What comes first, origin or production method? An investigation into the relative importance of different attributes in the demand for eggs

This paper analyses consumer preferences for different eggs attributes to assess the importance placed by consumers on the origin and method of production when shopping. The data comes from an experiment conducted in Spain during 2009. An Error Component Random Parameter Logit model is used to estimate the effect of different eggs characteristics on consumers’ utility and derive their willingness to pay. Results suggest that consumers positively value the freerange and organic method of production and the local and regional origin and that they are willing to pay an additional € 0.85 for each package of six free-range or organic eggs, € 0.77 for locally produced and € 0.27 for regional produced eggs. Hence, the least valued eggs for consumers are those produced in cages and outside the region. Relative to this product, the highest willingness to pay corresponds to free-range or organic eggs followed by locally produced eggs and finally, by the regional eggs. Thus, we can conclude that Spanish consumers give more importance when shopping for eggs to the method of production than to the origin of production. Additional key words: Aragon; consumers; preferences; random parameters; Spain; willingness to pay. * Corresponding author: [email protected] Received: 10-01-13. Accepted: 13-05-13. This work has one Supplementary Table that not appear in the printed article but that accompany the papel online. Abbreviations used: ASC (alternative specific constant); BSE (bovine spongiform encephalopathy); ECRPL (error component random parameter logit); EU (European Union); RPL (random parameter logit); WTP (willingness to pay). Instituto Nacional de Investigación y Tecnología Agraria y Alimentaria (INIA) Spanish Journal of Agricultural Research 2013 11(2), 305-315 Available online at www.inia.es/sjar ISSN: 1695-971-X http://dx.doi.org/10.5424/sjar/2013112-3953 eISSN: 2171-9292 306 B. López-Galán et al. / Span J Agric Res (2013) 11(2), 305-315 duction, improved animal welfare production, genetic modification, etc. has grown significantly. In particular, numerous papers analysed consumers’ preferences for organic food products and for products with improved levels of animal welfare. Findings from these studies indicate that consumers are willing to pay a positive premium for both organic and other enhanced animal welfare production. In the same way, consumer preference for production in relation to its origin have been investigated in several papers covering different approaches to origin such as country of origin, regional origin and local origin. Those findings indicate that consumers positively value the country of origin but it is one of the least important aspects among other product characteristics. However, the regional origin and overall the local origin are also positively valued and more valued compared to other aspects. Finally, several empirical papers analyzed preferences for both attributes, method of production and origin of production (Loureiro & Hine, 2002; Scarpa et al., 2005, 2007a; Hu et al., 2009; James et al., 2009; Yue & Tong, 2009; Pouta et al., 2010; Wolf et al., 2011; Hu et al., 2012) using different levels for both attributes. These studies used a choice experiment to assess consumers’ willingness to pay (WTP) for different products (potatoes, oranges, grapes, olive oil, poultry, tomatoes, carrots, applesauce, blueberry products and milk) in USA and Europe (Finland and Italy). The results of these studies suggest that consumers positively value the method of production and the origin of production but while Loureiro & Hine (2002), Pouta et al. (2010) and Hu et al. (2012) found that the importance for consumers of the origin of production is higher than the importance of the method of production, the other papers indicated that the importance of each attribute depends on consumer segments and on the analysed product. Building on this non-conclusive evidence, the objective of this paper is to further assess the value of both attributes, the method and the origin of production, for a fresh product (eggs) in two regions of a European country (Spain). Using a choice experiment of Spanish consumers, this paper identifies the way the method and the origin of production are ranked by consumers. While the importance for consumer preferences of both attributes for eggs have been studied in isolation (see discussion section), to our knowledge this is the first attempt to assess them simultaneously. Eggs were chosen for this study as they are an important fresh product in terms of supply and demand for Spain, as well as a market where origin and production method labels have been widely used. In as far as supply is concerned, Spain is the second most important egg producer in the European Union (EU) after France accounting for 12% of the EU total egg production. Egg production represented 7% of the Spanish animal production and 2.3% of the total agricultural production in 2010 (MERCASA, 2011). With regards to demand, annual per capita consumption in 2010 stands at 131 eggs with an associated expenditure of 16.2 Euros, 99% of which corresponds to hen eggs. In particular, the per capita annual consumption of organic eggs accounts for 15 eggs (MERCASA, 2011). However, consumption of eggs in Spain is falling sharply (41% from 2000 to 2010) (MAGRAMA, 2012) notwithstanding the fact that the eggs market is one of the fresh product markets where more innovation is seen, particularly through enhancement with nutritional benefits (e.g. omega 3, vitamin E). Material and methods To achieve our objective we have included a series of choice experiment tasks in a questionnaire containing also questions on socio-demographic consumer characteristics (i.e. gender, family size and composi1 Batte et al., 2007; Didier & Lucie, 2008; Ureña et al., 2008; Tranter et al., 2009; Bernard & Bernard, 2009, 2010; Olesen et al., 2010; Van Loo et al., 2011; Mesias et al., 2011a,b; Akaichi et al., 2012. 2 Carlsson et al., 2005, 2007a,b; Lagerkvist et al., 2006; Chilton et al., 2006; Liljenstolpe, 2008; Tonsor et al., 2009; Olesen et al., 2010; Olynk et al., 2010; Mesias et al., 2011a; Andersen, 2011; Gracia et al., 2012; Kehlbacher et al., 2012. 3 Hoffmann, 2000; Alfnes & Rickerten, 2003; Loureiro & Umberger 2003, 2005, 2007; Ehmke et al., 2008. 4 Bonnet & Simioni, 2001; Van der Lans et al., 2001; Fotopoulus & Krystallis, 2003; Scarpa & del Guildice, 2004; Resano et al., 2010. 5 Giraud et al., 2005; Schneider & Francis, 2005; Bond et al., 2008; Darby et al., 2008; Carpio & Isengildina-Massa, 2009; Campbell et al., 2010; Costanigro et al., 2011; Hu et al., 2012. 6 All of them, except for Scarpa et al. (2007a) and Hu et al. (2012) used only two levels for the methods of production, but while Scarpa et al. (2005), Hu et al. (2009), James et al. (2009), Yue & Tong (2009) and Pouta et al. (2010) defined organic and non-organic, Wolf et al. (2011) used rbST/rbGh hormone-free and conventional milk. What comes first, origin or production method? 307 tion, age, educational level and income range) that was delivered to a representative sample of consumers in two Spanish cities. We selected a choice experiment to assess consumer preferences for different egg attributes because of its capacity to value multiple attributes simultaneously. The choice experiment questions asked consumers to choose between alternative products that contain a number of attributes with different levels, following the basics of the Lancaster (1966) maximization utility model and to allow specifying a model consistent with the Random Utility Theory of McFadden (1974). Finally, the choice experiment has the advantage that the choice tasks asked to participants are similar to the typical shopping decision that consumers face when buying products in the market. This similarity with actual consumer shopping decisions can explain the high number of empirical papers on valuing food products using this technique. Choice experiment design The first step to implement a choice experiment is to select the specific product to be analysed, in our case a package of half a dozen of eggs, and second to choose the attributes and levels to be used. The selection of the three attributes considered in our study was straightforward. Price was included because it allows the calculation of the WTP, and the method and the origin of production are the attributes that define the different products offered because they are the aim of the study. Other important attributes affecting egg demand such as size or nutritional benefits (i.e. omega 3) were f ixed (size was extra-large and the eggs offered to consumers had no added functional ingredients) as they were not the objective of this research. Table 1 shows the attributes and levels used. The price attribute was included with four levels. The lowest level corresponds to the minimum price for half-dozen of extra large eggs that could be found in the Spanish market at the time of the survey (€ 0.75/ half dozen). The next level was set at the average price of eggs (€ 1.25/half-dozen) and the other two levels were set at € 2.0/half-dozen and € 2.5/half-dozen, respectively, with the highest price corresponding to the average organic prices in the market. To set the levels for the method of production we follow the European regulation on the marketing of eggs instead of using some of the definition used in the previous empirical papers on the methods of production (see footnote 6). The Commission Regulation EEC 589/2008 (EEC, 2008) implementing the marketing standards of eggs (OJ, 2008) and the Spanish Royal Decree 226/2008 established four types of egg production systems which can be used to label eggs: caged, barn, free-range and organic. We have used these four egg production methods as levels of the production methods attribute. Last, four levels were set for the origin of production attribute to cover the different possible geographical origins (local, regional, national and imported). Then, the local origin corresponds with the NUTS3 definition (province) and the regional origin with the NUTS2, (autonomous community). Finally, the third and the fourth levels correspond with eggs produced within the country (Spain) or imported from Europe (Europe). Each of the choice sets included three alternatives: two unlabelled designed alternatives (Option A and Option B) combining the different levels for the eggs attributes and a non-buy option (Option C). A non-buy option was included to better simulate purchase decisions by consumers as they are not forced to buy a specific product if they do not find it matching their preferences (Louviere & Street, 2000). Choice sets were 7 Mesias et al. (2011a) analysed consumer preferences for eggs in Spain using two methods of production variables (type of fed and rearing conditions) with two levels each of these variables (organic feed versus conventional feed; and battery versus free range). Table 1. Attributes and levels used in the choice design