The Organic Milk Market in Germany Is Maturing: A Demand System Analysis of Organic and Conventional Fresh Milk Segmented by Consumer Groups

Abstract

ABSTRACTLiterature provides evidence of a highly price‐elastic demand for organic food. However, most of the studies were conducted several years ago. In the meantime the organic market has matured. Consequently, results in literature need to be reviewed. This study specifically addresses own‐price elasticity estimates for organic and conventional milk. The analysis is based on a household panel dataset of 20,000 German households. A two‐step estimation procedure is applied. First, a probit regression examines which household characteristics affect the probability of buying organic milk. Second, a linear approximated almost ideal demand system provides detailed demand elasticity estimates. By using up‐to‐date data, distinguishing between different consumer groups, incorporating sociodemographic information and relying on a considerably large sample size this study is both an update and a refinement of previous research. In contrast to previous studies, econometric results suggest that demand for organic milk is absolutely price‐inelastic in Germany. However, price responsiveness differs substantially between milk types and consumer groups. (EconLit classifications: C33, C34, D12). © 2012 Wiley Periodicals, Inc.