Healthy soil and sustainable growing

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AVERAGE SHOPPERS ARE WILLING TO PAY A PREMIUM FOR LOCALLY PRODUCED FOOD
http://researchnews.osu.edu/archive/locfood.htm

COLUMBUS, Ohio – New research suggests that the average supermarket shopper 
is willing to pay a premium price for locally produced foods, providing some 
farmers an attractive option to enter a niche market that could boost their 
revenues.

The study also showed that shoppers at farm markets are willing to pay almost 
twice as much extra as retail grocery shoppers for the same locally produced 
foods. Both kinds of shoppers also will pay more for guaranteed fresh produce 
and tend to favor buying food produced by small farms over what they perceive 
as corporate operations, according to the study.

“Our conclusion is that if a farmer wants to consider producing food for 
local distribution and marketing it locally, there are people who are willing 
to pay more for it,” said Marvin Batte, a co-author of the study and the Fred 
N. VanBuren professor of agricultural, environmental and development 
economics at Ohio State University. “We are not saying that we should be 
producing all of our foods locally, just that this may be a viable, 
profitable activity for farmers.”

And what’s good for farmers also benefits consumers in this case, said Batte, 
director of the research project.

“This is an indication that certain groups out there value locally produced 
food and if farmers deliver that, it makes these consumers happier, so it’s 
good for them, too,” he said.

Most of the survey was conducted in late 2005. Batte said the findings – and 
his contention that not all food should be produced locally – still apply 
today, even in the face of rising fuel and food prices. Many food crops that 
thrive in specific types of climates cannot be efficiently and affordably 
produced for local distribution elsewhere. And, he said, those who buy local 
food to support nearby growers likely would be even more motivated to lend 
that support in a flagging economy.

The study is published in the May issue of the American Journal of 
Agricultural Economics.

The researchers surveyed shoppers at 17 Midwestern locations, including seven 
retail grocery stores, six on-site farm markets and four farmers’ markets 
hosting sellers from multiple farms. The researchers used data from 477 
surveys.

"We were able to determine how important price was, how important where the 
strawberries were produced was and whether the freshness guarantee was a 
factor,” Batte said. “Basically what made the biggest difference was local 
production.”

The survey presented shoppers with two product options. Both were baskets of 
strawberries, but they were presented under 80 combinations of price, farm 
location and farm type. Some scenarios also included a freshness guarantee. 
After presenting the options, the researchers asked shoppers which basket of 
strawberries they would buy.

“Statistically, we sorted out what explains each person choosing one basket 
over the other. We were able to determine how important price was, how 
important where the strawberries were produced was and whether the freshness 
guarantee was a factor,” Batte said. “Basically what made the biggest 
difference was local production.”

In the study, local production meant the berries were grown within Ohio.

The average retail shopper was willing to pay 48 cents more for strawberries 
produced locally, and shoppers at farm markets were willing to pay 92 cents 
extra. With the base price for a quart of berries set at $3, farm market 
shoppers were willing to pay almost a third more for the local produce.

The freshness guarantee also held meaning for shoppers. If shoppers were 
promised fresh produce that was recently harvested, farm market shoppers were 
willing to pay 73 cents extra and retail shoppers indicated they would pay 54 
cents more.

The researchers also tried to test shopper interest in supporting small vs. 
large farms by naming one fictional berry producer “Fred’s” and the other 
“Berries Inc.” Shoppers in grocery stores were willing to pay 17 cents extra 
for a quart of berries from Fred’s, and farm market shoppers were willing to 
pay 42 cents more for the perceived small-farm produce.

“We suspected people who go to farmers’ markets go there for a reason, 
because they are willing to pay more, hunt it down and travel there. But we 
also found that the typical shopper in a retail grocery store is willing to 
pay more, as well. And in fact, we’re seeing that grocery stores are figuring 
this out by prominently labeling locally produced food,” Batte said. “So we 
were trying to see if that group of people who shop at retail groceries are 
willing to pay X amount, and determine what that amount is.”

Though the study was conducted in Ohio, Batte said the findings could easily 
extend to the rest of the country. However, the definition of local would be 
likely to differ in California, a large state with multiple growing regions, 
and New England, where several small states are clustered closely together.

“The shoppers are expected to be there in each kind of shopping venue 
nationally, but ‘local’ would need to be defined more precisely for various 
regions,” Batte said.

Though not all farmers would be able to set up a niche operation to grow and 
sell their produce to nearby consumers, Batte said some smaller farm owners 
could consider adding hand-harvested local production with the expectation 
that they can charge a premium for that produce.

“Farmers could actually be a little less efficient on the production side and 
still be more profitable on the revenue side if they can capture that premium 
price,” he said.

This work was supported by the National Research Initiative of the U.S. 
Department of Agriculture, the Fred N. VanBuren Program in Farm Management at 
Ohio State, and the Ohio Agricultural Research and Development Center.

Co-authors of the study were graduate student Kim Darby, outreach program 
leader Stan Ernst and Professor Brian Roe of Ohio State’s Department of 
Agricultural, Environmental and Development Economics.

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