1) Paresh Kumar Sarma Senior Scientific Officer BAU Research System (BAURES) Bangladesh Agricultural University Mymensingh-2202 E-mail: paresh.baures@bau.edu.bd Mobile: 017120523852) Professor Dr. Shankar Kumar Raha Department of Agribusiness and Marketing Bangladesh Agricultural University Mymensingh-2202

Title:Title:CONSUMERS’ WILLINGNESS TO PAY FOR ORGANIC CONSUMERS’ WILLINGNESS TO PAY FOR ORGANIC

BEEF: EVIDENCE FROM DHAKA CITYBEEF: EVIDENCE FROM DHAKA CITY

P.K. Sarma and S.K RahaP.K. Sarma and S.K Raha

International Conference on Business and Economics International Conference on Business and Economics “Reinventing Business for the 21st Century”

October:25-26, 2016, University of Dhaka,Bangladesh

Presentation OutlinePresentation Outline

•Background and RationaleBackground and Rationale•Research ObjectivesResearch Objectives•Materials and MethodsMaterials and Methods•Results and DiscussionResults and Discussion•Conclusion Conclusion •Policy recommendationsPolicy recommendations

Background of the studyBackground of the study What’s the difference between organic and conventional beef? Organic beef?

Organic beef production is a means of food production with a large number of rules directed towards high status of animal welfare, care for the environment, restricted use of medical drugs and the production of a healthy product without residues e.g. pesticides or medical drugs (Kijlstra and Erjck 2006).

Organic animal husbandry is defined as a system of livestock production that promotes the use of organic and biodegradable inputs from the ecosystem in terms of animal nutrition, animal health, animal housing and breeding. It deliberately avoids the use of synthetic inputs such as drugs, feed additives and genetically engineered breeding inputs.

Conventional beefConventional beef production raises animals in confined animal feeding operations, where animals eat a diet of grain to promote rapid weight gain. The majority of feedlot cattle receive growth enhancers or antibiotics as part of their feed regimen.

Conventionally raised beef will usually be given antibiotics during its life to keep it healthy and given hormones to increase its size quickly. Conventional beef comes from finisher cattle, cull cows and bulls, dairy calves etc. Conventional beef more likely to contain antibiotic-resistant fecal bacteria than the organic beef.

Why buy organic beef? Food safety, quality, better for body and environment, protect human health…etc.

Background of the study (Cont.)Background of the study (Cont.)Consumer demand for safe and high quality Consumer demand for safe and high quality livestock products has been on ascendancy in livestock products has been on ascendancy in Bangladesh.Bangladesh.The increase in demand for food safety and The increase in demand for food safety and quality is triggered by the threat of food-borne quality is triggered by the threat of food-borne diseases in Bangladesh.diseases in Bangladesh.The demand surge needs to be met by The demand surge needs to be met by increasing and efficient supply-chain.increasing and efficient supply-chain.The flow of information on consumers food The flow of information on consumers food safety and quality preferences upstream safety and quality preferences upstream towards key players along the beef value-chain towards key players along the beef value-chain is lacking.is lacking.The marketing environment of beef products The marketing environment of beef products comprises of informal distribution channels comprises of informal distribution channels where safety and quality standards are where safety and quality standards are inadequately defined.inadequately defined.

ObjectivesObjectivesThe aim of this study is to shed light on consumers’ perceptions about organic beef and their willingness to pay .

The specific objectives of the study are: The specific objectives of the study are:

1)To increase understanding of consumers‘ awareness, attitude and perceptions towards organic beef2)To assess consumers’ willingness to pay (WTP) for organic beef, and3)To identify factors influencing of WTP for organic beef.

Materials and MethodsMaterials and Methods

Materials and Methods (Materials and Methods (Cont.)Cont.)The probit regression model was used to analysis the factors influencing consumers’ willingness to pay for organic beef. The model is specified as consumers’ willingness to pay for organic beef is: WTPi* = β0+ β1Bids + β2Educ + β3Age + β4Gend + β5Price + β6Sour + β7Incm +

β8 Know+ β9Perc + β10Hhsz + Ei----------------------------------- (1) Where:

WTPi* = Willingness to pay for organic beef information (Yes =1;0 = No) Bids = Amount the consumer will be asked to pay in BDT.Educ = Level of education of respondents in yearsAge = Age of consumers in yearsGend = Sex of the respondents (Female = 1, Male = 0)Price = Price of beef in Tk/KgSour = Source of beef (Registered = 1, Unregistered = 0)Incom = Income of consumers in BDT/monthKnow = Knowledge of organic beef (Aware=1, Not aware=0)Perc = Perception of consumers on organic beef (1 = No chance of health problem, 0 = chance of health problem)Hhsz = Household size by number of personEi = Error Term

Results and DiscussionResults and Discussion

Attitude/ IntensionSocio-economic

attributes (age, sex, education, income etc.)

Available information Perceived food quality

Willingness to Willingness to PayPay

Purchase behavior

Products attributes

KnowledgeAdvertisement, packaging, certification, labeling, etc.)

Willingness to buyWillingness to buy Market

Theoretical framework of consumers Theoretical framework of consumers willingness to Pay willingness to Pay

Figure 1: Framework reflecting consumer behavior towards organic beef (adopted from Millock (2002) and Bonti-Ankomah and Yiridoe (2006)

Results and Discussion (Cont.)Results and Discussion (Cont.)Consumers’ awareness towards organic beefConsumers’ awareness towards organic beef

Sl. No.

Statements Respondents’ opinionYes No

1 Have you heard/read about organic beef? 93 (51.67) 87 (48.33)2 Have you heard/read about illness caused by

the use of steroid for cattle fattening? 117 (65.00) 63 (35.00)

3 Do you have any experience of illness caused by beef?

39 (21.67) 141 (78.33)

4 Are you aware of purchasing organic beef for food safety?

71(39.44) 109 (60.56)

5 What are information about conventional and What are information about conventional and organic beef:organic beef:

101(56.11)101(56.11) 79 (43.89)79 (43.89)

(a) Newspapers 31(30.69) 14 (17.72)(a) Magazines 4 (3.96) 7 (8.86)(a) Radio 6 (5.94) 19 (24.05)(a) Television 41 (40.59) 21 (26.58)(a) Friends 5 (4.95) 10 (12.66)(a) Doctor 11 (10.89) 6 (7.59)(a) Someone in household 3 (2.97) 2 (2.53)Note: Figures in parentheses indicate percentages

Source: Field survey 2015

Results and Discussion (Cont.)Results and Discussion (Cont.)Consumers’ attributes of willingness to pay for organic beefConsumers’ attributes of willingness to pay for organic beef

Variable β PSafety 0.252* 0.056No Difference -0.188** 0.032Availability 0.232 0.112Affordability -0.145 0.281Quality 0.043 0.783Desirability 0.170 0.283Hygiene -0.261*** 0.003Chi-square 25.923*** (P = 0.001)Nagelkerke R2 0.062***Significant at 1%; **Significant at 5%; *Significant at 10%Source: Field survey 2015

Table. Product Attributes and their Influence on Willingness to Pay for organic beef

Results and Discussion (Cont.)Results and Discussion (Cont.)

Profession Reasonable High Not important No differenceTeachers 2020

(22.47)(22.47)1111

(21.57)(21.57)33

(12.50)(12.50)33

(18.75)(18.75)Private service holder

1313(14.61)(14.61)

1313(25.49)(25.49)

44(16.67)(16.67)

22(12.50)(12.50)

Government service holder

2424(26.97)(26.97)

1616(31.37)(31.37)

22(8.33)(8.33)

33(18.75)(18.75)

Businessmen 2121(23.60)(23.60)

55(9.80)(9.80)

55(20.83)(20.83)

22(12.50)(12.50)

Self-employee 77(7.87)(7.87)

33(5.88)(5.88)

88(33.33)(33.33)

33(18.75)(18.75)

Beef buyers for food processing

44(4.49)(4.49)

33(5.88)(5.88)

22(8.33)(8.33)

33(18.75)(18.75)

Total 8989(100.00)(100.00)

5151(100.00)(100.00)

2424(100.00)(100.00)

1616(100.00)(100.00)

Consumers’ perception about the price of organic beef for Consumers’ perception about the price of organic beef for different professionals different professionals

Note: Figures within parentheses indicate percentagesNote: Figures within parentheses indicate percentagesSource: Field survey 2015Source: Field survey 2015

Results and Discussion (Cont.)Results and Discussion (Cont.)Consumers’ perception about the price of organic Consumers’ perception about the price of organic

beefbeef

Results and Discussion (Cont.)Results and Discussion (Cont.)Consumers’ WTP for organic beefConsumers’ WTP for organic beef

Results and Discussion (Cont.)Results and Discussion (Cont.)Consumers’ perception about the price of organic Consumers’ perception about the price of organic

beef for different professionals beef for different professionals Profession Profession ReasonablReasonabl

eeHighHigh Not Not

ImportantImportantNo No

DifferenceDifferenceTeachers 20

(22.47)11

(21.57)3

(12.50)3

(18.75)Private service holder

13(14.61)

13(25.49)

4(16.67)

2(12.50)

Government service holder

24(26.97)

16(31.37)

2(8.33)

3(18.75)

Businessmen 21(23.60)

5(9.80)

5(20.83)

2(12.50)

Self Employee 7(7.87)

3(5.88)

8(33.33)

3(18.75)

Beef buyers for food processing

4(4.49)

3(5.88)

2(8.33)

3(18.75)

Total 89(100.00)

51(100.00)

24(100.00)

16(100.00)

Note: Figures in parentheses indicate percentagesSource: Field survey 2015

Framework of factors affecting consumer Framework of factors affecting consumer attitudes and purchase decisions for attitudes and purchase decisions for

organic beeforganic beefExogenous Factors- Certification - Packaging and labeling - Product availability

Knowledge and Awareness- what is organic? - What makes organic unique?

Perceived Attributes- Health benefits- Animal Welfare- Food Safety- Impact on Environment- Production Process

Product Characteristics- Nutrition - Sensory characteristics -Value

Social and Demographic Variables- Gender - Occupation - Age - Education - Family size, etc.

Consumer Preference and Attitude

(Perceived Demand for Beef)

Economic Factors- Household income - Product price - Prices of other products

Organic beefpurchase decision

Results and Discussion (Cont.)Results and Discussion (Cont.)

Results and Discussion (Cont.)Results and Discussion (Cont.)Factors affecting consumers’ willingness to Factors affecting consumers’ willingness to

purchase for organic beefpurchase for organic beef

*** Significant@1% **Significant@5% *Significant@10%Source: Field survey 2015

VariablesVariables Coefficient Coefficient Standard Standard errorerror

Marginal Marginal effecteffect

Consumers age 0.28520.2852 0.39150.3915 0.41210.4121Gender (Sex) 0.9521***0.9521*** 0.32110.3211 0.12540.1254Awareness 0.5236**0.5236** 0.84920.8492 1.05411.0541Household size 0.25660.2566 0.18320.1832 0.00510.0051Years of education 1.2892**1.2892** 0.68340.6834 1.01141.0114Income 0.9956***0.9956*** 0.21410.2141 0.32410.3241Average price -0.8432-0.8432 0.52440.5244 0.31110.3111Source of purchase 0.9452**0.9452** 0.37210.3721 0.02110.0211Perception of cattle breed

0.31210.3121 0.41860.4186 0.08210.0821

BIDS 0.412280.41228 0.5100.510 0.81110.8111Constant 0.1884**0.1884** 0.09150.0915 0.0251s0.0251sLog-likelihood ratio = -53.50**-53.50**Chi squared = 24.59**24.59**Resudo R2 0.6470.647

Main findings of the studyMain findings of the studyPreference for beef is not necessarily based on in essential attributes, but also on external attributes that are associated with food safety and quality. This study found that the key factors influencing the consumers’ willingness to pay a premium price include intrinsic attributes such as nutritive value, taste, nature of origin, being of high quality and food safety issues. The results indicated that the consumers’ concerns about health and the environment are the determinants for positive attitude toward organic beef. Willingness to pay price premium exists for food safety and quality of beef attributes among consumers. Socioeconomic characteristics, consumers perceptions and beef attributes tend to influence WTP premiums for high quality beef products.

Main findings of the study (cont.)Main findings of the study (cont.) The results show that consumers’ WTP is quite high, thus suggesting that organic beef might gain an appreciable market share. This is also an encouraging signal for prospective producers of organic beef, who might compensate the likely increase in production costs with a substantial premium for the new good.Lastly, this research can act as a guideline and provide insight for related parties to plan for current market and implement a strategy to boost the organic beef industry.Consumers have more positive attitudes toward organic beef and they exhibit and increased willingness to spend for this products. In the regression analysis of WTP premium for organic beef (relative to a conventional version of the beef), participants who had more education and higher per-capita household income were willing to pay significantly more for the organic than conventional beef.Most important factors that influence WTP for organic beef are their concerned issues (price or safety and quality) and income

Contribution of this studyContribution of this studyThe major contribution of this study is to The major contribution of this study is to support policy makers in implementing support policy makers in implementing economic policies for sustainable livestock economic policies for sustainable livestock production system and emphasis is to improve production system and emphasis is to improve agricultural resource management and agricultural resource management and identifying factors for structural improvements. identifying factors for structural improvements.

At the end, the entire value chain will provide At the end, the entire value chain will provide quality products and enhancing productivity by quality products and enhancing productivity by value added byproductsvalue added byproducts

Conclusions and Policy Conclusions and Policy RecommendationsRecommendations

Consumers mostly rely on external beef product image such as shopping environment, certification, packaging and steak colour.Traditional marketing strategies which focus solely on price and quality competition without food safety assurance may no longer be successful in today’s Dhaka city meat market. Socioeconomic characteristics, consumers perceptions and beef attributes are significant determinants of WTP for safe and high quality beef products. Verified animal health status in Dhaka city to be an important tool for assuring consumers of the safety of beef products with a higher WTP premium.

ConclusionConclusionss

ConclusionsConclusions and Policy and Policy RecommendationsRecommendations

These results provide important These results provide important information about market opportunities for information about market opportunities for concern stakeholders. concern stakeholders.

The use of selective demographic The use of selective demographic targeting to build strong food safety and targeting to build strong food safety and quality measures should be seen as a quality measures should be seen as a reality by policy makers and investors in reality by policy makers and investors in the beef industry. the beef industry.

Strategies to mitigate unsafe beef Strategies to mitigate unsafe beef marketing and consumption .marketing and consumption .

Policy Policy RecommendationsRecommendations

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