Predicting aggregated demand for organic food …...Belief concerning “expensivenessexpensiveness (pos” (pos ) X value (.) X value (-) … ⇒ Current Attitude towards organic

Predicting aggregated demand Predicting aggregated demand for organic food products

to contact me by email …to contact me by email …[email protected]

MAPP Workshop May 14th 2009 - Joris Aertsens Ghent University – Department of Agricultural Economics

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OUTLINE

1) Background1) Background2) Some other interesting material3) P t ti di ti t d d3) Presentation on predicting aggregate demand


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Background

Ghent University (Belgium): Ghent University (Belgium): ‣ Research: 6 years

D t t A i lt l E i‣ Department: Agricultural Economics‣ Different projects, mostly related to organic food and farming,

F i Focusing on …i. The demand for organic foodii Supply chain organisation in the organic marketii. Supply chain organisation in the organic marketiii.Strategies of retailers entering the organic market

‣ Promotor Guido Van Huylenbroeck and recently also Wim VerbekePromotor Guido Van Huylenbroeck and recently also Wim Verbeke


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Some other interesting material: project: extra value of organic


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Some other interesting material

AERTSENS, J., MONDELAERS, K. & VAN HUYLENBROECK, G. (2009) Differences in retail strategies on the emerging organic market.British Food Journal 111 138 154British Food Journal, 111, 138-154.

HOEFKENS, C., VERBEKE, W., AERTSENS, J., MONDELAERS, K. & VAN CAMP, J. (2009) The nutritional and toxicological value of organic vegetables: The nutritional and toxicological value of organic vegetables: consumer perception versus scientific evidence. British Food Journal. Accepted.

MONDELAERS K AERTSENS J & VAN HUYLENBROECK G (2009) MONDELAERS, K., AERTSENS, J. & VAN HUYLENBROECK, G. (2009) A meta-analysis of the differences in environmental impactsbetween organic and conventional farming. British Food Journal. Accepted.

MONDELAERS, K., VERBEKE, W. & VAN HUYLENBROECK, G. (2009) Importance of health and environment as quality traits in the buying decision of organic products. British Food Journal. Accepted.

+ 2 other papers that are still in the review process at the moment


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Predicting aggregate demand

Outline

1) Wh thi b i t t ?1) Why may this be important ?

2) Which time horizons?2) Which time horizons?

3) How to do it?3) How to do it?


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Predicting aggregate demand - Why may this be important ?

Total Supply and demand of organic milk in the UK from 1997-2009

Shortage Excess supply Shortage


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Predicting aggregate demand Why may this be important ?Why may this be important ?

1) In the emerging organic market both aggregated demand and supply of 1) In the emerging organic market both aggregated demand and supply of organic products may fluctuate strongly. Imbalances disturb the development of the organic market.

F ll i d d i t d h l h ld b i d i Following a demand oriented approach: => supply should be organised in order to satisfy the (future) demand, it is valuable to have a (good) prediction of the future aggregated demand. prediction of the future aggregated demand.

This is especially relevant for the organic markets as producers who are considering to enter this market will only be able to sell their products as

i l 2 3 f h d h i organic only 2 to 3 years after they started the conversion process.The conversion period results in a lag period for supply to adjust to demand

and insufficient market transparency may lead to disturbing boom and and insufficient market transparency may lead to disturbing boom and bust cycles.


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2) To see whether it is worthwhile to start in the organic sector, depending on its growth potential

Predicting aggregate demand Which time horizons?

20 years => longer perspective20 years => longer perspective

2 to 3 years => e.g very relevant for converters

1 year => production planning


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Predicting aggregate demand How to do it?

Aggregate demand = the sum of individual demand for all members of the populationmembers of the population

To predict aggregate demand => the factors that influence individual demand matter=> Also other trends matter (demography, economy, …)


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CONSUMPTION OF ORGANIC FOOD


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The Theory of Planned Behaviour modelSource: Ajzen’s website (2006)

HUMAN Environment: culture, institutions, economy, demography, knowledge, technology

NATURAL environmentMACRO

LEVEL

Consumer …Consumer 1

Consumer n SOCIO-DEMOGRAPHICFACTORS

LEVEL

VALUESConsumer 1

EXPERIENCEx BELIEFS

EXPERIENCE

ATTITUDE

INTENTIONORGANIC

FOOD PURCHASE

Norms

Personal/subj. PURCHASE

(PERCEIVED)

j


slide 12(PERCEIVED) ABILITIES and BARRIERS

BEHAVIOURAL CONTROL

From TPB to predicting aggregate demand (horizon = 20 y)

PBC: Perceived Behavioural Control is expected to increase* i it PBC * income per capita: ++ => PBC: +* share of disposable income spent on food : - => PBC: +--* price premium for organic food: - => PBC: +

as production cost: -; distribution cost:- (scale economies)subsidies: ? But rather +: 1 pillar => 2nd pillar: AES

* availability: + : => PBC: +because of adoption of organic by supermarkets and even by the discounters among the supermarket chains

* uncertainty as a barrier will probably: - => PBC: +


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(e.g. Thogersen, 2007)


ATTITUDE:According to Expectancy Value theory …g p y yAttitude = SUM(i=1 to n) (belief(i) x evalution(i) )---

Evolution in attitude towards organic food depends onEvolution in attitude towards organic food depends onevolution of the beliefs related to organic food (less stable),x possible evolutions in values (more stable)x possible evolutions in values (more stable)

---

Belief concerning healthiness (?-) X value health (+) (cf. Hoefkens, 2009)Belief concerning tastiness (?) X value given to “taste” (+)Belief concerning tastiness (?) X value given to taste (+)Belief concerning environmentfriendliness (?) X value E (+)Belief concerning “expensiveness” (pos ) X value (-)Belief concerning expensiveness (pos.) X value (-)…⇒ Current Attitude towards organic food is positive (Saba 2003) even


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⇒ Current Attitude towards organic food is positive (Saba 2003) even more positive than justified by scientific findings (Hoefkens 2009)

⇒ The future evolution in the attitude is less easy to predict.


Knowledge => beliefs => attitudebasic knowledge: e g organic = without pesticides = ++ basic knowledge: e.g. organic = without pesticides = ++ more complex knowledge: organic vegetables in general d i i i h i do not contain more vitamins may have a more negative effect on attitude.

Concerning attitude: we remark that experience with g ppurchasing/consuming organic food may interfere in attitude formation. It mostly has a positive influence on y pthe attitude towards organic food. (~Thogersen, 2007)


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Norms

Subjective norm: + More and more organic food will be consumed => +(also for famers it may be important that organic is more accepted)

Moral Norm: +Pro-social behaviour will gain importance and people will be

expected more and more to take this into accountpMaybe the same holds for eating healthy. Is there something

like increasing pressure to eat healthy?MAPP Workshop May 14th 2009 - Joris Aertsens Ghent University – Department of Agricultural Economics

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like increasing pressure to eat healthy?

HUMAN Environment: culture, institutions, economy, demography, knowledge, technology

NATURAL environmentMACRO

LEVEL+ + +

Consumer …Consumer 1

Consumer n SOCIO-DEMOGRAPHICFACTORS

LEVEL

VALUESConsumer 1

EXPERIENCE+x BELIEFS

EXPERIENCE

+?

ATTITUDE? +

INTENTIONORGANIC

FOOD PURCHASE

Norms

Personal/subj.+ +

PURCHASE

(PERCEIVED)

j

+ + +MAPP Workshop May 14th 2009 - Joris Aertsens Ghent University – Department of Agricultural Economics

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BEHAVIOURAL CONTROL

Global turn-over of the organic food sector


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Insert graph with evolution of global turn over


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2: Prediction for the future: Source: organic monitorSource: organic monitor

+12% /jaar

Grafiek met dank aan Johan Bakker, LEI, NL (Jan. 2008)


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Total expenditures on organic products in BelgiumTotal expenditures on organic products in Belgium

Source: GfK Panelservices Benelux


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Figuur 1: Bestedingen bio (vers)producten – vergelijking categorieën; 2003-06 (€/ capita) Expenditures (€/capita) on different organic products 2003-2006

Trends organic in Belgium.

Reliability data?

potato - bread - fruit - vegetables - dairy - meat - poultry - charcuterie - eggs


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Bron: AMS (2007), gebaseerd op data van GfK Panel Services, VLAM.

p g y p y gg

Evolution in sales of organic beef and pig meat at a Belgian retailer (1998-2008)


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Predicting aggregate demand for short time horizons, e.g. 2 y

⇒ Past examples show that organic demand for short periods is hard to predict:periods is hard to predict:

⇒ e.g. Biovar-project (NL: organic pig meat) i b f i B l i⇒ e.g. organic beef in Belgium

---* Food scandals in the conventional and organic sector may

play a major role (especially in the short run)p y j ( p y )• The marketing mix will play an important role

• PricepremiumPricepremium• Product quality• Place: Distribution


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• Promotion• People

producersAs predicting aggregate demand for short time horizons is difficult, it is important that within supply chains

IMPORT

COOPRisk should be

flexibility is built in!

wholesaler

COOPSales on farm

Risk should be carried in the supply chain by those actors who can best deal with it (by importing

ti i IMPORT

EXPORT

or exporting or using the marketing mix).They may charge a

smallbioshop

retailer

They may charge a risk premium, to the other supply chain members to cover the losses in “bad” periods

Marketingmix


slide 25Consumers

periods

The conversion period for organic farmers results in a lag period for supply to adjust

Discussion pointp g g p pp y j

to demand. Due to insufficient market transparency this has lead to disturbing boom and bust cycles in different organic product markets.

Wouldn’t it be a good idea to reduce the conversion periodWouldn t it be a good idea to reduce the conversion period

2 y => 1y (e.g. vegetables open field); 3 y => 2 y (e.g perennial crops, e.g. apples)


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Thank you for your attention !Thank you for your attention !

Questions?Questions?or

Suggestions for future development of this research?research?

to contact me by email …to contact me by email …

[email protected] Workshop May 14th 2009 - Joris Aertsens Ghent University – Department of Agricultural Economics

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!!

!

!

!!!

egocentric V > altruistic V ~ consumer-citizen paradoxg pHealth (security) = Nr. 1 ; Taste (hedonism)Protection of the environment, nature, animal welfare (universalism)


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Other values => stimulation, self direction, conformity and benevolenceValues are a stronger predictor than socio-demographic variables.

New Institutional Economics – specific governance structure for the organic market?

V r i je m a r k t H y b r id e v o r m V e r t ic a le in te g r a t ie 1 ) S t r u c tu u r

A to m ic ite it

: : : : : - : : : : : - : : : : : M u lt i- o f b ila te ra a l

: - . - . B ila te ra a l

. - . - . 2 ) M a r k t t r a n s p a r a n t ie v o l le d ig M e e r b e p e rk t A fg e s c h e rm d v o o r

c o n c u r re n te n c o n c u r re n te n 3 ) M a r k t to e g a n g O n g e lim ite e rd m a k k e l i jk to t m o e il i jk Z e e r m o e il ijk

4 ) O n d e r l in g e A fh a n k e li jk h e id N e e M a t ig to t H o o g Z e e r h o o g

5 ) L o y a u te i t & s a m e n w e r k in g G e e n V r i j h o o g Z e e r h o o g

6 ) S t b i l i t i t t h G f l V i j H Z h 6 ) S ta b il i te i t p a r tn e rs c h a p G e e n o f z e e r la a g V r i j H o o g Z e e r h o o g

7 ) M a c h t & C o ö r d in a t ie “ In v is ib le h a n d ” : P r i js & V & A

a ) In fo rm e le & fo rm e le a fs p ra k e n b ) “c a p ta in o f c h a in ” s o m s

1 b e d r i jf o m v a t & s tu u r t d e h e le v e r t ic a le s tru c tu u r

* k r a c h t v a n s t im u l i h o o g In te rm e d ia ir L a a g

* a a n p a s s in g e n a u to n o o m A u to n o o m o f g e c o ö rd in e e rd G e c o ö rd in e e rd * a a n p a s s in g e n a u to n o o m A u to n o o m o f g e c o ö rd in e e rd G e c o ö rd in e e rd

* c o n t r a c t -s o o r t G e e n / k la s s ie k N e o -k la s s ie k R e la t io n e e l o f g e e n

i ) S p e c if ic ite i t p ro d u c t Z e e r la a g : “b u lk ” V r i j h o o g H o o g

i i ) O n z e k e r h e id b i j t r a n s a c t ie L a a g in te rm e d ia ir H o o g

i i i ) F r e q u e n t ie v d t r a n s a c t ie la a g in te rm e d ia ir H o o g

Bio groenten => kwaliteitseisen = vrij hoog,

onzekerheid aanvoer = hoog

Samenwerking


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onzekerheid aanvoer = hoog

toegang met drempel owv. omschakelingsperiode

afhankelijkheid = hoog

New Institutional Economics – cooperation to what extent?


slide 30& onzekerheid

MICRO

CONCEPTUAL FRAMEWORK – marketing environment

ENVIRONMENT

SuppliersSuppliers

IntermediaryIntermediary supplier

Focal firm

Competing firm

FunctioningIntermediary

buyer

Functioning of the market and chains

Consumers

buyerand chains influence the prices and


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Consumers availability

FRAMEWORK – marketing environmentFocusMACRO

ENVIRONMENT

MICRO

ENVIRONMENT

FocusConsumer demand

Political factors Suppliers

Intermediary supplier

Socio-cultural factorsEconomic factors Focal

firmCompeting

firm

DemographicsIntermediary buyer

Technological factorsNatural environment

Consumers


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CONCEPTUAL FRAMEWORK marketing environment

MACRO

MICRO

ENVIRONMENTMACRO

ENVIRONMENT

ENVIRONMENT

Socio-cultural factorsSuppliers

Political factors Intermediary supplier

DemographicsEconomic factors

Focal firm

Competing firm

Technological factorsNatural environment Consumers

Intermediary buyer

gConsumers


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Documents

Predicting aggregated demand for organic food …...Belief concerning “expensivenessexpensiveness (pos” (pos ) X value (.) X value (-) … ⇒ Current Attitude towards organic