United States Department of Agriculture

Economic

Research

Service

Economic

Research 

Report 

Number 209

May 2016

Changes in Retail Organic Price 

Premiums from 2004 to 2010 

Andrea Carlson and Edward Jaenicke 
Economic Research Service 

www.ers.usda.gov

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Recommended citation format for this publication:

Carlson, Andrea and Edward Jaenicke. Changes in Retail Organic Price Premiums from 

2004 to 2010, ERR-209, U.S. Department of Agriculture, Economic Research Service, 

May 2016.

Cover images: Shutterstock and USDA logo.

Use of commercial and trade names does not imply approval or constitute endorsement by 

USDA. 
United States Department of Agriculture

Economic 

Research 

Service

Economic

Research

Report

Number 209

May 2016

Abstract

Organic foods are one of the most rapidly growing sectors of the retail food market. 

This study applies a hedonic model to 2004-10 Nielsen Homescan data to estimate the 

organic price premiums for 17 products. Eggs and dairy products generally have the 

highest premiums, while fresh produce has the widest spread of premiums (ranging 

from 7 percent of the nonorganic price for spinach to 60 percent for salad mix). 

Processed food premiums range from 22 percent for granola to 54 percent for canned 

beans. The strong organic premiums, combined with increased sales, suggest that there 

is continued room for growth in the organic supply.

Keywords: organic food, organic price premiums, organic label, Homescan data, fruit 

and vegetable prices, milk prices, egg prices, processed food prices, hedonic price 

model, organic consumers

Acknowledgments

The authors thank Catherine Greene, Diansheng Dong, and Hayden Stewart of USDA’s 

Economic Research Service (ERS) for their comments. We also thank Betsy Rakola, 

Organic Policy Advisor of USDA’s Agricultural Marketing Service, and Terry Long 

of USDA’s Specialty Crops Market News, AMS, for their comments, as well as peer 

reviewers Ilya Rahkovsky of ERS, Travis Smith of the University of Georgia, Carolyn 

Dimitri of New York University, and Mark Bradley of USDA’s Agricultural Marketing 

Service, National Organic Program. We also thank ERS editor Susmita Pendurthi and 

ERS designer Cynthia A. Ray. 

About the Authors

Andrea Carlson is an economist at the USDA’s Economic Research Service. 

Edward Jaenicke is an Associate Professor of Agricultural Economics at Penn 

State University. 

Andrea Carlson and Edward Jaenicke

Changes in Retail Organic Price 

Premiums from 2004 to 2010
ii

Changes in Retail Organic Price Premiums from 2004 to 2010, ERR-209

Economic Research Service/USDA

Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Store Type, Season, and Geographic Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Eggs and Dairy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Fresh Fruits and Vegetables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Processed Foods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Appendix Tables—Regression Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
United States Department of Agriculture

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providing timely information on economic and policy 

issues related to agriculture, 

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rural America. www.ers.usda.gov

United States Department of Agriculture

Economic

Research

Service

Economic

Research 

Report 

Number 209

May 2016

Changes in Retail Organic Price 

Premiums from 2004 to 2010 

Andrea Carlson and Edward Jaenicke 

May 2016

Find the full report 

at www.ers.usda.

gov/publications/erreconomic-researchreport/err209

Andrea Carlson and Edward Jaenicke 

Changes in Retail Organic Price Premiums 

from 2004 to 2010

What Is the Issue?

The organic food sector has been one of the fastest growing parts of the food industry since the 

U.S. Department of Agriculture (USDA) began regulating organic labels on food in 2002. It 

even grew during the Great Recession (December 2007-June 2009), as organic products became 

available in more retail outlets. Bringing organic products to retail incurs costs at every level—

from farmers and ranchers who must follow the USDA organic regulations (including avoiding 

synthetic fertilizers, sewage sludge, irradiation, or genetic engineering), to food processors and 

retailers who must ensure that organic and nonorganic products are not comingled by their 

transporters or within their facilities. In order to earn a return on these costs, all participants in 

the organic food supply chain must receive a higher price (ordinary price plus a premium) for 

the product. While the wholesale price premium can be determined by comparing the prices of 

organic and nonorganic agricultural products, the products available at the retail level are more 

diverse, and therefore the price premium cannot be determined by a simple price comparison.

What Did the Study Find?

Retail-level organic price premiums were more than 20 percent of the nonorganic price for 

all but 1 (spinach) of the 17 products analyzed in this study. Between 2004 and 2010, most 

premiums fluctuated—i.e., they did not steadily increase or decrease. Only three products 

demonstrated a steady decrease in their premiums (spinach, canned beans, and coffee), and 

only the yogurt premium steadily increased throughout the entire study period. 

Eggs and dairy had the highest premiums in 2010, ranging from 52 percent of the nonorganic 

price for yogurt to 82 percent for eggs. Fresh fruits and vegetables, generally recognized as the 

largest part of the organic market, had the widest spread of premiums (ranging from 7 percent 

for spinach to 60 percent for salad mix). Processed food premiums ranged from 22 percent for 

granola to 54 percent for canned beans. 

The share of organic product sold (of the total market) increased steadily for all products 

studied. Sales in 2010 were generally higher for the organic products with lower premiums (e.g., 

spinach, granola, and carrots); sales were also higher for foods frequently fed to children (such 

as baby food).

A report summary from the Economic Research Service

Summary
How Was the Study Conducted?

The analysis was based on data from Nielsen’s Homescan data for 2004-10. The participating Homescan households used a barcode scanner to record all food purchases from stores, including grocery stores, supercenters, 

club stores, drug stores, convenience, and health food stores. The authors used a hedonic price-estimation model 

to isolate the organic price premium from the other attributes of the various products, such as package size, 

level of convenience, type of package, or the variety of the product (e.g., salad mix with spring greens versus a 

cabbage mix). Other factors that affected price were the type of store, month of the year, region of the country, 

and whether or not the product was sold under a brand name or a private label (store brand).

Organic price premiums, 2010

Notes: Bars depict the size of the relative price premium for each product in 2010. 

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2010).

Eggs, 82

Milk, 72

Salad, 60

Canned beans, 54

Spaghetti sauce, 53

Yogurt, 52

Coffee, 47

Celery, 44

Soup, 33

Baby food - strained, 31 

Bread, 30

Baby food - junior, 29 

Apples, 29

Potatoes, 28

Carrots, 27

Granola, 22

Spinach, 7

0 10 20 30 40 50 60 70 80 90

Percent above nonorganic price

www.ers.usda.gov
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Changes in Retail Organic Price 

Premiums from 2004 to 2010

Introduction

Organic food sales have risen rapidly since the U.S. Department of Agriculture (USDA) introduced 

the USDA organic seal and started regulating organic labels in 2002. Although some studies find 

that consumers feel the higher price for organic food is a barrier to purchasing it, the organic market 

continued to expand even during the Great Recession.1 As more consumers demanded organic products, retailers responded by making organic foods available well beyond health food stores and food 

co-ops. Most major food retailers have also introduced their own private-label organic line, in addition to carrying major organic brands. 

The increased demand for organic products put a strain on the supply and led to the inclusion of 

a goal in the USDA strategic plan to increase the number of certified organic operations (USDA, 

2014). One key factor to achieving this goal is whether farmers know that they will receive a sufficient economic return if they switch to organic farming. McBride et al. (2015) find that the economic 

return on organic field crops is higher than for nonorganic field crops. This is primarily due to the 

higher price premium that organic farmers receive for their crops. Organic field crops are also used 

as feed for organic animals and ingredients in organic food sold to consumers. 

While field-crop farmers can determine their organic premium by examining prices at the wholesale terminal-market2 level, retailers and investment firms need to know the retail-level organic 

price premium—i.e., the extra cost consumers pay for purchasing certified organic foods. For 

farmers who use direct marketing (generally not used for field crops), studies find that prices are set 

based on local demand and supply (King et al., 2010) and these farmers can compete with grocery 

stores, particularly in rural areas (Valpiani et al., 2015). Knowledge of the organic price premium 

at the retail level can assist these farmers in setting prices for the direct-sale market.3 In addition, consumers may be interested in knowing whether the extra price they pay for organic food is 

because it is organic, or because of some other factor (such as the flavor or some level of processing 

desired by the consumer). 

This report estimates the organic price premium for 17 products (including eggs and dairy products, 

fresh fruits and vegetables, and processed foods) for 2004-10, using Nielsen Homescan consumer 

panel data to determine the major trends in organic price premiums. 

1The National Bureau of Economic Research defines the Great Recession as an 18-month downturn in the economy, 

lasting from December 2007 through June 2009.

2A terminal market is a central hub where agricultural commodities are brought for sale to food manufacturers and 

retailers.

3This statement is based on personal correspondence with Terry Long of USDA’s Specialty Crops Market News regarding unpublished results from the USDA, Agricultural Marketing Service’s 2014 Survey of Organic Producers (March 

31, 2015).
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Background

In order to sell an organic product in the United States, there are specific rules at each stage of the 

food supply chain—from the farmers and livestock producers, through the food processors and 

transporters, to the food retailers (see box, “What Does It Mean To Be Organic?”). Producers and 

handlers must maintain a current organic certification through a USDA-accredited third party, 

as well as take steps to ensure that organic products are not comingled with nonorganic ingredients (including ensuring that the transportation services they employ do not allow comingling) or 

contaminated with prohibited substances. Although retailers are not required to maintain a certification, some choose to maintain a single certification at the retail level for their private-label products. 

Retailers also incur additional costs to keep organic and nonorganic products separated in the store. 

All these extra costs are reflected in the higher price of organic products. The best current estimates 

of the higher costs of organic food are at the wholesale level through USDA’s Market News. The 

retail price premiums listed for fresh produce are based on store flyers and are for very specific 

products (such as Fuji apples in a 3-pound bag)—these are not necessarily representative of the 

entire retail market. 

Despite higher costs, organic food is the fastest growing sector in retail food today. According to 

the National Business Journal, total sales for organic food were just under $11.5 billion in 2004, 

climbing to $35.9 billion in 2014 (Organic Trade Association, 2015c). Some of this growth occurred 

during the Great Recession, as evidenced by Mintel Group’s 2011 description of organic as “one of 

the few bright spots in a generally dreary consumer economy” during the last recession. The positive growth trend continued after the recession—from 2011 to 2012, organic food sales grew 10.2 

percent, compared with only a 3.7-percent growth rate for all food sales (Organic Trade Association, 

2013a); they also grew 11.3 percent from 2013 to 2014 (Organic Trade Association, 2015c).

In 2012, 75 percent of all consumers bought organic food at least occasionally, up from 66 percent 

in the early 2000s (Hartman Group, 2010). Additionally, 24 percent of all organic consumers today 

are considered core shoppers, meaning that they look for both the USDA organic seal and seek relationships with the farmer. An additional 24 percent purchase organic foods on a regular basis; the 

remaining organic consumers are occasional purchasers with a range of understanding of what it 

means for a food to be labeled organic (Hartman Group, 2010). 

Although once believed to be a sector for the high-income consumer, organic consumers have always 

been fairly diverse in terms of income, race, and ethnicity (Dimitri and Oberholtzer, 2009; Lin et 

al., 2008; Organic Trade Association, 2015b; Organic Trade Association, 2015c; Smith et al., 2009; 

Stevens-Garmon et al., 2007). However, while organic consumers come from all income groups, 

studies indicate that price may continue to be a barrier for some consumers purchasing organic products during economic hardships. In a 2010 study of consumers, the main reason cited by consumers 

who reduced their organic purchases from one year to the next was a change in their financial situation (Hartman Group, 2010). 

Additionally, organic food purchases are also strong among families with at least one child under 

age 18 living in the home: 81 percent of these families chose organic foods at least some of the 

time in 2013 (Organic Trade Association, 2013b). The Organic Trade Association further notes that 

organic shoppers with children tend to visit more stores per week than consumers with children who 

do not purchase any organic products (Organic Trade Association, 2013b).
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What Does It Mean To Be Organic?

When an agricultural product sold in the United States has the word organic somewhere on the 

package or is otherwise represented as organic, the product has been produced through approved 

methods and is regulated by the U.S. Department of Agriculture’s Agricultural Marketing 

Service’s National Organic Program. The main goal of the program is to ensure the integrity 

of products marketed in the United States as organic. The organic label requires that foods and 

other agricultural products be produced and handled “through approved methods that integrate 

cultural, biological, and mechanical practices that foster cycling of resources, promote ecological 

balance, and conserve biodiversity. Synthetic fertilizers, sewage sludge, irradiation, and genetic 

engineering may not be used” (USDA, National Organic Program, 2011, p. 2). Once a product 

leaves the farm, the transporters, food processors, and retailers must guarantee that the organic 

products are not comingled with nonorganic products or contaminated with substances prohibited 

by the National Organic Program to ensure transparency and verification throughout the entire 

supply chain. (While we mention consumer preferences about the health and safety of organic 

foods, the USDA organic regulations do not address these topics.)

In order to maintain the integrity of the organic label, USDA’s National Organic Program regulates all organic crops, livestock, and agricultural products. Farmers, ranchers, processors, and 

handlers must maintain a current organic certificate through a USDA-accredited third party 

(also known as a certifier). Both producers and handlers must keep accurate records which 

verify that they used only approved organic methods, including the use of organic ingredients 

in processed food. Certifiers inspect all certified operations at least once each year to verify 

that all USDA organic regulations are being followed in the growing or raising, transporting, 

and processing of organic products. In addition, USDA conducts audits and investigations using 

both monitoring and enforcement to ensure that all products labeled organic actually meet the 

USDA organic regulations.

If a product carries the USDA organic seal, that product must be both certified organic and have 

95 percent or more organic content. However, products do not need to display the USDA organic 

seal to fall under the regulation. Some food processors may choose not to put the seal on their 

package; other products are labeled “made with organic ____,” which indicates that the ingredients listed as organic meet the USDA organic standards, and that the product contains at least 70 

percent organic ingredients. “Made with organic ___” products must also be certified, but they 

may not carry the seal. If the seller represents the product as organic and/or the word organic

appears on the package, then it must follow the USDA organic regulations. 

In this study, we chose to define a product as organic if it made any organic claim on the principle display panel (including products that contain at least 70 percent organic ingredients)—we 

cannot infer a product’s organic status from brand names, ingredient lists, or other indicators due 

to data limitations. For more information on USDA’s National Organic Program, visit the USDA 

Agricultural Marketing Service’s National Organic Program website at http://www.ams.usda.

gov/about-ams/programs-offices/national-organic-program.
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The growing consumer base has increased organic’s share of total food sales—the total is nearly 5 

percent of total food sales, and it is significantly higher for some categories (such as fresh fruits and 

vegetables) (Organic Trade Association, 2015c). The fresh fruits and vegetables category continues 

to be the largest segment of organic food, occupying about 35 percent of all organic sales in 2012 

(Organic Trade Association, 2013a). This is down slightly from earlier in the decade as snacks, 

packaged goods, condiments, meat, poultry, and fish occupy a slightly larger share than they did in 

the early 2000s (Dimitri and Oberholtzer, 2009). 

Another trend affecting both organic and nonorganic produce is the rise of prepackaged produce 

items. In the past, consumers selected produce items from a bin and placed them in a bag themselves. Most produce items are now available in prewrapped packages, allowing for an expansion in 

national brands and private-label offerings (also called store brands). Prepackaged produce allows 

for an even greater diversity within each produce item as different levels of processing are available 

(e.g., prewashed, chopped, and microwave-ready bags). 

Another trend that has contributed to the growing organic market share is the increase in the number 

of retail chains that offer both national- and regional-brand organic and private-label organic products. In 2000, only Whole Foods offered an organic private label; however, all major chains had 

an organic private label, and organic foods were available in most major grocery stores by 2008 

(Dimitri and Oberholtzer, 2009). Organic snacks saw the largest growth in private-label sales in 

2012, followed by dairy, breads, and grains (Organic Trade Association, 2013a). As private-label 

brands spread beyond the natural food stores, consumers are purchasing organic food from a broader 

spectrum of food outlets. About 58 percent of organic food was purchased in stores that were not 

health or natural food stores in 2012. Club stores were a small, but rapidly growing outlet for organic 

products in 2011 (Organic Trade Association, 2013a); in 2015, Costco was the largest seller of 

organic products in the United States (Ledbetter, 2015). 

These changes to the organic sector led Dimitri and Oberholtzer (2009) to conclude that the market 

had shifted from supply driven (where farmers had trouble finding customers) to a demand-driven 

market with inadequate supply. The increased sales in the sector and previous estimates of organic 

price premiums suggest that consumers are willing to pay more for organic foods for certain products, particularly those like milk or baby food that are frequently fed to children. However, the 

number of dairy cows in the organic herds has not grown as rapidly as the demand for milk, mainly 

due to shortages in organic feed as well as the 3-year transition period required to convert nonorganic pastureland to organic pastureland (Greene, 2014; Greene, 2015). This may lead to higher 

organic price premiums in the future for milk. 

USDA’s Agricultural Market Service currently estimates the prices of organic products at the wholesale terminal market level, and at the retail level based on store flyers (USDA Market News), but 

there is not a complete retail estimate of price premiums. Consumers are clearly willing to pay for 

the extra costs of producing organic food but estimating how much more they are actually paying 

for organic is no small feat, even for a relatively simple product like carrots (let alone for more 

complex products, such as soup or bread). For example, carrots come in several different size packages, can be purchased with or without the tops, as baby carrots, or prechopped. While it is possible 

to compare the price of an organic and nonorganic, 1-pound bag of baby carrots sold under the 

same label, this would leave out chopped, shredded, and whole carrots, as well as other bag sizes. 

This method would also not allow researchers to capture any brand differences that the consumer 

may perceive. Likewise, soup and bread have multiple varieties, and soup can come in different 

types of packages. Thus, we cannot determine the organic price premium by simply comparing the 
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difference in price between an organic product and a nonorganic product at the broad retail-product 

category. The organic product may be more expensive simply because it has some additional level of 

processing or flavor desired by the consumer. Additionally, the organic premium would be underestimated if nonorganic products are in a more expensive package, such as a microwave-ready container, 

than the organic products. 

Previous USDA research estimated price premiums for several produce items in 2005 and 2006 

(Greene et al., 2009; Lin et al., 2008; Smith et al., 2009). These premiums ranged from about 15 

percent for onions and carrots to about 109 percent for skim milk. These studies also note that products with the lowest organic premiums also had the highest organic market share (although organic 

milk has a high market share despite its high premium). However, these studies were not able to 

examine trends in organic price premiums. 

In 2010, the Hartman group said that consumers believe that the price gap between organic and 

conventional food was getting smaller (Hartman Group, 2010). The Hartman Group further 

reports that many consumers are not willing to pay more than about 30 percent more for organic 

food. If the retail organic price premium is shrinking, then it may not be sufficient to offset the 

additional costs of production, leading farmers, ranchers, and handlers to exit the organic market. 

In this study, we test whether the organic price premium is getting smaller over time by estimating 

the premium for 17 products from 2004 to 2010, including milk and eggs, fresh fruits and vegetables, and processed foods. 
6

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Methods

We used Nielsen Homescan data to estimate a hedonic price model, which incorporated both 

demand and supply factors in one equation. Results from the estimated model allowed us to estimate the organic price premium over all specific products in a category, allowing us to estimate the 

organic price premium for an entire category (such as soup or bread) even though specific products 

come in a wide variety of flavors, packages, sizes, and health attributes. This model allowed us to 

control for these product characteristics. 

Model

We use the concept of product differentiation to determine the trends in the organic price premium 

for 17 products. For organic food products to sustain a higher price than their nonorganic counterparts, consumers and producers must believe that that the two product versions are fundamentally 

different (see box, “The Organic Price Premium Depends On Product Differentiation”).

We defined the organic price premium as the difference between the organic price and the nonorganic price when all other factors are equal. For example, to determine the premium for carrots, we 

could have defined carrots as whole carrots sold in 1-pound bags, where all carrots in the organic 

and conventional bag are of a similar size and taste. Unfortunately, this premium would have left 

out baby or prechopped carrots, larger and smaller bag sizes, and different levels of quality. While 

the taste and freshness of the carrots are not observable in most data containing prices, the brand is 

observable and some consumers may use the brand as a measure of quality. In other words, we need 

to be able to control for these factors to isolate the organic price premium.

The hedonic model was developed from a model introduced by Lancaster (1966) as an alternative to the neoclassical demand theory where consumers choose products available on the market 

or bundles of products. Instead, under Lancaster’s model, consumers choose characteristics, such 

as flavor, nutritional value, color, package size, or level of convenience. The assumption was that 

each of these product attributes has a separate value and, therefore, an implicit price. Rosen (1974) 

augmented the theory by combining supply and demand into a single equation, assuming that each 

characteristic carried costs from the supply equation and willingness to pay from the demand equation. Rosen (1974) showed that, when a product market is in equilibrium, a product’s price can be 

framed as a function of individual product attributes, and this function can be estimated with observable data. Underlying assumptions included the neoclassical assumption of perfect competition, and 

two additional assumptions: that the attributes can be separated, and that the product attribute space 

is continuous. Ladd and Suvannunt (1976) presented the combined equation and empirically tested it 

with prices of meat, dairy, and poultry items and the nutritional characteristics of each. Other studies 

used hedonic models to estimate the marginal price of characteristics of frozen meat and seafood 

(Ahmad and Anders, 2011), the treatment of laying hens and the price of eggs (Chang et al., 2010), 

and the price premium for organic food (He and Bernard, 2011; Kiesel and Villas-Boas, 2007; Lin et 

al., 2008; Smith et al., 2009). However, this study is the first to estimate the organic price premium 

over a broad range of products and years. In examining results over several years, we were able to 

identify additional attributes to include in our model; these were not identified in previous work, 

which generally covered a short timespan.

In our model, consumers purchase and stores supply a general product that can be decomposed 

into a collection of product characteristics, such as organic, taste, flavor, nutritional characteristics, 
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and the package size and type. In equilibrium, the product price is influenced by both the cost of 

supplying these attributes and the demand for them. The model is:

(1) p o = + β β rganic p + + β β rivate label organic private label 0 1 2 3 ( ) ( ) ) ( *

( ) ( ) (

+

∑ + k k = = k l ∑ + l l ∑ j=

J market j retail channel produ 161

1

8

1 δ ζ γ ct char e j ) + ,

where p is the price paid in the purchase observation, organic is an indicator variable for whether or 

not the product claims to be organic on the package, private label indicates whether the product is 

sold under a store’s private label brand, product char is a set of product characteristics that affects 

both the supply and the demand of the product, market is a set of binary indicators for the retail 

market, retail channel indicates the type of store (grocery, health food store, supercenter, mass 

merchandiser, etc.), βi, δk, ζl, and γj are estimable parameters, and e is the error term. The product 

characteristics include the package size, flavor, type of product, purchase month, and indicators of 

quality (e.g., brand). Each of these impacts the supply and the demand of the product. For example, 

growing and producing organic food has a different set of costs than nonorganic food does, which 

affects supply (Greene et al., 2009; McBride et al., 2015; Slattery et al., 2011). At the same time, 

some consumers are willing to pay more for organic than they would for conventional food, which 

The Organic Price Premium Depends On Product Differentiation

Product differentiation occurs when both consumers and producers accept that the organic and 

nonorganic products are fundamentally different. Economic theory requires product differentiation to exist in order for producers to charge more, and for consumers to be willing to pay more 

for one product than the other.

On the producer side, a large part of the organic certification process focuses on rules and 

requirements that (a) describe how organic production is different from nonorganic production and (b) document those differences via detailed farm records. For example, the certification process requires organic farmers to avoid materials that are commonly used in nonorganic 

production, such as synthetic fertilizers and pesticides in crop production and the use of antibiotics and hormones in livestock production. 

On the consumer side, the U.S. Department of Agriculture’s (USDA) organic labeling requirements guarantee that the differences established by certified organic producers are maintained in 

the market place. Only products that meet production certification requirements can use the term 

organic or carry the USDA organic seal. Thus, a consumer knows that USDA Organic is intrinsically linked to the production practices specified by the USDA’s National Organic Program. 

With production and market differentiation firmly established by the USDA organic standards 

and labeling requirements, the price of organic products is determined by supply and demand 

factors. Because of the additional requirements and restrictions, organic crops and foods 

can have higher production costs than nonorganic crops and foods. At the same time, some 

consumers may have a higher willingness to pay for organic products than nonorganic products. These two factors (i.e., potentially higher production costs and willingness to pay) are the 

supply and demand forces that support a significant organic price premium; however, it is the 

establishment of product differentiation via the USDA standards and labels that allows the price 

premium to be sustained in the market.
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impacts demand. When the market is in equilibrium, the organic attribute variable can accurately 

represent the combined contribution that organic makes to the product price. 

A number of other product attributes, besides organic, will impact the price of the product. For 

example, many stores now sell organic products under their own private label. Because stores typically contract with other manufacturers to make the product, the supply chain for private label 

is different than for branded products (where the company which owns the brand also owns the 

processing facility). For consumers, it may also be less convenient to purchase some private labels 

because, unlike the potential presence of multiple national or regional brands, only one private label 

is generally available in any one store. 

The season of the year also affects the price. For example, hot soup is not very appealing on a hot 

summer day in August, so consumers are not as likely to purchase soup in August as they are in 

November. Likewise, some fruits and vegetables can only be produced and harvested at certain 

times of the year, and must be stored (if possible) for other times. Additionally, stores sometimes 

reduce the price of some products when they are in high demand (Chevalier et al., 2003). The retail 

channel also affects the price since different channels represent different levels of retail services, 

and various retail services are appealing to different consumers at different levels (and have various 

levels of costs for the retailer). Technically, the retail channel is a general indication for a bundle of 

attributes (e.g., onsite bank, in-store bakery, range of fresh produce, only organic produce, or availability of nonfood items); these characteristics were beyond the scope of this paper, so we used a 

simple set of indicator variables for the retail channel to represent them.

The hedonic price model is typically estimated for one specific geographic market. Since we have 

national data and are interested in a national organic premium, we included indicator variables for 

each of the 61 geographic markets in the Nielsen Homescan data and the four nonmetro market 

regions. Other researchers using the same data included demographic factors instead of markets 

(Chang et al., 2010; He and Bernard, 2011; Lin et al., 2008). Chang et al. (2010) treated the demographics as willingness to pay and used the information to learn more about organic consumers. 

When we included these factors with the geographic markets, we found that much of the demographic differences were captured in the market indicator variables; hence, we used the market variables rather than consumer demographic variables when estimating the organic price premium.

The final set of attributes in the model is unique to each product. For example, for canned soup, 

we included whether the product is sold in a microwave-ready container, a can, a carton, or pouch. 

We also controlled for whether it is sold as condensed soup. Following Ahmad and Anders (2011), 

we included an indication of brand, which could reflect unobservable quality differences. We used 

a separate binary variable for each of the nonorganic brands except the variable(s) for the major 

nonorganic brand(s), which were omitted from the estimation to prevent perfect multicolinarity. The 

appendix tables list the attributes used for each product, along with the results from the model.

This model states that the price of a general product is a function of a long list of product attributes, 

one of which is organic. Since the model interacts the organic and private-label indicators, the 

organic price premium must be estimated by comparing the predicted general price under two cases: 

one where the product is nonorganic (i.e., where organic = 0) and one where the product is organic 

(i.e., where organic = 1). After estimating the parameters in equation (1), we estimated the organic 

premium by evaluating equation (1) with organic = 1 and organic = 0 and all other variables held at 

the mean, and taking the difference.
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Many food industry analysts identify the organic premium as a relative premium, where the 

premium is described as the organic product’s price as a percentage of the nonorganic price. In our 

notation, this relative premium was defined as:

(2) 

Note that both the estimate of the actual premium and the relative premium (equation 2) are functions of the estimated parameters in equation (1). In order to calculate the variance of the organic 

premium, we used the delta method, which uses a Taylor’s series expansion to estimate the variance 

(Cameron and Trivedi, 2010). That is, if γ is a function of all estimated parameters, θ, then we can 

write the variance as:

(3) ( ) 2 (, '

ˆˆ ˆ ˆ s V  ∂γ   ∂γ  = θθ θ       ∂θ ∂θ

where V is the covariance matrix of the parameters. 

Data

The Nielsen Homescan data is an annual, nationally representative panel of households’ retail food 

purchases (Einav et al., 2008; Zhen et al., 2009). During the early years of our study (2004-06), 

the panel included approximately 40,000 households. For the remaining years (2007-10), the panel 

was expanded to approximately 60,000 households. Nielsen’s major customers are food manufacturers and vendors, but the wealth of information in the data is also useful to researchers. For each 

product-purchase observation, the data included the Universal Product Code (UPC), the price paid, 

the amount purchased, the type of retail channel (grocery store, supercenter, mass merchandiser, 

club, convenience store, drug store, natural food store, or other store), and various attributes of the 

product. Additional information was determined by reviewing the UPC description.

A participating household was asked to use a handheld scanner to enter each of its food purchases 

when the food was brought into the home. Participants were also asked to enter products purchased 

at stores, but consumed away from home, as well as the store where the food was purchased. When 

available, Nielsen used the store’s scanner data to enter the price of the product; for other stores, 

the consumer was asked to enter the price. For products that did not carry a UPC, such as produce 

sold loose and bagged by the consumer, only the total purchase price and broad category (fruits and 

vegetables, bakery, meat, etc.) were recorded after 2006. For this reason, we could only determine 

the price per pound for products that were sold with a UPC. While this may seem like a limiting 

factor to examine the price premium of organic produce, many commonly consumed produce items 

were sold in standard size bags with a UPC during the study period. However, we were not able to 

examine the organic price premium for meat and poultry, which is predominantly sold by the pound 

and without a UPC. 

( ) ( ( ) ( ) )

( )

1, 0, 

0, 

100 - 

 %. organic all else mean organic all else mean

organic all else mean

E p E p

Org premium E p

= = = =

= =

=
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The data also included the retail market area where the consumer resides. Recorded purchases were 

assumed to be made in this market area. For consumers residing in rural areas, ERS created market 

areas for each of the nine census divisions. Household demographic data were also included in the 

sample, but not used in estimating the model.4

Nielsen started coding whether the product was organic in 2004. Since the certification period began 

in 2002, this data set allowed us to examine the price premium from very close to the beginning 

of the USDA National Organic Program. Nielsen also included several codes for organic: one indicated whether the product carried the actual USDA organic seal, and another indicated whether the 

product made any organic claim on the package (including displaying the organic seal). This latter 

set included products that were made with organic ingredients, but did not qualify for the organic 

seal. Since a product cannot be sold as organic in the United States if it does not meet the standards 

of the USDA National Organic Program (Federal Code of Regulation, 2015), we include all products 

that Nielsen designated as organic or made with organic ingredients. Note that we only included 

products which made an explicit organic claim on the package. If the manufacturer only implies 

organic by brand name, including organic on the ingredient list or other mechanism of signaling to 

the consumer that the product is organic, Nielsen does not indicate that the product is organic.5

The statistical properties of the Homescan data were validated by two studies: Einav et al., 2008 

and Zhen et al., 2009. Einav et al. (2008) matched Homescan purchase observations to data from 

a consumer-loyalty card program and found that quantity data is more accurately reported than 

price data. This is likely a result of the fact that Nielsen imputed prices by using store-level prices, 

averaged over a short period of time, instead of the actual price paid by the consumer. Zhen et al. 

(2009) compared the total expenditures of food purchases reported in Homescan with those in the 

Consumer Expenditure (CE) Study (a survey of U.S. consumers collected by the U.S. Bureau of 

Labor Statistics). They found that households that purchased more food (such as larger households) 

or those with a higher opportunity cost (such as higher income or more educated female heads of 

household) tended to underreport expenditures compared to the CE. While the price imputation and 

underreporting of purchases could cause biases in economic demand estimations, estimates of price 

differences are less susceptible to this bias where demographic information does not enter into the 

estimate itself. Since we compared the prices paid for organic versus nonorganic products, these 

limitations are less likely to affect results in our study.

One econometric issue does arise from the fact that the data are a panel (multiple purchases of 

a product are made by the same household in a given year). Because households tend to stick to 

similar shopping patterns and have unique tastes and preferences, it is reasonable to assume that the 

purchase observations made by the same household are correlated with each other. Many of these 

4Demographic variables are not typically included in a hedonic price model, though a variation of the hedonic model 

has been used to understand demographic factors that may affect the willingness to pay for organic products. In this 

study, we are interested in the premium that is currently being paid by all consumers, so it is not appropriate to include 

demographic variables. As a sensitivity check, we did include demographic variables in early estimates of the model and 

the results did not significantly differ from the results presented here.

5The National Organic Program requires that any type of organic claim made on the package must comply with the 

organic regulations. However, our data do not allow us to identify claims beyond the front of package labels.
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effects are not observable in our data, so we use a random-effects model to control for them.6 This 

assumes that the households are randomly selected from a large population, and the set of unobserved effects associated with each household is also only one draw from a large population of unobserved effects. For the random-effects model, equation 1 becomes:

(4) p organic private label organic private it = + β β 0 1 it + + β β 2 3 it ( ) ( ) ( * label

market retail channel

it

k k ik l lit j

J

)

( ) ( )

+

∑ + = = 1 ∑ + ∑ =

61

1

8

1 δ γ α j jit it i ( ) product char + + ( ) e ,

where the i subscript indicates the observation for household i, and the subscript t indicates the date 

of purchase. The time variable, t, also allows for multiple purchases in one day. The error term 

(eit + ai) is now split into two parts: the random error, eit, and the unobserved household effects, αi. 

This model allows us to control for the unobserved household effects in both the estimation of the 

price premium and the standard error of this estimate (Cameron and Trivedi, 2010; Greene, 2000). 

When estimating this equation with these data, we must adjust the standard errors to reflect potential 

heteroscedasticity in the data caused by the unobserved household effects. 

We selected products from three categories (fresh fruits and vegetables, eggs and dairy, and 

processed foods) to capture a broad spectrum of organic products with different sets of supply 

chains and consumer preferences. Within each category, we selected the foods that had the highest 

percentage of organic sales, purchase quantity, or purchase observations in 2010, based on the 

Homescan data—i.e., we ranked each product by percent of organic sales, percent of organic 

purchase quantity (weight or fluid ounces), and percent of organic transactions (table 1). We selected 

products that were ranked within the top 20 of at least one of these rankings. For fresh fruits and 

vegetables, we augmented our list with produce listed by the Environmental Working Group as 

having high pesticide use (Environmental Working Group, 2015) because we believed this was one 

source consumers would have consulted when making decisions about which products to purchase 

as organic.7

Of the products we studied, spinach had the highest organic share in our data—about 40 percent of 

all spinach sales, 30 percent of all purchases, and 28 percent of the total pounds sold in 2010 were 

organic. Although fresh fruits and vegetables are generally touted as the leaders in organic sales, 

granola and strained baby food both had greater market penetration than the next produce item 

(carrots). After fresh produce, dairy and bread are considered gateway organic items (Hartman 

Group, 2010). We found only a small percentage of bread sales were organic, but milk and yogurt 

both had a modest penetration rate (around 5 percent of total sales).

Other studies have also used these data to estimate organic price premiums (Greene et al., 2009; Lin 

et al., 2008; Smith et al., 2009; Zhang et al., 2009; Zhang et al., 2008), but those studies tended to 

cover a shorter time period and did not include as many individual product attributes. 

6A fixed-effect model may appear to be more appropriate because of the possible endogenous relationship between the 

price and the error term. The benefit from a fixed-effect model comes from fully utilizing information on repeat purchases by the same household throughout a calendar year. Thus, any household characteristics that might be unobserved 

to the researcher but affect purchase behavior would be accounted for in a fixed-effect model. However, the drawback of 

a fixed-effect model would be the loss of information from households that only had a single purchase over the course of 

a year. For our study, the ignored transactions would approach 20 percent of the total transactions for a single product. 

More specifically, for the 14 of the 17 products, over 10 percent of the households that purchased the product recorded 

only 1 purchase, and 6 products had over 30 percent. For our study, we feel the drawbacks outweigh the benefits and, for 

this reason, we use a random-effects model that accommodates the single-purchase information. 

7The USDA National Organic Program does not discuss the health impacts of organic versus nonorganic products.
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Table 1

Organic sales, quantities, and purchase observations, 2004-10—continued

Product 2004 2005 2006 2007 2008 2009 2010

Eggs and Dairy

Eggs Organic share of total sales of eggs (%) 0.75 1.35 1.81 1.97 2.16 2.65 3.42

Organic share of total number of eggs (%) 0.27 0.38 0.56 0.82 1.03 1.05 1.44

Organic share of total number of egg purchases (%) 0.41 0.62 0.80 1.14 1.33 1.37 1.67

Milk Organic share of total sales of milk (%) 1.31 1.84 2.62 3.56 4.28 5.04 5.46

Organic share of total gallons of milk (%) 0.63 0.88 1.16 1.89 2.37 2.29 2.62

Organic share of total number of milk purchases (%) 0.94 1.27 1.70 2.57 3.19 3.05 3.43

Yogurt Organic share of total sales of yogurt (%) 2.53 2.67 3.38 4.69 4.57 4.52 5.17

Organic share of total pints of yogurt (%) 1.95 1.95 2.35 3.37 3.35 3.23 3.57

Organic share of total number of yogurt purchases (%) 1.58 1.69 1.95 3.25 3.15 3.10 3.52

Fresh fruits and vegetables

Apple Organic share of total sales of apples(%) 1.39 1.97 3.52 3.44 3.93 5.26 6.58

Organic share of total pounds of apples (%) 0.76 1.23 2.15 2.41 2.66 3.99 4.88

Organic share of total number of apple purchases (%) 1.10 1.55 2.71 2.83 3.24 4.34 5.00

Carrot Organic share of total sales of carrots (%) 3.55 5.22 11.39 12.03 14.42 14.67 14.69

Organic share of total pounds of carrots (%) 2.99 4.70 10.38 10.94 14.27 15.12 14.84

Organic share of total number of carrot purchases (%) 3.32 4.30 8.39 8.58 9.92 10.13 10.14

Celery Organic share of total sales of celery (%) 0.70 0.81 1.44 2.33 1.77 1.97 2.22

Organic share of total bunches of celery (%) 0.53 0.56 1.00 1.83 1.20 1.43 1.59

Organic share of total number of celery purchases (%) 0.53 0.58 1.04 1.91 1.26 1.50 1.68

Potato Organic share of total sales of potatoes (%) 0.39 0.51 0.84 1.09 1.29 1.30 1.57

Organic share of total pounds of potatoes (%) 0.19 0.27 0.45 0.60 0.78 0.71 0.72

Organic share of total number of potatoe purchases (%) 0.27 0.39 0.72 0.94 1.20 1.18 1.26

Salad Organic share of total sales of salad (%) 4.93 5.49 6.65 6.54 7.33 8.83 10.82

Organic share of total pounds of salad (%) 2.09 2.06 2.87 2.84 3.14 4.02 5.01

Organic share of total number of salad purchases (%) 3.50 3.76 4.57 4.59 4.90 5.73 7.25

Spinach Organic share of total sales of spinach (%) 5.90 5.66 19.23 25.41 31.93 31.94 40.06

Organic share of total pounds of spinach (%) 1.70 2.13 10.50 14.19 19.92 21.25 28.00

Organic share of total number of spinach purchases (%) 4.74 4.32 14.07 19.48 24.17 24.20 30.68

Single-ingredient processed food

Canned 

beans Organic share of total sales of canned beans(%) 0.74 1.77 2.97 3.89 4.12 3.86 3.89

Organic share of total pounds of canned beans (%) 0.34 0.95 1.68 2.26 2.63 2.61 2.65

Organic share of total number of canned bean 

purchases (%) 0.47 1.16 1.96 2.76 3.32 3.11 3.13

Coffee Organic share of total sales of coffee (%) 0.43 0.82 1.42 1.52 1.81 2.06 2.90

Organic share of total pounds of coffee (%) 0.20 0.39 0.71 0.74 0.82 0.72 0.80

Organic share of total number of coffee purchases (%) 0.24 0.50 0.86 1.05 1.32 1.32 1.73

Continued—
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Table 1

Organic sales, quantities, and purchase observations, 2004-10—continued

Product 2004 2005 2006 2007 2008 2009 2010

Multi-ingredient processed food

Bread Organic share of total sales of bread (%) 0.49 0.57 0.95 1.18 1.25 1.07 1.29

Organic share of total pounds of bread (%) 0.27 0.34 0.58 0.78 0.83 0.67 0.80

Organic share of total number of bread purchases (%) 0.29 0.33 0.55 0.74 0.71 0.58 0.66

Granola Organic share of total sales of granola (%) 4.93 14.92 22.57 25.06 27.47 31.23 29.51

Organic share of total pounds of granola (%) 3.24 9.24 15.32 21.07 22.92 26.04 25.20

Organic share of total number of granola purchases (%) 4.47 10.90 17.62 22.96 25.19 27.55 25.23

Soup Organic share of total sales of soup (%) 0.68 1.35 2.09 3.00 3.38 3.58 4.01

Organic share of total pints of soup (%) 0.48 1.07 1.78 2.73 3.16 3.10 3.40

Organic share of total number of soup purchases (%) 0.47 0.86 1.31 1.87 2.06 2.20 2.42

Spaghetti 

sauce Organic share of total sales of spaghetti sauce (%) 0.55 2.12 3.24 3.43 3.13 2.63 2.45

Organic share of total pints of spaghetti sauce (%) 0.28 1.45 2.16 2.27 1.99 1.64 1.46

Organic share of total number of spaghetti sauce 

purchases (%) 0.35 1.74 2.54 2.60 2.17 1.78 1.67

Baby food

Baby food 

- junior Organic share of total sales of jr baby food (%) 0.86 0.71 1.38 3.29 4.86 4.63 6.80

Organic share of total ounces of jr baby food (%) 0.45 0.41 1.24 3.08 4.59 4.49 7.57

Organic share of total number of jr baby food 

purchases (%) 0.49 0.35 0.72 3.07 4.35 4.13 5.76

Baby food 

- strained Organic share of total sales of strained baby food (%) 13.16 14.24 17.00 22.38 21.63 21.27 18.80

Organic share of total ounces of strained baby food 

(%) 12.19 12.80 15.22 20.07 20.03 19.51 17.76

Organic share of total number of strained baby food 

purchases (%) 9.79 11.14 10.95 13.39 13.32 13.05 14.13

Note: The organic sales of the number of purchases is the number of sales transactions of the product that were organic divided by the total 

number of transactions of that product. A transaction can be one or several units of the product. For example, if a Homescan participant 

purchases two packages of 1 dozen eggs at the same time, this is one sales transaction.

Source: USDA, Economic Research Service estimates using Nielsen Homescan Data, 2004-10.
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Results

We estimated equation 4 for each product and each year using STATA 14, xtreg with cluster robust 

standard errors. After estimating the premium, we used equation 2 to estimate the percent of the 

nonorganic price (or relative price) and equation 3 to estimate the delta method variance of both estimates, using STATA 14 nlcom command. Each year is run separately for each product to facilitate 

estimation with very large numbers of observations.

Organic price premiums as a percent of the nonorganic price for 2010 are in figure 1. In 2010, all 

premiums were positive—i.e., the organic price was higher than the conventional price after controlling for attributes that may affect the product’s demand and supply. Dairy and eggs generally had 

the highest retail-level premiums, ranging from 52 percent of the nonorganic price for yogurt to 82 

percent for eggs. Fresh fruits and vegetables (generally considered the largest part of the organic 

market) also had the widest spread of premiums, ranging from 7 percent for spinach to 60 percent 

for salad mix. Among processed foods, relative organic premiums ranged from 22 percent for 

granola to 54 percent for canned beans.

For the most part, price premiums exhibited the most volatility in the early years before 2007 (when 

the USDA National Organic Program was relatively new) (table 2). While some product price 

premiums did increase or decrease over the entire study period, most fluctuated from year to year. In 

order to check which changes were statistically significant, we regressed the premium as a percent 

of the conventional price on time, with one observation for each year. If time was significant, then 

we defined the premium as either increasing (positive coefficient on time) or decreasing (negative 

Figure 1

Organic price premiums, 2010

Notes: Bars depict the size of the relative price premium for each product in 2010. 

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2010).

Eggs, 82

Milk, 72

Salad, 60

Canned beans, 54

Spaghetti sauce, 53

Yogurt, 52

Coffee, 47

Celery, 44

Soup, 33

Baby food - strained, 31 

Bread, 30

Baby food - junior, 29 

Apples, 29

Potatoes, 28

Carrots, 27

Granola, 22

Spinach, 7

0 10 20 30 40 50 60 70 80 90

Percent above nonorganic price
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Table 2

Organic price premiums, 2004-10—continued

2004 2005 2006 2007 2008 2009 2010 Trend

Eggs and Dairy

Eggs

 Percent of conventional price 118.98 172.96 152.37 94.91 66.16 90.20 82.02 Undetermined

 Variance 0.001 0.001 0.001 0.000 0.000 0.000 0.000

 Premium ($/dozen) 1.53 1.83 1.73 1.47 1.18 1.31 1.23 Decrease

 Variance 0.002 0.001 0.001 0.000 0.000 0.000 0.000

Milk

 Percent of conventional price 55.09 55.57 68.81 52.71 50.34 80.62 71.96 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/gallon) 1.85 1.87 2.27 1.96 1.98 2.60 2.43 Undetermined

 Variance 0.003 0.002 0.002 0.001 0.001 0.001 0.001

Yogurt

 Percent of conventional price 25.49 28.44 42.17 42.02 35.11 40.24 52.05 Increase

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/8oz) 0.18 0.20 0.30 0.31 0.27 0.32 0.43 Increase

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Fresh fruits and vegetables

Apples

 Percent of conventional price 32.98 34.48 43.86 35.66 30.27 24.60 28.70 Undetermined

 Variance 0.001 0.001 0.000 0.000 0.000 0.000 0.000

 Premium ($/pound) 0.26 0.28 0.39 0.35 0.33 0.24 0.29 Undetermined

 Variance 0.001 0.000 0.000 0.000 0.000 0.000 0.000

Carrots

 Percent of conventional price 21.12 24.86 19.87 22.23 24.59 25.35 26.66 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/pound) 0.25 0.30 0.24 0.29 0.32 0.32 0.34 Increase

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Celery

 Percent of conventional price 41.44 47.57 40.34 28.91 45.86 36.80 43.54 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.001 0.000 0.000

 Premium ($/bunch) 0.51 0.61 0.51 0.40 0.63 0.50 0.60 Undetermined

 Variance 0.001 0.001 0.000 0.000 0.001 0.000 0.000

Potatoes

 Percent of conventional price 36.19 36.75 19.85 10.94 15.00 19.55 27.67 Undetermined

 Variance 0.001 0.002 0.001 0.000 0.000 0.000 0.000

 Premium ($/pound) 0.15 0.16 0.10 0.06 0.09 0.11 0.16 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Continued—
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Table 2

Organic price premiums, 2004-10—continued

2004 2005 2006 2007 2008 2009 2010 Trend

Salad

 Percent of conventional price 38.62 61.30 46.11 49.52 59.24 61.97 59.78 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/pound) 1.23 1.97 1.53 1.65 2.06 2.18 2.17 Increase

 Variance 0.002 0.002 0.002 0.001 0.002 0.001 0.001

Spinach

 Percent of conventional price 57.47 37.82 17.44 11.48 13.54 6.11 7.21 Decrease

 Variance 0.004 0.001 0.001 0.002 0.000 0.002 0.000

 Premium ($/pound) 1.78 1.40 0.77 0.55 0.70 0.31 0.38 Decrease

 Variance 0.036 0.020 0.017 0.059 0.007 0.040 0.010

Single-ingredient processed food

Canned beans

 Percent of conventional price 99.12 90.22 70.98 71.48 56.90 49.42 54.18 Decrease

 Variance 0.001 0.006 0.000 0.001 0.000 0.000 0.000

 Premium ($/pound) 0.62 0.58 0.49 0.50 0.44 0.43 0.49 Decrease

 Variance 0.000 0.003 0.000 0.000 0.000 0.000 0.000

Coffee

 Percent of conventional price 105.60 75.85 76.00 65.58 49.47 47.65 47.07 Decrease

 Variance 0.004 0.002 0.001 0.000 0.000 0.000 0.000

 Premium ($/pound) 3.97 3.22 3.34 3.03 2.44 2.35 2.36 Decrease

 Variance 0.059 0.029 0.014 0.009 0.007 0.009 0.010

Multi-ingredient processed food

Bread

 Percent of conventional price 30.08 46.15 28.58 27.18 25.16 30.96 30.21 Undetermined

 Variance 0.000 0.009 0.000 0.000 0.000 0.000 0.000

 Premium ($/pound) 0.42 0.66 0.43 0.43 0.43 0.53 0.52 Undetermined

 Variance 0.001 0.017 0.000 0.000 0.000 0.000 0.001

Granola

 Percent of conventional price 38.91 33.12 37.69 35.60 33.39 27.84 21.88 Decrease

 Variance 0.019 0.001 0.002 0.000 0.000 0.000 0.000

 Premium ($/pound) 0.91 0.80 0.94 0.93 0.91 0.79 0.62 Undetermined

 Variance 0.102 0.006 0.011 0.001 0.001 0.001 0.002

Soup

 Percent of conventional price 21.30 18.28 16.20 16.73 19.21 24.96 32.98 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/pint) 0.26 0.23 0.21 0.22 0.26 0.35 0.44 Undetermined

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Continued—
17

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coefficient); other products had premiums which we defined as fluctuating. For example, the retail 

organic price premium for spinach dropped from 57 percent of the nonorganic price in 2004 (or 

$1.78 per pound more for organic spinach) to about 7 percent in 2010 (or 38 cents per pound more 

for organic). Both the actual price premium and the relative premium for yogurt rose during the 

study period, while the organic price premium for bread did not exhibit a clear trend.

Retail food prices were susceptible to price shocks and fluctuations based on agricultural commodities during 2004-10. From late 2007 through 2008, food prices experienced a major price spike after 

remaining steady for the previous years included in this study; prices spiked again in late 2010 and 

in 2011. Price spikes are caused by both supply factors (e.g., weather, energy prices, and changes 

in the major producers or growers) and demand (e.g., food-safety scares, media stories, and trends 

in food choices). In some cases, price fluctuations affecting organic food production may coincide 

with those affecting nonorganic food production—in these cases, the organic price premium may be 

unaffected by underlying price shocks. However, we might also expect that the organic food prices 

in a mature market may fluctuate in a way that is different than nonorganic food prices. For example, 

organic food producers tend to sign more contracts for ingredients than conventional producers 

due to difficulties obtaining organic commodities. The risk-reducing nature of these contracts will 

cause organic prices to spike about a year after the conventional spikes that are caused by things like 

weather or input prices. Thus, fluctuations in the organic price premium could be due to differences 

in supply and demand shocks for organic and nonorganic food. 

The detailed regressions results (appendix tables) show factors that affect demand and supply of all 

products, as well as attributes unique to each product. 

Table 2

Organic price premiums, 2004-10—continued

2004 2005 2006 2007 2008 2009 2010 Trend

Spaghetti sauce

 Percent of conventional price 72.13 34.84 34.67 41.33 44.17 34.73 52.74 Undetermined

 Variance 0.001 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/pint) 0.77 0.37 0.38 0.45 0.52 0.42 0.64 Undetermined

 Variance 0.001 0.000 0.000 0.000 0.000 0.000 0.000

Baby food

Baby food - junior

 Percent of conventional price 29.32 52.98 46.50 31.84 29.38 35.74 28.79 Undetermined

 Variance 0.044 0.012 0.007 0.000 0.000 0.004 0.000

 Premium ($/6oz) 0.32 0.59 0.53 0.36 0.36 0.43 0.34 Undetermined

 Variance 0.054 0.015 0.009 0.000 0.000 0.005 0.000

Baby food - strained

 Percent of conventional price 18.20 17.79 22.08 26.19 23.72 27.78 30.51 Increase

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

 Premium ($/4oz) 0.11 0.11 0.13 0.16 0.16 0.19 0.22 Increase

 Variance 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Source: USDA, Economic Research Service.
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Store Type, Season, and Geographic Market

Store type. All coefficients are compared to grocery stores in figure 2—a negative number indicates 

that the product is less expensive (on average) at the store type compared to grocery stores, while 

a positive number indicates it costs more. Mass merchandisers, supercenters, and other stores are 

generally less expensive than grocery stores (these differences are for all UPCs in the product, not 

just the organic or nonorganic one). Drug stores were also generally less expensive than grocery 

stores for items other than salad mix and strained baby food (although the number of observations 

for some products—particularly produce items—is lower than in the stores where food is more 

commonly purchased). On the other hand, convenience stores are generally more expensive (except 

for bread, milk, and spinach). Convenience stores may use bread and milk as loss leaders (i.e., 

selling commonly purchased items at less than their cost in order to bring people into the store in 

the hope that they will purchase other higher priced items). Club stores are mixed—about half of 

the products studied are more expensive and about half are less. Health food stores were not added 

to the data until 2007 (and for some products, not until 2010)—our results suggest that health food 

stores are more expensive. 

Month of the year. Many products have a seasonal fluctuation in prices—i.e., they are more expensive during certain months of the year. In order to appropriately study seasonality, we would need 

to run the models over several years and use a fixed effect for season. However, this approach would 

make it difficult to estimate the organic price premium in each year. The changes shown in figure 

3 are changes in the unit price from January of that year, and represent changes in both supply and 

Figure 2

Impact of store type on unit price

Notes: Each dot represents the average change in price for that product, compared to grocery stores. For example, 

granola costs about $0.77 per 8 ounces more at club stores than at grocery stores. This estimate is an average of 2004-10 

for every item in the product category, not just the organic items.

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Change in unit price from grocery store ($)

-1.5

-1.0

-0.5

0

0.5

1.0

Eggs

Milk

Yogurt

Apples

Carrots

Celery

Potatoes

Salad mix

Spinach

Canned beans

Coffee

Baby food, junior

Baby food, strained

Bread

Granola

Soup

Spaghetti sauce

Club

store

Mass

merchandiser

Super

center

Health

food

store

Convenience 

store

Drug

store

Other

store
19

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demand. We might see prices increasing throughout the year under normal inflation; thus prices that 

are higher in November or December compared to January do not necessarily mean that these products exhibited a seasonal fluctuation in these months. However, prices that are consistently higher or 

lower in April, May, June, July, August, or September than in the other months may mean there are 

seasonal effects to the price of the product. For example, eggs are consistently less expensive from 

April through November. Since chickens lay more eggs in the summer months, this may represent 

a supply-side seasonal effect. Similarly, apples increase in price until July and start to decrease in 

price as the new harvest appears in stores in late August and September. Soup is more expensive 

from May through August–the price decreases in the fall months. Chevalier et al. (2003) also found 

that soup is less expensive during colder weather, and suggest stores charge a lower price during 

peak demand times.

Geographic market. The analysis included a fixed effect for each individual market, defined as 

major metropolitan areas, and an additional set for rural areas for each census division. Differences 

in prices of aggregate food groups by these same geographic markets are documented by the 

Quarterly Food at Home Prices Database (QFAHPD) (Todd et al., 2010). We estimate geographic 

differences for individual products instead of groups of products, so direct comparison to the 

QFAHPD is not possible for most of our products. However, Todd et al. (2010) demonstrate that 

geographic price differences are significant, which we also found to be true. For example, we 

compare the change in the unit price between Boston and other markets in figure 4. Each dot represents a separate market. Not surprisingly, prices in New England are closer to prices in Boston than 

Figure 3

Impact of month on unit price

Notes: Each dot represents the average change in price for that product, compared to January of the same year. For 

example, celery costs about $0.05 per bunch more in February than in January. This estimate is an average of 2004-10 

for every item in the product category, not just the organic items.

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Change in unit price from January ($) Eggs

Milk

Yogurt

Apples

Carrots

Celery

Potatoes

Salad mix

Spinach

Canned beans

Coffee

Baby food, junior

Baby food, strained

Bread

Granola

Soup

Spaghetti sauce May July

December

March September November

February April June August October

-0.20

-0.15

-0.10

-0.05

0

0.05

0.10

0.15

0.20

0.25
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in other parts of the country. Yogurt has a consistent price across the entire country. Milk generally 

costs less in the Middle Atlantic and the North Central regions, where milk is commonly produced; 

however, it cost more in the Pacific, including California, which is also a large dairy production 

State. Compared to prices in Boston, eggs are typically cheaper in most other cities (except for 

those in the Pacific market). Produce prices seem to decrease in markets that are further west; most 

produce items included in this study are produced in the West, especially the Mountain and Pacific 

regions. Canned beans and baby food demonstrate consistent prices across the country, while coffee 

is more expensive in the Mountain and Pacific markets. The Central and Mountain markets had 

lower prices than Boston for bread, granola, and soup, and the Central markets also had lower prices 

for spaghetti sauce. 

Eggs and Dairy

Yogurt, milk, and eggs had organic price premiums that were generally higher than the other products (fig. 5). This difference was likely driven by supply-side cost issues since organic livestock 

farmers must provide their animals with organic feed and pasture land, cover the cost of transitioning from a conventional to an organic herd, and only use organic healthcare practices (which do 

not allow the use of antibiotics or growth hormones). 

Figure 4

Impact of region on unit price

Note: Each dot represents the average change in price for that product, compared to Boston, MA. For example, milk costs 

about $0.30 per gallon more in the South Atlantic States than in Boston. This estimate is an average of 2004-10 for every 

item in the product category, not just the organic items.

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Change in unit price from Boston ($)

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

New

England

Middle

 Atlantic

 South

 Atlantic

 

 East 

North 

Central

 

 East

 South

 Central

 

 West 

North 

Central

 

 West

 South

 Central

 

Mountain 

 

Pacific

Eggs

Milk

Yogurt

Apples

Carrots

Celery

Potatoes

Salad mix

Spinach

Canned beans

Coffee

Baby food, junior

Baby food, strained

Bread

Granola

Soup

Spaghetti sauce
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Eggs, milk, and yogurt are considered part of the organic dairy sector, which experienced a 

7.1-percent growth in 2012. From 1999 to 2009, the sector experienced a 22-percent compound 

annual growth rate, compared to 17 percent for the entire organic market.8 The limited number 

of producers kept premiums high through at least 2012 (Organic Trade Association, 2013a). The 

premiums for two of the three products—milk and eggs—were the highest in the study, so it is not 

surprising that the lower priced private label has come to be an important part of the market since 

2009, particularly in the period beyond the years of this study. 

Despite the higher premium for these three products, they are among the most popular organic foods 

chosen by consumers. In 2012, 89 percent of households with children who purchased organic food 

purchased organic dairy products, and 25 percent of these households reported that they always 

choose organic (Organic Trade Association, 2013b). 

Eggs. In 2012, the organic egg market grew by 17.5 percent from 2011 (Organic Trade Association, 

2013a). A major difference between organic and conventional eggs is that most organic eggs are 

brown, and brown-egg-laying hens tend to be less productive but get along better in a cage-free 

setting (Chang et al., 2010). Unlike other retail products, customers have a range of nonorganic 

options that have some of the attributes carried by the organic certification, including cage free, free 

range, and no hormones or antibiotics. Consumers can also choose nonorganic brown eggs, which 

8The entire organic market includes all organic products including food and nonfood. Unless otherwise noted, this 

paper focuses on only the food market.

Figure 5

Organic price premiums for dairy and eggs 

Percent above nonorganic price

0

50

100

150

200

2004 2005 2006 2007 2008 2009 2010

Eggs

Milk

Yogurt

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).
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they may perceive as being more natural9 than white eggs. Our data did not allow us to include cage 

free or free range in our model, but we did include the egg color. Other attributes included in the 

model are omega 3 content, pasteurized, size, and grade, all of which have been shown to affect the 

price of eggs on a national level (Chang et al., 2010). In recent years, producers are experiencing 

pressure to switch to cage free, nonorganic eggs (Organic Trade Association, 2013a). These eggs 

would keep the laying hens out of small cages, but farmers would not need to provide organic feed 

and could still use antibiotics.

Eggs saw the most dramatic drop in the organic price premium, though they still have the highest 

premiums in the study. In 2010, the organic egg premium was about 82 percent of the total conventional price, down from 173 percent in 2005. During this time, the Consumer Price Index (CPI) for 

eggs (dominated by nonorganic eggs) rose 33 percent in 2007, dropped during 2008-09, and rose 

again in 2010 (U.S. Department of Labor, 2014). While the 38-percent increase in the wholesale 

price of nonorganic eggs was due to salmonella in California, Minnesota, and Colorado (Piller and 

Brasher, 2010), the egg CPI continued to rise through 2014. The size of the organic price premium, 

on the other hand, followed the opposite trend. These price shocks to conventional eggs may explain 

the drop in the price premium as organic eggs may face different supply-side and demand-side 

factors than nonorganic eggs. Dimitri and Oberholzer (2009) found widely varying price premiums 

between 2004 and 2006, but their analysis only compared organic and nonorganic eggs, and did not 

consider other egg attributes. Chang et al. (2010) use quarterly point-of-sale data and observed an 

average premium of 85 percent for organic eggs during 2004-08. Our results appeared to be slightly 

higher, estimated on annual bases. Chang et al. (2010) did not control for the use of hormone or 

antibiotic use or the type of store or market; they also did not include an interaction term between 

private label and organic. However, they did include more attributes on production methods, such as 

cage free, pasture raised, and type of feed used, which our data did not allow us to include.

Milk. In 2012, milk and cream experienced a nearly 9-percent growth in organic sales and occupied about 57 percent of organic dairy sales (Organic Trade Association, 2013a). We observed that 

about 5.5 percent of fluid milk sales were organic in 2010, which is comparable to the Organic Trade 

Association’s estimation of 5 to 6 percent. The Organic Trade Association (2013a) listed the size of 

the organic milk market in 2010 at $3.9 million. The price premium for organic milk fluctuated for a 

few reasons. The organic premium was affected by world (nonorganic) milk prices, which are typically cyclical. Milk prices rose rapidly in 2007 after both very low prices in 2006 (Glauber, 2008) 

and the droughts in Australia and New Zealand (Organic Trade Association, 2013a). Like eggs, the 

CPI (dominated by nonorganic milk) for milk rose 7.4 percent in 2007, dropped during 2008-09, 

and rose again in 2010 (U.S. Department of Labor, 2014). Organic milk did not experience the same 

price increase, so the premium as a percent of conventional milk price followed the opposite pattern. 

However, organic milk customers are more loyal than other categories—organic milk is one of the 

first products adopted and one of the last they forgo when budgets become tight (Organic Trade 

Association, 2013b). Despite this, we observed higher market penetration rates for other products, 

including apples, spinach, salad, carrots, baby food, and granola. 

There were also other factors at play on the organic milk supply. First, milk yields are lower for 

organic practices than conventional practices—in 2010, an organic cow produced 13,552 pounds 

of milk while a conventional cow produced an average of 20,961 pounds (McBride, 2013). Pasture 

9Unlike the word organic, natural does not have a legal definition in the United States. Consumers and food manufacturers may have different definitions of the term.
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requirements for organic cows were clarified in 2010; regulations now require that organic cows 

graze for a minimum of 120 days and get at least 30 percent of their nutritional needs from grazing. 

Pasture grazing also reduces production (Greene and McBride, 2015). There is no pasture requirement for nonorganic cows, but a 2005 study indicated 18 percent of nonorganic dairies use some 

pasture grazing (Greene et al., 2009). The same study found that only 0.2 percent of domestic corn 

and soybean acres were certified organic; the shortages were even more severe in 2014 (Organic 

Trade Association, 2015a). Short supplies of certified organic feed may have forced organic dairies 

to make even greater use of pasture land or pay increasingly high prices for organic feed. There were 

also changes in the supply market chain as private-label milk increased from under 10 percent in 

2004 to over 25 percent in 2010, according to our analysis of the Homescan data. 

The milk model included package size, fat content, no lactose, calcium fortified, and kosher milk 

(we did not include flavored or shelf-stable milk in this estimate). The premium in 2010 was about 72 

percent of nonorganic milk, and we found that milk premiums neither steadily increased nor decreased 

during the study period (although, like Dimitri and Oberholtzer (2009), we observed a large price 

spike in 2006). Our estimate for the organic milk premium in 2006 ($2.27/ gallon) is lower than that 

of Smith et al. (2009) ($1.86/half gallon or $3.72/gallon) or Dimitri and Oberholtzer (2009) (roughly 

double nonorganic prices 2004-06), but we included all sizes of milk packages, as well as additional 

attributes. When Smith et al. (2009) estimated the price premiums for 2006 data, half gallons were 

often the only available package size for organic milk. While this size still remains the most common, 

some Homescan participants reported purchasing organic milk in gallon containers. 

Yogurt. According to market research firm Mintel, sales of yogurt and yogurt drinks grew 32 

percent from 2004-09 (Mintel Group, 2009). During most of the 2004-10 time period, new product 

introduction was a primary driver of market growth—more than 800 new refrigerated yogurt products were introduced from January 2005 to October 2009 (Mintel Group, 2009). Greek yogurt 

brands, which are now widely popular, had not caught on until the end of the 2004-10 period. For 

example, the Greek yogurt brand Chobani’s sales grew by almost 250 percent between 2009 and 

2010 (Mintel Group, 2010). Dannon’s Activia was also becoming an important brand; the Activia 

Light brand grew 19.8 percent from 2008 to 2009, although its primary brand (Activia) had no real 

growth over those 2 years (Mintel Group, 2009). In more recent years, the growing diversity in the 

yogurt market, especially the continued popularity of Greek yogurt, led to a small decline in organic 

yogurt sales in 2012 (Organic Trade Association, 2013a).

The diversity of yogurt is reflected in the number of attributes we were able to control for in our 

model. These included plain, flavored, fat, lactose level, probiotic (such as Activia), Greek or Skyr, 

added items (such as granola or fruit), nondairy, and an indicator for yogurt-based snacks. The 

organic price premium for yogurt increased over time, rising steadily from 25 percent of the conventional price in 2004 to 52 percent in 2010. 

Fresh Fruits and Vegetables

Fresh fruits and vegetables are usually listed as the largest sector of the organic market, though this 

may partly be due to the sheer size of the produce category. In 2012, nearly all (97 percent) U.S. 

families who purchased organic foods chose organic fruits and vegetables at least some of time, 

while 28 percent chose organic produce all the time (Organic Trade Association, 2013b). Organic 

fruits and vegetables were about 35 percent of organic sales in 2012, up from 33.2 percent in 2010, 

with fresh fruits and vegetables representing about 90 percent of this category (Organic Trade 
24

Changes in Retail Organic Price Premiums from 2004 to 2010, ERR-209

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Association, 2013a). The Organic Trade Association reports 2010 total sales for fruits and vegetables, including canned and frozen, at over $8 billion. 

When examining the organic sales of individual products (table 1), organic spinach sales were 

the highest in the study, but other fruits and vegetables were outranked by granola and baby food. 

Spinach was the only organic produce item whose price premium and relative premium decreased 

during 2004-10. Salad mix and carrots both saw an increase in the actual price premium, but not 

the relative premium. All other produce items examined had price premiums that may be exhibiting 

price cycles or are otherwise fluctuating. Price premiums for apples and vegetables that are predominately consumed fresh (salad mix and spinach) are in figure 6, while figure 7 shows vegetables that 

are more commonly cooked (potatoes) or are commonly used as an ingredient in cooked dishes 

(carrots and celery). 

We compared our results to earlier ERS research using the 2005 Homescan data conducted by Lin 

et al. (2008) and expanded in an ERS report (Greene et al., 2009). Lin et al. (2008) included demographic and seasonal controls but did not include individual product attributes or interaction terms 

(our study included controls for markets but not demographics). While each produce item appeared 

to be fairly homogenous, there were product attributes that explained some of the variation in 

prices. In addition to ERS’s work, He and Bernard (2011) compared the premiums for both organic 

and nonorganic/not genetically modified products for fresh and processed products; contrary to 

common opinion at the time, they did not find higher organic or nonorganic/not genetically modified 

premiums on fresh products over processed ones. 

Apples. Apples were the most common organic fruit of choice for consumers in 2012 (Organic 

Trade Association, 2013a). We observed a penetration rate of 6.6 percent of total sales in 2010. At 

most stores, consumers can choose from a variety of apples, though the general 3-pound bag of 

apples is still available. The choice of type may also determine the decision whether to purchase 

organic apples. According to the 2010 Homescan data, the most common type of nonorganic apple 

was red delicious (29 percent of all nonorganic apple-purchase observations), but for organic apples, 

it was galas (53 percent of organic purchases)—organic red delicious represented only 8 percent of 

the organic purchase observations, and gala apples were only 21 percent of the nonorganic apples. 

Similarly, Pink Lady was more common in the organic market than in the nonorganic market (6 

percent versus 1.5 percent, respectively) and Macintosh was more common in the nonorganic market 

(9 percent), while organic was very close to 0 percent. Other types of apples were about the same in 

the organic and nonorganic markets. Package size was also similar across both organic and nonorganic apples, and the 3-pound bag was the most common size.

The organic apple price premium decreased since its peak in 2006 to around $0.29 per pound or 29 

percent of the conventional price in 2010. Our estimates were slightly higher than Lin et al. (2008) 

for 2005 ($0.32/pound versus $0.29/pound, respectively), but we included all types of apples (rather 

than treating apples as a uniform product). The most important price differentiating attribute was the 

type of apple.

Salad Mix. Prewashed and chopped salad mix changed dramatically during the 2000s. As 

consumers continue to seek out healthy convenience products, it may continue to occupy an 

expanded shelf space in the produce section. Salad mix has grown from a bin of spring greens sold 

on a random-weight basis to a varied prepackaged product with many different lettuce varieties and 

other vegetables mixed in. Products in this category now include cabbage and iceberg-lettuce-based 
25

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Figure 6

The spinach organic price premium is the only fruit and vegetable premium that fell 

significantly during 2004-10 

Percent above nonorganic price

0

10

20

30

40

50

60

70

2004 2005 2006 2007 2008 2009 2010

Apples

Salad

Spinach

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Figure 7

Organic price premiums for fresh vegetables are fluctuating

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Percent above nonorganic price

0

10

20

30

40

50

2004 2005 2006 2007 2008 2009 2010

Carrots

Celery

Potatoes
26

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mixes, packages that include spring greens and other more expensive mixes, and salad kits which 

include dressing, croutons, nuts, and dried fruit. Some mixes also include canned meat or bacon bits. 

The data allowed us to determine the type of salad mix (though about half of the observations do not 

specify whether it was Caesar, spring, iceberg, Asian, meat, taco, arugula, cabbage, slaw, spinach, 

or herb mix). Only about 15 percent indicated how the greens were cut (chopped, cut, shredded, 

julienne, flat leaf, fine shred). Since these types were all significant and in the expected direction 

(premium mixes were higher cost while iceberg- and cabbage-based mixes were less expensive), we 

believe the remaining mixes were a general mix of different lettuces, cut in a variety of ways. The 

model also included an indicator for salad kits. Additionally, although the model includes a continuous variable for package size, preliminary analysis noted that the relationship between package 

size and price is not the same across the entire range of package sizes. There were two places where 

the linear relationship changed: one at 12 ounces (small) and one at 24 ounces (big). Finally, we 

included a set of indicator variables for minor nonorganic brands.

As a result of the dramatic changes to the salad-mix product, it is not surprising that the organic 

premium fluctuated during 2004-10. The 2010 premium was estimated at $2.17/pound or 60 percent 

of the conventional price.

Spinach. Organic spinach had the greatest market penetration of all products examined in this 

study (about 40 percent of total sales dollars, 28 percent of the quantity sold, and 31 percent of the 

purchase transactions in 2010) (table 1). Packaged organic salad greens (including spinach) were the 

top sellers in organic fresh vegetables in 2012 (Organic Trade Association, 2013a). Schroeter and 

Cai (2011) report that California and Arizona produce 85 percent of the U.S. spinach supply, and 

organic spinach sales increased by 250 percent from 2007 to 2010 (total organic and nonorganic 

spinach sales increased by 57 percent during the same time). 

Spinach was also the most homogenous product of all items studied—the only real differences were 

baby and mature spinach and the package size. Our data did not allow us to determine the type of 

package (such as a clamshell or microwave-ready bag), which may affect results. In the spinach 

model, we interacted the indicator variable for baby spinach with the organic indicator one to control 

for differences on the supply side. Organic baby spinach carries a smaller premium (indicated by the 

negative sign on the organic*baby coefficients listed in appendix table A7). This could be because 

organic spinach growers elect to harvest earlier (baby spinach) to prevent insect damage. For those 

growers who wait to harvest the mature spinach, extra measures must be taken to control insect 

damage. Since nonorganic spinach growers can use pesticides to control insects, the production 

of nonorganic baby and mature spinach is more similar. Like in the salad-mix model, preliminary 

analysis found two points where the relationship between package size and price is nonlinear: one 

just below 5.5 ounces (small) and the other just above 1 pound (large). The model also included a set 

of binary variables for the nonorganic minor brands.

Spinach was the one produce item examined in this report whose organic price premium statistically 

dropped during the study period. We estimate that the 2010 premium for organic spinach was about 

$0.38 per pound or 7 percent of the nonorganic price, compared to $1.78 per pound, or 57 percent 

higher than the nonorganic price in 2004. The 2010 premium is actually up from $0.31 per pound 

or 6 percent of the nonorganic price in 2009. This overall decrease in both the premium and relative 

premium price may explain the rapid increase in organic spinach sales.
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Carrots. Carrots are distributed by two major California sellers: Bolthouse Farms and Grimmway 

Farms supply 96 percent of the Nation’s carrots (Wright and Marsh, 2012). They are sold under a 

variety of different brands and private labels. However, at any one store, consumers generally can 

only choose between private label and a brand (or they may have just one choice). Carrots are available in a variety of levels of convenience, including full size with limited processing, baby carrots, 

and a variety of precut carrots for salads and cooking (baby carrots are generally large carrots that 

are cut to smaller sizes). The most common package size was 1 pound.

Organic carrot price premiums generally increased from about 25 cents per pound in 2004 to 34 

cents per pound in 2010, or 27 percent of the nonorganic price. However, the market fluctuated as a 

percent of the nonorganic price. Our 2005 estimate of the premium as a percent of the nonorganic 

price was 25 percent, compared to Lin et al.’s (2008) finding of 14.6 percent. Lin et al. included 

random-weight carrots, which we were not able to do. They also treated all carrots as the same 

product, while we included all packaged carrots (including baby, cut, and different bag sizes). 

Celery. Consumers can purchase both whole stalks (or bunches) of celery and celery hearts, as well 

as precut sticks, diced for salad and cooking, and in kits with peanut butter and other complementary products. Celery sold as bunches or hearts is typically sold by count (or by the bunch), while the 

other products are sold by weight. Since the vast majority of the celery represented in our data was 

sold by bunch, we opted to estimate the premium over just the celery sold by count. 

The organic premium for celery was about 44 percent of the nonorganic price, or about $0.60 per 

bunch or heart in 2010. Celery hearts are slightly more expensive per count (5 cents) than the whole 

bunch. The organic premium fluctuated throughout the study period.

Potatoes. Although potatoes are relatively inexpensive, the share of the organic market is quite 

small compared to other fresh produce items—less than 2 percent of all fresh potatoes purchased by 

Homescan participants in 2010 were organic. The main variation in the price of potatoes is the type 

of potatoes—sweet potatoes, gold, russet, red, regular white, Idaho, gourmet, and other specialty 

potatoes (e.g., new or multicolored). The major difference between the organic and nonorganic 

market was in sweet potatoes—in 2010, a higher percent of organic potatoes were sweet potatoes (10 

percent) than in the nonorganic market (2 percent). Bag size is also important; in 2010, 55 percent of 

organic potatoes were sold in less than 5-pound bags, while only 12 percent of nonorganic potatoes 

were sold in small bags. 

The organic price premium for potatoes appeared to vary from year to year and was not strictly 

decreasing or increasing. In 2010, it was about 16 cents per pound, or 28 percent of the conventional 

price. Our 2005 estimates were considerably lower than Lin et al.’s (2008)—$0.16/pound versus $0.47/

pound, respectively. The major difference appears to be that our estimate controlled for the type of 

potato and the bag size. Since organic potatoes are more likely to be sold in the more expensive forms 

(sweet and small bags), not including the type and bag size would distort the price premium.

Processed Foods

Processed foods are the fastest growing sector of the organic market; they reached about 9 to 11 

percent of the organic market by 2012 (Greene, 2013). The Organic Trade Association (2013a) classifies the foods we examined into several categories: canned fruits and vegetables (canned beans); 

beverages (coffee); breads and grains (bread, granola); and packaged and prepared food (baby food, 

soup, and pasta sauce). Canned organic products are an emerging category, partly due to the low 
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cost and high convenience of organic canned beans. All other categories have relatively low market 

penetration when compared to fruits and vegetables, but also represent the fastest growing parts of 

the organic food market (Organic Trade Association, 2013a).

Products in this section were chosen because of their high levels of market penetration. In particular, 

granola and baby food had market shares comparable to the fresh produce items chosen for this study. 

Snack foods and condiments are emerging categories listed by the Organic Trade Association (2013a), 

but we did not observe high penetration rates in our data for any single product in this category. 

Despite the level of market share, we were not able to find any estimates of organic price premiums 

to compare our results. He and Bernard (2011) found differences in willingness to pay between 

organic and nonorganic processed food products but not genetically modified and conventional 

versions of similar products; these authors also found that consumers were more willing to substitute 

between the three categories (organic, nonorganic/not genetically modified, and nonorganic/genetically modified) for processed foods than they were for fresh products. We discuss single-ingredient 

products (canned beans and coffee in figure 8), multi-ingredient products (fig. 9), and baby food (fig. 

10)—all of these products were more complex than both the eggs and dairy and fresh produce items.

Canned Beans. The biggest differentiating factors in canned beans were the type of bean and type 

of package. Pinto beans were the most common canned bean purchased by Homescan participants, 

while the most expensive was cranberry beans (green beans were not included). The standard 

package was a can, but beans could also be purchased in glass jars, plastic containers, and (more 

recently) in envelopes or pouches. The model included a set of binary coefficients for the nonorganic 

minor brands. The organic price premium decreased slightly, though it has decreased significantly 

Figure 8

Organic price premium for single-ingredient processed foods decreased, 2004-10 

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Percent above nonorganic price

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010

Canned beans

Coffee
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Figure 9

Organic price premium for soup is increasing 

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Percent above nonorganic price

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009 2010

Bread

Granola Soup

Spaghetti sauce

Figure 10

Despite rising organic baby food sales, the premium for strained baby food rose 

over 2004-10

Source: USDA, Economic Research Service estimates from Nielsen Homescan data (2004-10).

Percent above nonorganic price

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010

Baby food - junior

Baby food - strained
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as a share of the nonorganic price (from 99 percent in 2004 to 54 percent in 2010). The relative 

premium was higher than most of the fruits and vegetables included in this study, but the relatively 

low price of canned beans led the Organic Trade Association (2013a) to point out that paying the 

extra premium for organic beans was a small step for many consumers.

Coffee. Less than 1 percent of coffee by weight is organic, but organic coffee is almost 3 percent of 

sales among 2010 Homescan participants. Coffee also represents the highest category of all imported 

organic foods, mostly due to the fact that the only State in the United States with a climate suitable 

for growing coffee is Hawaii (Organic Trade Association, 2015a). Organic coffee sales grew dramatically in 2011 and 2012, but faced competition from fair trade and shade-grown coffee (Organic 

Trade Association, 2013a), not all of which was organic. Our data did not allow us to identify fair 

trade and shade-grown coffee, which may bias our results if the percent of coffee sold as fair trade or 

shade grown was different for organic and nonorganic coffee. Coffee was sold in plastic containers, 

bags, cans, pouches, and pods (the single-serving containers used in some coffee makers). This 

model did not include instant coffee, but includes all types of roasts. Random-weight coffee was not 

available in the data. Like canned beans, the organic coffee premium dropped steadily during the 

study period—from $3.97 per pound in 2004 to $2.36 in 2010. The percent of the nonorganic price 

also dropped from 106 percent to 47 percent.

Bread. While bread takes up a significant portion of at least one aisle in a typical grocery store, the 

market share for organic was less than 2 percent of Homescan participants’ reported 2010 purchase 

dollars spent on bread. In 2012, bread was about 35 percent of the bread and grain organic category, 

which experienced an 8-percent growth rate in 2012 to almost 12 percent of organic food (Organic 

Trade Association, 2013a). We were not able to identify any dominant nonorganic national brands in 

the data, and thus did not include the set of binary variables for nonorganic minor brands included 

in some of the other models. Consumers choose from a wide variety of types of bread—e.g., whole 

wheat, 100-percent whole wheat, white, bran, oat, fruit, rye, pita, and potato. The organic price 

premium in 2010 was about $0.52 per pound, or 30 percent of the conventional price. Both the 

premium and the percent of conventional price fluctuated during the study period, and there is no 

clear trend.

Granola. In terms of total sales, the quantity sold, and the number of purchase transactions, granola’s market share was second only to spinach of all the products included in this study. About 30 

percent of granola sales reported in Homescan in 2010 were organic. It also made up 34.5 percent 

of the organic bread and grains category (Organic Trade Association, 2013a). Although there are a 

wide variety of granolas available on the market, data limitations prevented us from including more 

than three attributes: low fat (lower price), low sodium (higher price), and inclusion of flaxseeds 

(higher price). The model also included a set of binary coefficients to indicate the nonorganic minor 

brands. We found the overall trend for the price premium to be fluctuating, but the relative premium 

decreased from 39 percent in 2004 to 22 percent in 2010.

Soup. The market share for organic soup appeared to increase during the study period from less 

than 1 percent of soup sales in 2004 to about 4 percent in 2010. The Organic Trade Association 

(2013a) noted that this growth continued into 2012. Although there are a wide variety of flavors of 

soups available in the average grocery store, only a few attributes made a significant difference in 

the price: the type (condensed or standard ready to heat), low sodium, diet, and microwave-ready 

packaging. Despite the fact that market share increased, the premium and percent of the conven-
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tional price fluctuated during the study period—in 2010, the price premium for soup was 44 cents 

per pint or 33 percent of the nonorganic price. 

Spaghetti Sauce. The market share for organic spaghetti sauce reached a peak in 2007 (3.4 

percent), but remained above 2 percent since 2005. However, sales of organic pasta sauces grew in 

2012 (Organic Trade Association, 2013a). The data were very descriptive, particularly for health 

attributes. The model controlled for reduced fat, cholesterol, and salt, as well as chunky, Alfredo 

sauce, and imported spaghetti sauce. Consumers purchased spaghetti sauce in jars, cans, bottles, 

and pouches. The decrease in market share might be partially explained by the increase in both the 

premium and the percent of the conventional price since 2007. The premium in 2010 was $0.64 per 

pint, or 53 percent of the conventional price.

Baby Food. Organic strained baby food ranked third in market share of the products selected for 

this study (about 20 percent of sales). Baby food had the strongest growth among packaged and 

prepared foods in 2012 (23.2 percent) (Organic Trade Association, 2013a). Parents surveyed in 2012 

chose organic baby food for a variety of reasons, but mostly because they believed it was healthier 

and safer for their babies (Organic Trade Association, 2013b). While junior baby food had a lower 

market share (6.8 percent), it was still higher than celery, potatoes, eggs, milk, and yogurt. Strained 

baby food was less complex than the junior baby food. The major attributes for strained baby food 

were vegetables, fruits, meat, dessert, and yogurt. In addition to these attributes, junior baby food 

included soup, assorted flavors (in a multipack), dinners, and breakfast. Consumers purchased 

strained baby food in jars and tubs, but junior baby food also came in bags, boxes, trays, refrigerated, and frozen. In our data, private-label junior baby food was only purchased as organic after 

2007. Thus, the model did not include an interaction term for organic and private label until 2008. 

The strained baby food premium increased since 2004, from about 11 cents per 4 ounces to 22 cents 

per 4 ounces in 2010 (18 percent of conventional to 31 percent, respectively). The junior baby food 

premium peaked in 2005, but appeared to decrease after that, ending at $0.34 per 6 ounces or 29 

percent of the conventional price in 2010.
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Conclusion

Since the implementation of the USDA organic standards in 2002, the organic food sector has been 

one of the fastest growing parts of the food industry as organic products became available in more 

retail outlets. This study, which covers the 2004-10 period, estimates organic price premiums at the 

retail level and finds positive retail organic price premiums for all 17 products analyzed in this study. 

Additionally, most premiums did not steadily increase or decrease during this period, but fluctuated. Of the 17 products examined, only 3 (spinach, canned beans, and coffee) experienced a steady 

decrease in the premium, and only yogurt’s price premium steadily increased. 

We also found that organic premiums in 2010 (the last year of our study period) ranged from 7 

percent above the nonorganic price for spinach to 82 percent for eggs. Ten of these products were 

above the 30-percent premium barrier reported by the Hartman Group (2010) for most consumers. 

Despite the fact that the premium remains above the perceived barrier, we found that the market 

share for organic products in our data increased for all products. Our analysis suggests that the levels 

and trends for organic premiums vary by product and cannot be adequately explained by a single set 

of factors. Product-specific supply and demand factors help explain some of the differences among 

our estimated organic price premium results for the 17 products.

Our analysis of organic price premiums in 2004-10 is hampered slightly by some limitations and 

concerns associated with the Nielsen Homescan data. Nielsen imputes prices from the store-level 

prices based on average store-level prices, rather than the actual price the consumer paid. There is 

also the possibility of the underreporting of purchases, particularly in households with very high 

opportunity costs of time. Additionally, since Homescan participants are recording every food 

purchase they make, they may become more price conscious over time than nonparticipating households. This potential behavioral change may cause some bias if participants are not purchasing the 

more expensive products at the same rate as a demographically similar nonparticipating household. 

Finally, our data do not allow us to study the organic premium in farmers’ markets, roadside stands, 

Community Supported Agriculture (CSA), or other direct-sale markets. However, because of the 

extremely large number of observations and the strong link between product attributes and prices 

found in the data, we believe that these limitations are not likely to strongly bias our results.

Looking beyond 2010 to more recent years, shortfalls in domestic supply of organic food, feed, and 

ingredients caused food retailers and other industry participants to turn to imported organic products. 

According to a recent study by the Organic Trade Association (2015a), U.S. organic growers exported 

over $550 million worth of products in 2014. However, the United States imported nearly $1.3 billion 

in organic products. Although the leading organic import is coffee (which cannot be grown in the 

48 contiguous States or Alaska), the second-largest import product is organic soybeans and the tenth 

largest is organic corn. The United States is also the largest grower of nonorganic soybeans and corn, 

perhaps reflecting some U.S. farmers’ decisions to specialize in the nonorganic market.

Another trend in the U.S. organic market is the acceptance of several international standards as 

equivalent to the USDA organic standard. Under these USDA trade agreements, the two countries 

agree to treat their respective organic standards as equivalent. The first agreement was in 2009 with 

Canada; since then, the United States has added the European Union, Japan, Korea, and Switzerland 

(Agricultural Marketing Service, 2013, Agricultural Marketing Service, 2016).
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These global supply and demand factors, including insufficient U.S. production and strong global 

demand, are likely to impact organic price premiums beyond 2010 and into the future. Research that 

investigates organic premiums beyond 2010 would help determine if organic supply shortfalls are 

causing organic premiums to increase, or if other factors (such as changing energy prices or market 

conditions) are playing a stronger role.
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Appendix Tables—Regression Results

The appendix tables (located at www.ers.usda.gov/publications/err-economic-research-report/

err209.aspx) show the full regression results of equation 4 for each of the 17 products covered by this 

study. Data are drawn from the Nielsen Homescan data for 2004-10. Each product and each year are 

done as a separate analysis using STATA version 14. 

A1: Eggs

A2: Milk

A3: Yogurt

A4: Apples

A5: Salad mix

A6: Spinach

A7: Carrots

A8: Celery sold by bunch

A9: Potatoes

A10: Canned beans

A11: Coffee

A12: Bread

A13: Granola

A14: Soup

A15: Spaghetti sauce

A16: Baby food, junior

A17: Baby food, strained