Organic Food in Spain: Market Segmentation

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Market segmentation and willingness to pay for organic products in Spain1

Gil J.M., Gracia A. Unidad de Economia Agraria Servicio de Investigación Agroalimentaria Diputación General de Aragón Apdo 727, 50080 Zaragoza, SPAIN Sánchez M. Departamento de Gestión de Empresas Facultad de Ciencias Económicas y Empresariales Universidad Pública de Navarra Campus de Arrosadía, s/n 31006 Pamplona, SPAIN

Abstract
In recent years, consumers concerns on environmental and health issues related to food products have increased and, as a result, the demand for organically grown production. Higher costs of production and retailer margins generate a gap between real prices and those consumers are willing to pay for organic food. In this paper, consumer willingness to pay for organic food in two Spanish regions is analyzed. Markets in both regions are segmented considering consumers lifestyles. Results indicate that consumers concerned about healthy diet and environmental degradation are more likely to buy organic food and are willing to pay a higher premium. Organic attributes are easily identified in perishable products as the premium consumers would pay for organic meat, fruits and vegetables is higher.

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PUBLICADO EN International Food and Agribusiness Management Review, (2001), 3, 207-226.

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Market segmentation and willingness to pay for organic products in Spain

1. Introduction Food consumption in most developed countries has attained a saturation point in quantity terms, and consumer food choices are broader than in the past. The result is a more diversified consumption. In this saturated market environment, distribution channels, marketing activities, diversification strategies and food quality are increasingly important. In addition, consumers have become more concerned about nutrition, health and the quality of food they eat. The increasing importance of health, and the impact food production has on the environment, on consumer food choice is well documented in the literature (Jolly et al., 1989; Jordan and Elnagheeb, 1991; Oude Ophius, 1991; Baker and Crosbie, 1993; Grunert and Juhl, 1995; Kleijn et al., 1996; Viaene and Gellynck, 1996; Chupitaz and Keslemont, 1997). As a consequence, organic products production and consumption have grown in recent years. The number of papers which have been devoted to the study of organic food markets has increased (Lampkin, 1989; Beharrel and MacFie, 1991; Landell Mills, 1992; Tregear et al., 1994; Lin et al., 1996; Vetter and Christensen, 1996; Thompson and Kindwell, 1998; among others). Organic farming refers to a farming system which uses organic manure, and avoids or largely excludes the use of synthetic fertilizers, pesticides and chemicals. A recent study carried out by FAO (1998) has shown that an adequate management of organic farming generates a positive impact on the environment (e.g., reduction of water "contamination", increased soil fertility due to crop rotation). On the demand side, consumers have positive attitudes towards organic products as they perceive them as healthier than conventional alternatives (Beharrel and MacFie, 1991). In the case of Spain, although the production of organic food products has considerably increased during the past decade, demand is still very low as only 0.5% of food expenditure is allocated to such products. The main obstacle with organic production seems to be the difficulty in selling organic products in retail food markets. Although consumers search for more diverse, higher quality and healthier food products, organic products face problems related to consumer product acceptability (new product, high price and deficiencies in distribution channels (Roddy 2

et al., 1994)). On the production side, high costs, especially labor costs, and the difficulty of shifting from conventional to organic farming are also limiting factors (Vetter and Christensen, 1996; Hamiti et al., 1996). Furthermore, food availability and seasonality...
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