The International Consortium on Agricultural Biotechnology Research (ICABR)
Contingent Valuation of
Payment Card Interval Data
Wanki Moon and Siva Balasubramanian
Southern Illinois University
Growing public concerns appear to be altering the dynamic path of the progress of agricultural biotechnology, raising such intriguing issues as adoption of identity preservation, market segregation, and labeling as ways of segregating GMOs from nonGMOs throughout the food supply chain. Identity preservation, market segregation, certification, and labeling are not without additional costs to the production and marketing system. Hence, food supply chain participants would want to ensure that market demand for nonbiotech foods is sizable enough to guarantee that market prices cover these costs. Moreover, the segregation in the food supply chain causes tangible and intangible costs to the society in the forms of regulatory requirements (e.g., certification, labeling, potential impact on the progress of agrobiotechnology). The key question then is whether instituting segregated markets for nonbiotech foods generate benefits greater than those segregation costs.
The primary objectives of this paper are (1) to assess the potential demand for nonbiotech foods by estimating whether and how much consumers would be willing to pay more to purchase nonbiotech foods and thereby (2) present empirical insights into the current debate concerning the need for redesigning the food supply chain to separate nonbiotech from biotech crops. In recognition of the new product or nonmarket property of nonbiotech foods, a stated preference approach (i.g., contingent valuation) is used to measure consumer willingness to pay a premium for breakfast cereals made of nonbiotech ingredients. The study uses survey data collected in November, 2000 in the United States and United Kingdom.
Contingent valuation question was asked in the form of payment card which contains an ordered set of threshold values ranging from $0.00 to $3.00 for a box of breakfast cereals (with a base price of $4.00) made of nonbiotech crops. Willingness to pay a premium for nonbiotech foods was hypothesized to be determined by two groups of variables: (1) general food shopping habits; (2) perceptions about attributes specific to agrobiotechnology. The first group includes the importance of food safety and price in food purchasing decisions and consumption frequency of organic food products. The second subgroup involves eight perceived attributes in relation to agrobiotechnology: (1) health risks; (2) environmental risks; (3) moral and ethical considerations; (4) the image of multinational corporations as the primary beneficiaries of biotechnology; (5) the growing control of multinational corporations over farming; (6) potential increase in yields; (7) reduced use of chemical in crop production; and (8) improvement in nutritional composition.
Three models were estimated using maximum likelihood procedure proposed by Cameron and James (1989): (1) pooled data, (2) U.S. data, and (3) U.K. data. Using estimated parameters from three models, fitted values (W^) were calculated conditional on (Xß^). First, based on the pooled data, the U.S. mean WTP a premium for nonbiotech breakfast cereals was $0.3134, while consumers in the U.K. on average was willing to pay $0.5782. While the model using pooled data allows us to calculate mean WTPs for each country based on the binary indicator (COUNTRY), separate models would produce mean WTPs more consistent with the preferences of each country. Using separate models, the mean WTP was $0.3838 and $0.7316 for the U.S. and U.K. consumers, respectively. These comparisons indicate that the demand for nonbiotech foods would be greater in the U.K. than in the U.S. The mean size of premium ( $0.3838) for the U.S. consumers is translated into about 9.5 percent of the base price ($4.00) of breakfast cereals. The fitted value for the U.K. consumers ($0.73) translates into about 18 percent of the base price.