The Organic Milk Market in Germany Is Maturing: A Demand System Analysis of Organic and Conventional Fresh Milk Segmented by Consumer Groups

Abstract

Literature provides evidence of a highly price-elastic demand for organic food. However, most of the studies were conducted several years ago. In the meantime the organic market has matured. Consequently, results in literature need to be reviewed. This study specifically addresses own-price elasticity estimates for organic and conventional milk. The analysis is based on a household panel dataset of 20,000 German households. A two-step estimation procedure is applied. First, a probit regression examines which household characteristics affect the probability of buying organic milk. Second, a linear approximated almost ideal demand system provides detailed demand elasticity estimates. By using up-to-date data, distinguishing between different consumer groups, incorporating sociodemographic information and relying on a considerably large sample size this study is both an update and a refinement of previous research. In contrast to previous studies, econometric results suggest that demand for organic milk is absolutely price-inelastic in Germany. However, price responsiveness differs substantially between milk types and consumer groups.Given this background, the objective of this study is to update and to extend the analysis of household demand for organic and conventional milk, and to compare the German with the U.S. organic milk market. Combining actual purchase and demographic data and applying a two-step demand system approach, this study identifies and quantifies the factors determining the demand for organic and conventional fresh milk. It contributes to the body of literature by providing estimates of price and expenditure elasticities in a maturing organic food market. Additionally, econometric analyses are conducted not only for the whole population, but also for several consumer groups.The article is organized as follows: Section 2 surveys in detail the literature currently available on the demand for organic milk. In Section 3, the conceptual model is presented. Section 4 introduces the data, the GfK Homescan Panel. Section 5 covers the econometric evidence and provides interpretations of the results. Finally, conclusions are given in Section 6. LITERATURE REVIEWMost studies focusing on organic food consumption analyzed attitudes regarding organic food rather than actual purchase decisions. Using survey data or experimental methods, these studies typically determined the willingness to pay (see e.g.has provided evidence of a considerable discrepancy between consumer attitudes towards organic food and their actual purchasing behavior (e.g., Frykblom, 1997; Roddy, Cowan, & Hutchinson, 1999). This divergence suggests the use of real purchase data rather than survey data to characterize organic consumer behavior.There are two strands of organic food research using real purchase data. The first one examines the organic consumer profile with respect to sociodemographic characteristics, attitudes, and cultural norms. The second one analyzes consumer purchasing behavior-especially their responsiveness to changes in...

Breaking niche sustainable products into the mainstream: Organic milk and free‐range eggs

“…Starting with organic milk, more affluent consumers with green and ethical attitudes emerge as main consumers, thereby confirming previous studies (Schröck, ; Vukasovič, ). Consumers who have positive green and ethical attitudes but have lower disposable incomes do not consume organic milk, which supports the literature that price is a barrier (Aschemann‐Witzel & Niebuhr Aagaard, ; Buder et al, ).…”

Can't Buy Me Green? A Review of Consumer Perceptions of and Behavior Toward the Price of Organic Food

“…Scanner data analysis shows that consumers with high per capita spending on food are not more likely to buy organic (Dhar and Foltz ) and that organic milk consumers do not have higher incomes (Monier et al ). However, other studies find income effects on organic budget share (Jonas and Roosen ), that regular organic consumers have higher incomes (Schröck ), and that high‐income consumers are more likely to buy organic milk (Lopez and Lopez ). For fruits and vegetables, stated preference studies on carrots (Tranter et al ) and apples (Janssen, Heid, and Hamm ; Marette, Messéan, and Millet ; Rousseau and Vranken ; Stolz et al ) find no, mixed, or weak income effects.…”

“…That is, the stated preference studies that indeed find an effect of income tend to be based on relatively larger sample sizes, and the five studies with the largest samples confirm a significant influence of income (Bartels and Reinders ; Fotopoulos and Krystallis ; Padilla Bravo et al ; van Loo et al ; Żakowska‐Biemans ). Furthermore, six of the 10 panel data studies, which we consider the best approach to detecting a relationship between income and organic food purchase behavior, identify such effects (Jonas and Roosen ; Ngobo ; Schröck ; Smith, Huang, and Lin ; Wier et al ), while only two do not confirm this relationship (Michels and Hamm ; Monier et al ).…”

“…Second, studies indicate that the number and age of children in a household are relevant, probably because of budget constraints. Some studies find that the likelihood of organic purchase is lower for households with a child (Jonas and Roosen ; Loureiro and Hine ; van Loo et al ; Zepeda and Li ), while other studies exploring the variable child in more detail indicate that organic purchase is higher for households with young children but lower for households with children of higher age and in greater number (Schröck ; Wier et al ). Third, in their US study, Zepeda and Li (, 27) raise the issue of a relationship between income and accessibility , arguing that “access to organic might be easier in areas of the higher income segment.”…”

“…These studies indicate differences between regular and occasional buyers and organic and nonorganic buyers. Regular consumers have a more stable share of expenditure for organics over time (O'Doherty Jensen, Denver, and Zanoli ), repeatedly buy even in high price tiers (Marian et al ), are less price sensitive than occasional buyers (Schröck ), and buy milk in specialized organic shops, showing a price‐inelastic demand (Brümmer et al ). Furthermore, overall, organic consumers react differently to pricing measures: they show less store switching in reaction to price promotions than nonusers, according to a US panel data study (Hsieh and Stiegert ).…”