Willingness-to-Pay Estimates and Their Relevance to Agribusiness Decision Making

Abstract

Although methods such as contingent valuation have received a great deal of attention in environmental valuation literature, fewer studies have reported willingness-to-pay estimates with agribusiness applications. Because agribusinesses are increasingly interested in producing and selling differentiated goods and services whose values has not been established by well-functioning markets, we provide a short introduction to willingnessto-pay methodology and provide a discussion of several different methods used to estimate willingness-to-pay. More specifically, we discuss how much of the work in environmental and experimental valuation literature can be extended to agribusiness applications, which have their own set of unique issues. M any producer groups and agribusinesses are interested in "adding value" to their products by differentiating generic agricultural commodities or developing alternative products or services with new technologies. 1 However, research and development and new product introductions can be costly. Compounding this are the tens of thousands of new food products introduced annually with success rates often as low as 10%. Thus, market research into the viability of new products and services is critical.When investigating the viability of a new venture, agribusiness firms are generally interested in two factors: production costs and consumer demand for the new product or service. These factors are often the primary determinants of product adoption and pricing decisions. Although costs are relatively straightforward to estimate, assessing consumer demand for novel products and attributes is often more complex. Because these firms are interested in selling a new product or promoting a novel attribute, secondary data from actual markets are unavailable. To estimate consumer demand, or willingness-to-pay (WTP), for these novel goods

Demand pattern and willingness to pay for high value fishes in India

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Consumer willingness to pay for organic and locally grown produce on Dominica: insights into the potential for an “Organic Island”

“…2006; DFNC 2001; Lusk and Hudson 2004;Govindasamy et al 2001) and in consultation with subject experts. An iterative pretesting approach was used that included feedback from the study and interview team, Dominican government officials, and potential respondents.…”

Market Potential of Folate Biofortified Rice in China

“…When evaluating the potential demand for novel products, whether it is an environmental issue (Hanemann, 1984;Hanley et al, 2006), an agricultural product (Lusk and Hudson, 2004), such as organic products (Bonti-Ankomah and Yiridoe, 2006), or controversial technologies in food, like irradiation (Fox et al, 2002), insecticide use (Roosen et al, 1998), GM food (Bredahl, 2001;Lusk et al, 2005) and biofortified crops (Chowdhury et al, 2009), the aim is determine their economic value.…”

“…Consumer market research is considered a crucial factor to successfully introduce a novel, controversial good, such as GM food (Davidson, 1998;Lusk and Hudson, 2004;Lusk and Norwood, 2006). Despite the large number of developed biofortified crops, knowledge on consumer acceptance of, and WTP for these products is scarce (Lusk, 2003), especially in high-risk regions.…”