Consumers Willing to Pay More for rBGH-Free Milk

From: The Non-GMO Source Nov. 2003
<www.non-gmosource.com>

Consumers willingly pay more to get rBST-free and organic milk

Studies are first to show what consumers actually paid for a non-GM product

By Ken Roseboro
Ken Roseboro is editor of The Non-GMO Source, a monthly newsletter that
helps food producers respond to the challenges of genetically engineered
foods. He can be reached at ken@non-gmosource.com or www.non-gmosource.com.

Studies conducted in Wisconsin and Vermont, two major U.S. dairy-producing
states, find that consumers are willing to pay as much as $3.00 more for
organic milk and as much as $1.50 for milk labeled as being produced from
cows not treated with the genetically engineered growth hormone rBST
(recombinant bovine somatotropin).

Both studies are significant because they are the first to show what
consumers actually paid for a non-GM product on the market, as opposed to
what they believe they would pay. Prior studies on consumers
willingness-to-pay (WTP) for non-GM products have examined how much they
would pay on a hypothetical basis.

Pay $1.50 more for rBST, $3 more for organic

In Wisconsin, Jeremy Foltz, assistant professor of agricultural and applied
economics and extension at the University of Wisconsin-Madison, and Tirtha
Dhar, research associate with the Food System Research Group, analyzed
consumers' actual buying behavior during a five-year period. By studying
milk purchases in 12 key metropolitan markets, the researchers found that
consumers pay up to $1.50 per gallon more for milk labeled rBST-free and $3
per gallon more for milk labeled organic.

Willingness to pay higher prices is not necessarily linked to income. A
certain segment of the population perceives a risk to genetically modified
foods and searches for alternatives. Foltz and Dhar found that a small
increase in the price of standard brand milk leads many buyers to switch to
specially labeled milk, such as organic. And once consumers switch to this
higher-priced market, they generally do not switch back.

The market competition from the introduction of milk labeled organic or
rBST-free decreased the price of standard brand milk by 2¢ per gallon. When
projected to national sales, this represents approximately a $130-million-per-year benefit that consumers receive from the existence of specially labeled milk in the market Organic milk currently accounts for less than a 1 percent share of the milk
market in the United States, yet it is the fastest-growing segment of the
dairy industry. However, the rBST-free market has declined since 1998.

"Consumers put money where their mouths are"

A study at the University of Vermont also found that consumers paid more for
organic and rBST-free milk though not as much as those in the Wisconsin
study. Researchers, who included Jane Kolodinsky, Thomas Patrick DeSisto,
and Qingbin Wang, aimed to determine the magnitude of the premium paid by
consumers for rBST-free milk.

The study involved a public opinion survey of Vermont residents. Polling was
conducted by telephone in March 2001 and February 2002. The survey involved
646 respondents who had purchased a gallon of milk. The respondents were
asked if the milk they purchased was organic, rBST-free, discounted, or a
store brand. The researchers used a statistical price analysis to measure
consumer attitudes and valuation of product attributes. They found that
consumers pay, on average, $0.13 more for rBST-free milk and $0.36 more a
gallon for organic milk.

According to the researchers, determining consumers' willingness to pay more
for GM-free has implications for farmers, food producers, distributors, and
consumers. Farmers gain a better understanding of the value of their
products and can determine how to maximize profits. Food companies benefit
by being able to determine the economic gain or loss associated with
labeling GM-free products. Food distributors are better able to stock the
kinds of products that consumers want and adjust their prices to maximize
profits. Finally, consumers benefit by having more choice to satisfy their
preferences.

Kolodinsky, who is department chair of community development and applied
economics at the University of Vermont, says the study showed that
"Consumers not only said they were paying, they actually paid. People are
putting their money where their mouths are."

Difficult to publish research

In addition, the researchers say that developing a model for understanding
consumer WTP for GM-free agricultural products will become more important as
an increasing number of such products become commercially available.

Unfortunately, Kolodinsky says research on consumers' willingness to pay for
non-GMO is difficult to publish because journals do not want to be seen as
critical of biotechnology. ³The issue is so charged that journal reviewers
will say it is too politically oriented. We just want to see if farmers can
find a niche market and earn a better living,² she says.

The findings of the two studies have particular relevance now in the wake of
Monsanto Company's lawsuit against Oakhurst Dairy, a family-owned Maine
dairy producer, over rBST-free labeling. Monsanto claims that Oakhurst's
labeling practices deceive consumers into believing that rBST-free milk is
superior to milk produced from cows treated with the hormone.

"Our study clearly shows that all consumers gain significant benefits from
milk labeling. Weakening the standards or outlawing them altogether, as
Monsanto¹s suit might do, would reduce those benefits," says Foltz.