Consumer Demand, Food Safety, and Market Systems
This post was written by Dr. Aditya Khanal.
Consumer demand as a driver of food safety
Food safety research often focuses on the supply side — production and processing — and identifying ways to reduce, manage and mitigate contaminants and foodborne pathogens. However, consumers are important actors who can drive positive change in market systems through their demand for safe, nutritious foods. Their purchasing decisions can create demand, impact pricing and spur the supply side to offer value-added products with sustainable production practices, nutrient enrichment or higher levels of food safety. Even with limited budgets, consumers in low- and middle-income countries balance priorities such as food type, quantity and quality, including food safety. Understanding and quantifying consumer demand for food safety can provide incentives to producers and to make informed decisions on market development of safer food products.
What is willingness to pay?
One method for quantifying consumer demand for food safety is through willingness-to-pay experiments. Willingness to pay is the maximum amount consumers will pay for a product or service. It captures how valuable the product is to them, based on their needs, preferences and the perceived benefits. Quantifying the demand for safer food through willingness to pay helps us understand the economic feasibility of safe food practices, enabling businesses to make informed decisions about value-added products and new market development. For example, if consumers are willing to pay a premium for food with safety features, and that premium is sufficient to cover the increased cost of the safer practices, that can incentivize producers to implement them. If the premium is not sufficient but the food safety practices are necessary to protect public health, the data can inform government efforts to offset costs, through subsidies or technological innovation. An understanding of willingness to pay creates a proper feedback mechanism between producers, actors in the value chain and supply chain management, and consumers in the market system.
What drives willingness to pay for food safety?
Many factors can affect consumers’ willingness to pay for food safety. Most fall under the broad umbrella of their awareness, knowledge and level of understanding of foodborne illness. Have they been exposed to a foodborne illness outbreak and how severe was their experience? Do they know of potential contamination sources, such as pesticide misuse? In addition to their awareness and knowledge, demographics like age, gender, education level and income play a role. If consumers are aware of the risks of unsafe foods to their families, they may value and prioritize safety-certified foods and be willing to pay more for them. Understanding the factors that influence willingness to pay is an important foundation for developing outreach and education programs that not only target knowledge gaps but also consider the perspectives of different sectors of consumers.
Measuring willingness to pay
The goal in any willingness-to-pay study is to learn what price truthfully reflects a product’s value to consumers. Broadly, revealed or stated preference methods are used by researchers. While revealed preference methods use existing market data to derive the value, often for existing goods or products in well-established markets, stated preference methods ask consumers to state or reflect their values directly or indirectly through surveys and experiments. Among approaches developed to capture the true willingness to pay through proper elicitation and experiment, the experimental action is one of the incentive-compatible approaches — which means that it builds mechanisms in the experiments such that the people have no benefit by deviating from or not reflecting their real value. Experimental auctions mimic the market system by building an active market environment, striving to create situations that are realistic and binding.
In one kind of typical experimental auction, the researchers, acting as marketers, describe the products using information contained on the label. As bidding begins, enumerators display the products in a randomized order and participants have a chance to buy products for their family by submitting bids for each product. After the bidding, the researchers let participants pick a price of the binding product by a selection of price on a random draw from a uniformly distributed range of prices, unknown to the participant. The participants’ bids are compared to the selected price, which determines whether they win the bid and are allowed to buy that product or not. The experimental auction of this kind is constructed so that participants are encouraged to bid their willingness to pay for the product and researchers can capture true participant preferences in this mock market system environment.
Considerations for willingness-to-pay experiments
For any willingness-to-pay experiment, design and planning can help reduce bias and get realistic estimates of consumer demand. In addition to standard approaches like randomization and conducting preliminary trials and practice sessions, balancing context and control is key. The auction context should ensure participants are aware that reflecting their true willingness to pay is helpful within the bigger context of the research. For control, researchers must be trained to create an auction environment such that no unmeasured external forces influence consumer choices, including the researchers themselves. For example, anchoring bias can cause input from researchers to have a “warm glow effect” on participants. If participants can tell that higher willingness to pay is viewed more favorably by researchers, that could affect their answers. Study design and execution should also aim to minimize hypothetical bias, sample selection bias and leading question bias, among others. Through these considerations, researchers can create an effective willingness-to-pay experiment that balances context and control and obtains data with implications applicable in the real-world market system.
Market implications of willingness to pay
The counterpart to consumers’ willingness to pay is producers’ willingness to accept the findings and implement food safety practices at the expected price point. Provided with the cost of specific inputs for food safety (e.g., good agricultural practices and food safety infrastructure) and the amount consumers are willing to pay, are commercial growers willing and able to deliver a safer product? If so, it’s the right time to adopt food safety interventions. Sufficient consumer demand also indicates the potential for economic development through a new market segment for food safety-augmented products. Putting together consumer demand and producer incentives creates market system feedback mechanics that can strengthen food safety.
Policy implications of willingness-to-pay studies
When it comes to food safety interventions and policy decisions, willingness-to-pay data provides a valuable metric for understanding consumer preferences and evaluating market opportunities. There may be cases where the prices consumers are willing to pay will not provide sufficient producer incentive to increase the accessibility and availability of safe, nutritious food. Protecting public health may then require government-driven policy changes, such as subsidies or investment in infrastructure or innovations to offset the increased cost of food safety interventions. Willingness-to-pay data enables informed decisions by local governments when prioritizing local investment strategies to support public health.
Case study: Market systems food safety research in Nepal
Food safety is an emerging issue in Nepal, which presents both opportunities and challenges. In Nepal, the global hunger index has steadily improved over the years. At 19.1, it is currently in the moderate range, with a decrease from 37 in the past two decades, indicating significant progress toward hunger reduction. However, to build on this progress, we must ensure that food is both nutritious and safe, because contaminated food will not provide the intended nutritional benefits. In my ongoing project, Market-Led Food Safety in Nepal: Harnessing Production Incentives and Consumer Awareness, with the Feed the Future Innovation Lab for Food Safety, we are addressing food safety in fresh produce systems. We are focusing on salad vegetables because they are nutrient rich but carry a heightened risk of foodborne illness from contamination with microbial pathogens when consumed uncooked.
Our approach is to first understand consumers’ existing knowledge and awareness of food safety. From there, we are assessing if they value food safety, how much of a premium they are willing to pay for safer produce, and what factors affect their willingness to pay, including income, awareness, age and gender. We can then test how income and interactions of income with other factors play a role in food safety-related purchasing behaviors. We are also looking at producers’ willingness to accept the added cost to employ a safety-augmented production system and better understand the supply-demand cycle for food safety within this specific sector of the market system.
We look forward to integrating our findings on producer incentives and consumer demand into outreach, workshops, training and policy/stakeholder meetings in Nepal in 2024. It is our hope that the data will facilitate the design of an informed investment study for the government of Nepal, which has made advances in food security, but for which food safety is an emerging concern. Having informed investment strategies can help prioritize policies on food safety.
Our work in food safety within the market system of Nepal aligns with the Food Safety Innovation Lab’s multidisciplinary approach to food safety. Teams like ours bring together the expertise of microbiologists, statisticians, gender specialists, social scientists and others to create holistic, market-driven solutions to increase the availability and accessibility of safe, nutritious food. My colleagues working with Food Safety Innovation Lab projects in Bangladesh and Cambodia are asking similar questions about consumer demand in those food systems, specifically around poultry, fish and produce food safety. Approaches that include understanding market system dynamics that relate to food safety, such as consumer demand, are better positioned to produce sustainable food safety policies and practices that will get safer food into market stalls and onto consumer plates.
Dr. Aditya Khanal is an associate professor of agribusiness and agricultural economics in the Department of Agricultural and Environmental Sciences at Tennessee State University and principal investigator (PI) of the project Market-Led Food Safety in Nepal: Harnessing Production Incentives and Consumer Awareness, funded the Feed the Future Innovation Lab for Food Safety. The Innovation Lab is one of a network of 20 such labs led by U.S. universities under Feed the Future, the U.S. government’s global hunger and food security initiative led by USAID.