Got (Safe) Milk? Chinese Consumers’ Valuation for Select Food Safety Attributes

Food safety issues often arise from problems of asymmetric information between consumers and suppliers of food with regards to product-specific attributes or characteristics. Food safety concerns in China are having a drastic impact on consumer behavior, commodity markets, international trade and food security. An additional challenge to the problem of asymmetric information lies in the inherent structure of the governing bodies which oversee food safety and quality. Unlike the United States and other developed countries, China’s food safety is regulated by several government entities with different and sometimes overlapping responsibilities. As a result consumers don’t have a comprehensive food safety and quality system on which to base their economic decisions. In an effort to maintain the food supply of the world’s largest economy safe, China’s government has approved a series of tougher food safety laws and regulations. Although publicized as a tough approach to food safety, it is unclear whether this latest effort will make China’s food safer to eat and improve the country’s image to its agricultural trading partners. While much attention has focused on the problems plaguing China’s food inspection system, little research has been dedicated to analyze consumers’ concerns over food safety. In this paper we measure consumer preferences for select food safety attributes in milk. More specifically we estimate consumer’s willingness to pay for government certification, an independent (third party) certification program, national brand, and a product’s shelf-life using a choice experiment approach. We compare and contrast several modeling strategies to capture heterogeneity of consumer preferences. The data used in this study was collected from a choice experiment administered in seven major metropolitan cities in China, yielding a statistical sample of 6,720 observations. Our results suggest that Chinese consumers have the highest willingness-to-pay for a government certification program, followed by national brand, private certification, and longer shelf-life products. We find that Chinese consumers are very concerned about the safety of the milk they purchase and are willing to pay a high premium to assure that their food is safe. The high level of concern regarding milk safety is linked to recent food safety incidents involving dairy products, most notably the Melamine-adulterated milk products. Heterogeneity of consumer preferences and willingness to pay for the select food safety attributes was found by implementing a latent class logit model based on attitudinal responses as well as a mixed logit model. Although it might appear that Chinese consumers’ confidence on the government is eroding, as reported in the wake of recent food safety scandals, our research found that consumers were less confident on non-government food safety control measures. This result indicates that there is a strong need for the Chinese government to provide adequate food safety and quality control. Our findings call upon the direct involvement of the Chinese government in the food safety system. A more strict monitoring system via certification is necessary. If realized, such government efforts will provide higher welfare to consumers in the short-run and will restore consumers’ trust increasing social welfare in the long run. Policy implications of our results are discussed with particular attention given to food safety and security issues.