumers will be willing to pay a premium for the products labeled “transitional”. Consumer WTP for the labeled products will vary by the perceived benefits of different consumer types. A positive WTP is expected to motivate growers to adopt organic farming practices to capitalize on new marketing opportunities.
2)Develop pricing and marketing strategies by identifying the messages that most effectively promote the “transitional” label.
Although there is a promising marketing potential for the transitional label due to increased consumer demand, the promotion of the new label may be inhibited by consumers’ limited knowledge about the label. We postulate that information regarding the benefit of the transitional label will enhance consumers’ knowledge and help promote the labeled products. Once consumers are aware that transitional food is produced under the same organic standards as organic food, consumers will be more willing to pay a price premium for the transitional label. The impact of the message and information tested on consumer preference will help growers and producers to develop marketing and promotion strategies that can effectively increase consumer demand for the transitional label.
3)Identify target market segments by discovering the consumer groups that are most likely to support farmers transitioning to organic in the U.S. southern region.
We postulate that most consumers will have positive attitudes for the transitional label and will be able to distinguish transitional products from conventional products. However, not all consumers will be willing to pay the same price premium for the transitional label. For example, consumers who purchase organic products may only prefer organic; those who seldom or never buy organic products may not care whether or not the products are organic, and some cannot purchase organic products due to budget constraints. By identifying different types of consumer groups, effective marketing promotion strategies can be developed to appeal to different target market segments.
In addition, knowledge obtained from the project will provide valuable information for future policy and program development for promoting organic and other sustainable agriculture. We will deliver the results of the project to government agencies, producers, researchers, and other stakeholders, thus bridging the information gap to promote sustainable agriculture.