Willingness to Pay for “Taste of Europe”: Geographical Origin Labeling Controversy in China
Creators: name: Li, Chenguang
name: Bai, Junfei
name: Gao, Zhifeng
name: Li, Chenguang
name: Bai, Junfei
name: Gao, Zhifeng
Publisher: name: Unknown
Year: 2016
Subjects: subject: Agribusiness
subject: Consumer/Household Economics
subject: Food Consumption/Nutrition/Food Safety
subject: International Relations/Trade
subject: Geographical origin label
subject: GI
subject: COO
subject: Consumer studies
subject: WTP

description: In recent years more attention has been placed to the use of “geographical origin” labels by regulators, marketers, and consumers for food products, largely due to increased incidences of food related scares and the shift of traditional agricultural price-support programs to promotion of value-added and high quality products via labels and certifications (Unterschultz 1998; Gilmore 2002; Clemens and Babcock 2004; Menapace et. al, 2011). The underline economic motivation of product labeling is to facilitate the resolution of market failures associated with high-quality product under asymmetric information (Akelof, 1970). Because geography is often correlated with a product’s overall quality, “geographical origin” labels is perceived by consumer as a signal of quality, especially under situations of lacking prior consumption experience or the quality of the product is not easily observable. Market failures due to asymmetric information are often seen when high-quality products enter into “new markets” where recognition rates among consumers are low. As western countries remain mired post financial turmoil, the continuous economic growth in emerging markets have made emerging markets increasingly relevant to international producers and marketers. One significant challenge in these “new markets” is that many of the renowned national or regional brands are new to consumers. Under this situation, the use of “geographical origin” labels for new comers to overcome asymmetric information problem in emerging markets plays an important role. The European Union has long policy tradition to support “geographical origin” labels of member and finance product promotions to third countries. Over the past fifteen years, around €50 million was provided by the European commission annually in terms of co-financing of promotional programs, 10% of which has been used for supporting “geographical origin” labels. China, the world’s largest economy and the most populous nation, holds significant opportunities for international producers and exporters. However, with intense competitions from both domestic and international players, promoting international products in China is no easy task. One recent promotional program carried out by the European Commission was the launch of a ‘Tastes of Europe’ campaign in China in May 2015. The campaign aims to create awareness among the Chinese consumers about the characteristics and benefits of Geographical Indications for food products as a guarantee of authenticity, quality and safety, and ultimately to drive consumer purchase of these products. Yet in order to gain broader consumer recognition, an “umbrella” message, i.e., “Taste of Europe”, was used to carry a generic geographical origin message to reach consumers (EU Commission, 2015) . There are a few key questions to ask under this situation: For policy makers, whether such generic origin message can carry sufficient value to promote member country products, which essentially validate the effectiveness of the policy. For producers and marketers in member countries, what are the advantages and disadvantages to be associated with the European umbrella message, and whether the use of generic regional labeling compliments or compromises country specific labeling? Answers to the above questions rely on the evaluation of consumer response to the product quality signals associated with different geographical origin messages. A consumer survey on geographic labeling for imported dairy products was carried out in Beijing, China in May 2015 to tackle above-mentioned questions. We chose dairy research product for this study for several considerations: the strategic importance of dairy products to EU exporters and policy makers; the unsettled debate on mandatory COO labeling for dairy products; the leading role of China as a key emerging market for global dairy exporters; and the increased opportunity for international dairy exporters to use COO labels as quality signals in China market. One contribution of the paper is the comparison of the COO effect between generic regional label and country specific origin label. Under the “products of EU” range, we used “product of Ireland” as a case study for the country specific origin label. Information on consumer demographic, dairy consumption, safety perceptions, knowledge on Ireland and Irish products, as well as willingness to pay (WTP) for different geographic labeling and product attributes were collected through 307 face-to-face interviews. WTP was elicited using double-bounded contingent valuation method, and estimated with maximum log-likelihood function. Our study showed slightly higher consumer WTP for “product of EU” label compared to “product of Ireland” label, which seems to suggest the use of EU label as quality signal adds value to Irish products. But we also found that consumers have much higher WTP for grass-fed and sustainable dairy production, compared to product of EU labeling. Grass-fed dairy production and agricultural sustainability are two main characteristics of Irish dairy industry, yet such characteristics of Irish dairy are not registered in Chinese consumers’ minds. Using EU label may have an immediate value to promote Irish products, however our study suggested that promoting country specific origin labeling with product differentiation and brand establishment can be more beneficial in the long run. Although the study uses only one country as an example to evaluate and compare the generic origin labeling and country specific labeling, the study holds broader implication for many other countries, products, and marketers facing similar challenges.