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Agrimarketing : April 2008
68 AgriMarketing April 2008 Editor's Note: This is the second article in a two part series. In the first article in our series -- Should the Supply Chain Play Fair? --- we discussed whether consumers want a just and equitable supply chain. Initial survey results showed that consumers do perceive alternative production systems, in our case organic bread, to partially alleviate some of the inequality of profits across the supply chain. In particular, the perceived profits received by small farmers from the sale of an organic loaf of bread increased by 71% as compared to the sale of one loaf of non-organic bread. Awareness of this consumer per- ception is important, but do these beliefs impact the consumer 's pur- chasing behavior? Determining whether and how consumers act on the belief that inequality of profits exists in the supply chain is the objective of this article. In a recent survey, consumers answered a series of questions that asked them how likely they were to buy a loaf bread that differed accord- ing to its price and the profits allo- cated to different participants in the supply chain, such as small farmers, large farmers, agribusiness proces- sors, and grocery stores. Essentially, consumers were presented with a hypothetical purchasing option and asked to state how likely they would be to pur- chase this particu- lar loaf of bread. To better illustrate these purchasing options, figure 1 provides a example survey question. How likely are you to buy a loaf of bread from your local grocery store if it was produced from a food production system with the follow- ing characteristics In the first case below, the question is: how likely are you to purchase a loaf of bread if the price you would pay is $2.99, and from that single purchase small farmers would earn a profit of 1 cent, large farmers would earn a profit of 15 cents, agribusinesses would earn a profit of 1 cent, and your local gro- cery store would earn a profit of 15 cents? SURVEY RESULTS Statistical analysis of these questions provides some insight into which market the consumers cared about the most and whether consumers care about the distribution of profits. First, a dollar increase in the price of bread lowers the likelihood of pur- chase by 11%. This result implies that consumers care about themselves since they are less likely to buy higher priced bread. Next, consumers primarily care about the profits received by small farmers. A 10 cents increase in profit going to small farmers increases the likelihood of a purchase by 15%. Also, extra profits to the other sup- ply chain participants did not impact the likelihood of purchasing. This implies that consumers care about small farmers receiving extra profits but not necessarily other supply chain participants. Finally, if profits are shared unequally across the supply chain, the likelihood of purchasing 10 cent increase in the standard deviation of profits across the supply chain low- ers the likelihood of purchase by 21%. Consumers in our study did not want a large distribution of prof- its, which implies that consumers prefer profits to be shared more equally across the supply chain. IMPLICATIONS These initial findings provide pre- liminary evidence that preferences for fairness significantly affect peo- ple's stated preferences for food. However, much more work is needed. Since these results are based on hypothetical purchasing deci- sions, we plan to place a new set of consumers in a non-hypothetical environment and have them make purchasing decisions with real money. Putting improvements to our research aside, the results presented in our two articles indicate to us that consumers do consider fairness when purchasing food and, in short, want the supply chain to fair. AM Brian Briggeman is an Assistant Professor in the Department of Agricultural Economics at Oklahoma State University. Jayson Lusk is a Professor and Willard Sparks Endowed Chair in the Department of Agricultural Economics at Oklahoma State University. SHOULD THE SUPPLY CHAIN PLAY FAIR? by Brian C. Briggeman and Jayson L. Lusk Sales and Marketing Insights from Purdue University SEMINARS Upcoming Agribusiness Sales Management and Leadership June 17-18, 2008 Precision Selling: Building Relationships with Large Farmers July 31-August 1, 2008 Strategic Agrimarketing October 27-31, 2008 National Conference for Agribusiness November 18-19, 2008 Center for Food and Agricultural Business Fig. 1 CONSUMERS' LOAF OF BREAD PURCHASING QUESTION
May 2008 Supplement