Challenges and opportunities associated with U.S. agricultural certifications

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Agricultural Experiment Station • College of Agricultural, Consumer and Environmental Sciences
Challenges and Opportunities Associated
with U.S. Agricultural Certifications
Research Report 784
J.E. Simonsen and J.M. Lillywhite1
1Respectively, Senior Research Specialist and Associate Professor, Department of Agricultural Economics and Agricultural Business, New Mexico State University.
INTRODUCTION
A certification mark is defined by the U.S. Patent and Trademark Office as any word, name, symbol, or device owned by one party and used by another party or parties to certify some aspect of the mark owner’s good or ser­vice. Certification marks have been used to add value to agricultural commodities in the United States. This mar­keting strategy conveys additional information about the product that consumers find useful and can result in price premiums over generic commodity prices. Explor­ing previous research related to the development and use of certification programs in U.S. food and agricultural commodity industries can provide insights into the chal­lenges and opportunities facing other agricultural indus­tries seeking to develop their own certifications. In this publication, we consider past research in U.S. agricul­tural industries related to certification price premiums, differentiation and certification strategies, and the influ­ence of marketing, product mix, product form or state, certifying agency, and stakeholders on the potential for program viability and success.
PRICE PREMIUMS CONNECTED
WITH CERTIFICATION
Researchers have attempted to quantify the value con­sumers place on a wide variety of claims related to a good’s production area, such as a certification of geo­graphical production region. Production area claims can be national, regional, or local in scope.
Differentiation At A National Level
Perhaps the most widely recognized national differ­entiation program is the Country of Origin Labeling (COOL) program. U.S. consumers’ willingness to pay for COOL has been explored previously in a variety of food categories, including meats, fruits, and vegetables. In one study, researchers used a stated preference
approach to elicit the premiums respondents would be willing to pay to “guarantee that your beef is Certified U.S. Beef” (Loureiro and Umberger, 2003, p. 295). The data suggest consumers were willing to pay premiums of 38.3% and 58.3% for “U.S. Certified” steaks and ham­burger, respectively. In a second study, researchers used a stated preference auction to elicit the value of a “U.S. Guaranteed” steak for Chicago and Denver residents (Umberger et al., 2003). On average, respondents were willing to pay a 19% premium for the “U.S. Guaran­teed” steak. Researchers noted, however, that the will­ingness to pay may vary by product or label used.
Previous research has also explored the value of COOL used with fresh apples and tomatoes. The vast majority of surveyed Georgia, Florida, and Michigan consumers were willing to pay more for apples and tomatoes with COOL (79% and 72%, respectively; Mabiso et al., 2005). This study used an experimental auction with separate auctions for apples and tomatoes, each with four rounds of bidding, to assess consum­ers’ willingness to pay for each product. The use of a “Grown in the U.S.” label on apples resulted in a $0.49 per pound premium, while the same label resulted in a $0.48 per pound premium for tomatoes. While Mabiso et al. (2005) suggest that U.S.-grown labels may provide a competitive advantage over imports, U.S. country-of-origin labels are not often seen in the U.S. market (Kris­soff et al., 2004). If a product does carry a U.S. country-of-origin label, “the label is not as prominent as other attributes...suggest[ing] that food suppliers see little or no advantage in labeling domestic products as domestic” (Krissoff et al., 2004, p. 6). A number of possible expla­nations exist for the lack of COOL products in the U.S. Consumers might 1) not care about the origins of their food; 2) prefer the imported product; 3) prefer domestic products, but not enough to cover labeling costs; or 4) demand labels, but markets are not efficiently function­ing (i.e., there is a market failure; Krissoff et al., 2004).