Quantifying the Intangible: How Much Are Consumers Willing to Pay for Ecolabeled Coffee? | 25, Issue 16
Two persisting problems in coffee production—environmental degradation and safety issues for workers—have led to a labeling system designed to help consumers make informed decisions and create a market niche for the producers— but do consumers value them?
Lead Author NIZAM ABDU shares the findings of a recent meta-analysis of coffee ecolabeling published in Heliyon, an all-science, open access journal.
As many people’s go-to beverage, coffee’s enormous social, cultural, and economic influence makes it an ideal candidate for ecolabeling, a system that identifies and certifies certain products with ethical and environmental benefits. And while every coffee lover makes decisions around how to brew and enjoy their coffee, coffee consumption brings with it a whole host of other decisions, including whether or not people should pay for an ecolabeled coffee— one that advertises itself as ethical and environmentally friendly.
Common coffee ecolabels include Organic, Country of Origin Labeling (COOL), local production, and fair trade (both US and International variations, which certify that workers are given fair wages and safe working conditions). Many previous studies have tried to quantify the public’s opinion on different types of coffee ecolabeling, but they have varied dramatically in their estimates of how much consumers are willing to pay: some found that people are willing to pay more, while others suggest that people are less willing to pay for such coffee. This makes it nearly impossible to untangle whether ecolabeling “works” in a wider context: it’s difficult to pinpoint the factors causing the variations in the estimates of what consumers are willing to pay for ecolabeled coffee.
While all ecolabels aim to help consumers make informed decisions on food safety, health, and environmental impact, the proliferation of labels also runs the risk of confusing buyers and causing aversion. There are an increasing number of ecolabel logos on the market, some of which are related (but not the same) or look alike.
As new labels appear on the market or begin to resemble one another, consumers’ trust and willingness to pay for ecolabels in the future may diminish. As a result, it has been challenging to present a standardized conclusion on the overall effectiveness of coffee ecolabeling systems. Providing a standardized summary of the values attached to ecolabeling is important to evaluate whether the labeling system that has been there for decades is indeed working or requires some kind of policy revision. One way to try to understand the impact of ecolabels is to perform a meta-analysis, or a study of studies—so that’s what Judith Mutuku and I did—and we concluded that consumers are willing to pay US$1.36 more for a pound of coffee certified with an ecolabel.
Meta-analysis Methodology
The methodology of any meta-analysis depends on its goal: here, we wanted to understand the “overall effect size.” To do this, we needed to understand consumers’ purchase behavior for the past 15 years (2005– 2020) so we could learn how much consumers were willing to pay as well as what caused differences in the estimates for different coffee ecolabels. In more mathematical terms, this meta-analysis systematically synthesized diversified estimates to determine what the overall estimate would look like over a given period of time.
First, we had to identify which papers to use in the analysis. We used a variety of search terms[1] to capture all papers studying coffee’s ecolabelling system: this allowed us to discover a wider range of papers that might or might not have covered what we needed. Using our search terms, we identified 246 possible papers for inclusion. Then, we used a “document screening framework”[2] to help ensure the papers we used in the analysis were directly related to its goal—and didn’t contain any duplicates. The papers for our analysis needed to include “willingness to pay” estimates for consumers (not producers) tied to at least one ecolabel, and to specifically include this information for coffee beans (rather than brewed coffee or coffee consumed out of home). We also excluded any papers from the initial search that were “review papers” (to avoid the duplication of estimates) and limited our work to papers published in English. This brought the total number of papers used in the meta-analysis down from 246 to 22.
From these 22 papers, we collected 97 observations (willingness to pay estimates), or approximately 5 estimates per paper (on average). In order to investigate how different factors affect consumers’ willingness to pay, we employed certain statistical models that could manage data involving multiple observations from a single paper. Even though our main priority was to collect consumers’ willingness to pay from each paper, we also collected other variables such as where the study was conducted; the methods used to conduct the primary studies; the sample size used in each study; and coffee features for which the willingness to pay values are estimated. We collected this data from individual papers between the years 2005 and 2020, during the months of April and May 2020, so it was important for us to account for the changing value of currencies across 15 years. We did this using a consumer price index developed by the World Bank.
Similarly, consumers’ willingness to pay for eco-coffee in different countries is estimated for coffee measured in different units (kilogram, pound, etc.) with different currencies (US dollars, euros, etc.). To make the outcome comparable, we converted all the values into US dollars and pounds. Using these comparable numbers, we then analyzed the data with descriptive and econometric techniques.
So: Are Coffee Consumers Willing to Pay Extra for Ecolabels?
Using this style of analysis, we were finally able to answer a question that’s been around for more than 20 years: are coffee consumers willing to pay the extra price for these perks? This study found that, in general, people are willing to pay US$1.36 more for a pound of coffee that’s produced in an eco-friendly way and are especially partial to coffee that’s labeled “Organic.” More specifically, using descriptive analysis technique, we found that consumers’ willingness to pay for fair trade, Organic, and COOL is positive and significant. Consumers’ willingness to pay for coffee marked as “locally produced” was not significant—while the country where the coffee was produced can be an important factor in consumers’ purchase decision when it comes to terroir, processing, or flavor attributes, there was little desire for “locally grown” coffee, as there might be for other agricultural products. This might be associated with the fact that most of the reviewed papers in our study are from the regions where coffee is not produced but is highly consumed. In such cases, the country of origin of coffee matters, but a desire for “local attributes” does not apply in this context. We also ran econometric models to estimate the effects of certain factors on consumers’ willingness to pay for a pound of coffee. Observations combined from papers across Europe, North America, Africa, and Asia helped us understand what factors give rise to the large range of price estimates and determine once and for all whether consumers are willing to pay more for coffee ecolabeling. We found that the variation in previous studies came down to a few factors: the region or country under study; surveying methods; types of ecolabels; and publication bias (the tendency for only studies with the desired outcome to be published). For example, there was a noticeable effect on the studies’ results when survey participants made yes/no choices about which coffee they’d buy as opposed to when they were given trade-offs and budget constraints. After taking these things into account, however, they found that ecolabeling worked overall as intended: people were willing to pay for socially responsible coffee.
That said, consumer attitudes still varied, especially when it came to location. For instance, compared to other regions, North Americans were less willing to pay more for ecolabeled coffee, which may suggest that preference for such a labeling system varies across the regions. Our findings still suggest a clear preference among consumers for certain types of ecolabeling, and the findings are a good indicator that the policy of coffee ecolabeling is working in the global coffee market.
From Learning to Action
This study provides policymakers, coffee producers, and consumers with important information associated with production and consumption decisions. For policymakers, the great news is that coffee ecolabeling is an appropriate approach to reduce information asymmetry.[3] For the producers, it’s very helpful to understand that there is still a market niche for the ecolabeled coffee. Ecolabeled coffee also helps consumers to make an informed decision in their coffee purchase decision. And, of course, as an academic paper, this study contributes to the food ecolabeling literature by comprehensively analyzing the development of consumers’ purchase behavior for eco− coffee in the last decade. The results also provide the coffee industry with information on the market niche and competitive advantage of the existing coffee ecolabels over time to help them to make informed production decisions. The findings of this study can also be used as a cost benefit tool by the coffee ecolabeling initiatives to inform their decisions on whether to proceed with the existing ecolabeling approaches or to review their policies depending on consumers’ preferences.
Coffee ecolabeling can be helpful in creating consumer trust. However, the studies, especially those we collected, are mainly conducted in the developed world, while most of our coffee is produced in developing countries and supplied to the global market. Specifically, the types of studies included in our paper are limited in number in Africa and Latin America, where most of our coffee is produced. In the coming years, it is vital that we invest in research and development to better understand the stated and revealed preferences for coffee ecolabeling as well as coffee producers’ perceptions of various coffee labels. ◇
NIZAM ABDU is a PhD candidate in Environmental and Resource Economics, Tasmanian School of Business and Economics (Nizam.Abdu@utas.edu.au).
References
[1] To avoid missing any available documents that estimated consumers’ willingness to pay for any coffee ecolabeling, we used several databases following the Economics Research Network (MAER−NET) protocol. The papers were collected from different databases such as AgEcon, ScienceDirect, Google Scholar, and EVRI. To capture all papers studied about coffee and its labeling system, we used key search parameters such as “Coffee certification scheme + Willingness to Pay (WTP),” “Consumers’ behavior + WTP + Coffee certification,” “Coffee certification + WTP,” “Coffee farmers + WTP + Coffee accreditation,” “Coffee + Organic,” “Coffee + Organic + Rainforest + Fair Trade,” “Coffee + Organic + Carbon Footprint,” and “Coffee + Carbon Footprint.”
[2] We used a framework developed by Moher et al., 2009. See Daniel Moher, Alessandro Liberati, Jennifer Tetzlaff, and Douglas G. Altman, The PRISMA Group, “Preferred reporting items for systematic reviews and meta-analyses: the PRISMA statement,” PLoS Med., 6, no. 7 (2009): e1000097, https://doi/ 10.1371 / journal.pmed.1000097.
[3] Information asymmetry happens when, of the two parties involved in an exchange, one party knows what has happened, but the process is unclear to the other party. For example, coffee producers— having grown the coffee—know what methods they used, but consumers are not entirely aware of how the coffee was produced unless they are told using the labeling system.
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