Price Premia for Sustainability Characteristics in Foods: Measurement Matters!

Abstract

There is a growing demand for foods with sustainability characteristics on Northern markets. Despite this trend, foods with sustainability characteristics, like organic farming, regional production and fairtrade certification, do still cover small market segments compared to the conventional market. The incentive for producers to switch from the mass to the niche market is the potential price premium associated with sustainability characteristics. In order to measure these premia, very different approaches are applied. We argue that supply-and-demand models incorporating the influence of sustainability characteristics on preferences and marginal costs are superior to willingness-to-pay studies focusing on hypothetical decisions by consumers alone. We apply hedonic price analysis to the German online market for honey. The differentiated market for honey allows to compare price premia across different sustainability characteristics. Price premia compared to the benchmark of a standard honey, are positive for regionality and negative for fairtrade.