Abstract
Organic food products, which have been sold traditionally at natural food stores, have become increasingly available through mass marketing channels. This study estimated an almost ideal demand system (AIDS) model using 2008–2010 retail scanner data to examine consumer demand for organic fluid milk products sold at conventional and natural marketing channels. Asymmetric cross-price elasticities were found suggesting relative stickiness in demand to switch from organic milk to conventional milk and from natural stores to food, drug, and mass merchandiser stores. More generally, demands shifting toward products with higher expenditure elasticities in a differentiated market can be explained by relative budget shares and expenditure elasticities.
Highlights
Organic food products, which have been sold traditionally at natural food stores, have become increasingly available through mass marketing channels
The results suggest that consumers of conventional fluid milk products at natural stores are less likely to switch their selections to organic products at FDM stores
Consumer demand for organic products has continued to evolve with developments of the organic food market
Summary
The expenditure and price elasticities were calculated using estimated parameters at the sample means and are presented in Table 3.5 The statistical significance of the elasticity estimates was determined by a Wald test. Organic fat-free fluid milk at FDM stores had the highest expenditure elasticities among FDM fluid milk products, but it was not significantly different from 1 at the 5 percent significance level. Conventional fluid milk products at FDM stores with lower fat content were less responsive to own-price changes than their organic counterparts by fat content in both compensated and uncompensated terms This finding seems to be consistent with the results in previous studies. Conventional fat-free milk and organic whole milk were the only pair showing a statistically significant relationship with a positive cross-price elasticity. Organic 1%&2% milk at FDM stores were substitutes for both conventional fat-free and 1%&2% products at natural stores, with much greater responses in demand for products at natural channels to changes in the prices of the products at FDM stores than vice versa. In the interest of space, only the elasticity results are reported in Table 5. 8 The estimation results for the aggregated system are available from the authors upon request
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