Price Premiums for Providing Eco‐labelled Seafood: Evidence from MSC‐certified Cod in Sweden

Eco‐labelled seafood is an important tool to promote sustainable development in fisheries. A price premium on eco‐labelled seafood signals a return on investment in sustainable fishing methods, providing an incentive for fishers to adopt such methods. This paper investigates whether Swedish fishermen gained a price premium from participating in the Marine Stewardship Council (MSC)‐certified Swedish Eastern Baltic cod fishery in the period 2011–2012. Using a detailed dataset of landing tickets and log books, we apply a panel data methodology to estimate the MSC price premium. We cannot find reliable evidence that the consumer level premium for MCS cod is actually passed back to the producers in this case.     

Refining the real estate pricing model

Investment theory dictates that capitalisation (cap) rates for freehold real estate should be determined by the risk-free nominal rate of return plus the risk premium (RP) less the expected growth rate, with an allowance for depreciation. However, importing the concept of the RP from the capital markets fails to guide investors through the complexities of the asset, or enable exploration of purchaser preferences and behaviour. A refined pricing model for real estate is proposed, based on a concept termed a risk scale, to distinguish between macro (market) and micro (stock) determinants of risk and growth within the RP. This pricing model is estimated for a major global investment market, using a cross-sectional inter-temporal framework, with a data-set of 497 transactions in the London office sector over 2010 Q2–2012 Q3. Average cap rates are estimated at just over 5%, with asset-specific attributes dominating yield determination, with submarket quality and tenant covenant most important; and unexpired term insignificant, surprising during the ‘flight to safety’ characterising the period. International investors bought at lower cap rates, despite the ongoing economic and financial instability of the study period. Improving understanding of pricing behaviour and market transparency is important and may be advanced through the pricing model.     

Demand for Domestic and Imported Table Wine in British Columbia: A Source-differentiated Almost Ideal Demand System Approach

The premium quality wine market in British Columbia has grown substantively over the past decade. However, few empirical studies exist to quantify how consumers have responded to these wines. This paper employs a source-differentiated almost ideal demand system (AIDS) model with time-varying parameters to estimate the demand for premium quality wines using scanner sales data from the British Columbia wine market. The empirical findings reveal that consumers' response to foreign-produced wines differs from that for wine produced locally. It is evident that the expenditure elasticities for British Columbia, European and Rest-of-the-World white wines are larger than those for red wines. The high expenditure elasticities associated with British Columbia white wines may suggest that these wines are associated with higher quality. We reject the hypotheses of block separability and product aggregation. There is no evidence of structural change from the tests employed in this paper.     

Who gains from Australian generic wine promotion and R&D?

The present paper estimates the distributions of aggregate returns from different types of research and promotion investments by the Australian grape and wine industry among grapegrowers, winemakers, domestic and foreign consumers, and the tax office. The results show that most of the gains from cost-reducing R&D in grape and wine production go to producers and that producers get a far larger share of the benefit from export promotion than that from domestic promotion. Foreign consumers of Australian wine also enjoy a significant share of the benefits from Australian R&D. Sensitivity analysis shows that the key results hold for a wide range of parameter values.     

WINE QUALITY DIFFERENTIALS IN HEDONIC GRAPE PRICING

The paper focuses on identification and evaluation of wine quality characteristics of grapes. A pricing schedule that rewards producers for quality attributes is developed. This quality-based pricing schedule would serve to reduce the production of poor-quality wines by giving farmers a correct and powerful incentive to provide better grapes. The research evaluates the proposed grape price schedule in two steps. The hedonic qualities of Israeli grapes are estimated by relating the contribution of each grape characteristic to wine quality. Then the price of wine quality is estimated, and the hedonic prices for Israeli grapes are calculated. Results show that the current pricing system pays little premium for a better-quality product.     

Demand under product differentiation: an empirical analysis of the US wine market*

Oversupply has led to a number of perplexities for the Australian wine industry in recent times. When disaggregated from the industry level, however, the problem can be better described as a range of attribute‐specific disequilibria. To date, the solutions to this problem have predominantly revolved around supply‐side policies of reducing output through crop thinning or vine pulling. By contrast, this paper focuses on the demand side and argues that the disequilibria may be reduced by gaining a better understanding of the demand for Australian wine. A discrete choice model of product differentiation is used to estimate the demand for wine in Australia's second largest export market, the United States. Implications of the analysis are explored.     

Analyzing Consumer Preference for Wine Product Bundles: Implications for the Retail and Wine Industry

This research examines a marketing technique (bundling) that wine companies may use to gain access to retail stores. The study examined consumers' perception toward bundling with respect to the Australian wine market and the results allowed for the formulation of market segments, which aimed to provide a better understanding of the wine-bundle purchaser. Cluster analysis highlighted three market segments, in particular, one consumer segment is prone to purchasing wine bundles and is interested in deals. While exploratory in nature, the research may provide an insight into global wine marketing strategy.     

Pricing Weather Insurance with a Random Strike Price: The Ontario Ice-Wine Harvest

Weather insurance within the agricultural sector has been limited by the difficulty in defining the appropriate weather event and in pricing the product. We develop a new pricing method for weather insurance under situations where returns depend not only on the occurrence of the weather event, but also its timing. The method is used to price weather insurance for ice wine. Because the harvest quantity of grapes for ice wine degrades over time, the strike value on the weather event measured as harvestable hours is random. We develop a Monte Carlo method to estimate the premium.     

The relation between Australian wine show results and prices

This paper assesses wine show results and their relation with wine prices across seven Australian shows. Consistent with previous studies, only a moderate degree of agreement for medals exists among shows. The correlation of wine show points across shows is also only moderate. Hedonic wine price functions, which employ show medal/points as direct measures of quality, indicate that for some shows estimated premiums are statistically significant and may possibly be practically important. The relation of show opinion with prices, however, is reduced for models which recognise the separate impact of objective quality and show opinion on prices. The results imply that producers should seek to improve the objective quality of their wines to achieve price premiums. Producers could also selectively target some wine show opinions to gain additional higher prices.     

The evolution of foreign wine demand in China

We estimate source‐differentiated wine demand in China using the absolute price version of the Rotterdam demand system. Within the last decade, China has gone from obscurity to an important participant in global wine trade. The continual growth of Chinese wine imports suggests that a one‐time structural shift approach may not fully capture how consumption patterns or demand preferences have changed over time. Thus, a rolling or moving regression procedure is used to account for continual adjustments in import demand patterns and to evaluate overall parameter instability. Our results confirm that Chinese consumers hold French wine in high regard and that French wine demand has consistently increased over the last decade, more than any other exporting source. Consumers in China have gone from allocating about 1/3 to over 1/2 of every dollar to French wine and the expenditure elasticity for French wine mostly increased while the market was expanding. Although Australian wine has a very solid standing in the Chinese market, results suggest that its market share will likely remain unchanged. Marginal budget share and expenditure elasticity estimates indicate that Australia will continue to account for about 20 per cent of the foreign wine market in China.     

Drinking cheaply: the demand for basic wine in Italy

The wine market has evolved dramatically over the last three decades. The premium wine segment has expanded significantly to the detriment of basic wines. Nevertheless, in traditional wine producing and consuming countries, inexpensive wines still account for a large market share, both in volume and value. Marketing strategies for such wines are changing in an attempt to tap this increasingly crowded market segment. Despite its importance, the basic wine segment has not been studied in‐depth and is often assumed to have no product differentiation. This paper tried to ascertain the existence of a possible degree of heterogeneity within nonpremium wines and to measure, by means of elasticity computation, the relationships among categories of wines aggregated with criteria that go beyond price. A demand system (censored QUAIDS) was estimated, using a statistically representative panel of 6,773 Italian households, to see to what extent, if any, substitution occurs in home consumption of basic wines, which is the main channel of distribution of inexpensive wines in Italy. Although price is an important lever in supply policies, our results also suggest the importance of packaging, such as carton as an alternative to glass.     

Disaggregated econometric estimation of consumer demand response by alcoholic beverage types

The paper presents estimates of price elasticities of demand for 12 disaggregated alcoholic beverages in Australia: premium beer, full strength beer, low alcohol beer and mid‐strength beer; red bottled wine, white bottled wine, sparkling wine, cask wine; dark and light ready‐to‐drink (RTD); and dark and light spirits. These disaggregated categories correspond closely to the commodities of interest to public policymakers with respect to taxation and health policies. The system of demand equations is estimated with Nielsen's data using a semiflexible Almost Ideal Demand System model in order to impose negative semi‐definiteness on the demand parameters. Results indicate elastic own‐price elasticities for virtually all commodities. Cross‐price elasticities suggest that beverages most linked with negative externalities, namely full strength beer, dark RTD and dark spirits, may need to be taxed jointly. Any proposed tax increase to cask wine may also result in consumers shifting demand to more undesirable beverages. The elasticity estimates are used to illustrate the effect of a hypothetical change towards taxation equalisation based on alcohol content. These elasticities offer crucially needed inputs for analysing any tax change policies.     

Hedonic wine price functions with different prices

This study examines the impact that recommended retail prices, actual market prices and the release of a prominent wine guide have on Australian wine hedonic price estimates, for attributes such as sensory quality, winery reputation and grape region. In general, hedonic price estimates appear to be independent of prices employed. The main identified differences in estimates relate to the size of the producer and some regional impacts. For market prices only, increases in producer size are estimated to reduce prices. This implies the existence of supply chain quantity discounting price practices. The impact of an authoritative wine guide appears to have a negligible influence on prices in Australia. In the absence of market transaction prices, the common practice of employing recommended prices for hedonic wine price estimation is defendable.     

Role of credence and health information in determining US consumers' willingness-to-pay for grass-finished beef

Consumer demand for forage- or grass-finished beef is rapidly emerging in the US. This research uses data elicited from consumer surveys and experimental auctions to provide insight on product attributes (taste/flavour, credence and nutritional characteristics) and socio-demographic factors that are most important in determining US consumers' preferences and willingness to pay premiums for grass-finished versus grain-finished beef. Information related to beef production processes increased the probability consumers would be willing to pay a premium for grass-fed beef. However, it appears that health-related messages are more important drivers of willingness-to-pay, on average, than the absence of antibiotics and supplemental hormones and traceability. Labelling information regarding grass-fed beef's nutritional content and related production processes is vital for maintaining and growing premium niche markets for grass-fed beef in the US. The relative size of the willingness to pay estimates compared to previous cost estimates suggest that the Australian beef industry may have a comparative advantage for finishing beef on forage and marketing premium grass-fed differentiated beef products in the US market.     

A HEDONIC PRICE FUNCTION FOR AUSTRALIAN PREMIUM TABLE WINE*

A hedonic price function, relating the price of Australian wine to its attributes, is estimated. Six attribute groups are found to be statistically important in explaining deviations from average wine prices, i.e., quality, cellaring potential, grape variety/style, grape region, grape vintage and producer size. Various interaction terms between these variables and the impact of the year of marketing are also modelled. The consequent marketing implications for producers and consumers are discussed.     

Evolving from a rum state: Australia's alcohol consumption

Europeans settlers in the Australian colonies had a reputation of being heavy drinkers. Rum dominated during the first few decades, followed by beer. It took until the 1970s before Australia's annual per capita consumption of wine exceeded 10 L, and even then, wine represented only one‐fifth of national alcohol consumption. But over the next two decades, per capita wine consumption nearly trebled and beer consumption shrunk – the opposite of what happened to global alcohol consumption shares. This paper draws on newly compiled data sets to (i) reveal that Australia was not much more alcoholic than Britain or southern Europe during the nineteenth century and (ii) help explain why it took so long for a consumer interest in wine to emerge in Australia.     

Effects of subsidized crop insurance on crop choices

This study focuses on how subsidized crop insurance affects crop choices. Crop insurance may change farm investments by reducing risks and providing subsidies. First, actuarially fair insurance reduces risks in crop production and marketing, holding the expected return constant. Second, insurance subsidies encourage farms to purchase crop insurance, which increases the expected return to insured risky crops. Farms also have many self‐insurance mechanisms such as crop diversification or working off the farm. We derive conditions under which (1) unsubsidized and actuarially fair crop insurance or (2) insurance premium subsidies lead to more investment in a risky higher return crop. We then examine the role of self‐insurance for these conditions. The impact of premium subsidies is decomposed into a direct profit effect and an indirect coverage effect. These effects are explained by substitutions between market insurance and self‐insurance and between a risky crop and a safe crop. We discuss each effect as a combination of subsidy and risk effects. Numerical illustrations show that an insurance subsidy has a larger impact on risky crop investments compared to that of an input subsidy when farms are more risk‐averse and have high costs of self‐insurance. The framework provides a novel way to evaluate subsidized crop insurance programs.     

The Elusive Price Premium for Ecolabelled Products: Evidence from Seafood in the UK Market

Ecolabelling is an increasingly important tool used in the promotion of sustainable forestry and fishery products around the world. Whether the consumer is actually paying a price premium for ecolabelled products is of fundamental importance as it indicates a return on the investment of sustainable practices, providing an incentive for producers to undertake such practices. This article seeks to address the question of whether or not an actual premium is being paid by consumers for ecolabelled seafood by conducting a hedonic analysis of Marine Stewardship Council (MSC)‐certified frozen processed Alaska pollock products in the London metropolitan area in the UK market using scanner data. Regression results show a statistically significant premium of 14.2%. This implies the presence of market differentiation for sustainable seafood and the potential of the MSC’s fisheries certification programme to generate market incentives for sustainable fisheries practices.     

Spatial price premium transmission for Meat Standards Australia‐graded cattle: the vulnerability of price premiums to outside shocks

Studies of market integration show that price changes are transmitted spatially through arbitrage. Transmission across differentiated agricultural products is important to investigate, but it has not been explored given its complexities for assessment. Using data from Australian cattle markets, we examine the dynamics of Meat Standards Australia price premium transmission between states. An impulse response function analysis using Bayesian vector autoregression with sign restriction identification shows that shocks to prices and price premiums are partially transmitted contemporaneously between markets and it takes several weeks to complete transmission. In addition, we find an asymmetry of price and price premium shocks originating in Southern Queensland that have an inverse immediate impact in New South Wales, and take months to transmit the usual price response. This outcome may be explained by differences in cattle availability in each state, which can be related to forage availability due to weather conditions. Based on these results, producers can forecast fluctuations on price premiums and adjust their cattle supply accordingly.     

Label Style and Color Contribution to Explain Market Price Difference in Italian Red Wines Sold in the Chinese Wine Market

This study employs a hedonic price methodology to investigate the implicit price of individual labelling characteristics of Italian red wines sold in the Chinese market. Our results highlight the most important quality attributes (extrinsic and intrinsic) given in the label capable to explain price difference. In particular, reveal significant premium price for wine origin, identified in particular through the DOC/DOCG appellation given in the label, and for clean labels or labels with particular designs. On the contrary, a price discount has been revealed for Italian wines produced with local grape varieties and with a label characterised by warm colors. These results, partly in disagreement with other empirical evidence, contribute to enrich the existing literature in this field by providing useful suggestions both to the producers and other stakeholders operating in the wine industry.