Research Activities: Global Food Security, Food Safety, and Industrial Agriculture

Former IEE member Marco Rimkus shares key findings of his PhD thesis.

For more than half a century, food security has been one of the most prominent issues of international development cooperation. The crucial question of how the growing population can be supplied with food in a reasonable quality continues to be of great interest. When discussing this problem, society is faced with a dilemma: the necessary productivity increase in the agricultural sector very often goes hand in hand with industrialisation. The latter is criticised by various social groups. This criticism is even more dominant when it comes to animal welfare.
Due to the relevance of this topic, I dedicated my dissertation to the tension between food security, food safety, and industrial agriculture. The goal was to determine the relevance of livestock protection (animal welfare) and food safety from the consumers' perspective, with the help of economic valuation methods (contingent valuation, choice experiment, hedonic price method). In addition, consumer interest in organic labels was investigated (Figure 1).

These labels provide a means of product differentiation and allow differentiating products with high animal welfare standards or products with a high level of food safety from other products. Due to the (geographical) scope of this research, a product that combines all of these aspects, and that is widely used in all research areas had to be selected. Chicken eggs are a prime example of such a product. In household surveys (China: n = 772, Peru: n = 539, Zambia: n = 175, Ivory Coast: n = 166) various qualities of eggs were presented. In addition, market data from about 350 different products were collected.

How willing are people to pay for organic eggs?

The highest willingness to pay a price premium for organic eggs exists in China (68% of respondents) and Zambia (75% of respondents). In Peru approximately 50%, in the Ivory Coast only about one-third of respondents are ready to accept additional costs. Consumers were willing to pay the following premiums for an organic egg: in China 0.19 €; Peru 0.39 €; Zambia € 0.47; and the Ivory Coast 0.69 €. The accepted price premium in the two most developed economies is between 300% (China) and 350% (Peru) compared to products from the cage. Surprisingly, the accepted price mark-ups are higher in poorer economies (Zambia: almost 500%, Ivory Coast: 400%).


The most common reason for rejecting a price premium is the uncertainty of the consumers. They are unsure of whether organic eggs provide the benefits promised. The result is an indication of the market potential for organic labelling. These labels can make a contribution to increasing the confidence of consumers in certain product properties. The reasons for the acceptance of a price premium are diverse. In China, the most frequently mentioned reason is of financial nature: respondents could simply afford to think about animal protection. This response suggests a trend in conspicuous consumption; a phenomenon present in many emerging economies.

The consumers' choice

During the survey, four products were presented to the respondents: eggs from conventional production (cages), non-certified organic eggs, organic eggs with a local certification, as well as organic eggs with a European certificate. The results of the comparison show clear parallels. The basic product (cages) is preferred in China, Peru and the Ivory Coast by around one-third of those interviewed. The results for the most expensive product (certified by a European institution) are also homogeneous. In China (8%), the Ivory Coast (8%) and Peru (11%), only about a tenth of the respondents have opted for this product. In Zambia, the product is more popular (23%).

What insights do the comparison of valuation methods provide?

The results of the contingent valuation and the choice experiment were compared with the results from the hedonic price model. The comparison is interesting because it addresses the so-called 'hypothetical bias'. Methods classified under the heading 'revealed preferences' derive the preferences of consumers indirectly from observing the behaviour in actual or simulated markets. Methods that fall in the category of 'stated preferences' try to determine consumers' preferences directly through surveys. A comparison of the results from the hypothetical purchase decision (contingent valuation, choice experiment) and existing markets (hedonic pricing) allows conclusions on the quality of the methods.
Unfortunately, due to insufficient market data the comparison could only be examined in the results from China. In this country, the market segment 'eggs' is impressively differentiated. In addition to the price variation and the differences in the size of packaging, this study includes additional information such as nutrients, food safety, compliance with certain standards, different treatment of the eggs (cleaning, UV treatment), as well as the chicken feed used. Attempting to link the product characteristics with the (assumed) benefit to the consumer was, however, problematic. Depending on the features subsumed under 'animal protection', the result of hypothetical purchasing decision is around two to four times higher than the current existing price premium for animal welfare standards in the Chinese market. This result would support the widely expressed criticism that consumers in hypothetical surveys overestimate their actual willingness to pay for goods or product features. However, a different result can also be justified. If product features such as labels, certificates, or awards are taken into account, the consumers in the hypothetical scenario had underestimated their willingness to pay compared to real market data.

Conclusions

Relatively low-income groups have a significant willingness to pay for food, that is harmless to animals and that has been produced in compliance with animal welfare standards. This result has different implications. On the political level, the findings may be a relevant factor for the improvement of animal welfare or food safety standards or in the promotion of certified food. In addition, the results are a decision-making tool for producers. An improvement of farm animal protection is usually accompanied by a rise in production costs. A manufacturer would only be prepared and willing to change his mode of production if the additional costs are offset by a corresponding price premium. The monetary valuation indicates the potential price premium in the market. Finally, the research has made a methodological contribution. Various aspects that influence purchasing behaviour were examined. The amount of information and the visualisation significantly affects the valuation of the goods. Also, the brand trust has a positive influence on the buying decision. This aspect is relevant when it comes to product certification (e.g. bio-labelling). For product properties such as food safety and animal welfare the product quality cannot easily be judged by the consumer. Thus, the consumer will only accept a price premium for a product certification if his confidence in the certification body is sufficiently high.


About the Author
Marco Rimkus is working as a freelance consultant and trainer for human resources management and organisation in developing and emerging markets.
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