Consumer preferences for organic standards: Guiding demand expansion strategies for organic food

Organic agriculture is a rapidly growing segment of the food industry. According to the Organic Trade Association, organic food sales totalled $4 billion in 1997, having posted sales growths of 20 percent or greater for nine consecutive years. Na-tionwide, 31 percent of consumers state they buy organic at least once a month and 23 percent buy it once a week or more. Organic agriculture plays a prominent role states such as New York as well-one certifying agency, NOFA-NY, certifies 172 farms that produce a full array of farm products including fruits, vegetables, fruit juices, hay, grains, beef, transplants, dairy products, and eggs. Many farmers in the northeast see organic agriculture as a way of diversifying their operations, gain a pre-mium and stay in business in this era of declining farm numbers. The market for organic agricultural products is of interest to food marketers not only because of its rapid growth and importance to smaller grow-ers but because of the interactions of public policy, private firm strategy, and consumer preferences. Organic is a credence good trait (Darby and Kami), i.e., a consumer cannot easily verify whether an item is truly organic either by observation (search goods) or consuming (experience goods) trait (Darby and Karni). Consequently, a third party is needed to verify such claims to protect consumers from fraud and to legitimate producers, processors, etc. Until late last year, this function was served by a number of independent certifying agencies, each of which potentially had a different definition of organic. Lohr observed that creating a unified na-tional set of standards would help dispel the confu-sion over the exact meaning of organic, facilitat-ing both international and domestic commerce of organic foods. Beginning in the early 1990s the USDA began work on drafting such a set of standards. The origi-nal proposed rule was met with much controversy. USDA received over 275,000 comments on the proposal, many of which expressed concern over the inclusion of what came to be known as the Bi