Estimating Danish Consumers’ Preference for Organic Foods: Application of a Generalized Differential Demand System

A generalized differential demand system is used to provide a detailed demand system analysis of the organic food industry in Denmark to estimate conditional expenditure and price elasticities. The results suggest that cereals, dairy and other organic food aggregates are highly price-inelastic with the exception of the group, fruits and vegetables (FV), which is almost price unitary-elastic holding real income constant or price elastic holding nominal income constant. Also, cereals, FV, and other organic food aggregates are expenditure elastic. Dairy on the other hand is expenditure inelastic. Further, our calculated Morishima elasticity of substitution from the conditional compensated price elasticity estimates suggest that Danish organic consumers are more willing to substitute away from FV given a change in its relative price. The policy implications of the results are then addressed in the face of Danish organic conversion subsidy program