High price premiums as barriers to organic meat demand? A hedonic analysis considering species, cut and retail outlet

Staudigel, Matthias; Trubnikov, Aleksej Article — Published Version High price premiums as barriers to organic meat demand? A hedonic analysis considering species, cut and retail outlet Australian Journal of Agricultural and Resource Economics Provided in Cooperation with: John Wiley & Sons Suggested Citation: Staudigel, Matthias; Trubnikov, Aleksej (2022) : High price premiums as barriers to organic meat demand? A hedonic analysis considering species, cut and retail outlet, Australian Journal of Agricultural and Resource Economics, ISSN 1467-8489, Wiley Periodicals, Inc., Hoboken, USA, Vol. 66, Iss. 2, pp. 309-334, https://doi.org/10.1111/1467-8489.12472 This Version is available at: https://hdl.handle.net/10419/264546 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by-nc-nd/4.0/ High price premiums as barriers to organic meat demand? A hedonic analysis considering species, cut and retail outlet* Matthias Staudigel † and Aleksej Trubnikov † Rigid price setting and high organic price premiums have been perceived as major purchase barriers to organic meat products. While emerging price and product differentiation have been reported for organic products in other categories, empirical evidence for the organic fresh meat market is lacking. We estimate a hedonic pricing model based on German household scanner data for fresh red meat and poultry purchases from 2012 to 2014. We derive and test for differences in organic price premiums across distribution channels, species and product type. Our results indicate significant variation in organic premiums, which range from 14 per cent for minced beef to 108 per cent for chicken breasts, and are considerably lower than previously reported estimates. We also find substantial overlaps in the distributions of conventional and organic prices for selected products. Our results suggest that high price premiums can no longer serve as the dominant explanation for low market shares of organic red meat. Marketers and policymakers may instead communicate the benefits of organic meat over conventional premium alternatives more clearly or increase the availability of organic meat. Key words: Germany, hedonic analysis, household scanner data, meat, organic, price premiums. JEL classifications: D12, D22, L11, L81 1. Introduction Meat consumption has increasingly been subject to political debates due to its adverse effects on the environment and health, as well as concerns over animal welfare (Lusk 2011; Willet et al. 2019). In Germany, scientific advisory councils to the government have pointed out the negative impacts and lack of social acceptance of current farming practices (SRU 2012; SAB 2015). A representative consumer survey conducted by Forsa (2020) illustrates the *The project is supported by funds from the Federal Ministry of Food and Agriculture (BMEL) based on a decision of the Parliament of the Federal Republic of Germany via the Federal Office for Agriculture and Food (BLE) under the innovation support program (FKZ 2817203013). † Matthias Staudigel (email: [email protected]) is an assistant professor at the Chair Group of Marketing and Consumer Research, TUM School of Management, Technical University of Munich, Alte Akademie 16, 85354 Freising-Weihenstephan, Germany; Aleksej Trubnikov was a master’s student at the Chair Group of Marketing and Consumer Research at TUM while working on this study. He currently works as a consultant in the electric mobility sector. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made. doi: 10.1111/1467-8489.12472 Australian Journal of Agricultural and Resource Economics, 66, pp. 309–334 scepticism over meat. While only 5 per cent and 1 per cent state to eat strictly vegetarian and vegan, respectively, 55 per cent consciously avoid meat sometimes. Some consumers –especially the younger and higher-educated – turn to plant-based meat and dairy alternatives at least once a day (5 per cent) or once a week (11 per cent). A share of 50 per cent look for the (EU) organic label ‘always’ or ‘most of the time’ when shopping (Forsa 2020). Hence, one would expect many of those consumers who aim to eat more sustainably, but do not want to go completely meatless, to turn to organic meat as an alternative. Regulated by the EU Council Regulation (EC) No 834/2007, organic animal production faces stricter constraints than its conventional counterparts. Among others, the maximum stock size is tied to the farm area to preserve soil and water, feedstuff must be mostly organic, preferably from the same farm, and animals must have more space and access to open air and grazing areas. Non-curative surgery or prophylactic antibiotic usage is prohibited (BMEL 2021; EC 2021; TI 2021). Compared with conventional animal production, organic production has been credited for increased water protection, soil fertility, biodiversity and slightly higher animal welfare (Sanders and Heß2019). No advantages exist regarding greenhouse gas emissions (Pieper and Michalke 2020). Despite stated consumer interest and reported benefits, organic meat still represents a niche in Germany. In 2019, organic shares in household meat purchases were 2.6 per cent for red meat, 1.8 per cent for poultry and 1.6 per cent for processed meat products (AMI 2020a; b). An oft-cited reason for this citizen–consumer gap is the large price premiums of organic over conventional food products (R¨ odiger and Hamm 2015; Aschemann-Witzel and Zielke 2017). Such price differences have been reported to be especially high for meat (products) (Schr¨ ock 2013) and have been claimed to act as major purchase barriers (e.g. Spiller 2001; Plassmann and Hamm 2009; Van Loo et al. 2010). One explanation for high organic price premiums includes the large differences in production costs between organic and conventional meat (Beukert and Simons 2006; ¨ Okolandbau 2019). A second reason is higher costs in slaughtering, processing and distributing organic meat due to the separation of flow of goods and a lower degree of specialisation (Beukert and Simons 2006). Third, retailers may hesitate to stimulate organic product sales through price promotions or low-price strategies (Spiller 2001). Potential reasons include fear of negative price-quality irradiations, unprofitable price wars or procurement problems. Also, retailers imitating the high price strategy of organic pioneers and normative pressure from stakeholders in the organic sector may play a role (Spiller 2001; Hamm and Aschemann 2007). Finally, consumers are regarded as ‘picky’, preferring only select cuts. In the conventional sector, high-grade parts such as chicken breast sold fresh at retail outlets therefore have to subsidise other parts of the carcass sold at declining margins into other regions (EU, third country markets) or other ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 310 M. Staudigel and A. Trubnikov channels (large-scale consumers, processed meat, pet food) (Thies and Efken 2020). This effect is amplified for organic meat, where less-demanded cuts can only be sold as conventional meat (Korbun et al. 2004; Quaing 2017). Example statements for magnitudes of organic meat price premiums can be found in the Scientific Advisory Board’s report on socially acceptable husbandry practices (SAB 2015). Assumed premiums are at 200 per cent for organic poultry (p.74), 100 per cent for organic meat (p.80), and 100 per cent to 300 per cent for products offering higher animal welfare. Except for a comparison of select chicken breast products (p.296), these numbers are not supported by empirical evidence. At the same time, research suggests that high organic price premiums may no longer serve as the dominant explanation for low market shares. Price ranges of individual food categories have been found to be wide for both conventional and organic segments with considerable overlaps (Hamm and Wild 2004; Hamm et al. 2007). Organic prices are often comparable to the prices of premium conventional products (Stumm 2004; Hamm et al. 2007). Hamm et al. (2007) advise caution with estimates of organic price premiums based on averages for broad categories, which is definitely advisable for meats, where conventional prices vary across, for example, species, retail cut, store type or brand. The previous discussion suggests that there is a lack of empirical evidence regarding the existence and the magnitude of price differences between conventional and organic meat. Given the controversial debate on adverse environmental and health effects, as well as concerns over animal welfare, there is a need for robust insights on whether high organic price premiums still serve as a plausible explanation for low organic market shares. If this is no longer the case, the question arises, which alternative obstacles prevail and which marketing and policy instruments exist to appropriately address them. Against this background, this article addresses the following research questions: (i) Do organic premiums exist and, if yes, what is their magnitude? (ii) Do organic (and conventional) premiums differ across different product and market factors? (iii) How are conventional and organic prices distributed and how strongly do they overlap? We aim to answer these questions using household scanner data from the Gesellschaft f¨ ur Konsumforschung (GfK) for fresh red meat and poultry purchases from 2012 to 2014. We isolate the organic premium by means of a hedonic price model, regressing purchase prices on a binary organic indicator and controlling for other product characteristics (package weight, species and cut) and market factors (vending type and distribution channel). We test for differences in organic premiums across product and market factors by introducing a set of interaction terms with organic. Additionally, we analyse conventional and organic price dispersions for select products to consider heterogeneity in more detail. Our results will inform the discussion on high price premiums as a major purchase barrier to organic products. Depending ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc Price premiums for organic meat 311 on the results, we discuss alternative explanations, market potential, and marketing and policy implications. 2. Previous work on organic premiums for meat The ongoing interest in the magnitude of organic price premiums is mirrored by numerous studies. Studies based on hedonic analyses for the United States include Jaenicke and Carlson (2015) for carrots, soup, coffee and milk; Carlson and Jaenicke (2016) for 17 different food products; Smith and Huang (2009) and Kiesel and Villas Boas (2007) for milk; Huang and Lin (2007) for fresh tomatoes; and Waldrop and McCluskey (2017) for wine. European examples comprise Schr¨ ock (2014) for cheese; Corsi and Strøm (2013), Abraben and Grogan (2017) and Fanasch and Frick (2020) for wine; and Ankamah-Yeboah and Nielsen (2016) for salmon. Griffith and Nesheim (2013) showed how the hedonic approach can be used to retrieve lower and upper bounds of WTP for organic meat based on large consumer baskets. Some of these studies provided evidence that organic price premiums vary across time or season (Kiesel and Villas Boas 2007; Carlson and Jaenicke 2016), market factors and retail channels (Schr¨ ock 2014; Jaenicke and Carlson 2015), geographical location (Huang and Lin 2007; Chang and Lusk 2010), product type (Smith et al. 2009), production method (Chang et al. 2010) and the presence of multiple certifications (Waldrop et al. 2017). Table 1 lists existing hedonic analyses for meat and meat products, indicating that empirical evidence on organic price premiums for meat is limited. In the United States, Boland and Schroeder (2002) found small organic premiums for wholesale prices of 11 primary beef cuts and Schulz and Schroeder (2012) reported a high organic price premium of $2.98/lb. for beef steaks. Gschwandtner and Ribeiro (2019) found an organic price premium of 135 per cent for chicken meat in the United Kingdom. Other existing hedonic studies for meat in Europe investigated protected geographical identifications in Galicia (Loureiro and McCluskey 2000) and country-of-origin labelling in the United Kingdom (Hussein and Fraser 2018). Both studies did not include the organic attribute as a covariate. While empirical evidence on variation in organic price premiums for meat across product attributes and market factors is scarce, available studies suggest that investigating differentiated premiums is important. Boland and Schroeder (2002) report organic premiums to vary across different steak cuts. They found small positive organic premiums for rib eye, gooseneck and knuckle and negative premiums for top butt and inside round. Dennis (2020) computed average organic premiums for select beef, pork and chicken cuts in the United States. He found premiums to vary across species, with chicken garnering the highest premiums, followed by pork and finally beef. Premiums were found to be higher for higher-priced beef cuts. Two studies have provided evidence for variation in premiums for origin labels and branding across meat cuts. Loureiro and McCluskey (2000) found ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 312 M. Staudigel and A. Trubnikov Table 1 Hedonic studies for meat No. References Country Category Data source Key attribute Findings 1 Loureiro and McCluskey (2000) Spain (Galicia) Veal Survey of 157 families on meat consumption, 31 March to 1 June 1997 (n=962) PGI label, interacted with meat cut PGI label has a price premium of 32 pesetas/kg (0.21 US-$/kg). Premiums for PGI are significant only for higher-priced products. 2 Boland and Schroeder (2002) United States (Midwest) Primary beef cuts Data for 630 beef cattle sales from producer cooperatives, 05/1996– 12/1999 Production and processing attributes, organic No significant effect of organic. 3 Parcell and Schroeder (2007) United States Pork and beef retail cuts Meat Panel Diary, NPD Group, 2,000 households surveyed twice/month, 1992–2000 Product and retail factors Brand premiums vary across private, national and store brands and across meat cuts carrying the same brand name. 4 Schulz et al. (2012) United States Retail steak products Retail scanner data, 01/2004 to 03/2009 Brand, breed, organic, others Organic garners a premium of 2.98 US-$/lb. relative to non-organic. 5 Hussein and Fraser (2018) United Kingdom Fresh and processed meat Aggregated market data, Kantar World Panel, 02/2010–01/2015 Country-of- origin label No difference between English, Irish and British origin. Undeclared origin has a negative premium of 2 £/kg relative to British origin. 6 Gschwandtner et al. (2019) United Kingdom Chicken meat 2016 Household scanner data, Kantar World Panel Organic Implicit marginal price of 135% (6.36 US-$/kg) for the organic attribute. 7 Dennis (2020) United States Select beef, pork and chicken cuts Advertised price data, USDA- Agricultural Marketing Service, 12/2018–01/2020 Organic Organic premium for boneless chicken breast was 194% and 63% for a boneless ribeye steak. Organic premiums appear larger for lowerthan for higher-priced products. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc Price premiums for organic meat 313 that premium veal cuts achieved higher price premiums if they carry the protected geographical indication (PGI) label in Galicia. The authors concluded that the label provided additional value when the meat was bought on special occasions for which consumers seek higher quality products in terms of either sensory characteristics or image. Parcell and Schroeder (2007) found brand premiums to be higher for steak and premium cuts but not for minced meat. The previous discussion highlights the importance of accounting for differences in organic price premiums for food in general and meat in particular. For the fresh meat market in Germany, three observations suggest that distribution channel, species and product type warrant particular attention. First, assortment and price strategies across supermarkets, discounters or traditional butcher shops for conventional and organic meat have been shown to be heterogeneous (Aertsens and Mondelaers 2009). Whereas discounters follow an ‘every-day-low-price (EDLP)’ strategy for conventional meat, supermarkets pursue a ‘high–low (HiLo)’ pricing strategy to stimulate store traffic (Mihr 2014; Roeb 2014). For organic meat, discounters tend to emulate their EDLP approach, while supermarkets apparently position organic meat as a high price premium product (Knuff 2017). Butcher shops, direct marketers or farmers’ markets attract consumers who value taste, quality and freshness, and are less price-sensitive (Hensche and Schleyer 2007; Schulze and Spiller 2008a). At the same time, these smaller outlets might incur higher processing and marketing costs. We assume that differences in both conventional base prices and pricing strategies for organic meat lead to diverging premiums across distribution channels. Second, organic premiums may vary across meat cuts of different price ranges and attributes. This follows from the discussion over the issue of highgraded cuts subsidising lower-price cuts, where we expect a more pronounced effect for organic compared with conventional premiums. While important for marketing considerations, the literature has mostly neglected consumer preferences for different meat cuts and their relation to extrinsic product attributes such as organic or origin. Existing studies mostly dealt with general species or specific cuts such as steaks (Scozzafava et al. 2016). Third, we expect pronounced differences in organic premiums across species. The gap in production costs between organic and conventional meat has been reported to be smaller for beef (0.50 euro per kg carcass weight) than for pork (1.00 euro per kg carcass weight) (Beukert and Simons 2006; ¨ Okolandbau 2019). Organic–conventional cost differences for poultry and especially chicken production can be assumed to be even higher due to significant differences in efficiency and growth rates. For example, fastgrowing high-intensive conventional breeding lines reach their slaughtering weight after 38 days, while it takes approximately 70 days for slow-growing breeds used in organic chicken production ( ¨ Okolandbau 2020), increasing costs for feed, labour and housing. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 314 M. Staudigel and A. Trubnikov The assumed variations in organic premiums are accounted for in the empirical model presented in Section 4 by interaction terms of the organic indicator with the discussed product and market factors. Additionally, we will investigate detailed price distributions for conventional and organic meats in Section 5.3 to obtain insights into heterogeneity in purchase prices and the potential market demand for select organic cuts. 3. Data on German fresh meat purchases We use household scanner data for fresh meat and poultry purchases in Germany covering 2012 to 2014 from the Gesellschaft f¨ ur Konsumforschung’s (GfK) ConsumerFresh Panel (GfK 2012-14). Participating households are equipped with a handheld scanner and scan barcodes of all grocery purchases made on a daily basis. For non-packaged food items, households scan codes from a codebook with pictures and examples for a variety of items (e.g. various types of fresh produce or fresh meat). Participants report the weight and expenditure of individual purchases along with product and purchase attributes such as animal species, product type, over-the-counter (OTC) vs. self-service purchases, distribution channel, and organic vs. conventional production. The data contain purchase information for the full range of retail outlets for meat, including butcher shops, farmers’ markets and direct marketers. The raw data set contained 1,486,582 observations from 21,656 households. We purged outliers of extremely low prices (<0.45 €/kg, 4 observations dropped) and extremely high prices (>80 €/ kg, 8 observations dropped) and dropped observations with missing values for socio-demographics and attitudes. While we lost 6,641 households (30.7 per cent), these accounted only for 115,195 or 7.8 per cent of all purchases. Our final data set contained 1,371,387 purchase observations from 15,015 households. Table 2 provides frequencies, organic shares and median prices across different product characteristics (farming type, species, product type) and market factors (distribution channel, vending type). In line with earlier reports, only 1.37 per cent of all meat purchases fall into the organic category. Pork meat accounts for the largest number of purchases with a share of 49.8 per cent. The remaining species were ranked in the following order: beef (14.2 per cent), chicken (14.0 per cent), mixtures of pork and beef (11.2 per cent) and turkey (7.9 per cent). Other red meat (e.g. veal, lamb) and other poultry (e.g. duck and goose) products make up less than 2 per cent of all purchases. Figures for distribution channels mark discounters as major players in the fresh meat segment with a share of 39.3 per cent of all purchases. With supermarkets and hypermarkets accounting for 25.2 per cent and 20.8 per cent, respectively, standard retail formats account for about 85 per cent of all purchases for fresh meat in the data. In contrast, butcher shops account for ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc Price premiums for organic meat 315 only 11 per cent of purchases. Regarding product type 1 , the top five sellers are raw minced meat (17.6 per cent of purchases), poultry breast (13.0 per cent), processed minced meat (9.4 per cent), chops (9.1 per cent) and steak (7.8 per cent). High shares of these product types reflect the importance of convenience and time saving in today’s meal preparation (Spiller and Schulze 2008). Two-thirds of all purchases come from self-service shelves mirroring Table 2 Frequency, organic share and median prices across meat product characteristics Freq. Perc. Organic share (%) Price (euro/kg) Conventional Organic Median SD Median SD Farming type Conventional 1,352,638 98.63 –5.98 3.66 –– Organic 18,749 1.37 –––8.02 5.28 Species Pork 682,579 49.77 0.87 5.58 2.50 8.99 3.97 Beef 194,808 14.21 2.08 7.98 5.53 8.97 4.62 Pork/beef mixed 154,136 11.24 3.83 4.58 1.71 7.97 1.79 Other red meat † 23,049 1.68 0.52 13.90 7.94 22.29 9.27 Chicken 191,474 13.96 0.84 6.13 2.64 15.00 8.21 Turkey 107,915 7.87 0.93 6.77 2.44 15.32 5.15 Other poultry † 17,426 1.27 0.83 5.16 5.14 10.00 4.56 Distribution channel Discounter 539,117 39.31 1.18 5.58 2.47 7.97 1.23 Supermarket 346,381 25.26 1.08 6.35 4.30 10.99 6.53 Hypermarket 284,940 20.78 0.40 4.99 2.97 7.97 4.17 Butcher 153,248 11.17 2.42 7.99 4.67 9.90 4.59 Other ‡ 47,701 3.48 7.92 6.99 5.25 11.40 6.42 Product type Minced, raw 240,670 17.55 3.88 4.58 1.55 7.97 1.95 Processed minced 128,922 9.40 1.00 5.00 2.61 7.30 1.94 Roast 91,290 6.66 1.58 5.99 2.82 10.70 3.25 Diced 83,859 6.11 0.65 5.98 2.22 10.82 3.34 Chops 124,700 9.09 0.99 5.97 3.51 9.89 4.69 Processed chops 40,343 2.94 0.26 5.90 2.33 10.99 3.72 Steak 106,812 7.79 0.99 6.98 4.44 9.89 4.43 Breast 177,709 12.96 1.12 6.73 2.28 19.34 6.21 Fillet 45,454 3.31 1.18 9.60 7.89 17.90 6.63 Other product type † 331,628 24.18 0.36 5.58 4.11 9.90 4.90 Vending type Self-service 901,060 65.70 1.20 5.50 2.81 7.98 5.30 Over-the-counter 470,327 34.30 1.68 6.96 4.67 9.90 5.19 Source: Authors’ presentation based on GfK data from 2012 to 2014. † For items subsumed under Other red meat,Other poultry and Other product type, see Appendix S1. ‡ Other distribution channels comprise direct marketers and farmers’ markets. 1 We aggregated the numerous different products in the raw data into more manageable categories based on average price, quality level, retail cuts, and similar preparation style and consumption occasion. These aggregates and their single components are depicted in Appendix S1. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 316 M. Staudigel and A. Trubnikov pronounced than the respective cost spreads for pork and beef production (Beukert and Simons 2006; ¨ Okolandbau 2020). Turkey has a considerably lower organic premium of 16.3 per cent, while the results for other poultry products are not significant. Organic premiums for poultry also vary considerably across distribution channels. While supermarkets and hypermarkets reveal organic premiums of 53.8 per cent and 62.2 per cent, respectively, these are not significantly different from those observed for discounters at 49.9 per cent. In contrast, the organic premium for poultry demanded by butcher shops is much lower (15.9 per cent). Regarding product type, we found high organic price premiums of 108.4 per cent for breast or fillet cuts. This result is most likely driven by consumer preferences for convenience and the associated price–cost calculations of producers who are often able to sell only breast parts of organically reared poultry at a premium. Table 4 Results of FE hedonic regression for poultry, 2012–2014; dependent variable ln Price Direct effects Interactions with organic Conventional premiums Organic premiums βZSE δZSE PremzPremOrg z Organic 0.405* 0.050 49.9 Species (Ref: chicken) Turkey 0.116* 0.002 −0.254* 0.025 12.3 16.3 Other poultry 0.307* 0.009 0.168 0.076 35.9 77.2 Distribution channel (Ref: discounter) Supermarket 0.131* 0.005 0.026 0.054 14.0 53.8 Hypermarket 0.033* 0.004 0.079 0.080 3.4 62.2 Butcher 0.434* 0.011 −0.257* 0.044 54.4 15.9 Other 0.315* 0.011 −0.086 0.060 37.1 37.6 Product type (Ref: other product type) Breast 0.364* 0.003 0.330* 0.027 43.9 108.4 Vending type (Ref: self-service) Over-the-counter −0.019 0.006 −0.060 0.030 −1.9 41.1 Weight −0.213* 0.004 −19.2 Constant 1.510* 0.028 N316,815 (13,604 households) R²Within =0.40; Between =0.49; Overall =0.45 Pooled vs. FE: H0:ηh¼0 for all hF-statistic =8.61 P-value =0.000 Test for groupwise heteroscedasticity: H0:σ2 h¼σ2for all h χ2¼1.2e+37 P-value =0.000 Test on FE vs. RE: H0:EX iht∙ηh ðÞ¼0 Sargan–Hansen = 1251.41 P-value =0.000 Note: *Significance at the 0.1 per cent level. Regression additionally controls for year, month and state fixed effects. Robust standard errors clustered at the household level. Bold values highlight price premiums based on significant regression coefficients. Source: Authors’ presentation based on GfK data from 2012 to 2014. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc Price premiums for organic meat 323 5.3 Price dispersion analyses The results of the hedonic models provide insights into distinct organic premiums across distribution channel, species and product type. Despite the strong level of disaggregation, these estimates still have to be interpreted at means. For heterogeneous consumers and differentiated supply, it is additionally worthwhile to compare the price of the previously purchased conventional product with the price of its organic equivalent (Hamm et al. 2007). Figure 1 plots price distributions for select meat cuts across channels for conventional and organic to allow more detailed insights. Conventional price ranges are narrow for discounters and hypermarkets and wider for supermarkets, butcher shops and other outlets. In the organic segment, the data lack sufficient purchases of chicken breast, beef roast and pork fillet in discounters, hinting at a low degree of penetration. Prices for the more frequently purchased organic minced meat vary little in discounters. Supermarkets reveal a wide distribution of prices for most organic cuts that are similar or higher than those paid in butcher shops and other outlets. Contrary to earlier analyses (Spiller 2001), we find that supermarkets do price flexibly for organic meats. The ranges of conventional and organic prices have considerable overlaps. This is especially the case for beef cuts, supermarkets, butcher shops and other outlets, but less so for chicken breast and discounters. These overlaps indicate that many consumers have paid a price for conventional meat at which the organic counterpart would have generally been available. To investigate the potential demand for organic meat cuts, Table 5 depicts the proportion of conventional purchases with a price equal or higher than the median of the corresponding organic product. 3 We compare a baseline where we use unchanged conventional prices with two scenarios, where we increase these conventional prices by 10 per cent and 30 per cent, reflecting the range of WTP for organic meat reported by literature (Van Loo et al. 2014). At butcher shops, for instance, 12.0 per cent of minced beef purchases, 11.8 per cent of beef roast purchases and 7.0 per cent of pork fillet purchases have been made at prices at or above the medians of each product’s organic price range. Lower but still substantial overlaps exist for other outlets and supermarkets. For chicken breast and discounters, conventional and organic price ranges are more segregated. Assuming a WTP of 30 per cent for organic, the share of congruent price observations increases, resulting in a total share of 14.6 per cent for beef roasts, 9.0 per cent for minced beef and 9.1 per cent for pork fillet. 3 To control for regional price differences, we adjusted the prices as follows: We separately regressed prices for organic and conventional meat on a set of federal state dummies. Adjusted prices were then computed as the intercept plus the predicted residual of these regressions. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 324 M. Staudigel and A. Trubnikov 6. Discussion and conclusion The main objective of this paper was to investigate the magnitude of and variation in organic price premiums for fresh red meat and poultry. While the Scientific Advisory Board considered premiums in the range of 100–300 per deximdecniM(b)tsaerbnekcihC(a) tsaorfeeB(d)feebdecniM(c) telifkroP(f)skaetskroP(e) 010 20 30 Price in euros per kg Discounter Supermarket Hypermarket Butcher Other 0 5 10 15 20 Price in euros per kg Discounter Supermarket Hypermarket Butcher Other 0 5 10 15 Price in euros per kg Discounter Supermarket Hypermarket Butcher Other 0 5 10 15 20 Price in euros per kg Discounter Supermarket Hypermarket Butcher Other 0510 15 20 Price in euros per kg Discounter Supermarket Hypermarket Butcher Other 510 15 20 25 30 Price in euros per kg Discounter Supermarket Hypermarket Butcher Other Figure 1 Price distributions of select cuts across channels for conventional and organic. Note: Illustration shows standard boxplots with minimum, 25th, 50th and 75th percentiles, and maximum. Outliers are excluded. Source: Authors’ presentation based on GfK data from 2012 to 2014. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc Price premiums for organic meat 325 cent (SAB 2015), our estimates based on revealed preference data suggested much lower and more differentiated price premiums. Organic premiums of low-priced cuts for beef (raw minced) start at 14.2 per cent, for pork (raw minced) at 36.9 per cent, for turkey (other parts) at 16.3 per cent and for chicken (other parts) at 49.9 per cent. Premiums for medium-priced cuts (chops or steak) range from 35 per cent to 60 per cent and for high-priced cuts go up to 108.4 per cent for chicken breast. Although these premiums are still higher than most estimated WTP values for sustainability claims on meat of around 10–30 per cent (Van Loo et al. 2014), they are unlikely to act as a major purchase barrier. We found substantial overlaps in the distributions of conventional and organic prices paid by households for select cuts across distribution channels. Adding a virtual WTP of 30 per cent to conventional prices yielded respectable shares of households prepared to pay prices above the median organic price, for example 9.0 per cent for minced beef, 14.6 per cent for beef roast and 9.1 per cent for pork fillet. An important exception was the poultry segment, where both premiums and price distributions indicated substantial price differences between organic and conventional. These results raise the question, which other barriers to higher organic shares exist and which implications follow for marketing and policy design. Table 5 Percentage share of (virtual) conventional purchase prices above median organic prices Chicken breast Minced mixed Minced beef Beef roast Pork steaks Pork fillet Discounter Base n.a. 0.0 0.2 n.a. 0.3 n.a. WTP 10% n.a. 0.1 0.2 n.a. 0.4 n.a. WTP 30% n.a. 0.1 0.5 n.a. 2.7 n.a. Supermarket Base 0.0 0.2 2.3 4.0 1.0 2.7 WTP 10% 0.1 0.3 3.2 7.0 1.9 6.0 WTP 30% 0.1 0.7 7.3 13.3 6.6 13.2 Hypermarket Base 0.0 0.4 5.7 2.2 0.3 1.9 WTP 10% 0.0 0.6 7.2 4.3 0.3 2.5 WTP 30% 0.5 1.0 11.0 13.6 0.9 4.7 Butcher Base 0.3 6.3 12.0 11.8 5.5 7.0 WTP 10% 1.2 14.9 24.7 17.3 10.0 15.6 WTP 30% 5.1 35.5 53.6 31.1 26.5 33.2 Other Base 0.1 0.5 5.2 6.7 3.3 2.0 WTP 10% 0.3 1.7 9.0 10.3 5.7 6.1 WTP 30% 1.3 5.3 17.2 18.4 11.2 11.9 Total Base 0.0 0.5 2.8 3.9 0.9 2.1 WTP 10% 0.1 1.1 4.5 6.7 1.6 4.3 WTP 30% 1.7 2.6 9.0 14.6 5.3 9.1 Note: Numbers show the proportion of conventional purchases at a price ≥the median organic price for the same cut. WTP 10 per cent and WTP 30 per cent consider an increase in the conventional prices by 10 per cent and 30 per cent. Source: Authors’ presentation based on GfK data from 2012 to 2014. ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 326 M. Staudigel and A. Trubnikov 6.1 Marketing implications Smaller organic premiums in butcher shops and overlaps in organic and conventional price ranges in butcher shops, other outlets and supermarkets suggest considerable market potential for organic meat at prevailing prices. The exploitation of this potential may be hindered by competition from differentiated conventional meat products offering individual animal welfare and sustainability attributes such as ‘regional’, ‘husbandry on straw’ or ‘access to fresh air’. Butcher shops in particular attract demand from consumers who value meat quality and regional production (Becker 2000; Schulze and Spiller 2008a). An assignment for marketing would be to communicate the benefits of organic vis-` a-vis premium conventional alternatives more clearly (see also Hamm et al. 2007). While organic has clear advantages regarding water protection, soil fertility or biodiversity, animal welfare and climate benefits are comparable to premium conventional meat (Sanders and Heß2019; Pieper et al. 2020). Consumers appear to focus on animal welfare in their meat demand, while results for environmental consciousness (apart from the ubiquitous climate debate) are mixed (SAB 2015, p.75). A challenge for research is to investigate whether and how communication can make the benefits of organic meat production more visible. Realising the market potential suggested by the overlapping prices may further be hindered by a low degree of market penetration. The major question here is whether consumers buying premium conventional products have the organic alternative readily accessible. This is arguably not the case for butcher shops and direct marketers, which are often too small to provide both conventional and organic meat. These suppliers would have to convert entirely from conventional to organic, a step associated with high risks and uncertainty such as ensuring stable procurement from organic farmers and maintaining a sufficiently large customer base. Our data indicate that especially discounters seem to list few meat cuts in organic quality (mostly minced meat or chops), which are priced modestly above conventional offerings but at narrow ranges. Limited shelf space and a restricted number of stock-keeping units in discounters make substantial growth of the organic meat range parallel to conventional meat unlikely. A potential marketing strategy is to slowly increase the share of meat with selected sustainability attributes (but not necessarily organic) in the overall assortment –anticipating developments in consumer behaviour and future regulation –without abandoning the claim to offer the lowest prices. This is what we currently observe for hard discounter Aldi, which pledged to exclusively sell meat from high animal welfare production from 2030 onwards (ALDI 2021). A more differentiated picture emerges for supermarkets, where we find a higher availability of organic meat cuts with marked price variation and overlaps with conventional prices. It appears that the lack of retail price ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc Price premiums for organic meat 327 strategies for organic products –as described by Spiller (2001) –is no longer valid with regard to organic meat. However, household scanner data do not allow definite conclusions on the degree of distribution of organic (or also animal welfare) meat products. An important research gap remains, how prices are set across supermarket chains, store formats (small vs. large), market environment (region, urban vs. rural), type of meat products, brands and private labels. An important result is that high-priced cuts such as roasts or fillets within red meats and breasts in the poultry segment command higher organic premiums. The implication for marketing is to position premium cuts (such as fillet or steaks) as ‘special’ or ‘treats’ for weekends or special occasions, where cooking is a leisure activity together with family and friends (Spiller and Schulze 2008) and meat still plays an important role regarding representation motives (Biermann and Rau 2020). An open question is whether a similar positioning can work for nonpremium cuts such as minced meat, whole chickens or even processed meat products. We find substantial organic price premiums for raw minced meat and most other types of red meat around 37 per cent and for other poultry parts at 50 per cent. Raw minced meat in particular has the highest organic share in our data (3.9 per cent) and shows substantial overlaps between conventional and organic prices. These results suggest that demand for organic meat (products) exists beyond select premium cuts. An implication would be to develop a consistent marketing concept that communicates the benefits of organic production, especially for lower-price cuts and processed meat products addressing widespread consumer demand for convenient and easy-to-prepare products (Spiller and Schulze 2008; Hubert 2014). Such a concept would appeal to a larger segment of consumers located in the medium price range and partly alleviates joint-production issues of exclusive marketing of premium cuts. 6.2 Policy implications The result of substantial differences in premiums across retail formats for conventional fresh meat provides evidence for the strong price competition among discounters and full-range grocers (Mihr 2014; Roeb 2014). Low prices for fresh conventional meat set by large food retailers are a major driver of high organic premiums and have been subject to public debate. After the Federal Minister of Food and Agriculture termed extremely low poultry prices ‘obscene’ and saw a ‘moral obligation’ of retailers (Tagesspiegel 2021), her ministry announced reviewing policy options such as advertising bans for price discounts on meat or tightening the law on selling below purchase costs (BMEL 2020). However, low prices for meat provide no rationale for legislative intervention per se, as long as there is no monopoly and below-purchase- cost sales are effectively prevented. Market failures providing such rationales ©2022 The Authors. The Australian Journal of Agricultural and Resource Economics published by John Wiley & Sons Australia, Ltd on behalf of Australasian Agricultural and Resource Economics Society Inc 328 M. Staudigel and A. Trubnikov –also distorting the costs of different meat production systems –may rather be found in negative externalities related to, for example, water pollution or underprovision of animal welfare as a public good. Regulatory approaches that are better suited in both cases comprise stricter requirements for animal husbandry practices or treatment of pollutants. As these measures affect marginal costs, prices for conventional meat will increase, narrowing the gap in organic premiums. An open question for future research is, how strongly conventional prices will be affected and which role price–cost margins and price transmission play. Another policy instrument related to meat consumption is carbon taxation to internalise costs of greenhouse gas emissions from animal production, especially from ruminants. Given a similar emission potential of organic and conventional meat production (Pieper et al. 2020), prices of both segments would be affected. The effect on the organic premium would depend on the tax design and may be increasing (for value-added taxes with stronger price increases for expensive organic or premium conventional meat) or decreasing (for excise taxes with a constant tax rate per CO2equivalent). An interesting open question is how such a carbon tax would affect substitution behaviour between organic and conventional meat. 6.3 Limitations and future research avenues The current study is subject to some limitations that may be addressed in future research. First, the organic shares in the data used here compare well with those given for 2019 in Introduction. However, the most recent numbers for 2020/21 indicate considerable growth rates of organic red meat and poultry (AMI 2021). While we perceive this trend as a confirmation of our main results, future research may investigate drivers and robustness of this development using more recent data. Second, our household scanner data preclude analysing explicit pricing strategies for meat by retailers, because products were defined generically according to species–cut combinations and individual retail stores (where price strategies would be observed) were not identifiable explicitly. Future research may use retail scanner data instead, which allow to trace dynamic retailer pricing for specific products over time and provide the basis for estimating detailed price elasticities for fresh meat to study consumer price sensitivity for organic and conventional meat products. Finally, the discussion on higher organic premiums for high-priced cuts (breast, fillets) has pointed to open questions regarding other important quality attributes such as brand, sensory characteristics, and consumer motives and corresponding expectations towards organic meat. 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