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Ruby Ward , Lynn Hunnicutt , John Keith (2004) If You Can’t Trust the Farmer, Who Can You Trust? The Effect of Certification Types on Purchases of Organic Produce

Other, International Food and Agribusiness Management Review
International Food and Agribusiness Management Association (IAMA).

Document:
Ward_et_al.pdf

Abstract
While much theoretical literature exists on certification as a way to overcome information asymmetry, and several studies have examined the characteristics of organic produce, this paper considers the effects of certification of organic produce. Our goal is to examine the efficacy of certification as a way to increase credibility of claims about production methods and thereby increase the size of the market for
organic produce.
An information asymmetry exists in the market for organic produce since consumers cannot determine whether produce is organically or conventionally grown. Various methods may solve this problem including signaling, reputation, and certification. Signaling and reputation may not work well, because signals are noisy, and reputation may be difficult for a producer to establish. Certification of
the farm and its growing methods shows the most promise. A survey instrument testing the efficacy of certification is presented along with empirical analysis suggesting that no notable difference existed between independent certification methods, although independent certification had significantly different effects than self-certification.
In this paper, we discuss the theory of asymmetric information and its application to the market for organic produce. The literature suggests certification resolves asymmetry, although only if certification is credible and believed. The USDA has recently established standards and instituted an inspection and certification program for organic produce. Additionally, individual producers, stores, some states
and many third party organizations certify produce as “organic.” To test the ability of these programs to resolve problems caused by information asymmetry, we analyze data from a recently administered survey asking questions about consumer response to various certifying organizations. This leads to preliminary conclusions regarding the efficacy of various types of certification, and their probable effect on
purchases of organic produce.
An information asymmetry exists in the market for organic produce since consumers cannot determine whether produce is organically or conventionally grown. Various methods may solve this problem including signaling, reputation, and certification. Signaling and reputation may not work well, because signals are noisy, and reputation may be difficult for a producer to establish. Certification of
the farm and its growing methods shows the most promise. A survey instrument testing the efficacy of certification is presented along with empirical analysis suggesting that no notable difference existed between independent certification methods, although independent certification had significantly different effects than self-certification.
In this paper, we discuss the theory of asymmetric information and its application to the market for organic produce. The literature suggests certification resolves asymmetry, although only if certification is credible and believed. The USDA has recently established standards and instituted an inspection and certification program for organic produce. Additionally, individual producers, stores, some states
and many third party organizations certify produce as “organic.” To test the ability of these programs to resolve problems caused by information asymmetry, we analyze data from a recently administered survey asking questions about consumer response to various certifying organizations. This leads to preliminary conclusions regarding the efficacy of various types of certification, and their probable effect on
purchases of organic produce.

Keywords: Usa, asymmetric information, certification, organic produce.

Relevance to our study:
That study and survey done in 2004 among UTAH organic consumers, regards the influences of type of certification and price on organic products purchase. A credible certification system is needed ( the NOP was just recently published and not considered by the author of the article) to avoid asymmetric information.
First of all the situation where no organic regulation is present was analysed. In that case, the consumers cannot verify the claims made for the produce, growers will be tempted to claim to have produced organically while actually using conventional methods, as this reduces their costs and increases their profits. Different solutions are considered, and the best to avoid information asymmetry is certification, that provides consumers assurances regarding the production methods used and ensures the producers that conventional growers will not be able to make claims to produce organically.
But the certification system has to be credible. If consumers do not believe certification claims, information asymmetry problems remain. Consumer disbelief reduces willingness to pay, which makes covering the higher cost of organic methods difficult, and reduces the likelihood that producers will actually use them.
The more trust the consumer places in the certifying organization, the more likely it is that she will be willing to pay a higher price for certified organically grown produce, and the more effective the certification program will be in enlarging the market for organic produce.

To determine the efficacy of a certification program, a survey was designed among Utah consumers, and the results suggest that consumers do perceive a difference in certification methods. Self-certification does not seem as effective as independent certification However, it does not appear that there are large differences between the independent certification methods. This implies that a certification program established by the federal government would not influence consumer purchasing behaviour differently than certification by the state of Utah, or by independent third parties.
Same information for the case where certification would raise the price by 10 percent. As was expected, the distribution of responses shifted markedly toward less consumption when certification raises the price of organic produce.
Even when certification does not increase the price, the mean is slightly above “no change,” but has a large standard deviation.
This tells us that most consumers will not adjust their purchases of organic produce simply because a certification program is implemented. However, as noted below in our regression results,
certification will increase the purchases of some consumers who are already purchasing organic produce. As the organic portion of the produce market is small (Greene, 2000), the effects of certification on this segment of the market may be substantial, even as most consumers continue to purchase conventional produce.

Relevancy on a scale from 1 to 5 = 4

Review status: Finished
Review started on 2009–01–21
Reviewed by Samanta Rosi Bellière?

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