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McCluskey-Loureiro paper (03-65)

The Consumer Response to Food Labeling

Jill J. McCluskey
Assistant Professor
Department of Agricultural and Resource Economics and
Food Policy Fellow, IMPACT Center
Washington State University
Pullman, WA 99164-6210
Maria L. Loureiro
Visiting Professor
Department of Economics
Universidad Carlos III de Madrid
Getafe, Madrid-Spain and
Assistant Professor
Department of Agricultural and Resource Economics
Colorado State University

March 5, 2003

The Consumer Response to Food Labeling


Driven by increasing consumer demand for healthier, safer, and more environmentally friendly food products, the use of food labeling has become increasingly important in recent years. ? The use of credible labels allows firms to signal quality or the presence of specific desirable attributes and, in doing so, it creates the potential for premiums based on this signal. ? Producers and firms have responded by marketing organic, eco-labeled, and other quality-differentiated foods, sometimes with labels that explicitly claim that the products were produced with sound environmental, animal welfare, and fair labor practices. ? Labels stating that the products are free of genetically modified (GM) ingredients are being used throughout the world. ? Other labels claim that the product has specific safety, nutrition, and quality characteristics, or comes from a specific geographic area .

  ??????????? In this paper, we survey our empirical research on the consumer response to several types of food quality or attribute labeling. ? The categories we include are eco-labels, organic, GM food labels, U.S. state agricultural product labels and European Protected Geographical Indication labels, BSE-tested beef labels, and ?Fair Trade? labels. ? To conclude, we discuss generalizations that can be drawn from the studies as a group.

Eco-labels and Organic

An eco-label identifies environmentally preferable products based on an environmental impact assessment of the product compared to other products in the same category. ? The environmental impact assessment includes the production process, use, and disposal of the product (van Ravenswaay and Blend). ? While eco-labels require compliance to standards, they are still considered market-oriented because they do not involve direct government regulation. ? The U.S. Department of Agriculture (USDA) set national standards for organic food on October 21, 2002. ? According to the USDA, organic food is produced without using most conventional pesticides; fertilizers made with synthetic ingredients or sewage sludge; bioengineering; or ionizing radiation. ? Since eco-labeled products and organic products are marketed as "environmentally friendly," they will sometimes appeal to the same consumers.

The organic and environmentally friendly marketing movement is successful and growing rapidly. The German eco-label, Blue Angel, introduced in 1978, has become a successful instrument in environmental protection and marketing. ? Nearly 4,000 certified products use it. ? The Euro eco-label, launched in 1998, regulates and sets common standards for all eco-labels in the European Union countries. In the United States, eco-labels are proliferating rapidly with programs such as Green Seal, Scientific Certification Systems, and the U.S. Environmental Protection Agency's Energy Star Program. ? In addition, many regional sustainable agriculture programs use labels to assure acceptance in regional niche markets for "green" products.

In order to evaluate consumers? preferences for eco-labeled foods compared to organic and conventional foods, Maria Loureiro, Jill McCluskey, and Ron Mittelhammer conducted a survey in Portland, Oregon, in which consumers were asked about their preferences for of eco-labeled (The Food Alliance), organic, and regular apples , and their willingness-to-pay for eco-labeled apples. ? After the survey, consumers received discount coupons for eco-labeled, organic and regular apples. ? The coupons were numbered to correspond to the numbered surveys. ? Whether and to what extent consumers exercised these coupons was an economic experiment, which allowed them to compare revealed and stated preferences for eco-labeled products.

With the survey data, Loureiro, McCluskey, and Mittelhammer (2001) assess consumer choice of eco-labeled, organic, and regular apples. ? Consistent with the notion that the eco-label





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