Projects Funded for Ashley Spalding

2018-2019

Consumer Valuation and Economic Impacts of Certified Transitional and Organic Products

  • Ashley Spalding
  • Richard Sexton

Abstract

Specific Objectives of the Project:
We proposed to analyze an innovative approach—transitional organic labeling—as a way to generate price premiums for
farmers in transition, and to lower economic barriers to organic conversion. In order to
assess the impact of the new label, we proposed to develop a conceptual model of how
this label influences the product-characteristic space and price premiums, and conduct
market-level experiments to better understand consumer preferences for organic foods
and willingness to pay for an organic-transition label.

Project Report/Summary of Results:
A vertical differentiation model of consumer choice has been constructed to analyze
consumer decision making for a product category with organic and conventional products
vs. expanding the category to include organic, transitional, and conventional products,
where the transitional product is viewed as having intermediate overall quality relative to
the organic (high quality) and conventional (low quality) product. Analysis of the model
shows that transitional organic products command a premium relative to conventional
products and that the competition introduced from transitional organic products reduces
slightly the premium afforded to organic products.
The model is also used to study farmers’ decisions regarding producing conventional
product or undergoing conversion to organic. Results show that introduction of a
transitional organic premium relative to the conventional price causes more acreage to
convert to organic than in a world without transitional organic. In long-run equilibrium
organic premiums are reduced due to the expanded organic supplies incentivized by the
transitional organic premiums. A bottom-line conclusion is that a transitional organic
certification can be a useful tool to incentivize organic conversion and help to improve
the U.S. organic trade imbalance.