Applying experimental economics to determine consumers' willingness to pay for food attributes

Abstract

Changes in the features of food demand and consumption have moved from the mass consumption model towards an increasing qualitative differentiation of products and demand. This movement towards addressing consumers’ demand for food products with more advanced quality attributes has led to increasingly complex food qualification processes and a proliferation of standards. Accompanying these changes in the agro-food system is a growing consumer concern for food safety and quality. Even though these trends are also permeating South Africa, little research has been done on the local quality dynamics of this emerging country. There is therefore the need to investigate consumers’ food choice behaviour in a developing country context, such as South Africa. Consumers’ quality perception and decision making process regarding food products is quantified through measuring consumers’ willingness to pay (WTP)for a given attribute in a food product. Willingness to pay refers to the maximum monetary amount that a consumer is willing to pay for a specific product representing a bundle of product attributes. The general objective of this study is to test the application of experimental auctions as one of the available methods to measure consumers’ willingness to pay, in order to determine the applicability of experimental auctions to specific research scenarios – for example the case of food products with advanced quality attributes in a developing country context. Sample selection for the experiment was done through a combination of random and convenience sampling. The total sample amounted to 31 participants. The target population was high income, established South African consumers, who are regular consumers of red meat and also the main buyers of groceries in the household. A pre-auction survey was done to determine the exact demographic composition of the sample as well as gaining insight into the sample’s buying behaviour and attitudes towards red meat, specifically Karoo lamb. A random nth price auction was conducted to obtain willingness to pay estimates for a premium on certified Karoo lamb. Various demographic and behavioural variables were linked to participants’ individual bids in order to determine the possible influence of these variables on participants’ bidding behaviour. This research study tested the application of an experimental auction mechanism in the food marketing context of a developing country. To the knowledge of the researcher, it is the first study of its kind done in South Africa. It was worthwhile to investigate this method as an alternative to stated preference methods in the field of food choice behaviour, because the auction conducted during this research project succeeded in giving meaningful insights into the possibilities of the certification of meat of origin in a developing country like South Africa. From the auction results, a general positive willingness to pay for certified Karoo lamb was observed, with an average premium recorded of R10.90/500g of loin chops. The impact of additional information was clearly visible as bids increased substantially after information treatments about the product were introduced. It was found that female respondents and respondents from the older age group generally bid higher premiums for Karoo lamb. Respondents buying red meat and sheep meat (i.e. referring to mutton and lamb products) from Woolworths and Spar also indicated a higher positive willingness to pay a premium for certified Karoo lamb. With specific reference to the case study product, a positive willingness to pay for certified Karoo lamb was determined in this study. The concerns raised by participants about the lack of availability and authenticity of Karoo lamb, serves as an indication of the need for a formal certification process of food products in South Africa.