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What Happens When Food Marketers Require Restrictive Farming Practices?

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  • Saitone, Tina L.
  • Sexton, Richard J.
  • Sumner, Daniel A.

Abstract

The dimensions that define a food product have expanded rapidly to include characteristics of the production process, marketing arrangements, and implications that production and consumption of the product have for the environment. Some market intermediaries have responded by requiring that their suppliers abide by restrictive production practices. We examine the economic effects of such restrictions and apply this analysis to limitations on the use of antibiotics in U.S. pork production. Results from conceptual and simulation analyses show that, in the absence of demand growth, less pork is sold due to higher costs in the restricted segment, and both pork consumers (on average) and producers are harmed. Demand growth of between 6–11% from adding new consumers who will consume the restricted (antibiotic-free) product but not the conventional product is needed to return consumer surplus to the level in the base case, and between 2–4% demand growth was required to return producer surplus to base. When restricted and conventional products are modeled using a vertical differentiation framework, results depend importantly on the ease with which consumers can switch to a seller who offers their desired product type. Significant distributional impacts among consumers are present when switching costs are prohibitive.
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  • Saitone, Tina L. & Sexton, Richard J. & Sumner, Daniel A., 2013. "What Happens When Food Marketers Require Restrictive Farming Practices?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151268, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea13:151268
    DOI: 10.22004/ag.econ.151268
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    1. Tina L. Saitone & Richard J. Sexton, 2017. "Agri-food supply chain: evolution and performance with conflicting consumer and societal demands," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 44(4), pages 634-657.
    2. Bovay, John & Alston, Julian M., 2018. "GMO food labels in the United States: Economic implications of the new law," Food Policy, Elsevier, vol. 78(C), pages 14-25.
    3. Ahearn, Mary Clare & Armbruster, Walt & Young, Robert, 2016. "Big Data's Potential to Improve Food Supply Chain Environmental Sustainability and Food Safety," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 19(A), pages 1-18, June.
    4. Paul, Andrew S. & Lusk, Jayson L. & Norwood, F. Bailey & Tonsor, Glynn T., 2019. "An experiment on the vote-buy gap with application to cage-free eggs," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 102-109.
    5. Hennessy, David A., 2018. "Managing Derived Demand For Antibiotics In Animal Agriculture," 2018 Annual Meeting, August 5-7, Washington, D.C. 274359, Agricultural and Applied Economics Association.
    6. Lusk, Jayson L. & Tonsor, Glynn T. & Schroeder, Ted C. & Hayes, Dermot J., 2018. "Effect of government quality grade labels on consumer demand for pork chops in the short and long run," Food Policy, Elsevier, vol. 77(C), pages 91-102.
    7. Wolf, Christopher A. & Tonsor, Glynn T., 2017. "Cow Welfare in the U.S. Dairy Industry: Willingness-to-Pay and Willingness-to-Supply," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(2), May.
    8. Lai, Yufeng & Minegishi, Kota & Boaitey, Albert K., 2020. "Social Desirability Bias in Farm Animal Welfare Preference Research," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304375, Agricultural and Applied Economics Association.
    9. Jauernig, Johanna & Pies, Ingo & Thompson, Paul B. & Valentinov, Vladislav, 2020. "Agrarian vision, industrial vision, and rent-seeking: A viewpoint," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 391-400.
    10. Ortega, David L. & Wolf, Christopher A., 2018. "Demand for farm animal welfare and producer implications: Results from a field experiment in Michigan," Food Policy, Elsevier, vol. 74(C), pages 74-81.

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