IV. Is the Price We Have Paid Reasonable?
As consumers, the balance between a products’ quality and cost should always be one of our considerations during our daily purchase. Obviously, organic food consumption is a huge market, which was approximate $20 billion only in North America in 2006, and presently, the global consumption annually increases by a rate between 20% and 30% (Cranfield et al., 2009; Lima & Vianello, 2011). It is an optimistic business now and after. The unlimited potential capacity of consumption is attractive to a lot of companies over the world. For a long time, those organic food companies have tried to convince their consumers that the higher prices of their products are reasonable due to the high production costs. Also, they connect purchasing green products with buying safety and other ethical concern. But the question is: can we completely trust their words? Is organic food worth the extra price we pay? We really have to think about these two questions before we take out our money.
A. Does the Production Cost of Organic Food Need More?
Generally, we think that it is more expensive to produce organic food than conventional food being in the same quantity. However, according to several independent studies in different locations among differential time periods, those results might not fully agree with this statement. In 1999, a study on milk production, which compared the net profit difference between organic and conventional raising system in Vermont, indicated the tendency of the slightly less production expenses ($2,186 vs. $2,344), and the almost twice net-earnings ($477 vs. $255) in organic farms (McCrory, 2001). The similar results can be found among different reports. For example, in Northern San Joaquin Valley, California, a six-year (1996-2001) comparison between different cotton production systems showed no statistical difference on total production cost per hectare between organic farms and conventional farms (Swezey et al., 2007). Another example is the production of soybeans in 19 states in the U.S. According to the results of data analyzed, the average production cost in organic farms was about $1 to $6 higher than conventional farms while there was $9 per bushel profits higher for organic soybeans than conventional soybeans (McBride & Greene, 2009).
The two main factors, which lead to the similar production expenses between organic and conventional farming systems, are the higher labor cost, and the lower pesticide cost in organic farming system (Pimentel et al., 2005; Greer et al., 2008). According to a study in 2002, among 21 European countries, organic farms used 97% less pesticides and 34 to 54% lower fertilizers and energy in production (Greer et al., 2008). However, organic farms also need more manpower to maintain a proper growth condition among all the growing seasons, whereas conventional farms use less labor to manage the farms and only need more manpower during sowing and harvest seasons (Pimentel et al., 2005). That is, although different research showed divergent results, basically, organic farms spend equal or slightly higher production cost to compare with conventional production because the reduction of chemical expenses is neutralized by the costlier total labor costs.
The other factor, which might not be included into the production costs but also deeply affects the final profits, is the yield, which has been discussed in the previous section. Lower yield causes a higher final selling price to provide a better net profit. In short, regarding the comparison of the production costs between organic and conventional farming systems, the results are varied. Fundamentally, in the same farming size, the total production expenses in two systems are similar. However, according to most of researches, the higher selling price of organic food suggests that organic farming system is more profitable than the conventional system, and it is also one of the reasons that experts recommend farmers to convert from conventional farming system to organic style.
But this might not be good news to consumers. One third of Asians living in Pacific region and over 40% North Americans and Europeans cite high prices as their first concern not to buy organic food (Napolitano et al., 2010). That is, in most developing countries, poor people barely have the ability to afford organic food consumption, no matter whether they want to or not (Azadi & Ho, 2010). And it is the dilemma of eating healthily or purchasing what one is affordable. Thus, we have to ask those “Green businesses” again: is the price of organic reasonable? Although it is still hard to say yes or no definitively, we really should keep an eye on the net profits of those companies, just as what we do with to other kinds of businesses.
B. Why Are People Willing to Pay More for Organic Food?
It is true that higher selling prices and potential net profits are two main reasons that researchers suggest farmers to convert farming style. Basically, organic food prices are higher than conventional food in the range from 10 to 200% among different kinds of agricultural products (McCrory, 2001; Pimentel et al., 2005; Greer et al., 2008; Napolitano et al., 2010). However, are people really willing to purchase organic food even when it is more expensive? And if they do, besides the concern of health and nutrition, which are other significant reasons, what are the factors that make people are willing to pay more for organic food?
The answer about the first question seems to be positive. Based on the surveys, people are willing to pay 10 to 40% higher prices for consuming organic food (Winter & Davis, 2006). But once research goes more deeply to clarify the reasons why consumers are willing to pay more, the factors influencing their decision-making are varied. A beef preference research showed the tendency that subjects reflected the organic beef tasted worse than what they might have expected, which indicated that the information of organic food was a factor somehow affecting consumer’s beef liking (Napolitano et al., 2010). That is, the related information has positive effects to consumer’s food choosing preference for organic food. Currently, a research demonstrated the hypothesis that organic labels positively influence buyers’ consumption behaviors could be proved by the test of brain activities (Linder et al., 2010). Those results exhibited that except the taste of food itself, there are other factors (which might be non-hedonic concerns) that probably influence people’s food choices. According to the survey conducted by Whole Foods Market in 2005, the outcome indicated that 70% of consumers are willing to pay more because of avoidance of pesticides, over 60% for freshness, health or nutrition, and 55% for disfavor of GMOs (Winter & Davis, 2006). Also, according to researches, the income per household is an important factor to decide if they are willing to buy organic food, though it is costlier. In a research published in 2011, households defined as middle-income class ($30,000 to $100,000 per year) are the groups who are more willing to pay more to purchase organic food (Briggeman & Lusk, 2011).
On the other hand, besides personal health and family monetary concerns, ethical care is the other reason that makes buyers more willing to pay more for organic food. In the research performed by Briggeman and Lusk in 2011, 15% of people tested were willing to pay more if the profits will return to the supply chain. The background information about this result was that subjects were informed that organic farming is related to fair trade and supporting small-scale farming (Briggeman & Lusk, 2011). In other words, in this case, those 15% of consumers being willing to pay extra money for organic food was “attributable to altruism and inequality aversion (Briggeman & Lusk, 2011).” Furthermore, another psychological research indicated that although it had mainly focused on the effects of personal ethical reasons, recently, it turned to emphasize the importance of worldwide moral sense (Mazar & Zhong, 2010). In part of an experiment conducted by Mazar and Zhong (2010), they demonstrated that, generally, subjects felt that people purchasing organic or environmental friendly products were more cooperative, altruistic, and ethical than other people who consumed conventional products. In other words, somehow purchasing organic and environmental friendly products were seen to have a higher moral and social status, which might provide a psychological reason to explain why people are willing to buy organic food, even though the prices are higher.
TBC.
As consumers, the balance between a products’ quality and cost should always be one of our considerations during our daily purchase. Obviously, organic food consumption is a huge market, which was approximate $20 billion only in North America in 2006, and presently, the global consumption annually increases by a rate between 20% and 30% (Cranfield et al., 2009; Lima & Vianello, 2011). It is an optimistic business now and after. The unlimited potential capacity of consumption is attractive to a lot of companies over the world. For a long time, those organic food companies have tried to convince their consumers that the higher prices of their products are reasonable due to the high production costs. Also, they connect purchasing green products with buying safety and other ethical concern. But the question is: can we completely trust their words? Is organic food worth the extra price we pay? We really have to think about these two questions before we take out our money.
A. Does the Production Cost of Organic Food Need More?
Generally, we think that it is more expensive to produce organic food than conventional food being in the same quantity. However, according to several independent studies in different locations among differential time periods, those results might not fully agree with this statement. In 1999, a study on milk production, which compared the net profit difference between organic and conventional raising system in Vermont, indicated the tendency of the slightly less production expenses ($2,186 vs. $2,344), and the almost twice net-earnings ($477 vs. $255) in organic farms (McCrory, 2001). The similar results can be found among different reports. For example, in Northern San Joaquin Valley, California, a six-year (1996-2001) comparison between different cotton production systems showed no statistical difference on total production cost per hectare between organic farms and conventional farms (Swezey et al., 2007). Another example is the production of soybeans in 19 states in the U.S. According to the results of data analyzed, the average production cost in organic farms was about $1 to $6 higher than conventional farms while there was $9 per bushel profits higher for organic soybeans than conventional soybeans (McBride & Greene, 2009).
The two main factors, which lead to the similar production expenses between organic and conventional farming systems, are the higher labor cost, and the lower pesticide cost in organic farming system (Pimentel et al., 2005; Greer et al., 2008). According to a study in 2002, among 21 European countries, organic farms used 97% less pesticides and 34 to 54% lower fertilizers and energy in production (Greer et al., 2008). However, organic farms also need more manpower to maintain a proper growth condition among all the growing seasons, whereas conventional farms use less labor to manage the farms and only need more manpower during sowing and harvest seasons (Pimentel et al., 2005). That is, although different research showed divergent results, basically, organic farms spend equal or slightly higher production cost to compare with conventional production because the reduction of chemical expenses is neutralized by the costlier total labor costs.
The other factor, which might not be included into the production costs but also deeply affects the final profits, is the yield, which has been discussed in the previous section. Lower yield causes a higher final selling price to provide a better net profit. In short, regarding the comparison of the production costs between organic and conventional farming systems, the results are varied. Fundamentally, in the same farming size, the total production expenses in two systems are similar. However, according to most of researches, the higher selling price of organic food suggests that organic farming system is more profitable than the conventional system, and it is also one of the reasons that experts recommend farmers to convert from conventional farming system to organic style.
But this might not be good news to consumers. One third of Asians living in Pacific region and over 40% North Americans and Europeans cite high prices as their first concern not to buy organic food (Napolitano et al., 2010). That is, in most developing countries, poor people barely have the ability to afford organic food consumption, no matter whether they want to or not (Azadi & Ho, 2010). And it is the dilemma of eating healthily or purchasing what one is affordable. Thus, we have to ask those “Green businesses” again: is the price of organic reasonable? Although it is still hard to say yes or no definitively, we really should keep an eye on the net profits of those companies, just as what we do with to other kinds of businesses.
B. Why Are People Willing to Pay More for Organic Food?
It is true that higher selling prices and potential net profits are two main reasons that researchers suggest farmers to convert farming style. Basically, organic food prices are higher than conventional food in the range from 10 to 200% among different kinds of agricultural products (McCrory, 2001; Pimentel et al., 2005; Greer et al., 2008; Napolitano et al., 2010). However, are people really willing to purchase organic food even when it is more expensive? And if they do, besides the concern of health and nutrition, which are other significant reasons, what are the factors that make people are willing to pay more for organic food?
The answer about the first question seems to be positive. Based on the surveys, people are willing to pay 10 to 40% higher prices for consuming organic food (Winter & Davis, 2006). But once research goes more deeply to clarify the reasons why consumers are willing to pay more, the factors influencing their decision-making are varied. A beef preference research showed the tendency that subjects reflected the organic beef tasted worse than what they might have expected, which indicated that the information of organic food was a factor somehow affecting consumer’s beef liking (Napolitano et al., 2010). That is, the related information has positive effects to consumer’s food choosing preference for organic food. Currently, a research demonstrated the hypothesis that organic labels positively influence buyers’ consumption behaviors could be proved by the test of brain activities (Linder et al., 2010). Those results exhibited that except the taste of food itself, there are other factors (which might be non-hedonic concerns) that probably influence people’s food choices. According to the survey conducted by Whole Foods Market in 2005, the outcome indicated that 70% of consumers are willing to pay more because of avoidance of pesticides, over 60% for freshness, health or nutrition, and 55% for disfavor of GMOs (Winter & Davis, 2006). Also, according to researches, the income per household is an important factor to decide if they are willing to buy organic food, though it is costlier. In a research published in 2011, households defined as middle-income class ($30,000 to $100,000 per year) are the groups who are more willing to pay more to purchase organic food (Briggeman & Lusk, 2011).
On the other hand, besides personal health and family monetary concerns, ethical care is the other reason that makes buyers more willing to pay more for organic food. In the research performed by Briggeman and Lusk in 2011, 15% of people tested were willing to pay more if the profits will return to the supply chain. The background information about this result was that subjects were informed that organic farming is related to fair trade and supporting small-scale farming (Briggeman & Lusk, 2011). In other words, in this case, those 15% of consumers being willing to pay extra money for organic food was “attributable to altruism and inequality aversion (Briggeman & Lusk, 2011).” Furthermore, another psychological research indicated that although it had mainly focused on the effects of personal ethical reasons, recently, it turned to emphasize the importance of worldwide moral sense (Mazar & Zhong, 2010). In part of an experiment conducted by Mazar and Zhong (2010), they demonstrated that, generally, subjects felt that people purchasing organic or environmental friendly products were more cooperative, altruistic, and ethical than other people who consumed conventional products. In other words, somehow purchasing organic and environmental friendly products were seen to have a higher moral and social status, which might provide a psychological reason to explain why people are willing to buy organic food, even though the prices are higher.
TBC.
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