Consumer Preferences, Ecolabels, and Effects of Negative Environmental Information By Xianwen Chen, Frode Alfnes and Kyrre Rickertsen School of Economics and Business Norwegian University of Life Sciences Ames, Iowa, August 1, 2014 1 Introduction Information and Food Purchases Knowledge about a product is influenced by various types of information Positive, negative or neutral Labels used to signal presence or absence of specific attributes Food labels can change purchasing behavior (e.g., Caswell and Anders 2011) Other types of information also important for food preferences (e.g., Fox et al. 2002; Rousu et al. 2004; Rousu et al. 2007) Our focus is the total effects of ecolabels in combination with written negative environmental information Applied to seafood in France with a focus on Norwegian seafood Ames, Iowa, August 1, 2014 School of Economics and Business 2 1
Wild Catch and Aquaculture in the World From 1970 to 2008 the fish production from wild fisheries and aquaculture increased from 2.6 to 52.5 million tons (FAO, 2010) China is main producer with more than 60% of world production (FAO 2010) Norway is #11 in terms of volume of production (3 million tons) Norway is #2 exporter (after China) in terms of value Farmed salmon increasingly important for Norwegian seafood exports Cod and pelagic species the most important wild fish types 3 Norwegian Seafood Exports, 1993-2014 Green line shows value share of wild fish Decreased from 70% to 30% Red area shows export value of salmon and trout (about $7 billion in 2013) Blue area shows export value of wild fish about $3 billion cod about $1 billion in 2013) Seafood export represents about 7% of total exports France is second most important market after Russia (close to $1 billion) 4 2
Fish Farming in Norway Salmon farming Started in the 1970s Around 1990 production was about 100,000 tons Production is currently more than 1 million tons Currently highly profitable Cod farming Started after year 2000 Peaked with a production around 20,000 tons in 2010 No almost no production Increased stocks of wild cod Financial crisis Technological problems 5 Fish Farming, Wild Fisheries and Some Environmental Problems Farming (salmon) Antibiotics (not anymore) Pollution of sea and seabed (waste, parasites) Escape from breeding cages and genetic pollution of wild stocks Lice and other parasites Overexploitation of species used for feed Wild fisheries (cod) Depleted stocks Discarding Olympic fisheries? 6 3
Introduction Ecolabels and Fish Certify ecological properties of the fish Organic fish, environmentally friendly fish, fish welfare, etc More specifically: feed, space, medicine, antibiotics, sustainability of stock Research find that consumers are willing to pay a premium for ecolabeled fish products (e.g., Wessells et al. 1999; Olesen et al. 2010; Roheim et al. 2011) A success measure of the label is the size of this premium A premium of about 7% - 15% is quite typical in studies focusing on the direct effects of one label May change with two labels and additional information Marine Stewardship Council (MSC) label that is used for wild fish Agriculture Biologique (AB) label that is used for organic food in France (including farmed fish) 7 The MSC Label for Wild Fish The Organic AB Label for Farmed Fish 8 4
We Used Four types of negative environmental information About fish farming that is relevant for farmed cod About wild fisheries that is relevant for wild cod About fish farming and wild fisheries that is relevant for cod About fish farming that is relevant for farmed salmon Two labels MSC and AB 9 Example: Negative Information about Fish Farming that Is Relevant for Farmed Cod Cod is a favorite fish among French consumers. The high demand for and value of cod have led to intense exploitation; catches exceeded the renewal rates and the stocks of cod declined severely in the late 1990s. Cod farming (aquaculture) appears as a possible solution to some of these problems. Nevertheless, cod farming conducted in its natural surroundings may have negative impacts on the environment and can lead to: Pollution of the sea and the seabed. This pollution can be caused by waste from farming, uneaten feed, parasites, diseases, and injuries that are a consequence of overpopulation in the breeding cages, and by therapeutic chemicals used to treat diseases. A risk of breeding of the farmed cod that have escaped from the cages with the wild cod. This may lead to uncontrolled genetic modifications of the wild cod with unknown consequences. Overexploitation of other species of fish. The feed of farmed cod is primarily made from small fishes. Three to five kg of fish are needed to produce one kg of cod. The species used for feed were considered to be inexhaustible; however, the strong growth of fish farming may put the sustainability of these species at risk. Damage to other species. Some fish farming is protected from birds and other predators by nets, but these nets can also capture protected species. Damage to the seabed. Farming can particularly damage the flora close to production sites. 10 5
Complex Interaction Effects For Example: Effects of Negative Information about Farmed Salmon Direct effects on WTP for farmed salmon. Different effects for: 1. Ecolabeled farmed salmon 2. Unlabeled farmed salmon Indirect effects on WTP for cod. Different effects expected for: 1. Ecolabeled farmed cod (i.e., same production technology) 2. Unlabeled farmed cod (i.e., same production technology) 3. Ecolabeled wild cod (i.e., different production technology) 4. Unlabeled wild cod (i.e., different production technology) These effects are captured by six dummy variables in our econometric model 11 Stated Choice Experiment in Dijon, France SCE used to avoid deception (no ecolabeled fish were available in French market at the time of the experiment) Real fish products used to reduce the hypothetical nature of experiment Sold in 300 grams packages Top quality fish cuts (loins) packed by professional company INRA s laboratory in December 2008 Participants were randomly drawn from INRA s consumer panel All participants purchased and ate fish at home 78 new and 116 experienced participants (who had participated in similar fish experiments) Ames, Iowa, August 1, 2014 School of Economics and Business 12 6
Two Choices 13 Eight Fish Types in the Experiment Species Wild/Farmed Ecolabel Area of origin Price 300 g, 8 point scale Salmon Farmed No Norway 1.95-5.45 Salmon Farmed AB Norway 3.45-7.95 Cod Farmed No Norway 2.95 6.95 Cod Farmed AB Norway 4.95 10.95 Cod Wild No North Atlantic 2.95 6.95 Cod Wild MSC North Atlantic 4.95 10.95 Monkfish Wild No North Atlantic 5.45 11.45 Pangasius Farmed No Vietnam 1.45 4.95 14 7
Experimental Design 112 choice sets grouped into 7 blocks (of 16 choices in randomized order) Each block were used in two sessions Design new participant 1. Randomly decide which choice block to use in session 2. Randomly decide if the participant should receive information (50%) 3. If information, randomly decide which (of four) information set to use 4. Participant made 16 choices Total of 1248 choices (78 16) (1246 useable choices) Design experienced participant 1. Randomly decide which choice block to use in session 2. Participant made 16 choices 3. Randomly decide which (of four) information set (25% each) to use 4. Participant made 16 new choices (within same choice set) Total of 3712 choices (116 32) (3709 useable choices) Design allows for between-subject and within-subject variation (not used in final econometric model) 15 Econometric Model Mixed logit model Individual specific parameters All data pooled Variables Price variable Five fish type dummy variables Two ecolabel dummy variables Two direct effect dummy variables Four indirect effect dummy variables Ames, Iowa, August 1, 2014 School of Economics and Business 16 8
Willingness to Pay (WTP) per kg of Fish Reasonably well in line with market prices except for pangasius For wild monk 20.44 For wild cod 18.14 For salmon 17.78 For farmed cod 16.46 For pangasius only 0.29 (not significantly different from zero) Few participants choose pangasius 17 WTP for Ecolabels The premiums were 0.80 for the MSC (about 4%) and 1.84 for the AB label (about 10%) per kg Significant at the 5% level The higher premium for the organic AB-label can be explained by a higher degree of familiarity 61% of participants claimed to have seen AB label often 10% of participants claimed to have seen MSC label often The econometric model did not distinguish between the AB label used on farmed cod and farmed salmon (could not ask for more from the data) 18 9
Direct Effects of Negative Environmental Information A negative direct effect of information of about 2.2 per kg of fish regardless of fish type This negative effect is larger than the premiums of the labels ( 0.8 and 1.8) Labeling can only mitigate some of the effects of negative information Mean WTP when fish is nonlabeled and labeled without and with negative information about fish type Ames, Iowa, August 1, 2014 Norwegian University of Life Sciences 19 Indirect Effects of Information on the Substitutes Example: Effects of information about farmed salmon Different indirect effects on WTP for cod: 1. Ecolabeled farmed cod (same production technology) Increased WTP of about 1 per kilogram 2. Unlabeled farmed cod (same production technology) No effect 3. Ecolabeled wild cod (different production technology) No effect 4. Unlabeled wild cod (different production technology) Reduced WTP Surprising result (we do not have an explanation) AAEA Meetings, Minneapolis, July 27 29, 2014 Norwegian University of Life Sciences 20 10
Conclusions A premium of about 4% for MSC labeled wild cod A premium of about 10% for ecolabeled farmed salmon and farmed cod But also costs associated with labeling Is it profitable? Negative environmental information about a fish type reduces the WTP with about 10% to 13% (depending on which fish type) Negative environmental information dominates positive labeling effects Labeling organizations need to increase the credibility of the labels There are also complex cross-effects of negative environmental information on substitute fish types 21 Thank You! 22 11