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Home > Feature Articles > Food Processing for Sustainable, Local, Organic and Effective Food Distribution

The Economics of Organic Milk - Do Consumers Want USDA Organic Milk?

Researching the value of organic labeling is helpful for both consumers and the supply chain of farmers, wholesalers and retailers. Does USDA Organic matter?

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USDA Organic -- What is it worth to the consumer?

This research investigates consumer reactions to changes in information provision regarding organic production. Quantitative analyses focus on the implementation the National Organic Program and the unique nature of the fluid milk market. Our results suggest the appearance of the USDA organic seal on milk containers had an important effect on consumer milk purchasing choices and offer empirical support for the involvement of the USDA in developing uniform and standardized organic labeling guidelines.

Labeling a milk product as organic has significant and very sizable effects. It increases the average choice probability by 12.0 percent. And while milk products that added the USDA labeling seal after the NOP went into effect were more likely to be chosen prior to these labeling changes (8.7 percent), this effect almost doubled to 16.1 percent when consumers could observe the seal on milk containers.

Organic milk products that did not carry the USDA seal do not portray the same increase.

Conclusions

The NOP and the appearance of the USDA organic seal on milk containers had an important effect on consumer milk purchasing choices. Estimated consumer valuation of the USDA seal ranges from two cents to 86 cents per each gallon, with an average valuation of 23 cents across all households.

In an alternative statistical model that focuses on price variation of differentiated milk products, the average willingness to pay for the USDA organic seal is estimated at 63 cents per each gallon of organic milk.

How cost effective is this?

Aggregating the average estimated consumer valuation by an average purchase of 1.12 gallons of milk per shopping trip found in our data and applying the sample average annual consumption of 34.91 gallons of milk, or alternatively, the population average milk consumption of 23 gallons respectively yields an average annual benefit of $7.24 or $4.77 per household. Further aggregating this estimate by U.S. census population measures of 290,850,005 and average household size of 2.52 yields an estimate of annual consumer welfare of $857.42 million based on the sample average, or $550.40 million based on the population average. This sizable consumer benefit can be contrasted with the estimates of labeling regulations the USDA provided:

The estimated costs of accreditation and labeling under the National Organic Program (NOP) alone were stated to approach $1 million and $1.9 million, respectively. A number of other potential costs such as enforcement, record keeping, and production and handling costs are also discussed but not quantified.

Graphical analyses further suggest that households with higher income, higher levels of education, small children and high time costs might have benefited relatively more from these regulatory changes.

This research report was prepared by Julian Alston (jmalston@ucdavis.edu) a professor in the Department of Agricultural and Resource Economics (ARE) at University of California, Davis (UC Davis). Daniel Sumner (dasumner@ucdavis.edu) is the Frank H. Buck Jr. Professor in the ARE department at UC Davis, and Director of the University of California Agricultural Issues Center. Stephen Vosti (savosti@ucdavis.edu) is an adjunct associate professor in the ARE department and Associate Director of the Center for Natural Resources Policy Analysis, all at UC Davis.



Edited by Carolyn Allen, owner/editor of California Green Solutions
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