Rural Business and

Cooperative

Programs

Research

Report 215

An Analysis of Food-Chain

Demand for Differentiated Farm

Commodities: Implications for the

Farm

Sector
Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Part I: An Examination of the Size and Scope of Consumer Demand for 

Differentiated Farm Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

What Does Growth in the Organic Sector Imply for Differentiated 

Farm Products? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Consumer Demand for Organic Dairy Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Consumer Demand for Organic or Natural Meat and Poultry . . . . . . . . . . . . . . . . . . 7

Potential for Crossover Demand from Organic to Other Differentiated 

Farm Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Consumer Demand for Sustainably Produced Foods . . . . . . . . . . . . . . . . . . . . . . . . 9

The Impact of State Marketing and Promotion Programs . . . . . . . . . . . . . . . . . . . . 13

Assessing the Impact of Eco-Labels on Consumer Demand and WTP . . . . . . . . . . 14

Impact of Fair Trade/Fair Labor Practices on Consumer Demand and WTP . . . . . 16

Part II: Food Chain Demand for Sustainability and Local Food: Restaurants 

and Institutional Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Food Alliance: Providing Sustainability Certification and Education, Forging 

Business Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Selling to Restaurants: Farmer-to-Chef Collaboratives . . . . . . . . . . . . . . . . . . . . . . 19

Farm-to-School Programs: Feed My Kids How I'd Like To Feed Them! . . . . . . . . . 20

Conclusions and Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

i
An Analysis of Food-Chain Demand for

Differentiated Farm Commodities:

Implications for the Farm Sector

Kathleen Painter, Ph.D.

kpainter@wsu.edu

Sustainable Systems Analyst

Center for Sustaining Ag & Natural Resources

Washington State University

Pullman, WA 99164-6210

Executive Summary

Overall, a survey of the literature on food-chain

demand for differentiated farm commodities demonstrates growth in demand for food with various characteristics, including locally produced, organic or otherwise differentiated farm products (DFP). However,

desired core food characteristics, such as fresh, tasty,

safe and healthy, must be present before consumers

will consider additional characteristics like production

practices or the food source. Strong growth in farmers'

markets and direct-to-consumer marketing, such as the

community supported agriculture (CSA) model, show

that consumers are willing to spend time and money

to support local food production. In general, however,

only a small segment of consumers surveyed were

willing to pay a premium higher than 10 percent for

DFP.

As the result of sustained growth in demand of

approximately 20 percent for organic foods over the

past 15 years, organic products now make up between

2 and 3 percent of all food products. Consumers now

purchase the majority of their organic products in conventional supermarkets (Dimitri and Greene, 2002),

which represents a major change in their distribution

Ñ organics first were available only in specialty stores.

With the recent entry of major chains in the organic

market, including Wal-Mart and Safeway, and new

organic versions of many brand-name foods, the

organic market has clearly increased enough in size to

warrant attention from major retailers. The organic

market is also increasingly concentrated, and profit

margins have fallen for some commodities, such as

apples and grapes, as increasingly larger producers

achieve organic certification (NBJ, 2004; Howard and

Allen, 2006).

For consumers, price remains the number one

obstacle when purchasing organic items. Prices for

organic products have fallen Ñ in 1995, prices on average were approximately double the price of comparable conventional products. But by 2002, prices for

organic products averaged approximately 150 percent

of their conventional counterparts (NBJ, 2004). This

decline in the organic premium helps explain the sustained growth in demand. A comprehensive international literature review reports that, overall, most consumers are not willing to pay a price premium higher

than 10 to 20 percent for organic food (Yiridoe et al.,

2006). In 2006, Wal-Mart announced that it planned to

market organic products at prices just 10 percent higher than the comparable conventional products. Today,

it is already the largest seller of organic milk (Warner,

2006).

Recently, considerable research has been conducted on the organic consumer, but the conclusions within these studies are sometimes confusing. One national

study states that baby boomer demographics are the

single most powerful driver of organic demand (NBJ,

2004). In contrast, another national survey indicates

that younger shoppers are increasingly buying organic, with 69 percent of organic shoppers under 50 years

of age (HealthFocus International, 2003). Survey

results are only as good as the researchers designing

and interpreting the surveys. In this report, peerreviewed journal articles have been cited to the extent

to which they were available on this subject matter, but

industry reports such as the ones previously cited are

also included. Please see Appendix Table 1 for specific

details on the studies examined in this report.

Consumers are beginning to understand the multiple appeals of locally produced foods, from reducing

fossil fuel usage and strengthening their local economy

to preserving farms in their region. Several recent

1
studies reveal a broader base of support for locally

produced foods than for organic foods in the general

population (Pirog, 2004; Schneider and Francis, 2005;

Smith et al., 2006; Ostrom, 2006). ÒLocally producedÓ

as a stand-alone attribute was ranked relatively low by

respondents in a recent Washington state survey, with

only 34 percent considering it very important (Ostrom,

2006). However, when this attribute was combined

with helping local farmers and the local economy, the

appeal of locally produced foods was strengthened

dramatically, with 70 percent of respondents considering it very important. According to consumer surveys

in Ohio, if locally produced items can stay within 125

percent of the cost of a comparable nonlocal product,

85 percent of the general population would be interested in purchasing these items (Smith et al., 2006). While

just one-quarter of the general population felt local origin was an important purchasing criterion, over half

felt that keeping a local farmer in business was important. Further research and education on the multiple

benefits of local agricultural production may be warranted.

Given the growing proportion of American meals

consumed outside the home, the importance of restaurant and food service markets should not be underestimated. In a survey of restaurant buyers, 73 percent felt

that purchasing locally grown food had a positive

impact on profitability (Food Processing Center, 2003).

For these buyers, price was one of the less important

characteristics in their food purchasing decisions.

When consumers pay for restaurant or institutional

meals, the price of the food itself may only be a small

portion of the total cost. Increasingly, consumers are

demanding fresher, higher quality, healthier food at

work and in their hospitals and schools, preferably

from local sources. While DFP could potentially fill

much of this demand, much work remains to be done

to create a viable alternative to the predominant commodity-based agriculture for midsize producers in this

country.

This study was conducted by Kathleen Painter

under a research contract (or research agreement)

with Rural Development's Cooperative Programs.

The views expressed are those of the authors and not

necessarily those of Rural Development or USDA.

Introduction

In restaurants, grocery stores and corporate

lunchrooms around the country, a growing number of

consumers are choosing fresh local produce, pastureraised meats and artisan breads and cheeses. Like

organic foods, the attributes of these products are not

necessarily apparentÑlabels may be needed to

describe the details. Consumers want to know where

their food comes from and how it is produced. A survey mailed to over 1,000 randomly selected consumers

in five coastal California counties revealed that 59 percent wanted to know more about their food.

Specifically, they wanted to know about food safety,

nutritional content, how food animals are treated,

environmental impacts, working conditions, wages

and how far the food travels (Curlee, 2006).

Increasingly, consumers are saying they choose

foods for social, environmental and long-term health

reasons. The sustained 20 percent growth rate of the

organic sector over the past 15 years indicates that consumers are dissatisfied with conventional offerings

and are willing to pay more for alternative food.

Recent studies have shown that consumers have a

greater interest in locally produced food than organic

products (Ostrom, 2006). In one study, consumers preferred food grown locally using some pesticides to

foods grown organically (Pirog, 2004). In 2006, Whole

Foods announced plans to significantly expand its

local organic offerings in response to consumer

demand. A Time Magazine article suggests that Òthe

new activist slogan on campus is 'Eat Local'Ó

(Roosevelt, 2005), and reported that 200 universities

around the country were purchasing food from regional farmers, according to the Community Food Security

Coalition (www.foodsecurity.org).

Price remains the most prominent barrier to

increased consumption of organic products (Hartman

Group, 2004). For most consumers, the relative price

differential between a conventional and an organic

item determines their purchasing behavior (Yiridoe et

al., 2006). For dedicated organic food customers, price

is relatively less important, and they will purchase

organic products without much regard for cost

(Hartman Group, 2004). However, as large discount

retailers like Wal-Mart begin carrying inexpensive

organic items, a new, larger group of organic food consumers can be expected.

Industry leaders believe that expanding market

preferences and concerns can support multiple certification options (Exo, 2006). If consumers are looking for

fresh produce grown without pesticides, then a viable

alternative certification will need to reflect those

desires. If the main concern for consumers is that dairy

cows are not fed hormones, then it might be worthwhile for the dairy industry to produce this specific

type of milk. Pressure from consumers and other

2
groups for rBST (Recombinant bovine somatotropin)-

free milk has resulted in several companies producing

for this label, including Safeway and Wilcox Dairy in

the Pacific Northwest.

Can demand for higher quality foods help family

farmers stay in business? Since institutional food service operations can use fairly large quantities, supplying high quality food to this channel holds some hope

for mid-scale producers. Focused efforts to bring buyers and sellers together will be needed to coordinate

these types of transactions. Alternative certification

programs, such as Food Alliance or FamilyFarmed,

both of which have Web-based background information and third-party certification, help guide businesses and consumers to producers who are catering to this

market. FamilyFarmed caters primarily to organic producers in the Midwest, helping to connect them with

consumers and commercial buyers (see familyfarmed.org for more information).

Demand for high quality, differentiated farm

products (DFP) appears to be outpacing supply

(Kirchenmann, 2006; Yee, 2006). While there is currently a window of opportunity, the timeframe may be

limited. Large companies like Wal-Mart, Costco and

Whole Foods already contract directly with farmers,

using their house brands to market these products.

Farmers need their own branding and marketing systems if they want to maintain more control and profit

for themselves, but they may need extensive marketing assistance and processing and distribution facilities

in order to do this. Organic Valley provides an excellent example of a market-savvy grower cooperative,

with sales of over $330 million and participation by

more than 1,000 dairy, vegetable, poultry, beef, and citrus farms in 2006.

In this report, the trend toward alternative, higher quality food, including organic, sustainably produced, local and regional origin, eco-labeled food and

Fair Trade products will be explored, along with the

potential implications for the farm sector. Literature on

the organic marketplace will be examined as it relates

to the market for DFP. In particular, this report examines how much consumers are willing to pay for DFP.

Finally, the potential of marketing DFP for food service, restaurants and farm-to-school programs will be

addressed.

Part I: An Examination of the Size and Scope of

Consumer Demand for Differentiated Farm

Products

Research has shown that consumers jointly evaluate a number of attributes as they make purchase

decisions, with price, quality, convenience and brand

familiarity typically being the most important factors

(De Pelsmacker et al., 2005). Attempting to predict

purchasing decisions based on abstract considerations,

such as supporting sustainable production practices,

will be more difficult than predicting behavior for

observable characteristics such as color and size. The

importance of ethical appeals such as environmental

considerations will be more variable among individuals than typical product considerations. According to

researchers, a minority of consumers purchase goods

based on ethical considerations (Bird and Hughes,

1997).

Surveys report that there is a growing market for

ethically produced products (Micheletti, 2003), but ethical intentions are not always borne out by consumer

behavior. While consumer attitudes clearly influence

behavior, Òattitudes alone are generally poor predictors of buyer behavior (Cobb-Walgren and Ruble,

1995), especially in the social marketing area (Shaw

and Clarke, 1999)Ó (De Pelsmacker et al., 2005).

Reasons for this attitude-behavior disparity include

desire by the interviewee to conform to social pressure

and the reality of a limited budget. Researchers must

confront these issues as they attempt to quantify consumer preferences showing willingness to pay for various attributes, particularly Òcredence goods,Ó for

which consumers must rely on the credibility of labels

or other advertising claims (Caswell, 1998).

What Does Growth in the Organic Sector Imply

for Differentiated Farm Products?

Currently, organic food makes up about 2.5 percent of total food expenditures in the U.S., based on an

estimate of $14.6 billion in sales for 2005 (NBJ, 2006).

Industry analysts feel that price premiums for organic

foods would need to fall in order to penetrate the market much beyond the 2- to 3-percent share it currently

holds (Oberholtzer et al., 2005). Demand is outpacing

supply in this rapidly growing sector, resulting in an

increase in organic imports (Quaid, 2006). In 2005, the

U.S. Department of Agriculture (USDA) estimated that

10 percent of the nation's organic food was imported

(Warner, 2005).

In 2002, organic products were available in 73

percent of all conventional supermarkets (Dimitri and

Greene, 2002). Consumers now buy more of their

organic products in these conventional supermarkets

than in any other venue (Dimitri and Greene, 2002).

Organic produce made up about 42 percent of total

sales of organic foods in 2003 (Oberholtzer et al., 2005).

3
Average prices for all organic products have fallen

from approximately double the non-organic alternative in 1995 to 150 percent of the nonorganic price in

2003 (NBJ, 2004). Organic price premiums have experienced considerable volatility due to fluctuations in

supply and demand during this period of growth

(Oberholtzer et al., 2005).

In the absence of a body of research on consumer

preference for DFP, an examination of consumer

demand for organic foods could be instructive. The

organic sector has been the subject of numerous studies in recent years (see Yiridoe et al., 2006, for an excellent review of the literature in this area). The majority

of consumers who purchase organic items do not purchase organic products exclusively (Hartman, 2004).

What are some of the reasons that organic products are rising in popularity? One study cites the

increasing awareness of the mainstream customer;

trigger points such as having children, pregnancy,

aging and safety concerns; and organic products'

greater retail accessibility (HealthFocus International,

2003). Younger shoppers are buying organic at increasing levels, with 69 percent of organic shoppers under

50 years of age (HealthFocus International, 2003).

Another study showed that 68 percent of 18- to 24-

year-olds buy organic foods at least some of the time

when they shop, compared to approximately half of

the nonsenior adults in the other age brackets in the

survey, and just 37 percent of those in the 65-plus age

bracket (Walnut Acres, 2001). Over three-quarters of

this younger age group felt that consuming organic

food and beverages was a smart choice for long-term

health and well-being. That sentiment was echoed by

59 percent of adults overall in the survey (55 percent of

25- to 34-year-olds, 65 percent of 35- to 49-year-olds, 56

percent of 50- to 64-year-olds, and 43 percent of adults

over 64). The top reasons cited for not purchasing

organic food included lack of proof that organic foods

are healthier (53 percent) and the fact that the consumer did not see any benefits to buying organic (49

percent) (Walnut Acres, 2001). Apparently, research

that could provide scientific information on the pros

and cons of organic products would be useful.

"The organic customer is no longer the stereotypical upper middle-class Caucasian. In fact, Asians and

Hispanics consume more organic foods than their

Caucasian counterparts, according to recent research

(Hartman, 2004)." As discount retailers like Wal-Mart

and Target begin to offer organic products with premiums as low as 10 percent higher than comparable conventional products, consumers of all types are willing

to pay for the organic label. A comprehensive international literature review of this specific topic reports

that, overall, most consumers are not willing to pay a

price premium higher than 10 to 20 percent for organic

food (Yiridoe et al., 2006).

Economic theory predicts that if the premiums

for organic food decline, then consumption will

increase. For processed foods such as cold cereals,

switching to organic ingredients may be relatively

inexpensive for the manufacturer, because the cost of

the raw product is only a small fraction of the total

cost. Organic premiums for unprocessed organic items

such as produce will be proportionately higher relative

to the conventional counterpart. Several national

brands already are producing organic versions of

packaged foods, such as Kraft macaroni and cheese

and Kellogg's Rice Krispies. Critics see this strategy as

simply a new way to differentiate processed food and

gain market share; others see progress when mainstream products are available in an organic version.

Organic products command a premium relative

to conventional products for two reasons. The first reason is that producing organic foods is typically more

expensive, particularly when factoring in a three-year

transition period (during which the grower cannot

receive organic premiums).

There are a number of factors that contribute to

the expense. Organic production requires growers to

use organic seed, organic fertilizer and organic pesticides, among other restrictions. Inputs may be difficult

to find and/or require considerable transportation

costs, especially in the case of organic fertilizer.

Additionally, labor costs may be higher, and longer

rotations may be needed to control pests and diseases,

which may be less profitable. Lower or more variable

yields can occur for many reasons, particularly during

the transition period (Temple, 2000; Oberholtzer et al.,

2005). Furthermore, growers that sell more than $5,000

of organic products per year must be certified.

Paperwork requirements for certification are another

burden for organic growers.

Supply and demand fluctuations are the second

reason for price differentials. As more firms enter the

organic market with certified farmland, premiums will

decline, all else being equal, until, theoretically, premiums simply represent cost differentials between the

two types of production. Given the sustained growth

in the organic sector, organic growers are likely to

receive higher prices due to supply shortages in this

sector. Price premiums for organic products have risen

over time for many commodities (Yiridoe et al., 2006).

Between 1995 and 2000, for example, producer price

premiums for organic corn rose by 154 percent, premi4
ums for organic spring wheat rose by 91 percent, and

premiums for organic oats rose by 103 percent

(Bertramsen and Dobbs, 2001). However, these organic

premiums are volatile relative to regular commodity

prices and vary considerably by commodity; relative

supply and demand for each organic commodity will

determine the magnitude of the price premium. New,

larger organic producers have contributed to an oversupply in some markets, reducing premiums and forcing out smaller growers. For example, in the organic

apple, grape and kiwifruit industries, organic premiums have fallen significantly (CDS, 2006; Carman and

Klonsky, 2004).

The organic market appears to be maturing,

according to many analysts (CDS, 2006). Annual

growth is predicted to trend downward to 10 percent

by 2010, which is still much higher than the growth in

non-organic foods. Baby boomer demographics are

viewed as the single most powerful driver of organic

demand (NBJ, 2004). New dietary trends include a

growing consumption of high-fiber foods, including

whole grains; nutraceuticals or functional food items,

such as drinks fortified with antioxidants or the addition of omega-3 to milk, eggs, and other items; and

sales of allergen-free foods, such as gluten-free baked

goods.

In the rapidly evolving and increasingly concentrated organic food sector, organic farmers are vulnerable to price fluctuations. Many of the independent

organic and natural food companies were sold to

major corporations (see Figure 1). Currently, nine

organic companies have organic sales of over $100 million per year (NBJ 2004). The top organic manufacturers include White Wave (Dean Foods), a manufacturer

of refrigerated organic soy milk; Hain Celestial Group;

Horizon Organic Dairy (acquired by Dean Foods in

2003); and Earth Bound Farm, a grower and packer of

organic produce. These are followed in size in organic

sales by General Mills (including its Cascadian Farm

and Muir Glen brands), Amy's Kitchen, Stonyfield

Farm and Organic Valley. Organic Valley, a growers'

cooperative with participation by more than 1,000

dairy, vegetable, poultry, beef and citrus farms, had

sales of $333.6 million in 2006, posting a record 38-percent growth compared to 2005. There are still a number

of large independent companies, including Amy's

Kitchen, Organic Valley, Nature's Path, Pacific Foods,

Golden Temple, Eden Foods, Spectrum, Apple & Eve,

Alvarado Street Bakery and Annie's Homegrown.

Consumers cite price as the number one barrier

to purchasing organic goods (Walnut Acres, 2001;

Whole Foods, 2004; Hartman Group, 2004). However,

mainstream U.S. shoppers are increasingly willing to

pay a Òslight premiumÓ for organics, up from 48 percent in 2000 to 53 percent in 2002 (HealthFocus

International, 2003). Recently, many organic products

have become more competitively priced relative to the

comparable non-organic item, which has increased

their organic market share as well (CDS, 2006). If the

price for an organic product goes down (up) relative to

its non-organic substitutes, consumers will purchase

more (less). ÒCoreÓ organic consumers, who consistently purchase organic products on a regular basis,

are the exception to this rule, however. The buying

behavior of these consumers is relatively insensitive to

price (Yiridoe et al., 2006).

According to a survey of farmers' market managers across the country, while demand for organic

foods was stronger near major urban areas, rural farmers' markets did well when well-priced, fresh, organic

foods were provided, because these products were not

available in their local stores (Kremen et al., 2004).

Organic farmers were successful at farmers' markets

when their produce was high quality, provided specialty varieties and the farmers provided excellent consumer service. The organic consumer typically was

interested in the social and environmental issues within agriculture, including its relationship to human and

animal health, sustainable development, water scarcity, environmental pollution and wildlife protection

(Kremen et al., 2004). The quality of the product, as

well as the integrity of the producers and their attention to customer service, will be critical to their success, whether the product is organic or is otherwise a

DFP.

Interestingly, organic does carry a negative connotation for some consumers, although that perception

is changing. Particularly in nonmetropolitan areas,

farmers' market managers reported in a survey that

advertising organic products would not be effective,

due to negative perceptions or because organic was

not Òpart of the community's vocabularyÓ (Kremen et

al., 2004). Studies have also shown that consumers do

not have a clear understanding of what constitutes

organic food (Pirog, 2003). Consumers may perceive

that organic food is too costly, so they may not even

consider those products.

Consumer Demand for Organic Dairy Products

Dairy has been one of the most rapidly growing

segments of the organic market (Dimitri and Greene,

2002). Purchases of organic dairy products comprised

13 percent of the organic food market in 2003 (NBJ,

2003) and is predicted to grow by more than 15 percent

5
6

Heinz

Hain 

#27

Celestial

#85

ShariAnn's

Mars

M&M 

#16

Kraft

#1

Coca-Cola

#15

General 

Mills

#6

Cargill

#18

Dean

#7

ConAgra

#9

Kellogg

#12

Acres

Walnut 

Millina's 

Finest Bosco

Frutti di Muir Glen

Celestial 

Seasonings

Imagine/Rice 

Dream/Soy 

Dream

Little Bear

Arrowhead 

Mills

Bearitos

Organics

Spectrum 

Lightlife

The Organic 

Vermont

Cow of 

Breadshop

Alta Dena Westbrae

Mountain 

Sun

DeBole's 

Earth's Best

Nile Spice

Health Valley

Westsoy

Cascadian 

Farm

Garden of 

Eatin'

Casbah Horizon

Odwalla

White 

Wave/Silk

Processors in North AmericaAquisitions by the Top 30 Food 

StructureOrganic Industry

October 

2001

$181 M

July 1998

13% Equity

100% Equity

January 2004

$216 M

Morningstar 

Farms/Natural 

Touch

November 1999

$307 M

Organic 

Brand 

Acquistions

Alliances

Strategic 

# Numbers refer to 

rank in North 

American food sales 

according to Food 

Processing, August, 

2007

September 1999

$100 M

19.5% Equity;

December 2005

0% Equity

October 1997

$23.5 M

June 2003

October 2001

June 2001 September 1999

From Heinz

March 2000

$390 M December

2002

April 1999

$80 M

April 1998

$80 M

December 1998

Nature

Back to 

Foods

Boca 

Meadow

French 

Change

Seeds of 

1997 July 2000

December

1999

1998

March

May 2002

$189 M

May 1999

April 1999

2000

June

September 2003

Kashi

August 

$33 M

2005

August 2003

February 2000

Food 

Processors

January 2008

Hershey

Foods

#23

Dagoba

October 2006

Recreation and Resource Studies

Dept. of Community, Agriculture, 

Phil Howard, Assistant Professor

Michigan State University

TofuTown

From Dean

June 2007

2002

May

Juice

Naked 

Pepsi

#3

November 2006

Black's

Green & 

2002, 5% Equity

May 2005, 100% Equity 

Cadbury

Schweppes

#10 Foods

Alexia 

July 2007

Wholesome 

& Hearty

Naked

Bear

November 2007

$122 M

# 
per year through 2008 (NBJ, 2004). Substantial conversions to organic production are needed to supply this

growing market. Clearly, there is consumer demand

for hormone-free, antibiotic-free, pastured dairy products, but large organic dairy producers are now dominating the market for these types of products.

In non-organic dairies, concerns over BST supplements for cattle seem to underlie much of the recent

rise in consumer demand for organic dairy products.

Consumers' perceived concerns include rBST's potential impact on rates of human breast and prostate cancer (Stewart, 2004) as well as the earlier onset of puberty in children, which now occurs approximately one

year earlier (at age 9 to 10) compared to 10 years ago

(Kaplowitz, 2004). Authorities have refuted the earlier

puberty claim, stating that the hormones would have

to be ingested, not digested, to affect changes in puberty rates, and that higher body mass indices were more

closely linked to early puberty (Kaplowitz, 2004).

Nevertheless, consumers surveyed clearly disliked the

idea of Òtheir kids eating hormonesÓ (Hartman, 2004).

Consumers may simply consider the use of rBST supplementation for the purpose of increasing milk production as unnatural and possibly inhumane, as the

higher induced production does increase mastitis,

which is related to milk production levels (Smith,

1996).

Demand for organic milk surged ahead of supply

in late 2004 and early 2005, causing a large price premium for organic milk. Organic producers were

receiving about double the price of conventional milk

during that period, which ranged from $9 to $12 per

hundredweight, a 12-year low. Continuing cycles of

volatile prices for organic milk can be expected to continue, given the 15-percent or higher projected annual

growth rates through 2008 (CDS, 2006). The industry is

dominated by two players, Horizon Organic (acquired

by Dean Foods in 2003) and Organic Valley, a growers'

cooperative. Together they sell three-quarters of all

organic milk (NBJ, 2004).

Consumer Demand for Organic or Natural Meat

and Poultry

With a 78-percent growth rate, meat represented

the fastest growing category of organic food in 2003

(NBJ, 2004). Demand for organic meat, fish and poultry are expected to grow at a rate of 43 percent through

2008. Currently, there is a shortage of organic meat due

to the recent rapid rise in demand, the time and cost of

becoming organically certified, shortages of organic

feed and a relatively long production cycle, particularly in the case of beef.

Demand for ÒnaturalÓ brands is also very strong

in the meat and poultry categories. Restaurants and

food service are using natural offerings, including several restaurant chains. Burgerville USA, in the Pacific

Northwest, features Oregon Country Beef (now

Country Natural Beef). The Panera Bread Company

uses natural chicken, and the Chipotle restaurant chain

uses meat from the Niman Ranch. Consumers are

increasingly interested in breed-specific meats, such as

Angus beef, particularly if they are raised as natural or

organic. These meats are perceived as gourmet or premium items.

According to a 2001 phone survey of 500 randomly selected respondents from Nebraska, Iowa,

Wisconsin and Missouri (Food Processing Center,

2001), organic and natural meats are perceived as safer

and ÒcleanerÓ than conventionally raised meats that

can use antibiotics, steroids or growth hormones.

Other important consumer concerns include the environment, animal safety, sourcing and traceability.

Consumers also state that natural and organically

raised meat tastes better (CDS, 2006).

Strong consumer demand is evident in the organic poultry and egg categories as well. Wholesale prices

for organic poultry averaged more than 350 percent of

conventional poultry from January 2006 through June

2006, while wholesale prices for organic eggs were

more than four times higher than prices for conventional eggs for the same period (USDA-Economic

Research Service [ERS], 2007).

Potential for Crossover Demand from Organic to

Other Differentiated Farm Products

Will consumers who buy organic food be interested in buying differentiated farm products? If these

products can cater specifically to consumers' main concernsÑsuch as that products be free of genetically

modified organisms (GMO) or grown without broadspectrum pesticidesÑthen consumer demand should

be higher, particularly if these characteristics can be

provided at a lower cost than the organic product.

However, in one survey, Ògrown locally, some pesticides usedÓ received more than twice as many first

choice votes than Òorganically grown, origin

unknownÓ (Pirog, 2004). Consumers also chose locally

grown options over certified organic choices, even if

7

Figure 1 (opposite page). The organic industry is

increasingly concentrated, as small private firms are

being purchased by large corporate brands, whose

ranks in global sales are indicated in each circle (Phil

Howard, Michigan State, 2006).
they were locally grown. Either ÒorganicÓ carries a

negative connotation or consumers do not understand

the term Òcertified organic.Ó

DFP may be able to fill a specific niche, perhaps

in terms of being more locally responsible and

accountable, and possibly without the expenses

incurred by organic guidelines. The required threeyear organic transition period can be a substantial economic barrier for producers interested in producing

organic commodities. A recent poll suggests that the

appeal of Ògrown locally by family farmersÓ is very

broad. In that poll, 75 percent of the consumers and 55

percent of food business respondents chose these

terms as their first choice for produce or meat products

(Pirog, 2003). A Roper poll conducted for Organic

Valley, a growers' cooperative headquartered in

Wisconsin, revealed that the majority of Americans

trust smaller scale farms to produce safe, nutritious

food in ways that won't harm the environment.

Growers could address concerns over global warming

caused by fossil fuel emissions by using local sources

for animal feed and fertilizer rather than importing

organic ingredients. They could also address regional

concerns. For example, producers for Shepherd's Grain

flour all use direct seeding practices to protect the soil,

because they live in an area prone to severe soil erosion.

If farmers can provide fresh, locally grown, sustainably produced products, can they interest the

growing segment of consumers who are purchasing

organic? About two-thirds of the consumers in a recent

study purchased organic foods for health and nutrition

reasons (Hartman, 2004). Other reasons included taste

(38 percent), food safety (30 percent) and the environment (26 percent). In marketing terms, characteristics

such as freshness, value, taste and quality are

described as core product characteristics (see Figure 2),

while characteristics including environmental quality,

supporting local farmers or the local economy and

healthiness are designated as augmented product characteristics (Pirog, 2004). Core product characteristics

are the drivers behind consumer purchasing decisions.

Augmented product characteristics typically include

product guarantees and additional benefits. Core characteristics must be in place before customers consider

augmented characteristics. As income rises, consumer

demand for various food attributes grows.

The consumer food demand pyramid in Figure 3,

developed by Jean Kinsey of the University of

Minnesota (Western Extension Marketing Committee,

2005), presents a consumer choice process beginning

with basic needs, such as the ÒSafeÓ and ÒAffordableÓ

categories in the base of the triangle, and culminating

in purchasing foods for ÒStatusÓ or ÒCausesÓ at the top

of the triangle. As income rises, consumers demand

more luxuries such as convenience and health-promoting foods, then gourmet foods as shown in the ÒLiving

WellÓ category toward the top of the pyramid. This

hierarchy of food needs is a spin-off of Maslow's hierarchy of needs, which includes five levels of human

8

Figure 2. Total product characteristics include core

product characteristics (taste, freshness, quality, value)

and augmented product characteristics (environmental

benefits, support for local farmers, support for the local

economy, health benefits).

Figure 3. The Hierarchy of Consumers' Food

Preferences is a spin-off of Maslow's model of

human motivation, which is a hierarchy of five levels

of human needs: physiological, safety, love/belonging, esteem and self-actualization.
needs (physiological, safety, love/belonging, esteem

and self-actualization) as a model of human motivation. The basic concept here is that lower needs must

be met before the individual moves on to the next

level.

Consumers are increasing their consumption of

fresh foods, which they believe provide better taste,

health and nutrition (Reynolds-Zayak, 2004). In a Fresh

Trends 2004 report, consumer panelists reported on

their current use of fresh produce compared to five

years earlier (Barton, 2004). Consumption of fresh

organic produce had increased by 20 percent for 18- to

37-year-olds, and by 22 percent for those with household incomes greater than $85,000. Overall, consumers

reported purchasing an average of 18 percent more

fresh produce compared to five years earlier.

Households with children under age 6 reported an

increase of 36 percent in their fresh produce consumption, and 18- to 37-year-olds reported a 34-percent

increase. Increasingly, fresh fruit is consumed as a

snack to increase fresh produce intake (25 percent of

respondents). Use of washed, cut and bagged produce

increased overall by 27 percent; households with 13- to

17-year-olds led the trend with a 36-percent increase.

In another survey, ÒfreshÓ was considered an extremely or very important food label claim by 68 percent of

the U.S. participants (HealthFocus International, 2003).

ÒGrown without pesticidesÓ was extremely or very

important to 51 percent of the participants, while Òcertified organicÓ was extremely or very important to 31

percent.

If non-organic farmers can grow foods without

the use of pesticides, they may address one of the consumer's most serious concerns. A successful example

of this type of approach is the certified pesticide-free

tomatoes produced by Eurofresh, a U.S. corporation in

Arizona with the single-largest glass greenhouse system in the world (Western Extension Marketing

Committee, 2005). The company is committed to producing a high-quality, consistent, highly nutritious, flavorful tomato year-round. Eurofresh claims that its

varieties have more cancer-fighting lycopene than any

others. The company's products are certified by the

Nutriclean program of Scientific Certification Systems,

which performs random checks and requires stringent

recordkeeping.

Another example is the pasture-raised poultry

label Greener Pastures Poultry (Figure 4). This company successfully developed a devoted clientele for its

premium pasture-raised poultry using intense direct

marketing efforts. After weighing the costs and benefits of various certification schemes, Greener Pastures

Poultry producers decided against the use of thirdparty certification. Sadly, the company ceased operation after five years, due to the inability to develop a

processing facility of the appropriate scale for economic feasibility. Greener Pastures Poultry producers still

hope to revive the company at some future time.

Consumer Demand for Sustainably Produced

Foods

Although research concerning consumer demand

and interest in organic products abounds, few studies

examine consumer demand for non-organic alternative

food production practices. One exception is a study,

9

Figure 4. Greener Pastures Poultry consisted of several farming families near Eugene, Oregon, who produced premium pasture-raised poultry to serve the

growing demand for responsibly raised, delicious poultry (see greenerpasturespoultry.com for more informa-
conducted in metropolitan grocery stores in Minnesota

(Robinson et al., 2002), of consumer willingness to pay

for sustainably produced food. The study, which

involved 547 participants, showed that consumers care

about sustainable practices, such as protecting the

environment and humane treatment of animals, but

consider basic qualities of freshness, taste, safety and

healthfulness much more important, as would be

expected based on the marketing information presented earlier. On a scale of six for extremely important to

one for extremely unimportant, these characteristics

were rated as follows:.

Practices to protect water quality 3.96

Practices to maintain or improve natural 

resources and the environment 3.62

Practices to protect soil quality 3.52

Produced by farmers earning a living wage 3.47

Low price 3.30

Produced locally (defined as within the 

Midwest) 1.96

Produced organically 1.75

The following graph

created from data in the consumer survey cited above

illustrates consumers' willingness to pay (WTP) for

various food categories if

they are produced Òin a way

shown to maintain or

improve the environment,

community life and the

livelihood of local farmers.Ó

In Figure 5 below, those who

were willing to pay a 10- to

30-percent premium were

grouped together, as were

those willing to pay 40 percent more. Three-fourths of

the respondents were willing to pay a premium for

sustainably produced fruits

and vegetables, which was

the highest ranked category.

Respondents were least willing to pay a premium for

lunch meats, with 57 percent

willing to pay 10 to 30 percent more for this highly

processed product.

Consumers are consistently

willing to pay higher premiums for organic food with

a short shelf life (Yiridoe et al., 2005), so similar results

for sustainably produced foods are not surprising.

Although the Robinson et al. study, conducted in

the fall of 2000, shows limited interest in organic and

local products as a specific category, like many other

studies, it does reveal a strong desire for fresh, tasty,

safe and healthful food. However, more recent studies

discussed in the next section of this report show that

consumers are increasingly interested in obtaining

their food locally. As discussed earlier, strong growth

in consumer demand for organic foods continues. In

addition, rising demand for farmers' markets and

other direct-to-consumer marketing channels, such as

CSAs show, that consumers are willing to spend time

and money to increase the quality of their food and

support farmers in their area. Development of new

marketing organizations and channels, including

grower cooperatives, as well as further research on

consumer demand for DFP, will be necessary to coordinate DFP production with consumer demand.

Research on consumer needs should be conducted in

accordance with standard marketing theory on con10

Figure 5: Consumer WTP for Sustainably Produced Products (figure derived from

Robinson et al., 2002). While surveyed consumers were frequently willing to pay

from 10- to 30-percent more for sustainably produced foods, depending on the

individual category, only a minority were willing to pay more than 30 percent more

for these products.
sumer preferences, as discussed earlier, while avoiding

the common pitfalls of hypothetical responses given

by consumers in surveys.

The Promise of Local: Fresh, Healthy, and Good

for Your Local Economy

ÒThe Buy Local movement is quickly taking us beyond

the promise of environmental responsibility that the organic

movement delivered, and awakening the U.S. to the importance of community, variety, humane treatment of farm animals and social and environmental responsibility in regards

to our food economy.Ó*

ÒBuying localÓ is one way for consumers to support local agriculture while eating fresher, less

processed foods and reducing energy spent on transporting food. Food security issues that arose following

9/11, as well as recent scares such as the nationwide E.

coli outbreak, have made consumers more aware of

food safety issues. A Midwestern Òfood milesÓ study

indicated that, on average, produce travels about 1,500

miles before it is consumed (Pirog and Benjamin,

2003). Eating local foods helps preserve distinctive

regional cuisine and varieties, such as the Jersey tomato. In fact, consumers all over the world have been

shown to prefer food that is obtained locally (Yiridoe

et al., 2005).

While reviewing literature regarding consumer

preference for locally produced foods, Schneider and

Francis (2005) found studies revealing weak preferences for the Òlocally producedÓ quality attribute

(Govindasamy et al., 1997; Kezis et al., 1998; Thomson

and Kelvin, 1996; Lockeretz, 1986; and Eastwood et al.,

1987). In the studies they reviewed, they found that

other quality attributes were more important and/or

that local production was perceived as an unimportant

characteristic. In other studies, which tend to be more

recent, and possibly reveal a trend, a stronger preference for locally produced foods is noted. In particular,

consumers shopping at farmers' markets and other

direct markets show a distinct preference for locally

produced foods, as might be expected (Gallons et al.,

1997; Kezis et al., 1998; Ross et al., 1999).

Through interviews with 500 residents of

Nebraska, Iowa, Missouri and Wisconsin by telephone

in a 2001 random sample survey, Food Processing

Center found positive preferences for locally produced

foods. The respondents stated their top three reasons

for purchasing local food were freshness, better taste

and supporting local farmers. They expressed a high

level of interest in purchasing local foods from grocery

stores, farmers' markets, directly from farmers and in

restaurants and cafeterias. While small town and rural

residents indicated the greatest interest in buying

locally grown food, suburban and urban consumers

were also more willing to pay a premium for these

foods (Food Processing Center, 2001).

Consumers in a random sample mail survey in

Nebraska were strongly supportive of locally grown or

produced food, with over half of respondents citing

this as an extremely or very important characteristic

(Schneider and Francis, 2005). While product quality,

taste, nutrition and price were by far the most important characteristics, rated Òvery to extremely importantÓ by 90 percent or more of the respondents, the categories of ÒNebraska grownÓ and Òlocally

grown/producedÓ were considered Òvery to extremely

importantÓ by 53 and 52 percent of respondents,

respectively. ÒAll-natural foodÓ and ÒorganicÓ were

considered Òvery to extremely importantÓ by just 33

percent and 28 percent of respondents, respectively.

However, this interest in local food did not translate

into much in terms of willingness to pay. More than

half of the participants (58 percent) were not willing to

pay any premium for locally produced food; 34 percent were willing to pay 10 percent above the typical

price, and only 2 percent were willing to pay 25 percent or more above the typical price. Research shows

that producers who charge a premium for their locally

produced foods must meet the number one consumer

criterion of quality if they want to attract consumers.

The study results indicate that locally produced products were more appealing to consumers than organic

or all-natural products. The study results also indicate

that interest in locally produced products would translate into purchases if producers stay within about 10

percent of the price of conventional products. Given

the general lack of small processing facilities and the

expense of custom processing, producers are going to

need some help in order to bridge this gap.

Maynard et al. (2004) used an experimental

approach to elicit consumers' willingness to pay for

11

* This quote from the LocalHarvest Web site highlights the

complex implications that the food system has for society as

a whole. LocalHarvest.org features a natoinal director of

stores, restaurants, farms, CSAs, farmersÕ markets and an

online shop connecting organic and local growers with consumers. It was founded in 1998 by Guillermo Payet, a software engineer in Santa Cruz, Calif., wo is committed to

generating positive social change via the Internet. About

9,000 members use this site, which is growing at the rate of

about eight members per day.
two differentiated meat products: beef that was certified locally produced (within the state), and guaranteed tender steak. Their method was designed to avoid

common pitfalls of food product valuation studies,

including: 1) determining WTP for a single unit rather

than enough to feed a family; 2) not including appropriate substitutes when determining demand; and 3)

inflated values for hypothetical situations (Cummings

et al., 1995). Maynard et al. present an excellent review

of the literature on these WTP issues, including a

paper by Lusk and Schroeder (2002) that found nonhypothetical values for steak products to be about 80 percent of hypothetically determined values. In other

words, if consumers were actually purchasing the

products, the value of their purchases would be only

about 80 percent of the hypothetical value they gave in

the survey.

The experiment for Maynard's study involved a

representative sample of 227 consumers in Lexington,

Kentucky, who were given an actual budget of $20 to

purchase any of five different meat products. The price

of USDA Choice was fixed at $9.10 per pound. The

prices for the other cuts were selected randomly with

prices ranging from $8 to $12 per pound for locally

produced meat, from $9.10 to $12 per pound for lean

and guaranteed tender meat, and from $10 to $12 per

pound for premium quality meat. Locally produced

steak was chosen by 55 percent of the participants

(Table 1). Premium quality steak (with the highest

price) was purchased by 45 percent, while 37 percent

chose USDA Choice steak with the lowest price.

Certified tender steak was purchased by 36 percent;

while lean steak was purchased by 24 percent.

Additional results of this study showed demand for

locally produced meat was highly sensitive to price. If

the locally produced meat was available at the same

price as steak produced elsewhere, 88 percent of

respondents said they would buy it often. If the locally

produced steak cost $1 more per pound than its alternative, 20 percent would buy it, but if it cost $2 more

per pound only 4 percent would purchase it. These

results contrast with a previous study by Maynard et

al. (2003) using standard contingent valuation (CV)

techniques showing that 52 percent of participants

would be willing to pay a 20 percent premium for

locally produced meat. The more recent study uses

methods to correct for the typical overstatements by

survey participants in hypothetical situations. The

2004 study also showed that consumers' interest in

locally produced meat was highly contingent on the

product being available in regular supermarkets.

A recent national study of consumer perceptions

of place-based foods, food chain profit distribution

and family farms was distributed via e-mail to a random sample population and received 851 responses

(DeCarlo et al., 2005). Place-based foods are defined as

differentiated food made from locally grown products,

which enjoy a heritage of being handed down from

generation to generation with a story to explain their

connection to a particular place. Respondents were

willing to pay more for local products that provided

economic benefit to the farmers and investors in their

own community; this was the most important factor in

their decisionmaking. They also would like to see

farmers receive a higher percentage of profit than

other partners in the food chain (reported by 65 percent). When asked if they believed that a region's geographic characteristics, such as type of soil, drainage

and other natural resource characteristics, influenced

the taste and quality of foods such as meat, produce or

dairy, one-third thought it likely. In terms of WTP for

place-based foods, 56 percent of respondents were

willing to pay more for place-based foods grown in

their state, and a third were willing to pay more for

place-based foods grown in other states. Thirty percent

were willing to pay up to 10 percent more for placebased foods from their state, and another 20 percent

were willing to pay up to 20 percent more. When

asked if a label signifying the product came from a

family farm would have a positive influence on their

buying behavior, 83 percent replied that a Òfamily

farmÓ label would have a positive effect.

In a two-part random sample survey conducted

in 2002 of consumers and farmers in Washington state,

Ostrom (2006) attempted to elicit definitions of what

constituted ÒlocalÓ and to determine the importance of

that characteristic relative to other attributes. Nearly

one-third of consumers surveyed (5,200 consumers

were chosen in four diverse counties, with a response

12

Table 1. Meat purchases by category for surveyed

Kentucky customers

Meat product Percent

Locally produced steak 55%

Premium quality steak

(highest price) 45%

USDA choice steak

(lowest price) 37%

Certified tender steak 36%

Lean steak 24%
rate of 23 percent) defined their county plus adjoining

counties as their Òlocal foodshed.Ó Just under onequarter of the respondents defined food grown in their

own county as locally produced, and another 21 percent felt that food produced within Washington state

should be defined as local. For farmers, food produced

within their county or bordering counties was also the

most common response, with nearly one-third giving

this response. Similar to the consumer survey, their

own county (23 percent) and Washington state (18 percent) were given as the next most common definitions

of locally produced food.

These consumers surveyed ranked the characteristic Òlocally producedÓ quite low relative to other

food qualities when considered as a stand-alone quality (Ostrom, 2006). However, when this characteristic

was linked with helping local farmers, its ranking

changed dramatically, from 34 percent considering

Òlocally producedÓ as very important to over 70 percent. Other characteristics that consumers ranked as

very important included freshness (94 percent), taste

(90 percent), nutritional value (77 percent), and convenience (74 percent). Helping local farms was ranked

very important by 70 percent of the consumers.

Appearance, price, and the environment were ranked

very important by 62 percent, 59 percent and 45 percent of the respondents. Grown in Washington, grown

locally, and grown organically were considered very

important by 41 percent, 34 percent, and 16 percent,

respectively, of the respondents. However, this study

concludes that the concept of locally produced food is

closely associated with freshness, quality and idealized

images of local farmers. When purchasing fresh, local,

high-quality food is tied to helping local farmers and

the local economy, its appeal is strengthened dramatically.

A comparison of a random sample survey of consumers in Ohio with a targeted survey of consumers

actively involved in food system issues shows significant differences in attitudes toward organic and local

foods as well as health and farming issues (Smith et

al., 2006). Motivated Consumers (MC), defined as

those belonging to two different organizations actively

involved in alternative foods, had on average three

more years of education, and most defined themselves

as liberal (88 percent) compared to just 26 percent of

those surveyed in the general population (GP). In the

GP, 8 percent stated that they frequently buy organic,

compared to 73 percent in the motivated group. In

terms of WTP, 59 percent of the general population

was not willing to pay more for organic foods. Nearly

all (95 percent) in the MC group said they would be

willing to pay more for organic products.

This Ohio study also examined respondents' stated preferences for local foods. Consumers in the motivated group were supportive, with 51 percent frequently purchasing local foods, compared to 31

percent in the general population. In the motivated

group, 92 percent stated they would be willing to pay

more for locally produced foods, compared to 59 percent in the general population in that region. Of the

respondents who said they would be willing to pay

more for local foods, close to half said they would pay

10 percent more for local products in both of the surveyed groups (52 percent of MC and 48 percent of GP).

Another one-third of MC and 11 percent of the GP

would pay 25 percent more for local foods. These

results indicate a broad base of support for locally produced foods, broader than the demand for organic

alone. Organic local produce will appeal to the consumers who buy organic, but not necessarily to the

broader group that only occasionally purchases organic products. Local products that can stay within 125

percent of the comparable nonlocal product would be

of interest to 85 percent of the general population,

according to this survey.

Challenges for local food systems may come

more from the supply side than the demand side. A

Nebraska study showed that few farmers in

Washington County were interested in producing food

crops; rather, the majority was heavily invested in the

production of feed and commodity crops (Schneider

and Francis, 2005). Producers at existing farmers markets were hobbyists, vegetable growers or retired

farmers. However, even a small conversion in acreage

might be sufficient to meet consumer demand in a particular region.

Given that consumers may not be willing to pay

much above conventional prices for local products,

farmers may need to (a) find specialty products for

which they can command larger premiums; (b) deal

with food service suppliers that are willing to support

them for various reasons and who can afford to pay

more and buy larger quantities; and/or (c) work

together in cooperatives or other marketing organizations to determine how to differentiate and promote

their products. Adding value through some sort of

processing is one way to differentiate local farm products and increase profits. Nelson Farms, a nonprofit

company affiliated with Morrisville State College in

Morrisville, New York, helps producers develop

recipes, and package and distribute more than 200 dif13
ferent value-added products (Gregory, 2005). A fee is

charged to cover labor and other production costs. For

example, honey producers can get more money for

their product by creating a honey barbeque sauce; cabbage producers can shred their product and command

a higher price per pound; strawberry vinegar can be

produced with fresh produce that does not get sold.

The Impact of State Marketing and Promotion

Programs

As of 1999, about 23 states had established programs of some sort to promote their own agricultural

products (Patterson et al., 1999). Massachusetts's program, called ÒBe a Local Hero,Ó has an associated Web

site that lists restaurants promoting local food (buylocalfood.com/Restaurants.htm). The ÒPride of New

YorkÓ program was established by then-Governor

Pataki in 1996. It currently has 1,500 members who

market food grown or processed in New York. The

program Web site, available at www.prideofny.com,

includes a listing of ÒPride Restaurants,Ó a guide to

restaurants in the state that feature local products.

California's ÒBuy Fresh, Buy LocalÓ campaign, sponsored by the Community Alliance with Family

Farmers (www.caff.org), provides an interactive guide

to restaurants, farmers' markets, CSAs, U-pick, grocers, etc., by region on their Web site at www.buylocalca.org. Consumers were largely unaware of their state

agricultural promotion programs in Arizona (Arizona

Grown) and Missouri (AgriMissouri), despite the fact

that they were supportive of locally produced products (Patterson et al., 1999; Brown, 2003).

In Washington state, producers received a price

premium by using the Washington Apple label when

advertising their products, indicating that the apple

industry in Washington benefits from its historical reputation for quality apples (Quagrainie et al., 2003).

Price premiums and marketing data were used in a

dynamic multiple-indicator multiple-cause (DYMIMIC) modeling approach to estimate the collective reputation of Washington apples as a dynamic latent variable.

In New Jersey, Govindasamy et al. (1997) reported that 77 percent of consumers surveyed were aware

of the Jersey Fresh label and state-sponsored program.

In 2000, the state spent $1.16 million promoting the

program. The statewide economic impact of this program was estimated at $63 million, based on increases

in fruit and vegetable receipts and related economic

activity within the state (Govindasamy, 2004). Adelaja

et al. (1990) conducted an analysis of the state's efforts

to promote locally grown tomatoes. They found that

consumers perceived Jersey Fresh tomatoes to be a

superior quality product.

The recent surge in interest in local food has created a relatively small but growing demand for locally

produced food. Given our vast production potential as

a country, local food systems will not be a panacea for

the decline of the family farm, but we as a country

could eat higher quality food produced in a way that

preserves our environment and helps our economy.

Farmers wishing to cater to local outlets would probably need marketing and product development assistance in order to determine what types of products

might be successful, given the characteristics of their

farm and their location. As in any new business venture, there is inherent risk. A strategically located farm

with adequate capital, land, labor, entrepreneurial

skills and a successful product could be successfulÑ

unless the market is flooded by others with the same

idea.

Assessing the Impact of Eco-Labels on

Consumer Demand and WTP

An eco-label identifies environmentally preferable products based on an environmental impact

assessment of the product compared to other products 

in the same category.

1

The environmental impact

assessment includes the entire lifecycle of the product,

from production through disposal. While eco-labels

require compliance to standards, they are still considered market-oriented because they are not directly regulated by the government. Food labeled as organic, on

the other hand, must comply with the national standards for organic food that were established by USDA

on October 21, 2002. According to the USDA, in order

to be certified organic, food must be produced without

the use of most conventional pesticides, fertilizers

made with synthetic ingredients or sewage sludge,

bioengineering or ionizing radiation.

Eco-labels have been developed in response to a

wide range of public concerns. Many of these public

concerns relate to environmental health, including

aspects such as wildlife preservation, biodiversity and

sustainability. One function of eco-labels for marketing

and promotion is to reward producers who make a

conscious effort to use sustainable practices.

14

1 See the ConsumerÕs Union (CU) Eco-label Web site

(http://www.eco-label.org/home.cfm) to learn more about

how eco-labeled products compare to conventional products

and CUÕs report card for specific eco-labels.
Agricultural sustainability incorporates the preservation of agricultural productivity while protecting the

environment and remaining economically viable.

Individual eco-labels may represent one or more

aspects of sustainable agricultural practices. They provide a mechanism for communicating these practices

to consumers, who can then demonstrate their support

by purchasing the product. For the eco-label to be successful in economic terms, it must increase consumer

demand. While a number of studies have examined

consumers' apparent willingness to purchase products

with certain environmental characteristics, there has

been little examination of actual impact in retail markets.

In Europe, the environmentally friendly marketing movement is successful and growing rapidly.

Nearly 4,000 certified products use the German ecolabel, Blue Angel (left), introduced in 1978. It has

become a successful instrument in both environmental

protection and marketing. The Euro Daisy eco-label

(right), launched in 1998, regulates and sets common

standards for all eco-labels in the European Union

countries. In addition, it provides scientific information to consumers. Eco-labeling programs are flourishing in the U.S. food industry as well. From the Pacific

Northwest to the Northeastern United States, one can

find eco-labeling programs associated with the production of environmentally sound fruits, vegetables

and milk. In addition, many regional sustainable agriculture programs use labels to ensure acceptance in

regional niche markets for ÒgreenÓ products.

In general, eco-labels increase consumers' WTP

for a particular product. A random sample telephone

survey by Blend and van Ravenswaay (1999) examines

willingness to pay for eco-labeled apples in the continental U.S. They concluded that at a $0.40 per pound

premium, over a third of households surveyed would

be willing to buy eco-labeled apples.

Loureiro et al. (2001) assessed consumer choice

from among eco-labeled (certified by the Food

Alliance), organic and regular apples. Randomly

selected produce shoppers, 285 in all, were surveyed at

two grocery stores in the Portland, Oregon, area, during weekend and weekday hours using trained interviewers. Characteristics of eco-labeled and organic

apples appeal to a similar group of consumers concerned about food safety and environmental quality,

but this type of consumer would prefer to buy organic

when both products are offered at equal prices.

Perceived quality of eco-labeled apples significantly

increased the probability of their purchase. Some of

the factors that have a positive and significant effect on

the probability of organic choice (concerns over food

safety and the environment, and the presence of children in household) have a negative impact on the

probability of the eco-label choice. Consumers may

feel that organic apples are safer, as Food Alliance-certified products can use reduced levels of pesticides,

and they may be more familiar with the organic label.

Premiums for Food Alliance-certified products

tend to be relatively small, reflecting the overall difficulty of garnering a premium based on Òenvironmentally soundÓ practices. Complicating eco-label valuation is the fact that eco-labels may work better for

some products than for others, implying that a general

recipe to stimulate green markets may not work. In a

relevant study, Wessells et al. (1999) found that consumers do not value all certified fish and seafood

species in the same way. For example, consumers gave

higher values for subjective willingness to pay for certified salmon than for cod. Further, consumers from

different countries may respond differently to the

same eco-label. Johnson et al. (2001) investigated differences in consumer preferences for eco-labeled

seafood across the United States and Norway. They

found that consumer preferences differed by price premium, species, consumer group and certifying agency.

A recent random sample mail survey of consumers in the Central Coast area of California examined what consumers want to know about their food

(Howard and Allen, 2006). Food safety and nutritional

content were their two main concerns, but they also

wanted to know about how food animals were treated,

the environmental impacts of the production process,

working conditions of the food handler, their wages,

the influence of large corporations how far the food

traveled (Curlee, 2006). Consmers were asked to rankthe importance of five criteria, including humane treatment of animals, locally grown, U.S.-grown, smallscale production and living wages. Humane treatment

was chosen as the most important cause by 30 percent

of the participants, followed by locally grown (22 percent), and living wage (16.5 percent). U.S.-grown and

small scale were considered the most important criteria by less than 6 percent of the respondents (Howard

and Allen, 2006). Women were almost twice as likely

as men to choose humane treatment of food animals as

the most important criterion among these five choices.

In a mail survey of 2,400 randomly selected

households (of which 1,200 responded, a very

respectable 50-percent response rate), Onozaka et al.

(2005) examined consumer preferences for various

attributes of organic food in the Sacramento area. They

found that consumers who do not regularly purchase

15
organic produce were willing to pay between 10 and

19 percent more for pesticide-free produce for the four

produce items in the study, while regular organic food

consumers were willing to pay from 17 to 34 percent

more for pesticide-free versions. The regular organic

consumers were much more willing to pay for produce

that was environmentally friendly than the nonregular

consumers, ranging from 20 to 39 percent for the four

produce items, while the nonregular organic consumers were willing to pay 4 to 7 percent more for

Òenvironmentally friendlyÓ produce. For the ÒNo

Genetically Modified Organisms (GMO)Ó organic characteristic, regular organic food consumers were willing

to pay from 13 to 27 percent more, but one-third found

this characteristic unappealing (negative WTP). The

consumers who did not regularly purchase organic

foods were only willing to pay 3 to 7 percent more for

GMO-free foods. The survey used Òchoice experiments,Ó a more rigorous and consumer friendly alternative to hypothetical WTP procedures.

After several years of market prices hovering

below break-even points, potato growers in the San

Luis Valley of Southwestern Colorado were desperately looking for some way to differentiate their product

and add value. Researchers at Colorado State

University conducted a random sample survey of

Colorado consumers to elicit their willingness to pay

for various characteristics, including Colorado grown,

organic, and GMO-free (Loureiro and Hine, 2002).

Using an improved contingent valuation method with

a multiple-bounded probit model that fits payment

card data, they found that consumers were willing to

pay the highest premium for Colorado Grown, but the

potatoes had to be linked to a certain quality level to

earn the $0.09 per pound premium. While wealthier

consumers with higher education levels were willing

to pay more for organic and GMO-free potatos, they

were not willing to pay a premium for Colorado

Grown.

Overall, these studies highlight the difficulties of

marketing products with credence characteristics. First

of all, consumers need to understand the issues. The

previous studies of the importance of GMO-free foods

is a case in point; if consumers do not know the impact

that GMOs will have on them and the environment,

how will they know how to value them? For some of

these issues, the scientific community is still unsure of

their impacts. Marketing theory contends that core

product characteristics must be met before consumers

will be willing to pay for augmented characteristics

like eco-labels.

Impact of Fair Trade/Fair Labor Practices on

Consumer Demand and WTP

The Fair Trade label, certified by TransFair USA

in this country, signifies that farmers have worked

under fair conditions and received a fair price to

ensure them a minimum standard of living. Many coffee brands use fair trade labels (pictured at left) in

their marketing strategies. TransFair USA reports that

fair trade coffee is experiencing a 72-percent average

annual growth rate in this country (Howard and Allen,

2006). Global Exchange, a human rights organization,

convinced Starbucks to start serving fair trade coffee in

2000 (Straus, 2000). In 2005, McDonalds began to testmarket fair trade coffee. Fair trade labels have also

been used for cocoa, bananas and sugar. There is little

academic literature available that examines consumer

response toward labeling that signals socially conscious or socially correct production practices.

A Belgian survey of college employees conducted

online and through the mail (De Pelsmacker et al.,

2005) examined consumers' willingness to pay for fair

trade coffee. This study used a conjoint analysis technique that simulates the situation in a real supermarket and thus is a better predictor of consumer behavior

than contingent valuation techniques that use hypothetical values. The average WTP for fair trade coffee

across the sample of 808 respondents was a 10-percent

premium, well below the actual fair trade premium of 

27 percent. Ten percent of the sample would pay the

actual premium. Coffee brand was the most impotant

attribute, followed by flavor and then the fair trade

label.

Loureiro and Lotade (2005) analyzed consumer

preferences for ethical and environmentally sound

labeling programs for coffee. Valuation questions

regarding fair trade, shade-grown and organic coffee

labels were asked using a payment card format.

Results suggested that consumers are very receptive

toward both fair trade and shade grown coffee labels,

and consequently are willing to pay higher premiums

for these labeling programs than for organic coffee.

Part II: Food Chain Demand for Sustainability

and Local Food: Restaurants and Institutional

Food

Institutional food and food service customers are

increasingly searching for fresher, healthier and more

appetizing food choices. In a survey of food business

representatives, respondents chose Ògrown locallyÓ as

the most frequent consumer request for produce and

meat items, compared to four organic choices, including Òorganic, grown locallyÓ (Pirog, 2003). Many large

16
national food service suppliers, including Sysco,

Sodexho and Bon Apptit, have begun sourcing from

organic and local suppliers. In fact, loss of small and

mid-sized farms worries Rick Schneiders, chief executive officer and chairman of Sysco (Halweil, 2004).

Scheiders said that he wonders how he will source the

products his customers are demanding, such as pasture-raised beef, heirloom vegetables, free-range chickens and salad mixes, without these smaller growers

(Schneiders, 2004). Sysco uses Food Alliance-certified

products (see next section), a voluntary certification

and eco-labeling program launched in Portland,

Oregon in 1998.

Sometimes all it takes is one committed leader to

start an avalanche of change. This was the case with

Bon Apptit, a food service provider that provides

onsite restaurants and catering for universities and

corporate accounts across the country. When CEO

Fedele Bauccio heard that his Monterey Bay Aquarium

restaurant was serving only seafood that was on the

approved-for-consumption list published by the

aquarium and based on sustainable seafood consumption, he extended the list to all of his restaurants. This

initiative was followed by a host of other sustainable

measures. All across the country his chefs serve fresh,

locally sourced food, including cage-free chicken eggs,

antibiotic-free meat, free trade coffee and rBST-free

milk. At the Intel campuses, chef Joe McGarry organizes farmers' markets for employees to buy fresh produce, then often buys any leftover produce for use in

his kitchens. Nearly a ton of kitchen scraps a week are

generated by the kitchens at Intel, so chef Micah

Cavolo partnered with an area farmer to have the

scraps composted. Bon Apptit favors direct relationships with farmers. Signs over the salad bar at an

onsite restaurant indicate the sources for various

items, ÒBasil from Siri Farms,Ó ÒMushrooms from

Yamhill.Ó.

This type of authenticity resonates with consumers, according to a research consultant (Demeritt,

interview, 2006). They like to know the story behind

their food. If it's a local source, they can see the benefits to themselves as part of a larger community, e.g.

Puget Sound Fresh. Consumers want a brand that

makes identification easy and quick. Consumers were

most responsive to simpler eco-labels in an internet

survey testing various formats for eco-labels (Pirog,

2003). Too much information can get confusing; most

consumers don't have time to study every food choice

carefully.

Dr. Preston Maring, with Kaiser Permanente in

California, wanted to do something very basicÑbring

healthy food to the staff at their huge medical center in

Oakland. Meanwhile, local growers wanting to sell at

the farmers' market had a two- to three-year waiting

list. In May 2003, he launched the first Friday Fresh

Farmers' Market in the parking lot. It has been a

resounding success; Kaiser Permanente has set up 30

farmers' markets in medical center locations around

the country (members.kaiserpermanente.org/redirects/farmersmarkets/).

Maring's next step is to bring healthy foods to the

patients in their hospitals by working directly with

growers who are too large for direct marketing and too

small for wholesale markets. ÒKaiser is big enough and

orders enough food to make a difference,Ó Maring

said.

Anya Ferald with Community Alliance with

Family Farmers (www.caff.org), a nonprofit based in

Davis, California, is developing the pilot project for

Maring (Ness, 2006). She is working mainly with

H'mong, African American and Latino farmers' groups

in the area to contract directly with Kaiser, at prices

slightly above the current wholesale price. They had to

arrange to deliver their produce to the Sysco-owned

distributor, Lee-Ray Tarantino of South San Francisco,

which then delivers all of the products to Food Service

Partners, the maker of patient meals for Kaiser.

Tarantino says the focus on small farmers is newÑand

he feels that it could potentially be huge. Both the

University of California Santa Clara and the University

of San Francisco are interested in the pilot program.

Another alternative distribution system in southern California, the Growers Collaborative, has successfully funneled small farmers' crops to Ventura public

schools, the Getty Museum and Bon Apptit clients

like Dream Works and Sony (Ness, 2006). The Ventura

program kept a 20-acre strawberry farm owned by two

brothers in business. Their harvest became too little for

the wholesale market but too large to sell at farmers'

markets.

Food Alliance: Providing Sustainability

Certification and Education, Forging Business

Relationships

The Food Alliance program is experiencing

tremendous growth. Scott Exo, Food Alliance executive director, says that current demand for Food

Alliance products continues to exceed supply. In 2006,

an estimated $87 million (farmgate value) of Food

Alliance-certified products were sold to distributors,

restaurants and grocery stores. The company now has

a Midwest location, in St. Paul, Minnesota, as a joint

project with the Land Stewardship Project and

17
Cooperative Development Services. In March 2007, a

California program manager, David Visher, was added

to the staff.

Food Alliance currently certifies 250 producers in

19 states and Alberta, Canada, who farm just over 4

million acres (Exo, 2006). Certified farms must provide

safe and fair working conditions; provide healthy and

humane care for livestock; eliminate the use of hormones and subtherapeutic antibiotics; eliminate the

use of GMOs; reduce pesticide usage and toxicity

through Integrated Pest Management (IPM); conserve

soil and water resources; and protect and enhance

wildlife habitat (see www.foodalliance.org). In a 2004

survey, farmers and ranchers in the program reported

an average 8-percent premium. They have a number of

formal Òmarket partnershipsÓ with regional businesses, including Bon Apptit, ARAMARK, Sodexho and

Sysco Corporation. Over half of these market-side

partners report increases in sales directly attributable

to their participation with the Food Alliance

(www.foodalliance.org).

The Food Alliance provides a certification program that is sensitive and flexible enough to address

regionally specific environmental problems. For example, Shepherd's Grain (www.shepherdsgrain.com) is

made up of a group of grain growers who use directseeding (also called no-till) techniques to farm in the

highly productive, highly erodible, grain growing

region of eastern Washington, eastern Oregon, and

northern Idaho. Growing organic grain would be very

challenging in this region, due to fertility and pest control issues. In fact, organic practices, such as hauling

manure into the region for fertility and typical tillage

practices for weed control, are not sustainable in terms

of fuel usage and soil erosion. These farmers are conserving carbon by not disturbing the soil and reducing

emissions by eliminating tillage. Their unique flour

blends and, more recently, baked goods from a regional bakery have been very well received. Several state

and private universities, as well as corporate lunchrooms at Intel and Adidas, use Shepherd's Grain flour

exclusively. In August 2006, Shepherd's Grain milled

18

HotLips Pizza Brand: Selling Points Include

Sustainability and Locally Sourced Foods

David Yudkin, a member of the ChefÕs Collaborative and owner of HotLips Pizza, a four-store chain in

Portland, Ore., has differentiated his restaurant with his focus on sustainability. He pursued the National

Step sustainability framework (see www.naturalstep.org) and has incorporated its principles into his business. Working with students from Portland State University to analyze his impact on the environment, he

has impressively reduced CO2 emissions from his business by reducing energy consumption and by converting delivery trucks to more fuel-efficient models. His restaurants feature local, seasonal produce and

organic ingredients.

YudkinÕs commitment has paid off; HotLips Pizza has an annual growth rate in gross revenue of 18 percent. But it requires a great deal of work, he explains. ItÕs much more complicated to source local ingredients, and itÕs more expensiveÑabout a 3-percent increase in food expense, he estimates (Yudkin,personal

interview, 2006). It takes a commitment all the way up and down the line, from the accountant to the chef.

He emphasized that you need to be flexible. Products change throughout the season. But he loves to work

with the growers; it makes it worth going to work everyday, he says. His goal is to leave a better world for

his children in terms of the environment, the economy and our food choices.

In terms of a model for other restaurants, he feels that branding is key, In other words, customers associate

HotLips with environmental responsibility, organic and local ingredients and sustainable practices, as well

as high-quality, tasty food, This concept of the importance of a storeÕs image or branding is shared by Jack

Graves from Burgerville, a burger chain that sources local and Food Alliance-certified ingredients, and

Brian Rohter from New Seasons Market in Portland (Stevenson, 2005). They expressed a strong belief that

the primary and most powerful influence on customers was the business itself. Customers have come to t

rust the businesses to maintain high standards for thier products, and to address customersÕ concerns in a

responsible manner. For example, when concerns over BSE in meat arose, store personnel can point to the

Food Alliance certification, which does not allow feeding of animal by-products and only uses U.S. beef.
37,000 bushels of grain from 17 growers, compared to

the preceding 12-month period, when 34,000 bushels

of grain from 10 growers were milled (Kupers, 2006).

(This is approximately equivalent to half the annual

output for one small- to medium-sized family farm.)

The company has been able to Òde-commodifyÓ its

product and make it work for participating growers,

because the pricing system is based on the cost of production. In 2006, when yields were down and fuel and

fertilizer costs had risen significantly, prices paid to

producers had to reflect these facts. For once, farmers

were able to pass on their costs of production, albeit

for a small fraction of their product.

One of the more promising developments in

terms of sustainable certification is the Food Alliance's

handler (or processor) certification. In a new program

begun in 2006, firms that process Food Alliance products, like Truitt Brothers of Salem, Oregon, can also be

certified (www.truittbros.com/sustainability.htm).

They had to meet comprehensive standards requiring

them to:

● Create natural products considering purity and

nutritional value

● Ensure quality control and food safety

● Responsibly manage water and energy

resources

● Responsibly manage waste with an emphasis

on recycling and reuse

● Provide a safe and fair work environment

● Commit to continuous improvement of these

sustainable practices

Four other companies were certified in 2006, and

several more are working on the process. The exciting

aspect of this type of certification is that these companies will need more Food Alliance-certified growers as

they expand, so they might be providing the incentive

growers need to become certified also (Exo, 2006). This

reduces the risk to growers of changing practices and

getting certified without knowing with certainty that

they will receive any return on their investment

Selling to Restaurants: Farmer-to-Chef

Collaboratives

In 2005, an estimated 48 percent of our annual

food dollar, or about $420 billion, was spent on food

eaten away from home (USDA-ERS, 2006). Marketing

to the food service industry could become a lucrative

outlet for midsize growers. While food service is currently a relatively small purchaser of organic, natural,

and local foods, rapid growth is expected. Natural and

organic sales are predicted to grow from $330 million

in 2002 to almost $2 billion by 2007 (Natural Foods

Merchandiser, 2004). While restaurants may seem to be

a fairly limited high-end purchaser of agricultural

products, it is becoming increasingly common for middle-class restaurants to differentiate themselves with

their commitment to sourcing local food, such as

HotLips Pizza and Burgerville,

Featuring local ingredients is a fashionable new

trend in upscale restaurants. The Chef's Collaborative

organization (www.chefscollaborative.org) has chapters around the country, forming partnerships with

local farmers, ranchers and artisanal producers.

Founded in 1993, the Chef's Collaborative Òinspires its

members to embrace seasonality, preserve traditional

practices and agricultural diversity, and support local

economies.Ó An impressive national list of member

restaurants is posted on its Web site. They also have

regional chapters, such as the Portland, Ore., chapter,

that help publish a regional directory of local and seasonal products available in Washington and Oregon

(www.farmerchefconnection.org), in collaboration

with Ecotrust and the Washington State Department of

Agriculture. This guide matches Òfarmers, ranchers,

and fishermen with chefs, retailers, institutions, caterers, and other food buyers who are looking to purchase locally grown food products.Ó

Purchasing locally grown products is considered

profitable by nearly three-quarters of the respondents

in a recent survey of Chef's Collaborative members

(Food Processing Center, 2003). Their reasons for purchasing locally grown products included their superior

quality, freshness, positive relationships with producers, customer requests and the availability of unique or

specialty products. More than half of the respondents

preferred to purchase directly from a farmer.

Commonly stated obstacles included consistent availability, reliable supply, knowing what is available in

the area, complicated ordering procedures and too

many purveyors. Price of the product was one of the

less important characteristics in their food purchasing

decisions. Results from this research project show that

some type of grower clearinghouse is neededÑperhaps a system that could help facilitate standardized

ordering and billing for a group of local growers such

as a business-to-business Web site.

Web sites serve as an inexpensive method for

bringing buyers and sellers together, reducing transaction costs and supplying valuable firsthand marketing

information. Higher value farm products, such as the

range-fed beef used by the Burgerville chain, appear to

be a more feasible product for many growers than, for

instance, greenhouse production or specialty vegetables. For example, Country Natural Beef (formerly

19
Oregon Country Beef), which is Food Alliance certified, markets beef raised on over four million acres by

more than 100 ranch producers in Hawaii, Nevada,

Nebraska, New Mexico, California, Colorado, Oregon,

Washington, Wyoming and Idaho. A list of more than

20 restaurants that serve its beef is listed on its Web

site at www.oregoncountrybeef.com

A guide produced by Iowa State University

Extension for farmers who wish to sell to the restaurant industry discusses opportunities, potential pitfalls

and helpful organizations and resources (Strohbehn

and Gregoire, 2002). This Iowa State Extension guide

makes some recommendations including cooperative

efforts and use of nonprofit organizations, such as the

Practical Farmers of Iowa, who can serve as an intermediary for farmers. As one person put it, when midsize farms try to compete in the food marketplace, they

are up against the Òbig guysÓ and they could use some

help!

Farm-to-School Programs: Feed My Kids How

I'd Like To Feed Them!

Young people today may live less healthy and

possibly shorter lives than their parents due to the lifeshortening effect of obesity (Olshansky et al., 2005).

Current trends in obesity in the United States may end

the steady increase in life expectancy over the past two

centuries. To address this public health crisis, federal

legislation now requires that all schools with federallyfunded school meal programs must develop nutrition

and physical activity programs for reducing childhood

obesity and promoting student health (S. 2507, the

ÒChild Nutrition and WIC Reauthorization Act of

2004Ó).

This legislation presents a great opportunity for

initiating farm-to-school programs. In 2004, some 400

school districts in 22 states already had programs linking farmers with school cafeterias, according to one

report (Orenstein, 2004). Some schools are inviting

farmers into the classroom to provide a closer link

with agriculture for their students. Educational opportunities are a natural extension of the farm-to-school

programs.

Farm-to-school programs have taken many different forms around the country

(www.foodsecurity.org/farm_to_school.html#casestudies). Probably the oldest example is the New North

Florida Cooperative (NNFC), consisting of farmers in

Florida, Georgia, Alabama, Mississippi and Arkansas,

who have been providing fresh produce to school in 72

different districts since 1995. In Michigan, over $1 million in funds from the Department of Defense Farm to

School Program have been used to purchase apples,

pears and nectarines from Michigan farmers. Also

through this program, North Carolina has purchased

$4.5 million of apples, carrots and potatoes from farmers in their state. Funding sources, organizing tips and

more can be found on the Community Food Security

Coalition Web site

(www.foodsecurity.org/farm_to_school.html #casestudies). Some programs have been initiated by farmers, some by parents, some by principals and staff, but

the more inclusive the process, the better chance of

success it has.

A program called Rethinking School Lunch

developed by the Center for Ecoliteracy (www.ecoliteracy.org/programs/rsl.html) has produced a comprehensive guide to improving school lunches, academic

performance, ecological knowledge and the well-being

of children. The farm-to-school model is an essential

element of this program. The program provides an

integrated curriculum on agriculture, sustainability,

food waste, food policy and human health. Alice

Waters, founder of Chez Panisse and the Edible

Schoolyard, a 10-year-old program that established an

organic garden and kitchen classroom in a poor urban

middle school, also collaborated on this project.

In New York, Governor Pataki signed a Farm-toSchool Program into law in 2002. The program helps

procure N.Y. apples, cider, baby carrots, pears, potatoes and even cookies made with butternut squash. It

helps growers meet specifications for the school district. For example, a yogurt producer was able to

adjust his product to meet the specification and be

awarded the school contract. This past summer, the

City University of New York sponsored a forum entitled ÒSchools and Food: Innovation, Opportunity, and

Wellness.Ó Over 400 school food advocates attended

the conference.

In Chicago, a nonprofit organization called Seven

Generations Ahead (SGA) has established a Fresh

From the Farm program to improve school meals and

educate schoolchildren on the connection between

agriculture and their food (www.sevengenerationsahead.org/fresh_from_the_farm.html). In March 2006,

an SGA Healthy Lunch Forum drew more than 70

school superintendents, parents, food service directors,

school board and Parent-Teacher Organization members to learn about successful healthy lunch program

models, both locally and around the country. Healthy

diets affect both student learning and academic

achievement, they feel. They have developed an eightweek curriculum with modules on nutrition, earthfriendly agriculture and global food traditions. They

20
tour local organic farms and also have classroom visits

from farmers. Local chefs demonstrate cooking techniques for creating healthy food and discuss nutrition.

Fresh from the Farm serves as a resource, advocate and

procurement coordinator for school districts wanting

to incorporate healthier foods, from local sources if

possible. The program supports implementation of

pilot healthy school lunch fundraisers to find vegetables, fruits and grains. They sponsor Parent-Child

Healthy Eating Nights to teach families about healthy

eating in a fun atmosphere. Newsletters are available

on their Web site. A market basket program by a partner organization delivers fresh produce to the schools

for purchase by parents and community members. The

produce is grown by the Rainbow Farmers'

Cooperative, consisting of Wisconsin farmers, H'mong

immigrant farmers and African American family farmers from Southern states. Further case studies and

materials can be found at www.sevengenerationsahead.org/school_case_studies_resources.html

A study in England involving a project to source

local and/or organic food for school lunches encountered some interesting problems that might be instructive to U.S. programs (Berkshire Food Group, 2004).

Below are some conclusions from the study:

● Chronic produce shortages in some parts of the

country would make it difficult to supply

schools.

● Few farmers could meet the required price

specifications or other requirements, such as

delivery schedules.

● Small businesses cannot necessarily meet the

necessary health and safety requirements.

● A great deal of effort and commitment is needed for the school lunch supplier. In order to

remain viable, suppliers need to provide

healthy food that is appealing to children while

meeting parents' approval 

● Parents were highly interested in what their

children were being fed, and many wanted all

processed foods to be removed from the

menus. Most said they were willing to pay

more for local and/or organic food

● This project successfully engaged the children,

their parents and the school lunch staff in the

subject of healthy eating and sustainable sourcing

● The decline in knowledge and cooking skills in

the kitchen staff needs to be reversed in order

to improve the quality of school food

Various farm-to-school programs are in place

around the country and provide different models, from

focusing on local food sources to health education to

agricultural sustainability. Schools in moderate climates may be able to grow some of their own food or

buy from local farmers, but the school year may not

coincide well with the growing season in many areas.

With sufficient planning and will, most schools should

be able to purchase at least some of their food from

local sources and perhaps provide local businesses

with a value-added opportunity.

Conclusions and Future Research

In examining consumer preference for DFP, consumers clearly demand that food quality considerations be met before they will consider purchasing a

product for non-observable characteristics such as sustainable production or fair labor practices. This was

particularly important for socially responsible and ecolabeled products. Local concerns have considerable

appeal in terms of supporting the local agriculture, the

local economy and the local environment. Local also

carries the connotation of products that are fresher,

more likely to be traceable and delivered via less transportation. Appealing to consumers' broader self-interest in protecting laborers in developing countries and

other less tangible products also has consumer appeal,

but to a smaller segment of society.

Two models of consumer purchasing behavior

were presented: a triangular hierarchy of consumer

needs based loosely on the Maslow hierarchy of needs,

and a circular model using core and periphery characteristics. While the models differ, they both show that

basic core attributes of a product, such as fresh, tasty

and healthy, must be present before consumers will

consider purchasing a product for additional attributes, such as method of production. When consumers

make a purchase, they are buying a set of product

attributes. Labeling or educational campaigns linking

additional attributes to core product attributes will

help sell these differentiated products to consumers.

For example, one study showed that the Jersey Fresh

state promotion program generated over $60 million in

economic activity while spending $1.16 million per

year. If consumers realize that purchasing local produce can help their state economy, they may make an

effort to buy more in-state products.

This survey of the literature reveals a broadening

base of support for locally produced foods, with more

widespread appeal than the organic label. Locally

grown or produced was considered very to extremely

important by 52 percent of respondents in a consumer

survey in Nebraska, whereas organic production was

very or extremely important to 27 percent of those sur21
veyed (Schneider and Francis, 2005). In one survey,

locally produced was ranked relatively low at 34 percent as a stand-alone quality (Ostrom, 2006). When

combined with helping local farmers and the local

economy, the appeal of locally produced foods was

strengthened dramatically to 70 percent. Linking these

impacts to local production was necessary for respondents to understand the ramifications of supporting

local production. Local products that can stay within

125 percent of the comparable nonlocal product price

would be of interest to 85 percent of the general population, according to a random sample survey of the

general population in Ohio (Smith et al., 2006).

The strong growth in consumer demand for

organic foods has several lessons for farmers interested in producing differentiated farm commodities.

Sustained high premiums for organic food resulted in

intense competition as larger players entered the

organic marketplace. Price premiums have fallen over

the last decade, causing some of the smaller organic

farms to go out of business. To avoid industrialization

of the organic label, producers need to educate consumers on the importance of supporting conscientious

farmers.

Midsized producers or producer groups that can

identify niche markets and market to them might well

be able to garner more than the typical 10 to 20 percent

maximum premium expected from the general population. Businesses spend millions in marketing research

dollars to identify profitable niches; farmers will need

to capitalize on their unique advantages, whether it is

humane treatment of animals, local production or

some type of environmental stewardship that only

they can provide.

The Colorado Potato Growers Association's

(CPGA) market research project provides an excellent

example for other commodity organizations (see

Loureiro and Hine, 2002) to consider modeling. CPGA

hired researchers from Colorado State University to

determine consumers' willingness to pay for three differentiated farm products: organic potatoes, GMO-free

potatoes, and Colorado Grown potatoes. Only wealthier consumers would pay a premium for organic or

GMO-free potatoes. The general population was willing to pay a premium of $0.09 per pound for Colorado

Grown potatoes, but only if the potatoes met certain

quality standards. Thus, a small segment of the population would support organic (which is by definition

GMO-free) potato production while broader support

can be expected for locally grown potatoes. This type

of collaboration warrants strong support, as both farmers and consumers benefit.

An upsurge in interest in farmers' markets and

other direct-to-consumer marketing channels such as

CSAs show that consumers are willing to spend time

and money to increase the quality of their food and

support farmers in their area. Development of new

marketing organizations and channels, including

grower cooperatives, as well as further research on

consumer demand for DFPs will be necessary to coordinate DFP production with consumer demand.

Continuing support is highly recommended for successful nonprofit organizations, such as the Food

Alliance, Chef's Collaborative, Local Harvest and

FamilyFarmed, that have forged the way for many

exciting new partnerships among farmers, food

processors, restaurants and food service companies

and consumers. Finally, consumer needs research

should be conducted in accordance with standard marketing theory on consumer preferences, as discussed

earlier, while avoiding the common pitfalls of hypothetical responses given by consumers in surveys.

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27
28

Appendix Table 1: Description of surveys from cited literature

Author, date Description

Blend and van National random sample telephone survey conducted by the Institute for Public Policy and 

Ravenswaay, Social Research at Michigan State University; 972 interviews were completed, response rate of 

1999 67%.

Brown, 2000 Random sample mail survey of 544 households in southeast Missouri on consumer preferences for locally grown food.

De Pelsmacker Survey of faculty and staff at Gueph College via computer (4,664) or mail (550), with a 

et al., 2005 response rate of 16%. Examines willingness to pay for fair trade coffee using conjoint analysis.

(Belgium)

DeCarlo et al., National random sample via email; rec'd. 851 responses for a 24% response rate.

2005

Eastwood et al., Random sample interviews of consumers in Knox County, Tennessee, studied consumer pre1987 ference for locally grown vs. out-of-state produce.

Food Processing Random sample telephone survey of heads of household, 100 each in Nebraska and Iowa, 150 

Center, University each in Wisconsin and Missouri. Goals of project included estimating size of current and of

Nebraska, 2001 potential market for: (1) locally grown, produced and labeled food, (2) locally grown pastured

and free-range chicken, (3) market for organic and all-natural.

Hartman Group National study of organic trends: Internet survey of 5,000 respondents, weighted to be nation

2004 ally Hartman's Interactive Consumer Panel: 353 of the 15,000 consumers from their self-selected online consumer panel, weighted to be nationally representative and corrected for prohealth and wellness nature of self-selected consumers.

Health Focus National random sample of approx. 2,000 qualified respondents chosen from a random prereInter. 2003 cruiting phone call; 12-page, self-administered written questionnaire of public attitudes and

actions toward shopping and eating. Conducted every two years to identify current issues in

consumer health and nutrition behavior and attitudes, and to assess the trends in consumer

priorities regarding nutritional issues.

Howard and Mail survey to more than 1,000 randomly selected households in San Mateo, Santa Clara, 

Allen, 2006 Santa Cruz, San Benito, and Monterey counties; 48% response rate.

Loureiro and Payment card method used to solicit WTP from 437 consumers randomly selected in various 

Hine, 2002 supermarkets in Colorado.

Loureiro and Personal interviews conducted in supermarkets in 4 locations in Colorado and over various 

Lotade, 2005 times of the day; 284 completed surveys.

Loureiro et al., Randomly selected consumers were interviewed in supermarkets in Oregon using trained 

2001 & 2002 interviewers and across multiple timeframes.

Maynard et al., Used a focus group, a consumer taste-testing and WTP survey, and a restaurant survey. The 

2003 consumer experiment involved 61 panelists who completed the survey before the taste-testing

in a lab. This relatively low number is typical of taste-testing experiments.

Maynard et al., Experiment conducted in a lab involving 227 consumers recruited from various sources to

2004 obtain a representative sample.

Onozaka et al., Random sample mail survey with 1,200 responses (50% response rate) examined consumer

2005 willingness to pay for organic food.

Ostrom, 2006 Farmer and consumer surveys in Washington state to study meaning of locally produced

foods and importance of various characteristics. Random sample mail survey sent to 10% of

farmers in Washington; 1,201 responses (49% response rate). Random sample telephone survey of consumers in 4 counties; 950 completed surveys (23% response rate).

Pirog, 2003 Internet survey of 7,000 consumers in 10 states (Ill., Ind., Iowa, Kan., Minn., Mo., Neb., Wisc.,

Wash., Mass.) returned 1,600 surveys. Conducted by surveymonkey.com.

28
29

Author, date Description

Pirog, 2004 Internet survey of consumers in Iowa, Omaha, Neb., Quad Cities (Ill. and Ia.) returned 580

surveys. Conducted by www.surveymonkey.com. Smaller WTP survey sent to 1,500 e-mail

addresses; 230 surveys were returned.

Organic Valley, Random sample telephone survey of 1,000 adults (Roper poll) on food preferences.

2002, 2004 Conducted every two years.

Robinson et al., Survey of 550 customers in three stores in St. Paul, Minn., area; self-selected, paid $10 for 

2000 participating. Studied impact of eight-week campaign promoting MWFA certified apples in

three grocery stores.

Schneider & Conducted both a farmer and a consumer survey on interest in locally grown foods. Random 

Francis, 2003 sample mail survey of 567 consumers (Dillman method). Survey of farmers: sent to all 507

farmers registered with the Farm Service Agency in Washington County, Neb.; 35% response

rate.

Smith et al Motivated Food Consumer: survey of 600 members of alternative food systems in Ohio; 73% 

2005 response to mail survey (Dillman)

Survey of general population in central Ohio: random sample mail survey looking at food, ag

and environmental issues (also Dillman method).

Whole Foods, Online survey, random sample, 1,000 respondents, nationally representative.

2002

Wilkins et al., Random sample phone survey of 500 consumers in upstate New York; conducted by Cornell's 

1994 Survey Research Facility.
U.S. Department of Agriculture

Rural Business–Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business–Cooperative Service (RBS) provides research,

management, and educational assistance to cooperatives to

strengthen the economic position of farmers and other rural

residents. It works directly with cooperative leaders and

Federal and State agencies to improve organization,

leadership, and operation of cooperatives and to give guidance

to further development.

The cooperative segment of RBS (1) helps farmers and other

rural residents develop cooperatives to obtain supplies and

services at lower cost and to get better prices for products they

sell; (2) advises rural residents on developing existing

resources through cooperative action to enhance rural living;

(3) helps cooperatives improve services and operating

efficiency; (4) informs members, directors, employees, and the

public on how cooperatives work and benefit their members

and their communities; and (5) encourages international

cooperative programs. RBS also publishes research and

educational materials and issues Rural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, gender, religion, age, disability,

political beliefs, sexual orientation, and marital or family

status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for

communication of program information (braille, large print,

audiotape, etc.) should contact USDA’s TARGET Center at

(202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W, Whitten Building, 14th and

Independence Avenue, SW, Washington, D.C. 20250-9410 or

call (202) 720-5964 (voice or TDD). USDA is an equal

opportunity provider and employer.