Undergrad Thesis: Consumers' Willingness to Pay for Organic Rice in General Santos City

CONSUMERS’ WILLINGNESS TO PAY FOR ORGANIC RICE IN GENERAL SANTOS CITY

ANDRE KAREN R. DE LA CERNA

SUBMITTED TO THE FACULTY OF THE SCHOOL OF MANAGEMENT

UNIVERSITY OF THE PHILIPPINES MINDANAO

FOR THE DEGREE

BACHELOR OF SSCIENCE IN AGRIBUSINESS ECONOMICS

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ABSTRACT

Consumers’ Willingness to Pay for Organic Rice in General Santos City

Andre Karen R. De la Cerna

Bachelor of Science in Agribusiness Economics

Andre Karen R. De la Cerna. Consumers’ Willingness to Pay for Organic Rice in General Santos City. [A paper for Agribusiness Economics 200, Undergraduate Thesis, 2nd Semester of 2008-2009, under Prof. Aurelia Luzviminda V. Gomez, 64 pages].

The main purpose of the study was to derive the willingness to pay estimates for organic rice in General Santos City using the Contingent Valuation Method. Specifically, the study aimed to describe consumers’ awareness regarding organic rice, to analyze the factors that can influence the WTP for organic rice and to assess & compare the factors that can affect the WTP for organic rice among income classes. Quota Sampling Method through Known Groups and purposive sampling were utilized in this study. The three income classes (high, middle, low) were the known groups. The study utilized some attitudinal, awareness and demographic factors that can possibly affect the consumers’ willingness to pay for organic rice and subjected these factors to a Binary Logistic Regression Model. Of all the factors considered in the study, only respondents’ past purchase of organic rice, respondents’ willingness to buy if organic rice is more available, respondents’ awareness regarding pesticide residues, and monthly household income were found to be statistically significant for the OVERALL WTP Model; Respondents’ willingness to buy if organic rice is more available, respondents’ awareness regarding pesticide residues, and household size for HIGH Income Class’ WTP Model; Respondents’ willingness to buy if organic rice is more available and respondents’ were found significant in determining MIDDLE Income Class WTP Model. On the average, respondents, who were willing to pay a price premium, are willing to pay 31-40% price premium for organic rice. The study also verified that HIGH Income Class respondents were the ones more willing to pay and had higher willingness to pay for organic rice compared to the lower income classes. The findings of this study can serve as inputs for the Local Government Unit of General Santos City on making or deciding policies and programs for the welfare of both organic rice farmers and consumers.

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ACKNOWLEDGEMENT

During the course of my thesis writing and college life, I have been fortunate in receiving a lot of support and help, in one way or another, from various people and offices. A one-page acknowledgement is never enough to thank ALL of them.

Financial support from UPMFI is gratefully acknowledged, as without the monthly stipend, it would have been impossible for me to survive in UPmin.

I am most indebted to Prof. Luz Gomez, my adviser, who not only gave me a lot of help on this work, but also helped me in some of my finances in the last three months of my stay in UPmin. It was her who subsidized the binding and printing of this thesis. Her comments on the draft of this study have contributed greatly to the successful completion of the final version.

I benefited a lot from the comments and suggestions of my panelists - Mr. Shuck and Mr. Hualda. They really provided time and effort for this thesis to make it sound good. I would also like to thank Ms. Dee, Ms. Malou and Ms. Flo for their encouraging words and discussions for us graduating students to believe in our capabilities.

Special thanks are due to some people of CAO, TACDRUP, NSO, Barangay Halls of Lagao and San Isidro and to all of the respondents of this study. Without these people, this thesis would be as dull as an empty glass.

I would like to express my gratitude to Hannee and Bam-bam who guided and accompanied me during the data collection period. To Abe, Marj, Kuya Resmar, Kuya, Ate Rox and Tita Buds, who allowed me to borrow their desktops or laptops and granted me no fees for printing in some points of the thesis writing process, thanks a lot.

To my hardworking and cool ABE classmates, Ate Rox, Nades, Marj, Fritz, Ya Resmar, Tina, Ate Jane, Ya Rodel, Ate Princess, Ate Cheng, Ate Tamin, Nor, Mon, Llana, Yhang, Sheen, Ya Nikko, Jenny, and Tel, thank you for the fruitful years we shared. To my HS barkada, Bes, Wena, Wed, Let, Han, Ray, Rang, Kuya, and to my college friends, Meng, Ray, Van, Joice, Tita Ray, Chen, Niña, Jewel, and Myca, thank you for the help, fun and encouragement you provided me. Super thank you friends.

Exceptional thanks to my family specially mama, mommy, lolo, ate niña, tita buds, my uncles and my siblings. I will ceaselessly be indebted to your love, care, and help. Without their endless support, I would not be this inspired to work hard for this study and for my entire college study. I really owe a lot!!!

Last but not definitely the least, to our Almighty Father, who provides everything we need, thank you Lord.

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TABLE OF CONTENTS

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Thesis Manuscript Approval …………………………………………………. iTitle Page ……………………………………………………..……………… iiAbstract ……………………………………………………..………………... iiiAcknowledgement ……………………………………………………..…….. ivTable of Contents ……………………………………………………..……… vList of Tables ……………………………………………………..………….. viiList of Figures ……………………………………………………..…………. viiiList of Appendices ……………………………………………………..…….. ix

Chapter 1. INTRODUCTION1.1 Background……………………………………………………..… 11.2 Statement of the Problem ………………………………………… 31.3 Objectives of the Study ……………………………………….….. 51.4 Significance of the Study ……………………………………….... 51.5 Scope and Limitations of the Study ……………………………… 61.6 Definition of Terms ………………………………………………. 7

Chapter 2. REVIEW OF THE RELATED LITERATURE AND STUDIES2.1 Motives for Buying Organic Products ……………………….…... 82.2 Estimation of Willingness to Pay (WTP) ………………………… 92.3 Contingent Valuation ………………………………………..…… 102.4 Elicitation Techniques ……………………………………………. 112.5 Binary Logistic Regression ………………………………………. 122.6 Related Studies …………………………………………………… 13

Chapter 3. METHODOLOGY 3.1 Theoretical Framework …………………………………………... 183.2 Empirical Framework/Data Analysis …………………………….. 193.3 Data Collection …………………………………………………... 22

Chapter 4. RESULTS AND DISCUSSIONS 4.1 Socio-demographic Profile

4.1.1 Age …………………………………………………… 264.1.2 Gender …………………………………………….….. 264.1.3 Civil Status …………………………………………… 274.1.4 Educational Attainment and Years of Schooling …….. 274.1.5 Household Size ………………………………………. 284.1.6 Socio-economic Class ………………………………... 29

4.2 Awareness Levels4.2.1 Awareness regarding Organic Rice ………………….. 304.2.2 Knowledge regarding Sustainable Agriculture ………. 314.2.3 Knowledge about Pesticide Residues ………………... 324.2.4 Knowledge regarding Water Pollution ………………. 32

4.3 Attitudinal Characteristics4.3.1 Past experience of Purchasing Organic Rice ………… 334.3.2 Importance attached to Price …………………….…… 344.3.3 Willingness to Buy if Organic Rice is more available .. 344.3.4 Importance attached to Packaging …………………… 354.3.5 Importance attached to Certification …………………. 354.3.6 Respondents’ response about farmers must engage in 36

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sustainable agricultural practices ……………………..4.3.7 Respondent’s belief that chemicals have negative ef-

fects in the environment …………………….………36

4.3.8 Regular consumption of rice ………………………..... 374.3.9 Regular price of rice ………………………………….. 374.3.10 Willingness to Pay for Organic Rice …………………. 394.3.11 Reasons for buying Organic Rice ……………………. 414.3.12 Reasons for not buying Organic Rice ………………... 41

4.4 Willingness to Pay (WTP) Models4.4.1 MIDDLE Income Class’ WTP Model ……………….. 434.4.2 HIGH Income Class’ WTP Model …………………… 444.4.3 OVERALL WTP Model ……………………………... 454.4.4 Models’ Performance ………………………………… 47

Chapter 5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS5.1 Summary and Conclusions ……………………………………….. 495.2 Recommendations ………………………………………….…….. 51

References ……………………………………………………………………. 53Appendices …………………………………………………………………… 57

LIST OF TABLES

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Tables Title Page4-1 Socio-economic classification of respondent households. 294-2 Distribution of knowledge levels of organic rice responses. 314-3 Distribution of knowledge levels of sustainable agriculture

responses.32

4-4 Distribution of knowledge levels of pesticide residues responses.

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4-5 Distribution of knowledge levels of water pollution responses.

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4-6 Respondents’ past experience of purchasing organic rice 344-7 Distribution of respondents’ responses regarding price as an

important factor.34

4-8 Distribution of respondents’ responses willingness to buy if organic rice is more available.

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4-9 Distribution of respondents’ responses regarding packaging as an important factor.

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4-10 Distribution of respondents’ responses about willingness to buy if organic rice is not yet certified.

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4-11 Distribution of respondents’ responses about farmers must engage in sustainable agricultural practices.

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4-12 Distribution of respondents’ belief that chemicals in agriculture have negative effects in the environment.

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4-13 Distribution of respondents according to rice consumption per day.

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4-14 Distribution of respondents according to the price of rice regularly consumed.

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4-15 Distribution of willingness to pay responses. 404-16 Reasons why consumers buy organic rice. 414-17 Reasons why consumers do not buy organic rice. 424-18 Logistic Regression Estimates for the MIDDLE Income

Class Willingness to Pay Model. 43

4-19 Logistic Regression Estimates for the HIGH Income Class’ Willingness to Pay Model.

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4-20 Logistic Regression Estimates for the OVERALL Willing-ness to Pay Model.

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4-21 Models’ Performance. 47

LIST OF FIGURES

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Figures Title Page3-1 Questionnaire Structure 244-1. Distribution of respondents according to age. 264-2 Distribution of respondents according to gender. 274-3 Distribution of respondents according to civil status. 274-4 Distribution of respondents according to educational attainment. 284-5 Distribution of respondents according to years of education. 284-6 Distribution of respondents according to household size. 294-7 Awareness regarding organic rice. 314-8 Distribution of respondents according to the price of rice

regularly consumed. 38

4-9 Distribution of respondents according to willingness to pay for organic rice.

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LIST OF APPENDICES

Appendix Title Page1 Survey Questionnaire 572 Raw Data for Analysis 60

Chapter I

INTRODUCTION

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A. Background

All over the world, consumers have increasing concerns about their health as

well as the environment’s health. They are now worried about the presence of the

negative consequences of chemical residues on their health and on the environment in

conventional production methods. Because of this, markets for “green” and eco-

friendly products are rapidly increasing (Canavari and Olson, 2007).

One “green” and eco-friendly product is organic food. Organic food is a

product of organic agriculture or organic farming. Organic agriculture includes all

agricultural systems that dramatically reduce the use of chemo-synthetic fertilizers

and pesticides and instead allow local soil fertility and natural capacity of plants and

animals to increase both agricultural yields and disease resistance (IFOAM, 2003).

One of these organic products is organic rice. This is the major organic product of the

Philippines that are sold locally mainly because rice ranks as the most important

cereal in the Philippines. However, according to Alfon and Redoña (2005) of

Philippine Rice Research Institute Central Experiment, Philippine organic rice is yet

to be labeled as “organic” because the functional definition for the product is not

clear. This may be because the National Standard on Organic Rice Production and

Processing (NSORPP) is still under consultation; therefore, the production systems

and quality definitions for “organic rice” vary from one group to another. But now,

the Organic Certification Center of the Philippines (OCCP), an independent, private,

membership-based, organic-standard setting and organic certification body already

exist to certify farms that are fully adopting organic rice farming (PCARRD, 2006).

For Mr. Rafael Demafeliz (2008), Rice Program Coordinator of City Agriculturist’s

Office (CAO) of General Santos City, organic rice is a product of a production

method that has not used any pesticide nor has it used any synthetic or chemical

fertilizer in any of its growth phase. This will be the definition that will be used

throughout the paper.

The market for organic product is growing with an annual average growth rate

of 20-25%, not only in Europe and North America but also in many other countries,

including the Philippines (IFOAM, 2003). In the Philippines, organic agricultural pro-

duction was launched in 1986 and since then the area of production has been increas-

ing dramatically (Ara, 2003). Philippine organic agriculture is still in its emergent or

incipient phase (IFOAM, 2003; FIBL, 2006), and the production is steadily growing

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between 10-20% annually (FAS/USDA, 2000). The area devoted to organic rice pro-

duction is about 0.35% of the total land area allocated for rice in the Philippines (Al-

fona and Redońa, 2005). According to PhilDHRRA (2004), as of 2001, Magsasaka At

Siyentipiko Para Sa Pag-Unlad Ng Agrikultura (MASIPAG) data shows that there are

1,897 farmers (with 1,754 hectares) who are fully adopting organic rice farming, and

11,052 farmers (with 15,411 hectares) adopting the low-chemical and pesticide prac-

tice (MASIPAG, 2001).

According to Roddy et al. (1994) as cited in Gil et al. (2001), the low demand

for organic rice in the Philippines can be explained by problems related to consumer

product acceptability, such as new product and deficiencies in distribution channels.

On the other hand, there were studies which found out that the low supply of organic

food such as organic rice resulted from high costs, especially labor costs, and the

difficulty of shifting from conventional to organic farming (Vetter and Christensen,

1996 and Hamiti et al., 1996 as cited in Gil et al., 2001).

In General Santos City, one of the cities in the Philippines, it was estimated

that almost 10% of the total area devoted for rice is already allocated for organic rice

production (Demafeliz, 2008). However, the CAO of General Santos City had not yet

done any studies regarding the demand for organic rice that may provide General

Santos farmers a guarantee that their organic rice will be patronized by the consumers.

General Santos City

General Santos City (GenSan) is situated in the southern part of the country, in

the province of South Cotabato. The city has a population of 535,747 as of 2007,

making it as one of the most populous cities in the Philippines. General Santos City

lies at the southern part of the Philippines. It is located at 6°7'N 125°10'E. GenSan is

strategically located within the trading and economic center of SOCSKSARGEN

Growth Area (South Cotabato, Sultan Kudarat, Sarangani and General Santos).

Fertile agricultural lands at 17,489 hectares are 32.63% of the city's total land area

(Official Website of General Santos City, 2008).

Some municipalities in Region XII are already into organic rice farming. The

municipalities of Norala, Surallah, and Sto. Nińo in the province of South Cotabato as

well as the municipalities of Isulan and Bagumbayan in the province of Sultan

Kudarat are the key places where Organic Rice farming is practiced. In an interview

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with Mr. Rafael C. Demafeliz and Ms. Merlinda M. Donasco of the CAO of General

Santos City, 10% of the rice farmers in General Santos City, having more or less 15

hectares, already practice organic rice farming. According to Eddie Panes, chairman

of the Association of Sustainable Agriculture Practitioners of Palimbang (ASAPP), a

big bulk of their organic rice are sold in General Santos City, which is the nearest key

urban center from the various towns and municipalities with a travel time of more

than three hours (The Organic Store, 2007). In General Santos City’s major malls,

KCC Mall of GenSan and Gaisano Mall, organic rice is already being sold.

B. Statement of the Problem

In the Philippines, organic rice farming is a growing sector which is encour-

aged by the government and many private initiatives. The General Santos City Agri-

culturist Office advocates the practice of organic farming. There are several programs

and activities that supplement its advocacy. With this, the production of organic farm-

ing is expected to increase but is there also a market for organic rice? Are the con-

sumers of General Santos willing to pay a price premium for organic rice?

The increase in the number of organic or “safer” foods indicates that there is a

potential market. But then, consumers know very little about the production process.

This might be true for the urban areas in the Philippines and in General Santos City as

well and therefore lead to a low level of confidence in organic production. This im-

plies that there is not enough information on the consumers’ side regarding organic

agriculture or production. Thus, this study is relevant to explore consumers’ level of

awareness regarding organic rice farming.

Another issue or problem related to this study is that it is difficult to encourage

rice farmers to adopt organic farming method because of the fact that conventional

farming is easier done with the easily available commercial fertilizers and pesticides.

According to Ms. Juliet Marazil G. Ballo (2008) of Technical Assistance Center for

the Development of Rural and Urban Poor (TACDRUP), almost 8 out of 10 rice

farmers do not religiously follow the trainings TACDRUP gave them. Other factors

such as lack of government support, lack of consumer awareness on benefits of

organic rice, lack of market information, high certification costs and high costs of

inputs prevent rice farmers to apply organic rice farming (Rodriguez et al., 2007).

Price premium exists for organic rice because of the low supply of organic rice

from few rice farmers. Rice farmers do not engage in organic rice farming due to high

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costs, especially labor costs, and the difficulty of shifting from conventional to

organic farming (Vetter and Christensen, 1996 and Hamiti et al., 1996 as cited in Gil

et al., 2001). Shifting from conventional to organic farming entails high costs of

production at the initial stages. However, in the long run, costs of production in

organic farming will already involve lower costs of production. According to Ms.

Ballo (2008) of TACDRUP, the potential lower costs of production will provide the

farmers better income. With this, price premium exist in order for the farmers to be

highly encouraged to practice organic farming. And also, price premium exists

because of the “safe” feature added to organic rice.

With this, according to Ms. Ballo (2008), there is a need for a price premium

in organic rice being sold in the market in order for the rice farmers to be assured that

they can gain profit out of producing organic rice, thus, serves as an incentive to them.

As of the middle of 2008, there was no existing study that determined the

consumers’ willingness to pay for organic rice in General Santos City. Thus, this

study aimed to address the following questions:

1. What is the level of consumer awareness regarding organic rice?

2. What are consumers’ reasons for buying or not buying organic rice?

3. How much additional percentage of the price of conventional rice will the

consumers be willing to pay for organic rice?

4. What are the factors that influence the willingness to pay (WTP) for

organic rice for various levels and for all respondents in general?

5. What are the similarities and differences of factors that affect WTP for

organic rice among income classes?

C. Objectives of the study

The main objective of this study is to derive willingness to pay estimates for

organic rice in General Santos City. Specifically, the study aims to accomplish the

following goals:

1. To identify the level of consumer awareness regarding organic rice,

2. To determine consumers’ reasons for buying and not buying organic rice,

3. To determine the level of price premium that General Santos City

consumers are willing to pay for organic rice,

4. To analyze the factors that can influence the WTP for organic rice for

various income levels and for all respondents, and

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5. To assess and compare the factors that can affect the WTP for organic rice

among income classes.

D. Significance of the Study

People from both developed and developing countries prefer organic over

conventional rice, owing to the innumerable health benefits of organic rice. Organic

rice has a far greater quality, as compared to conventional one (Anuradha, 2001).

Thus, this study attempted to assess what consumers prioritize in terms of purchasing

rice – conventional rice or organic rice with higher price.

The focus of most studies on agricultural products has been in the production

side of these commodities, including the technology and processes involved. This

kind of production philosophy in agricultural products has revealed many possible

improvements to the agribusiness cycle but has given inadequate attention to the

demand side (Concepcion, 2005). This study focused on consumers’ willingness to

pay for organic rice in General Santos City, the demand side of the agribusiness of

organic rice. The results of this study can contribute for the possible success of the

rice industry, particularly organic rice.

The number of studies regarding consumer surveys on organic products in

developing countries is very limited, unlike in developed countries. Thus, this study

serves as a pilot study on the willingness to pay for organic rice of consumers in

General Santos City.

Among the valuation or willingness to pay studies done by UP Mindanao

students, this research is the first to use binary logistic regression as a tool for

analysis; future researchers may evaluate the strengths and weaknesses of this

instrument. This study also contributes to the valuation or willingness to pay

literature.

Consumer awareness for organic rice was improved during the data collection

period of the study by sharing to the respondents the benefits of organic rice and

organic rice farming after the interview. With this, consumers may better evaluate

their buying behavior for rice. In addition, the findings of this study can serve as

inputs for the local government of General Santos City and the provincial government

of South Cotabato on formulating policies and programs for the welfare of both

organic rice farmers and consumers alike.

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E. Scope and Limitations

This study dealt with the consumers’ willingness to pay for organic rice in

General Santos City. It focused on determining the price premium consumers were

willing to pay for organic rice and the analysis of factors influencing the willingness

to pay of consumers for organic rice. The factors that were used for the analysis were

limited to demographic factors, attitudinal factors and the level of awareness

regarding the concept of organic rice, sustainable agriculture, pesticide residues and

water pollution.

General Santos City was the general area since it is the nearest key urban

center from the various towns and municipalities of South Cotabato that produce

organic rice. Specifically, Brgy. Lagao (1st and 3rd) and Brgy. San Isidro (Lagao 2nd)

were the areas for the study since the total population of these barangays comprises

16.42 % of General Santos City in 2007 (NSCB, 2008). These areas also likely

covered all income classes. The barangays’ land use classifications are residential,

socialized housing, commercial, institutional parks, and recreation (City Planning,

2007). Moreover, the population of these barangays has access to the supermarkets

where organic rice is mostly marketed. As much as the researcher wanted to cover

larger area, time and budget constraints were hindrances to include a larger sample

size.

F. Definition of Terms

1. Barangay – the basic political unit in the Philippines. It is the smallest

administrative division in the Philippines (Barangaynetwork, 2008).

2. Contingent Valuation Method (CVM) – refers as a “stated preference” method,

because it asks people to directly state their values (USDA – NRCSNOAA,

2000).

3. Conventional rice – a product of a farming system that uses any amount of

synthetic fertilizers, pesticides, and growth regulators (IFOAM, 2003).

4. Organic Farming – refers to a farming system which uses organic manure,

and avoids or largely excludes the use of synthetic fertilizers, pesticides and

chemicals (FAO, 1998 as cited in Gil et al., 2001).

5. Organic rice – a product of production method that has not used any pesticide

nor has it used any synthetic or chemical fertilizer in any of its growth phase

(Demafeliz, 2008).

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6. Price Premium – the additional percentage charged for organic products such

as organic rice when compared with conventional products’ prices (Rodriquez

et al., 2001).

7. Willingness to Pay (WTP) – the sum of money representing the difference

between consumers´ surplus before and after adding or improving a food

product attribute (Gil et al., 2001).

8. Conventional Farming – a farming system that uses any amount of synthetic

fertilizers, pesticides, and growth regulators (IFOAM, 2003).

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Chapter II

REVIEW OF LITERATURE

A. Motives for Buying Organic Products

Consumers have become distanced from the origin of their food and the

context of food production which is less transparent today. This influences how

consumers perceive their food and can be seen as part of the great demand for locally

and organically produced foods. Organic consumers are regarded to distinguish their

roles in the food system. Buying organic can be seen as a way of dealing with the

complex, modern food system and its perceived risks because certified organic

products are controlled and bear information about their production (Torjusen et al.,

2001 as cited in Schobesberger, 2006). But for Pedersen (2003) the perception of the

choice of organic products as a risk-reducing strategy explains only a part of the

decision process and the demand for organic food. He calls for a broader view on this

subject and names the search for trustworthy exchange partners, the wish to support

local producers or to make a political statement as some of further factors included in

the purchase decision.

There is no single motive for buying organic, often there are several reasons

working together. Worry about one's health and quality aspects are often mentioned

as reasons for starting to consume organic products. Consumers frequently

purchasing organic products show concerns for many parts of the food system which

are related to health in a wide context (Torjusen et al., 2001 as cited in Schobesberger,

2006). These include how the food was produced, processed and handled and how

these steps affected people, animals and nature. When people intensify their

consumption of organic, altruistic motives like supporting organic farming or

protecting the environment become more important.

According to a study by Sanders and Richter (2003), income level and the

presence of children influence the motives and the buying decision. Consumers with

high income have a wide range of motives for purchasing organic food and their

reasons are more hedonistic and altruistic. For medium and lower income classes

animal welfare and health are the main concerns. Households with children also have

a wider range of motives, where environment and animal welfare are the main

reasons. In contrary to other studies, responsibility for the family and the health of

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children are only minor arguments for buying organic in Switzerland (Sanders and

Richter, 2003).

In the United States, consumers mentioned health and nutrition before taste

and the environment as reasons why they purchased organic food (Hartman Group,

2000 cited in Dimitri and Greene, 2002). Consumers value organic products as

healthy, environmentally friendly, more tasty, and nutritious than conventional ones

(Saba and Messina, 2003).

B. Estimation of Willingness to Pay (WTP)

According to Gil and Sanchez (2001), consumers seek food safety and are

willing to pay higher prices for “healthy products” since they obtain greater utility

level and at the same time reducing health risks. However, these consumers are

unable to determine food safety before purchase, although this is considered as the

most important constraint to economic efficiency in the production and marketing of

food safety. A method commonly applied to determine food safety benefits is

estimating consumers´ willingness to pay for safer and better quality food. (Goldberg

& Rosen, 2005). Along these lines, the notion of willingness to pay could be defined

as the sum of money representing the difference between consumers´ surplus before

and after adding or improving a food product attribute. Van Ravenswaay & Wohl

(1995) and Halbrendt et al. (1995) as cited in Gil and Sanchez (2001) introduced

models that estimate consumers’ willingness to pay when adding or enhancing a given

quality attribute. Such models lie on Lancaster approach (1966), which sustains that

consumers directly derive utility from goods´ attributes.

When measuring willingness to pay (WTP), some methodologies apply

primary data directly derived from consumers. These methods are contingent

valuation, conjoint analysis and experimental auctions. Hedonic prices is the most

well-known method, which used indirect sources to infer consumers´ willingness to

pay. While the methodologies in the first group lie on consumers´ elicited preferences,

hedonic prices is based on consumers´ revealed preferences (Lee & Hatcher, 2001 as

cited in Gil and Sanchez 2001).

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C. Contingent Valuation (CV)

The origins of contingent valuation (CV) are the estimation of non-market

goods1, but it is now widely used to evaluate willingness to pay for new products such

as organic products. The contingent valuation method (CVM) involves directly asking

people, in a survey, how much they would be willing to pay for a specific good or

service. It is called “contingent” valuation because people are asked to state their

willingness to pay, contingent on a specific hypothetical scenario and description of

the service or good (USDA – NRCSNOAA, 2000). The contingent valuation method

is referred to as a “stated preference” method because it asks people to directly state

their values rather than inferring values from actual choices, as the “revealed

preference” methods do.  The fact that CV is based on what people say they would do,

as opposed to what people are observed to do, is the source of its greatest strengths

and its greatest weaknesses.

The CVM creates a hypothetical market situation for a given good or service.

It tends to quantify the value consumers confer to products by associating that value

with the sum of money they are willing to pay (Kawagoe & Fukunaga, 2001 as cited

in Gil and Sanchez, 2001). Studies conducted through CVM offer a specific survey

design, especially when they inquire about WTP. They solicit information about

consumption behavior, risks perceptions and experiences, and socio-demographic

information (Mitchell & Carson, 1989; Carson, 1999). Respondents face a

hypothetical purchasing situation in which they have to answer how much money they

are willing to pay for a given product, or if they are willing to pay a certain premium,

expressed either as a sum of money or as a percentage above the reference price

(Carmona-Torres & Calatrava-Requena, 2006).

Although the CV approach is more commonly used to measure consumer

preferences for non-market (e.g., environmental) goods, its application in WTP

studies for organic foods is useful and appropriate for three reasons. First, CVM has

emerged as a useful research method to study factors that influence food demand

(e.g., van Ravenswaay 1995; Lee and Hatcher 2001; Loureiro, McCluskey, and

Mittelhammer, 2002). They also provide rich conceptual frameworks for integrating

product attributes into economic and marketing analyses. Second, the CV method can

potentially capture the true value that consumers place on reducing disease risks

1Economic goods from all kinds of ecosystem and environmental services (USDA – NRCSNOAA, 2000).

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associated with consuming certain types of foods. Finally, CV can be employed as an

alternative to concept testing to forecast the market potential for new product concepts

(Mitchell and Carson, 1989).

D. Elicitation Techniques

According to Portney (1994), elicitation techniques are applied using CVM to

draw out the value of a good or service. The elicitation techniques used in any CV

studies are of different types. Elicitation techniques are essential components of any

studies using CVM. The different elicitation techniques are discussed below.

1. Bidding Game Approach

In this approach, respondents will be randomly assigned a particular bid from

a range of predetermined bids. The bid that will be assigned may either be a lower or

higher level bid. The respondents would then be asked to answer ‘yes’ or ‘no’ to that

particular bid, and the procedure would continue until ‘the highest positive response is

recorded (Randall et al, 1974 as cited in Venkatachalam, 2004). This approach offers

relatively better results since it gives a ‘market-like’ situation to the respondents in

which they could research their preferences. Another advantage of this approach is

that the researcher could obtain maximum willingness to pay value.

2. Payment Card Approach

Through this approach, the respondents will choose their maximum WTP

value out of the range of WTP values for the good in question. The researcher or

interviewer will provide the respondents with another benchmark version of the

payment card that contains consumers’ average WTP amount for other goods. Using

this approach, there would be a chance that the WTP values will be possibly affected

by ranges of biases (Mitchell and Carson, 1984).

3. Open-ended Elicitation Method

This technique involves asking the respondents for their maximum WTP

amount for a public good or policy with no value being suggested to them. Using this

approach does not require an interviewer and does not result in any starting point bias

(Walsh et al., 1984 as cited in Venkatachalam, 2004). Thus, this approach is

convenient to answer. This approach may create large number of non responses since

19

respondents either find it difficult to answer or do not have incentive to provide true

answer. Moreover, the open-ended questions may draw strategic bias and

respondents may answer the cost rather than true value.

4. Dichotomous Choice Method

This format provides respondents with only two choices (i.e., "Yes" or "No" to

a posted price) to respondents. This approach resembles actual market choice

behavior. Indeed, this property motivated the National Oceanic Atmospheric

Administration (NOAA) panel to strongly recommend the DC format when they

convened in 1993 to evaluate the pros and cons of various CV survey question

formats (NOAA 1993). However, lesser information can be gained in this type of

technique compared to others (Moon et al., 2003).

E. Binary Logistic Regression

Modeling the relationship between explanatory (independent) and response

(dependent) variables is a fundamental activity encountered in statistics. To examine

the relationship between a single explanatory variable and a single response variable,

simple linear regression is commonly used. On the other hand, when there are several

explanatory variables, multiple regression is used (Cook et.al., 2000). However, not

all dependent variables are numerical values. Instead, the response is simply a

designation of one of two possible outcomes (a dichotomous or binary response)

(UNT, 2009).

Binary Logistic regression had been popular to address dependent variable that

is binary in nature like success or failure or a yes or no response (Wuensch, 2008). It

can be used to predict a dependent variable on the basis of continuous and/or

categorical independents and to determine the percent of variance in the dependent

variable explained by the independents; to rank the relative importance of

independents; to assess interaction effects; and to understand the impact of covariate

control variables. The impact of predictor variables is usually explained in terms of

odds ratios (Garson, 2008).

Logistic regression applies maximum likelihood estimation after transforming

the dependent into a logit variable (the natural log of the odds of the dependent

occurring or not). In this way, logistic regression estimates the odds of a certain event

20

occurring. Note that logistic regression calculates changes in the log odds of the

dependent, not changes in the dependent itself as OLS regression does (USF, 2009).

When OLS regression is used for a dichotomous dependent, the assumptions

of normality and homoscedasticity as a normal distribution is impossible with only

two values are violated. For a dependent variable which assumes values of zero (0)

and one (1), the commonly used regression model will still allow estimates below

zero (0) and above one (1). The multiple linear regression does not handle non-linear

relationships, whereas log-linear methods do. These objections to the use of

regression with dichotomous dependents apply to polytomous dependents also which

is the multiple logistic regression (Garson, 2008).

F. Related studies on WTP

Several studies have examined consumer willingness to pay a premium for

organic products and have investigated underlying consumers’ motivations for

purchasing organic foods. Many of these studies utilized CVM to examine the level of

price premium consumers are willing to pay for organic products and the socio-

economic and demographic factors that affect consumers’ willingness to pay. But

there are also studies that have not employed CVM in estimating consumers’

willingness to pay for a price premium for organic products.

The willingness to pay of different consumer segments in Spain for organic

products was estimated by Gil, Garcia, and Sanchez (2001). Specifically, the organic

products that were considered in their study were vegetables, potatoes, cereals, fruits,

eggs, chicken, and red meat. Since the organic market in Spain was still too “thin”

and organic products were not available in all retail outlets, the CVM was chosen for

the study’s methodology. The data used in the study came from a survey conducted

in July through August 1997 in the Spanish regions of Navarra and Madrid. Four

hundred respondents, who were main purchasers of food products within each of their

households, were randomly selected from a census data and were personally

interviewed at home in each region. Results revealed that only organic food

consumers showed willingness to pay a premium. Among the wide range of products

considered, consumers were willing to pay a higher premium for meat, fruits, and

vegetables; it can be implied that more importance is given by consumers in fresh and

perishable products. The results also showed that regional differences were identified

when it was observed that consumers were willing to pay a higher premium for

21

organic products in the organic producing region of Navarra than in the consuming

region of Madrid. Several recommendations were given by the authors, which

includes increasing the consumers’ knowledge of an organic product, creating

marketing strategies targeted towards increasing consumption of the organic foods

with high WTP premiums, and reducing marketing margins of the organic supply

chain to reduce prices at the retail level.

Boccaletti and Nardella (2001) presented the results and analysis of a survey

of Italian consumers’ WTP for pesticide-free fresh fruit and vegetables. The said

survey was composed of 336 in-person interviews conducted in January 1998 in three

large supermarkets located in Northern Italy. Among the main explanatory variables

used in the empirical model, income and individual perception of pesticide risk

concern were found to give the most relevant increase in the probability of a positive

premium. The results of the study suggested that Italian consumers were generally

concerned about health risks from pesticides, with only 11% of the respondents not

willing to pay a premium for pesticide-free fresh fruits and vegetables. But 70% of

the respondents who were willing to pay a premium would only pay a small premium

(6 to 10%) above regular retail prices. For the implications, the proponents said that

the price premium on the pesticide-free products sold by producers through mass

marketing channels should not exceed 10% and that fresh fruits and vegetables should

have an easily recognized certification procedure so that consumers would be able to

separate regular produce from organic ones.

A study conducted by Cranfield and Magnusson (2003) determined if

Canadian consumers would pay a premium for Pesticide-Free Production (PFP) food

products. PFP is similar to the organic production system because it emphasizes on

reduced pesticide use in conjunction with increased reliance on producer knowledge

of agronomic practices that mitigate weed, insect, and disease pressure. The CVM

was used in the survey because it addresses the issue of the inability to observe

consumers’ actual decisions to purchase and pay a premium for products that are not

available in the market place like the PFP ones. The results showed that 67% of the

respondents would be willing to pay a modest (i.e., 1 to 10%) premium, while about

5% of the respondents would be willing to pay more than a 20% premium. With

regards to the factors influencing the WTP, the results indicated that consumers are

more likely to pay a higher premium if they are younger, are more likely to shop at

health food stores to purchase a PFP food product, and are concerned with pesticides

22

in agriculture and food. The study recommended that PFP producers should market

their products and their production system to processors who supply health food

stores.

Akgungor, Miran, and Abay (2007) estimated a representative sample of

Turkish urban consumers’ willingness to pay for reduced chemical residues in food

and the trade-off they make between cosmetic quality and food safety. The study

revealed that educated and high-income individuals have increased interest on organic

product purchases. According to the results, the reason for choosing organic products

was that consumers perceived that organic products have higher nutritional value and

carry low health risk. The implication of the results was a potential demand for

organic products in Turkey’s urban markets, since consumers were willing to pay a

price premium of 36%.

Rodriguez, Lacaze, and Lupin (2007) estimated the consumers’ willingness to

pay for organic food products available in the Argentinean domestic market. The

proponents selected the CVM to estimate the WTP. The selected products for the

study were regular milk, leafy vegetables, whole-wheat flour, fresh chicken, and

aromatic herbs. The results of the study indicated that organic products are positively

valued in Argentina, since consumers affirm to be willing to pay price premiums to

acquire these products. According to the results, higher income level respondents

were willing to pay higher prices for organic products: 12.2% more for regular milk,

87% more for leafy vegetables, 7.5% more for whole-wheat flour, 20% more for fresh

chicken, and 110% for aromatic herbs. The study provided useful evidence to the

government to gain support in the promotion of organic production, regulation

processes, and labeling programs out of the results of the study.

Torres (2003) studied the WTP for the preservation of Mt. Apo Natural Park

which employed CVM, which is primarily used for monetary valuation of consumer

preferences for non-market goods. The study determined whether people would place

certain value on the existence of an environmental resource, specifically the existence

of the Mt. Apo National Park. The data used for estimating the WTP was collected

from 600 residents of Davao City, Digos City, and Tagum City. The result of the

study showed that the average willingness to pay value derived from the estimation

was higher than the presently imposed entrance fee to Mt. Apo. The factors that were

found to influence the WTP were age, civil status, and occupation of the consumers.

23

There are several studies which examined the WTP for organic products that

did not utilize CVM as a component of their methodologies. These studies can still be

of help in molding the methodology part of this study.

Rundgren (2000) concluded that the perception of health risks influence the

willingness to pay for food. Low prices are less important for organic buyers than for

people who do not buy organic food (Wier and Andersen, 2003). Torjusen et al.

(2001), as cited in Schobesberger (2006), found similar results in Norway. Their

survey shows that organic consumers are less concerned about low prices,

convenience and wider selections of products. A survey with a small sample size in

Mumbai, India showed that about 25% of the consumers were aware of the existence

of organic products, 9% also bought organic products mainly for health reasons. A

lack of knowledge and awareness was the main reason for not buying organic

(Garibay and Jyoti, 2003). Another study from India shows that around 71% of

consumers perceived organic vegetables as tastier and healthier, but only 54% of them

knew what organic production of vegetables meant (Rundgren, 2000). A consumer

survey among households in Turkey (Akgüngör, 1999 cited in Rundgren, 2000)

showed that about 9% of the households have heard about organic food. Depending

on the kind of product, between 1% and 10% of those surveyed prefer organic

products. For 75% of the interviewed persons nutritional value and absence of

residues were important when buying food (Akgüngör, 1999 cited Rundgren, 2000).

A study was conducted to determine market potentials and WTP for selected

organic vegetables in Kandy, Sri Lanka. It is specifically done to identify the market

potentials for organic products and consumer expectations in the area (Piyasiri and

Ariyawardana, 2002). It also identified the factors that influence the additional

willingness to pay for organic vegetables. Results revealed that most of the

consumers are aware of organic products and this awareness had influenced their

consumption of organic products in the past. The majority of the consumers

considered price as an important factor for their organic product consumption and had

attached a higher importance for certification from a reputed organization.

Respondents also indicated that organic products should be available in accessible

shops for the convenience of purchasing. Results of the regression analysis revealed

that of the socio-demographic factors, income, environmental education and years of

education significantly influenced the WTP for organic vegetables. Based on the

study it could be concluded that consumer awareness effectively advances the demand

24

for organic products and there is a great potential to introduce organic products to the

supermarkets in Kandy, Sri Lanka. The authors recommended to introduce organic

products, widely in supermarkets, to have proper awareness programs among

consumers in promoting the demand for organic products.

The study conducted by Ara (2002) employed a choice experiment in order to

elicit consumers’ preferences for various attributes of organic rice. The author’s

respondents are from Manila and Naga. Half of the respondents in Manila were aware

of organic rice products, while in Naga it was only 33%. The author did not expect

these results because separate studies by Xavier University (1995) found no one

among the 378 respondents being aware of organic rice in the market and the Upland

Marketing Foundation (1998) found only 4% in Manila being aware of organic rice

product.

In both cities, health risk is a primary concern of the consumers. Other factors

(environmental, eating quality, certification of products and trade factor) attributed by

the study showed varying priorities between the two cities. Consumers in Manila,

living far from the production site, are more concerned with certification – a

guarantee that such commodity is indeed organic. Those living near the production

site (Naga), consumers put more weight on farm environment. In both cities,

consumers’ utility increases when percentage of health risk decreases. The eating

quality of rice has significant attribute among high income groups in Manila. In

Manila, respondents showed WTP premium up to 13.6 pesos for 80% reduction of

health risk; thus giving high value to certification system. The higher income groups

were willing to pay higher premium value (Ara, 2002). Further investigation was

recommended by the author to determine what makes people prefer one certification

to another in each city and for each income category.

The preceding review presents meaningful information on the willingness of

consumers to pay a price premium for organic foods and environmental resources.

Since similar studies on organic rice in the Philippines and General Santos City have

not been done yet, the findings of this study provided additional information on the

subject. Thus, this study about WTP for organic rice is timely and relevant.

25

Chapter III

METHODOLOGY

In this study, consumers’ willingness to pay for organic rice in General Santos

City, the methodology is divided in three parts: theoretical framework, empirical

framework/data analysis, and the data collection.

A. Theoretical Framework

The law of demand is utilized the theoretical framework that helped in

drawing the model for analysis in the study.

The Law of Demand

The law of demand states that the quantity of a well-defined good or service

that people are willing and able to purchase during a particular period of time

decreases as the price of that good or service rises and increases as the price falls,

everything held constant. Among the determinants of demand are tastes, number of

buyers, prices of related goods, income, and expectations (McConnell and Brue,

1999). If any of these determinants changes, the demand of that particular product

also changes. The relationship between income and the quantity demanded of a

product can be positive or negative one, depending on the nature of the product. If the

product is a normal good, the quantity demanded of the product increases as the

consumers’ income increases. This implies that the quantity demanded of a normal

good has a positive relationship with income. But if the product is an inferior good,

the quantity demanded of the product decreases as the consumer’s income increases,

hence implying that it has a negative relationship with income. On the other hand, the

price of related goods is also a critical factor that affects the demand of a certain good.

The relationship between the price of related goods and the quantity demanded of a

good can also be positive or negative. The positive relationship would occur in

substitutes, wherein the quantity demanded of the product in concern increases as the

price of the substitute good increases. The negative relationship would occur in

complements, wherein the quantity demanded of the product in concern decreases as

the price of the complementary good increases because both products tend to be used

together (Pindyck, 2001).

26

In this study, various factors that may possibly affect the willingness to pay for

organic rice were predetermined. The factors that were considered were the

attitudinal factors (i.e. towards price, packaging), awareness factors (towards organic

rice, sustainable agriculture, pesticide residues, and water pollution), and

demographic factors (age in years, gender, household income, number of years of

education, and household size). Hence, the theoretical demand model that was used

in the study was in the form,

WTP = ƒ (attitudinal factors, awareness levels, demographic factors)

This theoretical model presents the basic economic concept of WTP being a

function of various factors.

B. Empirical Framework/Data Analysis

The CV approach was chosen for this study in view of the fact that CV is more

commonly used to measure consumer preferences for non-market (e.g.,

environmental) goods. CV is still applicable since organic rice is not usually available

in the markets of General Santos City. This study utilized the dichotomous method

wherein the researcher asked the respondents whether they were willing to pay a price

premium for organic rice or not. It could be assumed that the respondents’ answers

were based on the organic and conventional prices they find when choosing organic

rice over the conventional rice.

The dichotomous method used in asking respondents’ willingness to pay for

organic rice only obtained two answers (yes or no) and served as the dependent

variable. The explanatory variables were combination of categorical and continuous

variables. Binary logistic regression using the stepwise method was utilized to obtain

the factors that affect the willingness to pay for organic rice in terms of attitudinal

variables, awareness levels, and demographic features. The Binary Logistic

Regression Model was in the form:

WTP = β0 + Β1Pu + β2Av + β3Ce + β4Ag + β5Ch - Β6 Pr + Β7Pa + β8Or + β9Sa + β10Kpr + β11W + β12A + β13G - β14S + β15E + β16 I

27

Where:

VARIABLE MEASUREMENT

DEPENDENT VARIABLE

WTP If the respondent is willing to pay a price premium for organic rice

1 = yes, 0 = no

EXPLANATORY VARIABLES

Attitudinal variablesPu If respondent or members of the household

purchased organic rice1 = yes, 0 = no

Av If respondent would be willing to buy organic rice if they were more available

1 = yes, 0 = no

Ce If the respondent would be willing to buy organic rice even if it is not yet certified

1 = yes, 0 = no

Ag If the respondent agrees that farmers should engage in sustainable agricultural production practices

1 = yes, 0 = no

Ch If the respondent believes that the use of synthetic chemical in agriculture has negative effect on the environment

1 = yes, 0 = no

Pr If the respondent considers price as an important factor in purchasing rice

1 = yes, 0 = no

Pa If the respondent considers packaging as an important factor in purchasing rice

1 = yes, 0 = no

Awareness variablesOr Respondent’s knowledge about organic rice 0 = never heard

1 = know word2 = know well

Sa Respondent’s knowledge about sustainable agriculture

0 = never heard1 = know word2 = know well

Kpr Respondent’s knowledge about pesticide residues

0 = never heard1 = know word2 = know well

W Respondent’s knowledge about water pollution

0 = never heard1 = know word2 = know well

Demographic variablesA Age Continuous variable

(in years)G Gender 1 = female

0 = maleS Household size Continuous variableE Years of schooling Continuous variableI Monthly household income Continuous variable

28

The binary logistic regression model was estimated by maximum likelihood.

In order to compare what explanatory variables each income class give importance

and in order to determine the impact of these significant explanatory variables on the

willingness to pay dependent variable, a binary logistic regression model for each

income class was derived.

The following sub-sections discuss the tests and parameters that were

evaluated in the binary logistic regression models:

1. Significance tests for binary logistic regression

a. Hosmer and Lemeshow chi-square test of goodness of fit

This is the recommended test for overall fit of a logistic regression

model and is also called the chi-square test. It is considered more robust

than the traditional chi-square test, particularly if continuous covariates are

in the model or sample size is small (Garson, 2009). A non-significant chi-

square indicates that the data fit the model well (Wuensch, 2008).

b. -2LL statistic likelihood ratio

This is also called goodness of fit, deviance chi-square, scaled de-

viance, deviation chi-square, DM, or L-square. It reflects the significance of

the unexplained variance in the dependent variable. This statistic is found

in the "-2 Log Likelihood" column of the model summary table of the out-

put (Garson, 2009). This statistic measures how poorly the model predicts

the decisions - the smaller the statistic the better the model (Wuench,

2008). The likelihood ratio is not used directly in significance testing, but

it is the basis for the likelihood ratio test, which is the test of the difference

between two likelihood ratios (two -2LL's) (Garson, 2009).

2. Measures of Effect Size

a. Nagelkerke's R2

This is a modification of the Cox and Snell coefficient to assure

that it can vary from 0 to 1. That is, Nagelkerke's R2 divides Cox and

Snell's R2 by its maximum in order to achieve a measure that ranges from

0 to 1 (Garson, 2009). This can reach a maximum of 1 (Wuench, 2008).

3. Parameter Estimates Interpretation

29

a. Odds ratio

The impact of predictor variables is usually explained in terms of

odds ratios. It represents the factor by which the odds (event) change for a

one-unit change in the independent variable (Garson, 2009).

b. Parameter estimates

These are the b coefficients used to predict the log odds (logit) of

the dependent variable. Parameter estimates (b coefficients) associated

with explanatory variables are estimators of the change in the logit caused

by a unit change in the independent variables (Wuench, 2008). Also, these

are simply parameter estimates which correspond to b coefficients in OLS

regression (Garson, 2009).

C. Data Collection

The areas of the study were the Brgy. Lagao (1st and 3rd) and Brgy. San Isidro

(Lagao 2nd). The interviews were conducted from 20 October to 22 November 2008.

Quota sampling method through known groups was utilized in this study. The

three income classes (high, middle, low) were the known groups. Forty respondents

were interviewed for each income class. The number of respondents for all income

classes was the same. With this, the study had a total of 120 respondents, which was

more than the minimum number of samples (100) needed for a representative sample

in descriptive studies (Sample and Sampling Technique, 2005).

Purposive sampling method was used since all households of different income

classes were widely scattered in the area. Moreover, this study targeted equal number

of respondents for each income class. Thus, random sampling techniques were not

applied.

Pretesting of the questionnaire was done on 22-23 August 2008 in Brgy.

Dadiangas East. This was conducted in order to determine type of primary data that

will be used for the study and if the potential respondents would likely understand

each question. Five questionnaires were given to the respondents, who were allowed

to answer the questionnaire on their own and five respondents were personally

interviewed. It was found out that potential respondents would likely understand each

question well and that personal interview was more effective than the other one.

Thus, primary data using personal interview was utilized. According to the US

Department of Agriculture Natural Resource Conservation Service and National

30

Oceanographic and Atmospheric Administration (USDA-NCRCSNOAA, 2000),

personal interviews are generally the most effective for complex questions, because it

is often easier to explain the required background information to respondents in

person, and people are more likely to complete a long survey when they are

interviewed in person.

Figure 1 shows the general sequence of the interview. The respondents were

first asked about their knowledge on organic rice, sustainable agriculture, pesticide

residues and water pollution. The respondents daily household consumption of rice

and the usual price of the conventional rice bought were asked.

The researcher asked the respondents if they experienced buying organic rice.

If the respondents already purchased organic rice before, they were asked for their

reasons for buying organic rice. On the other hand, if the respondent had not yet

purchased organic rice, he/she was asked about the reasons for not buying organic

rice.

31

Figure 1. Questionnaire Structure

Using the dichotomous method, the respondents were asked if they were

willing to pay additional amount for organic rice. If the respondent was not willing to

pay, the researcher asked the next questions. If the respondents were willing to pay

additional amount for organic rice, using the payment card method, the interviewer

asked the respondent to choose from the different ranges of percentage.

After asking the respondents’ willingness to pay for organic rice, they were

asked for some attitudinal factors. The respondent were asked if they believe or agree

that farmers should engage in sustainable agricultural production practices and if they

believed that the use of synthetic chemicals in agriculture has negative effects on the

environment. They were also asked if price, packaging, and certification were

important factors in purchasing rice and if they were willing to buy organic rice if

these were more available. Other factors that consumers consider in purchasing and

not purchasing organic rice that were not mentioned in the questionnaire were also

noted. The interview was concluded after asking the respondents demographic

features.

32

Chapter IV

RESULTS AND DISCUSSION

This section is divided in four parts: socio-demographic profile of

respondents, awareness levels, attitudinal characteristics and the willingness to pay

models.

A Socio-demographic profile of respondents

1. AgeFigure 2 shows the distribution of respondents according to age. Seventeen of

the household respondents (14.17%) were 60 years old and above. On the other hand,

12 respondents (14.17%) were 55 to 59 years old. Twenty respondents (16.67%)

were aged 50 to 54 years old while 11 household respondents (9.17%) were between

45 to 49 years old. Fourteen respondents (11.67%) were 35 to 39 years old and 40 to

44 years old. Eleven respondents (9.17%) were between 30 to 34 years old and 15

respondents (15%) were 25-29 years old. Only 2.5% of the respondents were 18 to 24

years old.

Figure 2. Distribution of respondents according to age.

3

18

1114 14

11

20

1217

05

10152025

Age range

Fre

qu

en

cy

33

2. Gender

As shown in Figure 3 below, majority of the respondents (60%) were female.

This is because the study intended to target the household member who made the

purchasing decision.

Figure 3. Distribution of respondents according to gender.

3. Civil Status

Figure 4 shows the distribution of respondents according to civil status. Most

of the respondents (83%) were married. This can be attributed to the household sizes

of the respondents. Sixteen respondents (13%) were single and only 5 respondents

(4%) were widower.

Figure 4. Distribution of respondents according to civil status.

16

99

5

0

20

40

60

80

100

120

single married widowed

Civil status

Freq

uen

cy

34

40%

60%

male

female

4. Educational attainment and years of schooling

Most of the respondents (80%) reached post high school level education as

shown in Figure 5. Some of the respondents (5.83%) also had post-graduate

education. Sixteen respondents (13.33%) reached high school level education and

eight respondents (6.67%) only attained elementary level education

Figure 5. Distribution of respondents according to educational attainment.

The distribution of respondents according to years of schooling shown in Figure 6 is

related to the distribution of respondents according to educational attainment shown

in Figure 5. Majority of the respondents had 14 years of schooling since most of them

finished their college level. The respondents who had more than 14 years of

schooling were those who proceeded with a post graduate degree. Respondents who

had less than eight years of schooling were those who reached grade school level.

35

816

96

0

20

40

60

80

100

120

grade school level high school level post high schoollevel

Educational attainment

Freq

uenc

y

33

59

17

83

0

10

20

30

40

50

60

70

1-3 4-6 7-9 10-12 13-15

Household size

Fre

qenc

y

Figure 6. Distribution of respondents according to years of education.

2

6

23

85

4

0 15 30 45 60 75 90

1-4

4-8

9-12

13-16

17-20Y

ears

of s

choo

ling

Frequency

5. Household Size

In this study, household refers to the number of persons who is sleeping in the

dwelling unit and has common arrangements for the preparation and consumption of

food. As shown in Figure 7 below, most of the respondents had five to six members.

The average household size of the respondents was 5.23.

Figure 7. Distribution of respondents according to household size.

6.

Socio-economic class

Table 1 shows the socio-economic classification of the respondent households.

In this study, household income refers to the accumulated monthly income of the

36

earning household members, income from farms (if any), and the monthly pension

received by any retired household members.

Table 1. Socio-economic classification of respondent households.

Income Group Frequency PercentAB 40 33.33C1 15 12.50Broad C 25 20.83D 17 14.17E 23 19.17Total 120 100.00

According to the AC Nielsen (as cited in Concepcion, 2005), AB Households

in Mindanao are characterized as those households earning PhP50, 000.00 per month

or above, residing in subdivisions with concrete structure and complete utilities. They

frequently occupy top positions in companies or owner of their own businesses. AB

category is also called the high income class. Households under C1 category can also

be called as upper middle class. They earn PhP30,000.00 to PhP49,999.00 per month,

usually live in subdivisions with homes having a mixture of concrete and wooden

materials. The heads of households are usually middle management and junior

executives. Broad C or the lower middle income class households earning

PhP15,000.00 to PhP29,000.00 per month, residing in generally less expensive houses

with basic amenities. Household heads in Broad C usually have occupations like

office workers, government employees and rank and file. Households under the D

class category have an income of PhP8,000.00 to PhP14,999.00 per month, living in

houses located in the less expensive part of the city which are made of a mixture of

cement and recycled materials, smaller in size. Members of the household have

occupations such as blue-collar jobs, tricycle drivers, factory workers and the like.

The E households are those who hardly have enough, earning irregularly. These

households have a monthly income of PhP8000.00 or less and their jobs are typically

not regular or earns too little. Households under this category are also below the

poverty threshold of PhP5000.00 per month.

Since this study aimed to compare the responses for each income group, high,

middle and low income classes have the same number of respondents. In this study,

AB class is the high income class, C1 and Broad C categories comprise the middle

37

class, and D and E categories are classified as the low income class. Of all the

respondents, 40 respondents (33.33%) are under the AB category, C1 category had 15

respondents (12.5%), Broad C category had 25 respondents (20.83%), D category had

17 respondents (14.17%), and E category had 23 respondents (19.17%).

B. Awareness Levels

During the personal interviews, the respondents were asked regarding their

level of awareness about organic rice, and the concepts of sustainable agriculture,

pesticide residues and water pollution. In this study, the ‘never heard’ response of a

respondent meant that the respondent never had any idea of the word concept. The

‘know word’ answer meant that the respondents had at least heard of the

word/concept or that the respondent had elicited different description of the

word/concept. On the other hand, the ‘know well’ response indicated that the

respondents not only heard of the word/concept but also can fully describe or define

the word/concept.

1. Awareness regarding organic rice

As shown in Figure 8 in the next page, 27 respondents (64%) have at least

heard of the word organic rice. This result can be related to the study done by Ara

(2003) which indicated that almost half of the respondents in Manila had heard the

word organic rice while it was 33% in Naga and another study showed that none of

their 378 respondents was aware of organic rice (Xavier University, 1995 as cited in

Ara, 2003). It can be said that the result may be an outcome of the rapid growth of

organic agriculture in the Philippines.

Figure 8. Awareness regarding organic rice.

38

64%

36%

yes

no

On the average, it can be observed that high income class had the highest

frequency of respondents having heard of organic rice (70%), followed by the middle

income class (65%), and low income class (57.5%) as shown in Table 2. Among the

respondents who had heard of organic rice, it was the high income class respondents

who knew well the word organic rice (12) compared to the lower income classes (6).

Table 2. Knowledge levels of respondents about organic rice.

Knowledge about

organic rice

ALL LOW MIDDLE HIGH

n % n % n % n %

Never heard 43 35.83 17 42.5 14 35 12 30

Know word 52 43.33 17 42.5 19 47.5 16 40

Know well 25 20.83 6 15.0 7 17.5 12 30

Total 120 100 40 100 40 100 40 100

2. Knowledge regarding sustainable agriculture

Table 3 shows the distribution of responses regarding knowledge on

sustainable agriculture. Thirty-four respondents (28.33%) never heard of the word

sustainable agriculture while the rest have heard of the word sustainable agriculture.

Fifty-nine respondents (49.17%) knew the word and 27 (22.5%) know the word well.

On the average, most of the high income class respondents knew the word (50% knew

the word and 32.5% know well the word) compared to the lower income classes.

Table 3. Knowledge level of respondents about sustainable agriculture.

39

Knowledge regarding

sustainable agriculture

ALL LOW MIDDLE HIGH

n % n % n % n %

Never heard 34 28.33 15 37.5 12 30 7 17.5

Know word 59 49.17 19 47.5 20 50 20 50.0

Know well 27 22.50 6 15.0 8 20 13 32.5

Total 120 100 40 100 40 100 40 100

3. Knowledge about pesticide residues

Eighty-eight percent of the respondents knew the word and knew well the

word pesticide residues while 22% never heard the word pesticide residues, as can be

seen in Table 4. Taking into account the proportion of those who knew the word well,

the results indicated that high income had the greater proportion (37.5%) in contrast

with low and middle income classes which both had 27.5% proportion.

Table 4. Knowledge levels of respondents about pesticide residues.

Knowledge about pesticide residues

ALL LOW MIDDLE HIGHn % n % n % n %

Never heard 26 21.67 12 30.0 10 25.0 4 10.0

Know word 57 47.50 17 42.5 19 47.5 21 52.5

Know well 37 30.83 11 27.5 11 27.5 15 37.5

Total 120 100 40 100 40 100 40 100

4. Knowledge regarding water pollution

Table 5 next page shows the responses on knowledge levels about water

pollution. Fifty-three respondents knew the word water pollution (44.17%) and 52

respondents knew well the word water pollution (43.33%). On the other hand, fifteen

respondents (12.5%) never heard of the word water pollution. It can be observed that

the middle and high income classes have the same percentage (10%) that never heard

of the word water pollution. Seven respondents (17.5%) of the low income class

never heard of the word water pollution.

Table 5. Knowledge levels of respondents about water pollution.

40

Knowledge regarding

water pollution

ALL LOW MIDDLE HIGH

n % n % n % n %

Never heard 15 12.50 7 17.5 4 10.0 4 10.0

Know word 53 44.17 19 47.5 19 47.5 15 37.5

Know well 52 43.33 14 35.0 17 42.5 21 52.5

Total 120 100 40 100 40 100 40 100

With the findings regarding the knowledge about sustainable agriculture,

pesticide residues and water pollution, it can be said that out of all the respondents, 34

respondents (28.33%) never heard of the word sustainable agriculture, 26 respondents

(21.17%) never heard of pesticide residues and 15 respondents (2.55%) never heard of

water pollution. The results showed that, among the three concepts, water pollution

was the most familiar concept for them because this concept, even not related to

organic rice farming, is the one that is usually included in the news, seen in

televisions or newspapers in the Philippines as compared to the other concepts.

C. Attitudinal Characteristics

1. Past experience of purchasing organic rice

Of all the respondents, only 27 of the respondents (22.5%) had experienced

purchasing organic rice and 93 (77.5%) never experienced buying organic rice as

shown in Table 6. Majority of those who had experienced consuming organic rice

were from the high income class with 15 respondents (37.5%) compared to the lower

income classes with 6 respondents (15%) in each class. This result can be due to the

ability of the consumers to pay the price premium of organic rice. Wealthier

consumers are likely to afford the price premium of organic rice which can be

associated why high income class respondents were the ones who had experienced

buying organic rice.

41

Table 6. Respondents’ past experience of purchasing organic rice

Experienced purchasing of organic rice

ALL LOW MIDDLE HIGH

n % n % n % n %

Yes 27 22.5 6 15 6 15 15 37.5

No 93 77.5 34 85 34 85 25 62.5

Total 120 100 40 100 40 100 40 100

2. Importance attached to price

As shown in Table 7, among the respondents, 95.83% of them believed that

price is an important factor in purchasing rice. Only one respondent (2.5%) from the

low and high income class and three respondents (7.5%) from middle income class

revealed that price was not an important factor in purchasing rice. This result shows

that consumers were price sensitive in terms of buying rice. These results are also the

same with the findings of other studies such as of Piyasiri and Ariyawardana (2002)

and Rodriquez et.al (2007). These studies indicated that majority of their respondents

consider price as a relevant factor in purchasing organic products.

Table 7. Distribution of respondents according to the importance attached to price in purchasing decisions.

Price is an important

factor

ALL LOW MIDDLE HIGH

n % n % n % N %

Yes 115 95.83 39 97.5 37 92.5 39 97.5

No 5 4.17 1 2.5 3 7.5 1 2.5

Total 120 100 40 100 40 100 40 100

Those who regarded that price is not an important factor in purchasing rice

mentioned that physical appearance or quality of the rice is more important for them

than the price of the rice. They argued that their basis in buying rice is not just the

price but also the physical appearance of it. They would purchase rice if the physical

appearance of it is good and not because of the cheapness of its price.

42

3. Willingness to buy if organic rice is more available

One hundred-two respondents (85%) indicated that they are willing to buy if

organic rice is more available in the market as shown in Table 8. These respondents

revealed that they are willing to purchase at least once. Only four respondents (10%)

of the low income class, 10 respondents (25%) of the middle income class, and four

(10%) of the high income class said that they are not willing to buy if organic rice is

more available.

Table 8. Distribution of respondents according willingness to buy if organic rice is more available.

Willing to buy if organic rice is more available

ALL LOW MIDDLE HIGH

n % n % n % n %

Yes 102 85 36 90 30 75 36 90

No 18 15 4 10 10 25 4 10

Total 120 100 40 100 40 100 40 100

4. Importance attached to packaging

As shown in Table 9, among the respondents, 74 respondents (61.67%)

revealed that packaging was an important factor in purchasing organic rice. These

respondents indicated this answer because they thought that packaging was a way for

them to make sure that the rice is really an organic one or not. Those 46 respondents

(38.33%) who considered packaging as unimportant factor indicated that packaging is

not a required feature for organic rice since it only provides an additional cost to the

product that would lead to higher cost of organic rice. It can be observed that there

were only few differences of answers among the three income classes. These findings

contradicted the results found by Piyasiri and Ariyawardana (2002). Their

respondents consider packaging as an unnecessary feature for organic products.

43

Table 9. Distribution of respondents’ according to the importance attached to packaging in purchasing decisions.

Packaging is an important

factor

ALL LOW MIDDLE HIGH

n % n % n % n %

Yes 74 61.67 25 62.5 25 62.5 24 60

No 46 38.33 15 37.5 15 37.5 16 40

Total 120 100 40 100 40 100 40 100

5. Importance attached to certification

Sixty-six respondents (55%) revealed that they were not willing to buy

organic rice if it is not yet certified as shown in Table 10. They said so because they

want to assure that the organic rice that they may purchase has good quality and if it is

really an organic one. The remaining 54 respondents (45%) considered that having a

certification is too costly for the producers and will provide an additional cost that

will lead to higher price of organic rice. These results conform with the findings of

Ara (2003) and Piyasiri and Ariyawardana (2002). The former study indicated that

respondents’ utility increases if certification is available on the product and the latter

study indicated that greater percentage of their respondents who were willing to buy

organic products from supermarkets pointed out that at least a local institute should

certify organic products to assure the quality of products.

Table 10. Distribution of respondents’ according to willingness to buy even if organic rice is not yet certified.

Willing to buy if organic rice

is not yet certified

ALL LOW MIDDLE HIGHn % n % n % n %

Yes 54 45 20 50 21 52.5 13 32.5

No 66 55 20 50 19 47.5 27 67.5

Total 120 100 40 100 40 100 40 100

44

6. Respondents’ perception about the involvement of farmers in sustainable agricultural practices

Sustainable agricultural practices, in this study, refer to the practices which adopt

the goal of ensuring the productive future of agriculture, the environment and the

economy of rural communities. As shown in Table 11, majority of the respondents

(95.83%) believed that farmers should engage in sustainable agricultural practices and

only five respondents (4.17%) did not believe that farmers should engage in agricultural

practices.

Table 11. Distribution of respondents’ according to perception on the farmers’ involvement in sustainable agricultural practices.

Agree that farmers must

engage in sustainable agricultural

practices

ALL LOW MIDDLE HIGH

n % n % n % n %

Yes 115 95.83 39 97.5 37 92.5 39 97.5

No 5 4.17 1 2.5 3 7.5 1 2.5

Total 120 100 40 100 40 100 40 100

7. Respondents’ belief that chemicals in agriculture have negative effects in the environment.

One hundred-one respondents (92.5%) believed that chemicals in agriculture have

negative effects in the environment while only nine respondents (7.5%) did not believe

that chemicals in agriculture have negative effects in the environment (Table 12). The

results show that respondents generally believed that chemicals are harmful for the

environment.

Table 12. Distribution of respondents’ belief that chemicals in agriculture have negative effects in the environment.

believes that chemicals in agriculture have negative effects in the environment

ALL LOW MIDDLE HIGH

n % n % n % n %

Yes 111 92.5 37 92.5 36 90 38 95

No 9 7.5 3 7.5 4 10 2 5

Total 120 100 40 100 40 100 40 100

45

8. Regular consumption of rice

As shown in Table 13, majority of the respondents (41.67%) consumed rice at

an average of two kilograms per day. On the other hand, 31 respondents (25.83%)

consumed 1 kilogram of rice per day. Fourteen respondents (11.67%) consumed rice

at 1.5 kilograms per day, while 11 respondents (9.17%) consumed 3 kilograms per

day. Seven respondents (5.83%) consumed rice of less than one kilogram per day.

Only two respondents (1.67%) consumed rice of more than 3 kilograms per day. It is

known that regular consumption of rice of households depends on their respective

household sizes.

Table 13. Distribution of respondents according to daily rice consumption.

Daily rice consumption

(kg)

ALL LOW MIDDLE HIGH

n % n % n % n %<1 7 5.83 2 5.0 5 12.5 0 0.01 31 25.83 16 40.0 11 27.5 4 10.01.25 1 0.83 1 2.5 0 0.0 0 0.01.5 14 11.67 4 10.0 4 10.0 6 15.02 50 41.67 14 35.0 14 35.0 22 55.02.5 4 3.33 0 0.0 1 2.5 3 7.53 11 9.17 2 5.0 4 10.0 5 12.54 1 0.83 1 2.5 0 0.0 0 0.05 1 0.83 0 0.0 1 2.5 0 0.0

9. Regular price of rice

Many of the respondents (22.5%) usually paid PhP28.00 per kilogram for the

rice that they purchased (Figure 9). Twenty respondents (16.67%) purchased rice at a

price of PhP30.00. Seventeen respondents (14.17%) pay PhP25.00 and another 17

respondents (14.17%) paid PhP27.00 per kilogram of rice. A few respondents

(11.67%) paid PhP29.00; 12 respondents (10%) pay P26.00 for their rice. Six of the

respondents (5%) pay PhP35.00 per kilogram of rice. Two respondents (1.67%) pay

PhP31.00 and another two respondents (1.67%) pay for rice at PhP38.00. Only one

respondent each (0.83%) pays PhP24.00, PhP32.00, and PhP33.00. On the average,

the price of rice purchased by all the respondents is PhP28.29 per kilogram.

46

Figure 9. Distribution of respondents according to the price of rice regularly consumed.

1

17

12

17

27

14

20

2 1 1 0

6

0 02

0

5

10

15

20

25

30

24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Price/kg

Fre

qu

ency

Most of the low income class respondents (25%) paid PhP28.00 for their rice.

Ten respondents of the middle income class (25%) paid PhP25.00 and another 10

respondents (25%) pay PhP28.00. Most of the respondents (32.5%) of the high

income class pay PhP30.00 for their conventional rice.

Table 14. Distribution of respondents according to the price of rice regularly consumed.

Price/KgALL LOW MIDDLE HIGH

n % n % n % n %24 1 0.83 1 2.5 0 0.0 0 0.025 17 14.17 4 10.0 9 22.5 4 10.026 12 10.00 8 20.0 1 2.5 3 7.527 17 14.17 8 20.0 6 15.0 3 7.528 27 22.50 10 25.0 9 22.5 8 20.029 14 11.67 6 15.0 6 15.0 2 5.030 20 16.67 2 5.0 5 12.5 13 32.531 2 1.67 1 2.5 0 0.0 1 2.532 1 0.83 0 0.0 0 0.0 1 2.533 1 0.83 0 0.0 1 2.5 0 0.034 0 0.00 0 0.0 0 0.0 0 0.035 6 5.00 0 0.0 2 5.0 4 10.036 0 0.00 0 0.0 0 0.0 0 0.037 0 0.00 0 0.0 0 0.0 0 0.038 2 1.67 0 0.0 1 2.5 1 2.5

47

willing to pay57%

not willing to pay 43%

10. Willingness to pay for organic rice

Shown in Figure 10 is the distribution of respondents according to willingness

to pay for organic rice. More than half of the respondents (56.67%) were willing to

pay a premium for organic rice with varying price premium percentage. The

remaining 43.33% of the respondents were not willing to pay a premium organic rice

in General Santos City.

Figure 10. Distribution of all respondents according to willingness to pay for organic rice.

Table 15 shows the willingness to pay categories and distribution of responses.

Among those who were not willing to pay, the low income class had the highest

number of respondents (65%). Two respondents (5%) of the low and high income

classes and five respondents (12.5%) of the middle income class were willing to pay

less than 10% premium of organic rice. Only one respondent (2.5%) of the high

income class, two respondents (5%) of the middle income class, four respondents

(10%) of the low income class were willing to pay between 10-20% premium. Four

of the respondents (5%) of the high income class, three (7.5%) of the middle income

class, and two (5%) of the low income class were willing to pay between 21-30%

price premium. Two respondents (5%) of the middle income class and three

respondents (7.5%) of the high income class were willing to pay 31-40% premium.

One respondent (2.5%) of the low income class, six respondents (15%) of the middle

income class, two respondents (5%) of the high income class were willing to pay

between 41-50% premium. Moreover, 18 respondents (45%) of the high income

48

class, six respondents (15%) of the middle class, and five respondents (12.5%) of the

low income class were willing to pay up to more than 50% price premium of organic

rice. The results show that, in general, high income class had higher willingness to

pay in contrast with the lower income classes. On the average, respondents who were

willing to pay a price premium, are willing to pay 31-40% price premium for organic

rice.

Table 15. Distribution of willingness to pay responses.

WTP categoryALL LOW MIDDLE HIGH

n % n % n % n %Not willing to pay 52 43.33 26 65.0 16 40.0 10 25.0WTP < 10% premium 9 7.50 2 5.0 5 12.5 2 5.0WTP between 10-20% premium 7 5.83 4 10.0 2 5.0 1 2.5WTP between 21-30% premium 9 7.50 2 5.0 3 7.5 4 10.0WTP between 31-40% premium 5 4.17 0 0.0 2 5.0 3 7.5WTP between 41-50% premium 9 7.50 1 2.5 6 15.0 2 5.0WTP >50% premium 29 24.17 5 12.5 6 15.0 18 45.0

11. Reasons for buying organic rice

The 27 respondents who experienced purchasing organic rice were asked

regarding their reasons why they purchased organic rice. Different aspects influenced

their purchasing behavior. As shown in Table 16, the most important reason why

these respondents (81.48% of the 27 respondents who already bought organic rice)

bought organic rice was that the belief that organic rice is good for their health.

49

Table 16. Distribution of respondents according to reasons for purchasing organic rice.

Reason n %

They are good for my health 22 81.48

They do not contain pesticide or have lower residues 10 37.04

They are good for the environment 9 33.33

They have better taste 6 22.22

I just wanted to try them/try something new 3 11.11

It is trendy/fashionable to buy organic rice 2 7.41Note: Respondents have multiple responses; n = 27 respondents who had experienced purchasing

organic rice.

Ten respondents (37.04%) indicated that the belief in absence of pesticides or

lower content of residues was one of their reasons why they bought organic rice.

Another essential aspect was the belief that organic farming was good for the

environment (33.33%) and that organic rice had good taste (22.22%). Three

respondents (11.11%) bought organic rice because they wanted to try it and check its

quality or they wanted to try something new. Few respondents (7.41%) purchased

organic rice because they thought organic rice is trendy to buy.

12. Reasons for not buying Organic Rice

The 93 respondents (77.5% of all the respondents) who did not try to buy

organic rice were asked for their reasons why they never tried buying organic rice.

The main reason why the respondents (37.63%) never bought organic rice was that

they did not know what organic means or because they did not have idea regarding

organic (Table 17). Another important reason was that, according to respondents,

organic rice was either too difficult to find (26.88%) or was too expensive (22.58%).

Some respondents (15.05%) did not trust the organic labels thought that organic rice

did not have anything special that was worth a higher price. Other reasons for not

purchasing organic rice not included in the questionnaire were also identified. Seven

respondents (7.53%) mentioned that organic rice was not available in the public

markets, one respondent (1.08%) cited that it was not commercially available and

another respondent stated that only sinandomeng rice2 was consumed by their family.

2A variety of rice called “laon” meaning “baak” a term called as old rice (Benito, 2009).

50

Table 17. Distribution of respondents according to reasons for not buy organic rice.

Reasons n %

I do not know what organic means 35 37.63They are too difficult to find 25 26.88They are too expensive 21 22.58I do not think it is really organic 14 15.05I don’t think there is anything special about them which justifies a higher price 10 10.75Others

- not available in Public Market 7 7.53 - only sinandomeng variety is consumed 1 1.08 - it is not commercially available 1 1.08

Note: Respondents have multiple responses; n = 93 respondents who never experienced purchasing organic rice.

D. Willingness to Pay Models

The parameter estimates for each selected product were obtained by applying

a Binomial Multiple Logistic Regression.

Table 18 to 20 below shows the estimated models taking into account all the

respondents of the study as a whole and the different socio-economic classes. Will-

ingness to Pay Model for the Low Income Class was not shown since there were no

variable was statistically significant. Thus, the models presented show the estimated

parameters only for middle and high income classes and for the overall respondents.

1. MIDDLE Income Class’ Willingness to Pay Model

In the Table 18 below, only two explanatory variables were found to have

impacts on the willingness to pay for organic rice by the MIDDLE Income Class

respondents – one attitudinal variable (Available, Av) and one socio-demographic

variable (Age, A).

51

Table 18. Logistic regression estimates for the MIDDLE Income Class WTP Model.

VariableParameter

estimate (B) Std Error Wald Stastic p-value(Odds ratio)

Exp(B)

Av 2.384 1.018 5.480 0.019** 10.847

A -0.068 0.036 3.424 0.064* 0.935

Constant -20.054 16096.298 0.000 0.999 0.000N = 40 (33.33% of the total respondents)Notes: **5%, *10% significance levels

The regression equation generated was in the form:

WTPM = -20.054 + 2.384 Buy – 0.068 A

Where:

The regression model indicates that the willingness to pay for organic rice

among the MIDDLE income respondents is mainly explained by the availability of

organic rice (Available) since Buy had the highest odds ratio value of 10.847. This

result conforms to the result found by Rodriguez et al. (2007) in which the

AVAILABLE explanatory variable was the one greatly affecting their willingness to

pay for organic rice since respondents purchase organic rice if organic rice were more

available. The odds ratio indicates that holding all other variables constant, a

MIDDLE income class consumer willing to buy organic rice if it is more available is

do so compared to a MIDDLE income class consumer who is not willing to buy even

if organic rice is more available

The age of the MIDDLE income class’ respondents contribute to a lesser

extent to willingness to pay for organic rice. The 0.935 odds ratio for age indicates

that the odds of the willingness to pay for organic rice are more than cut by 0.935 for

every increase in the age of a MIDDLE Income Class consumer. Inverting this odds

ratio, for every one year increase in the age of a MIDDLE Income Class consumer,

52

WTPM = Willingness to pay for organic rice among middle income class respondents

Av = Respondent’s willingness to buy organic rice if it was more available

A = Age of the household decision-maker

there is a 0.935 increase in the odds that consumer would not be willing to pay for

organic rice.

2. HIGH Income Class’ Willingness to Pay Model

It can be seen in Table 19 that availability of organic rice (Av), respondent’s

knowledge about pesticide residue (Kpr) and household size (S) had statistically sig-

nificant impact on the willingness to pay for organic rice among HIGH Income Class.

Table 19. Logistic regression estimates for the HIGH Income Class’ WTP Model.

VariableParameter

estimate (B) Std Error Wald Stastic p-value(Odds ratio)

Exp(B)

Av 5.674 2.547 4.963 0.026** 291.108

Kpr 5.512 2.252 5.990 0.014** 247.536

S 1.109 0.580 3.652 0.056* 3.032

Constant -15.537 6.832 5.172 0.023* 0.000N = 40 (33.33% of the total respondents) Notes: **5%, *10% significance levels

The regression equation generated was in the form:

WTPH = -15.537 + 5.674 Buy + 5.512 Kpr + 1.109 S

Where:

53

WTPH = Willingness to pay for organic rice among high income class respondents

Av = Respondent’s willingness to buy organic rice if it were more available

Kpr = Respondent’s knowledge about pesticide residues

S = Household Size

HIGH income class respondents asserted their willingness to pay for organic

rice mainly due to their willingness to buy organic rice if these were more available

(Available) which is the same with the result generated from the MIDDLE Income

Class respondents. The odds ratio indicates that a high income class consumer who is

willing to buy organic rice if it is more available is 291.108 more likely to do so than

a HIGH income class consumer who is not willing to buy even if organic rice is more

available.

The second highest explanatory variable that influenced the HIGH income

class willingness to pay for organic rice was the respondent’s knowledge about pesti-

cide residues (awareness variable Kpr). HIGH income class consumer who had more

knowledge regarding pesticide residues in rice were 247.536 times more likely to be

willing to pay for organic rice than those HIGH income consumer who had lesser or

no knowledge about pesticide residues.

Household size variable, the only demographic variable that was statistically

significant has an odds ratio of 3.032. This implies that the odds of the willingness to

pay for organic rice of a HIGH income class consumer is increased for every three ad-

ditional persons in the household size. Inverting this odds ration, for additional per-

son in the household size of a HIGH income class consumer, there will be a 3.02 in-

crease in the odds that the consumer would be willing to pay for organic rice.

3. OVERALL Willingness to Pay Model

Four explanatory variables were found to have statistically significant impact

on the willingness to pay for the OVERALL respondents - two attitudinal variables (if

respondent or members of the household purchased organic rice and availability of or-

ganic rice), one awareness variable (respondent’s knowledge regarding pesticide

residues) and one demographic variable (monthly household income). The details are

presented in the table below.

Table 20. Logistic regression estimates for the OVERALL WTP Model.

Variable(Parameter estimate) B Standard Error Wald Stastic p-value

(Odds ratio) Exp(B)

Pu 1.811 0.722 6.294 0.012** 6.119

Av 2.352 0.737 10.175 0.001*** 10.502

Kpr 0.638 0.317 4.039 0.044** 1.892

54

Variable(Parameter estimate) B Standard Error Wald Stastic p-value

(Odds ratio) Exp(B)

I 0.397 0.149 7.076 0.008*** 1.488

Constant -4.001 0.955 17.549 0.000 0.018N = 120 (100% of the respondents) Notes: ***1%, **5%, significance levels

55

The regression equation is shown below:

WTPT = -4.001+ 1.811 Purchased + 2.352 Buy + 0.638 Kpr + 0.397 I

Where:

For the OVERALL Willingness to Pay Model, Av was still the explanatory

variable with the most significant impact on the willingness to pay for organic rice.

Its odd ratio value of 10.502 among indicates that a consumer who was willing to buy

organic rice if it was more available was 10.502 more likely to be willing to pay for

organic rice than a consumer who is not willing to buy organic rice.

The second most important explanatory variable that influenced the OVER-

ALL willingness to pay for organic rice was the Pu variable (if the respondent experi -

enced purchasing organic rice) having the odds ratio value of 6.119. This odds ratio

shows that a consumer who had experienced purchasing organic rice before was 6.119

times more willing to pay for organic rice than a consumer who had not tried purchas-

ing organic rice.

The respondent’s knowledge about pesticide residues (Kpr), an awareness

variable, was the third explanatory variable that had a significant impact on the will-

ingness to pay for organic rice. Its odds ratio value of 1.892 implies that consumers

who had more knowledge regarding pesticide residues in rice were 1.892 times more

likely to be willing to pay for organic rice than those consumers who had lesser or no

knowledge about pesticide residues.

The only demographic variable that was found to have statistically significant

impact on the willingness to pay for organic rice was the monthly household income.

Its odds ratio of 1.488 indicates that consumers who had higher monthly income were

1.488 times more likely to pay for organic rice. In this study, the HIGH income class

56

WTPT = Willingness to pay for organic rice among all the respondents

Pu = If respondent or members of the household purchased organic rice

Av = Respondent’s would be willing to buy organic rice if they were more available

Kpr = Respondent’s knowledge about pesticide residues

I = Monthly household income

consumers were more willing to pay for organic rice compared to the lower income

classes.

4. Models’ performance

The Models’ performance is shown in Table 21. The Hosmer and Lemeshow

Test also known as chi-square test is the recommended test for overall fit of logistic

regression model (Garson, 2009). This test can be considered more robust than the

traditional chi-square test. A non-significant chi-square indicates that the variables in-

cluded in the analysis fit the model well. As shown in Table 21, each of the models

has a finding of non-significance (MIDDLE – 0.588, HIGH – 0.692, ALL, 0.400) that

signifies that the each model adequately fits the data.

Table 21. Performance of the WTP models.

WTPMODEL

Hosmer and Lemeshow test-2 Log

likelihoodNagelkerke’s R2

Chi-square p-value

MIDDLE 6.743 0.588 31.018 0.588

HIGH 4.421 0.692 19.806 0.692

OVERALL 6.666 0.400 121.732 0.400

It can be seen from the above table that -2 Log Likelihood statistic for each

model is high. The -2 Log Likelihood statistic measures how poorly the model

predicts the decisions, the smaller the statistic the better the model. The WTP model

for HIGH income class with a -2 Log Likelihood statistic of 19.806 can be considered

the best model generated.

Nagelkerke’s R2 can be interpreted like R2 in a multiple regression. Thus only

58.8% of the variation in the MIDDLE income class respondents’ willingness to pay

is explained by the explanatory variables included in the MIDDLE income class’

WTP model. Examining the HIGH income class WTP model, only 69.2% of the

variation of HIGH income class respondents’ willingness to pay is explained by the

explanatory variables included in WTP model. On the other hand, only 40% of the

variability in the OVERALL respondents’ willingness to pay is explained by the

explanatory variables included in the OVERALL Willingness to Pay model.

57

It can be observed that all the models have noteworthy values of 0.588, 0.692,

and 0.400 for Nagelkerke’s R2. These values may be relatively low but then, having

low R2 values are typically normal since cross-sectional data was used. Low R2 values

may occur possibly because of the diversity of the units in the sample (Gujarati,

2004). Nagelkerke’s R2 can reach a maximum value of one.

58

Chapter 5

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

A. Summary and Conclusions

The main purpose of the study was to derive the willingness to pay estimates

for organic rice in General Santos City using the Contingent Valuation Method. It can

be said that all of the objectives of this research were attained.

The study utilized some attitudinal, awareness and demographic factors that

may possibly affect the consumers’ willingness to pay for organic rice and subjected

these factors to a Binary Logistic Regression Model (stepwise method). Attitudinal

factors that were considered were the respondents’ attitude towards price, packaging,

and certification, respondents’ past experience of purchasing organic rice, willingness

to buy if organic rice are more available, respondents’ opinion towards sustainable

agricultural practices of the farmers and impact of synthetic chemical in agriculture.

Awareness variables included in the study were respondents’ knowledge regarding

organic rice, sustainable agriculture, pesticide residues and water pollution. The

respondents’ age, gender, household size, number of years of schooling, and monthly

household income (based on income class) were the demographic factors used for the

analysis.

It is concluded that majority of the respondents at least had heard of the word

organic rice. This can be an outcome of the rapid growth of organic agriculture in the

Philippines. However, only few respondents knew well about organic rice.

The Willingness to Pay (WTP) Models for each income class and for the

overall sample were derived in order to compare what factors are given importance by

each income class and the overall sample in determining their willingness to pay for

organic rice. However, LOW Income Class WTP was not generated since no factors

were found to be significant on the willingness to pay for organic rice.

Among the factors considered in the study, the factors that were statistically

significant in determining the OVERALL WTP were the respondents’ past purchase

of organic rice, the respondents’ willingness to buy if organic rice is more available,

the respondents’ awareness regarding pesticide residues, and monthly household

income. For the HIGH Income Class’ WTP Model, the factors that were statistically

significant were the respondents’ willingness to buy if organic rice is more available,

the respondents’ awareness regarding pesticide residues, and household size. Finally,

59

for MIDDLE Income Class WTP Model, only the respondents’ willingness to buy if

organic rice is more available and the respondents’ age were statistically significant.

For the MIDDLE Income Class estimated WTP Model, the respondents’

willingness to buy if organic rice is more available had the greatest impact. On the

other hand, the age of the MIDDLE income class’ respondents contributed to a lesser

extent to willingness to pay for organic rice. The younger the MIDDLE income class

consumer is, the more s/he would be likely to willing to pay for organic rice.

The HIGH Income Class respondents assert their willingness to pay for

organic rice mainly due to their willingness to buy organic rice if it was more

available, followed by the respondents’ awareness about pesticide residues, and the

respondent’s household size. HIGH Income Class respondents who are willing to buy

organic rice will likely to be the ones willing to pay for organic rice. Respondents

who had more knowledge regarding pesticide residues were more likely to be willing

to pay for organic rice. On the other hand, the bigger the household size of HIGH

Income Respondents, the more they are willing to pay for organic rice.

The OVERALL WTP Model considered respondents’ willingness to buy for

organic rice if it was more available as the main variable in determining willingness to

buy organic rice. This signifies that respondents who are willing to buy organic rice if

it was more available are the ones who are more willing to pay for organic rice. The

significance of the second highest explanatory variable (if the respondent experienced

purchasing organic rice) that influenced the OVERALL willingness to pay for organic

shows that consumers who experienced purchasing organic rice before were the ones

more willing to pay for organic rice. The respondent’s knowledge about pesticide

residues, which ranked third that made a great impact on the willingness to pay for or-

ganic rice, implies that consumers who had more knowledge regarding pesticide

residues in rice more willing to pay for organic rice. The last factor, monthly house-

hold income, indicates that consumers who have higher monthly income are more

likely to be willing to pay for organic rice.

For those who had purchased organic rice, the primary reason was the belief

that organic rice is good for their health. The other reasons cited were the

respondents’ belief that organic rice lacks pesticides or has lower content of residues,

that organic farming was good for the environment, and that organic rice had good

taste. Only few respondents indicated that they purchased organic rice because they

60

just wanted to try it and check its quality or they wanted to try something new and

because they think organic rice is trendy to buy.

For those respondents who had not yet tried purchasing organic rice, the main

reasons for not doing so was that they did not know what organic means or because

they did not have any idea regarding organic rice. Other reasons were: organic rice

was too difficult to find, organic rice was too expensive, respondents distrusted the

organic labels in organic rice, respondents thought organic rice did not have anything

special which was worth a higher price, and respondent loyalty to particular rice

varieties.

It is concluded that more than half of the respondents are willing to pay for

organic rice with varying price premium percentage. On the average, respondents,

who were willing to pay a price premium, are willing to pay 31-40% price premium

for organic rice.

Among those who were not willing to pay, the low income class had the

highest number of respondents compared to the higher income classes. When the

researcher already shared what organic rice is, more than half of the respondents were

already willing to pay for organic rice. With the results, the study verified that HIGH

Income Class respondents were the ones more willing to pay and had higher

willingness to pay for organic rice compared to the lower income classes.

B. Recommendations

Based on the descriptive findings of the study, only few respondents knew

well about organic rice and there exist some misconceptions regarding organic rice.

Thus, only respondents who knew very well about organic rice had assessed the

benefits of organic rice. Clear recognition about organic rice is a pre-requisite in order

for the organic rice to break free from its niche product status. Like other similar

studies, pull strategies should be applied to promote organic rice market growth.

Organic market actors must increase consumer “pull” for the expansion of the organic

market. In order to exercise this, the organic market actors must convince themselves

that there exists a growing consumer demand for organic rice and that when they exert

efforts to increase the supply of organic rice this will improve their competitiveness.

Consumer food education for the consumers should be done in order to

facilitate the expansion of organic movement. Coordination among the government,

non-government organizations and private organizations is a must. A long term plan

61

for the organic rice sector is also recommended for the rapid improvement of the

status of organic rice. Some LGUs already advocate organic rice farming but still this

can be regarded as useless if consumers do not apprehend the benefits in consuming

organic rice. Thus, the LGUs or the government as a whole must thoroughly assure an

equal assessment of both supply and demand for organic rice. This can be considered

as a difficult task but this scheme will indeed provide advantages for the consumers

and producers.

Avenues for Future Researches

Researchers may consider this study as a basis for further researches. First,

the study only involved General Santos City as the research area. This study can be

extended to other areas in the Philippines so as to assess and compare willingness to

pay for organic rice.

Secondly, there are other methods in order to determine the impact of factors

on the willingness to pay for a certain new product. This may be considered by future

researchers so as to evaluate what method can be considered as the best method given

that each method has its own strengths and weaknesses.

Lastly, it is recommended to conduct a study considering the side of the rice

farmers such as their willingness to accept to shift from conventional to organic rice

farming since the study had not captured this aspect for some constraints. Better

analysis can be made when both farmers’ and consumers’ willingness to accept and

pay are being studied.

62

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Appendix 1

SURVEY QUESTIONNAIRE

AWARENESS LEVLES

1. Have you heard of “organic rice”?

___ Yes ___ No

2. Your knowledge about organic rice

___ Never Heard

___ Know Word

___ Know Well

3. Your knowledge regarding sustainable agriculture

___ Never Heard

___ Know Word

___ Know Well

4. Your knowledge about pesticide residues

___ Never Heard

___ Know Word

___ Know Well

5. Your knowledge regarding water pollution

___ Never Heard

___ Know Word

___ Know Well

REGULAR RICE BUYING INFORMATION

6. Your household’s average consumption of rice per day

____________________

7. Usual price of Conventional Rice bought

____________________

ATTITUDINAL FACTOR

8. Have you or a member of your family ever purchased organic rice?

___ Yes ___ No

67

REASONS FOR NOT BUYING ORGANIC RICE

9. I do not buy organic rice because

___ I do not know what organic means

___ I don’t think there is anything special about them which justifies a higheKpr

price

___ I do not think it is really organic

___ They are too expensive

___ They are too difficult to get

___ others, specify ________________________

REASONS FOR NOT BUYING ORGANIC RICE

10. I buy organic rice because

___ They have better taste

___ They are good for my health

___ They do not contain pesticide or have lower residues

___ They are good for the environment

___ I just wanted to try them/try something new

___ It is trendy/fashionable to buy organic rice

___ others, specify ________________________

WILLINGNESS TO PAY

11. Are you willing to pay a price premium for organic rice?

___ Yes ___ No (Proceed to no. 13)

12. By how much are you willing to pay for organic rice?

___ < 10%

___ 10 – 20%

___ 21 – 30%

___ 31 – 40%

___ 41 – 50%

___ > 50%

ATTITUDINAL FACTORS

13. Are you willing to buy organic rice if they are more available?

___ Yes ___ No

14. Will you buy organic rice even if it is not yet certified?

___ Yes ___ No

68

15. Do you agree that farmers should engage in sustainable agricultural production prac-

tices?

___ Yes ___ No

16. Do you believe that the use of synthetic chemicals in agriculture has negative effect

on the environment?

___ Yes ___ No

17. Is price an important factor in purchasing rice?

___ Yes ___ No

18. Is packaging of rice important to you?

___ Yes ___ No

SOCIO-ECONOMIC AND DEMOGRAPHIC FACTORS

Name: _______________________________________

Sex: ___ Male ___ Female

Civil Status:

___ Single

___ Married

___ Widow(er)

Age: _______________

Household Size: _______

Educational Attainment

___ Elementary

___ High School

___ College

Number of years of schooling: _________

Occupation: ________________________

No. of working household members: ________

Monthly household income:

___ more than P50,000 per month

___ 30,000 to 49,999 per month

___ 15,000 to 29,999 per month

___ 8,000 to 14,999 per month

69