The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0007-070X.htm Ethical food labels in consumer preferences Ethical food labels Katharina Bissinger and Daniel Leufkens Institut of Agricultural Policy and Market Research, Justus-Liebig-Universität, Gießen, Germany Abstract Purpose – Since fairtrade labels are upcoming market instruments, the purpose of this paper is to identify and quantify consumers’ willingness to pay for fairtrade coffee products and tea. Thereby, this paper contributes to the discussion in favour of a non-private regulation of ethical food labels (FLs). Moreover, the paper provides information about the consumer behaviour of the German buying public. Design/methodology/approach – The empirical analysis is based on homescan panel data of 13,000 representative German households, which includes actual purchase data of ground coffee, single-serve coffee, espresso, and tea for a five-year sample period from 2004 to 2008. As a methodological approach, the hedonic technique is used to model coffee and tea prices as a function of time, store, and product characteristics. Findings – Regarding the variables of interest branding a product leads to an average price premium of 22.1 per cent, while the organic FL achieves an average price premium of 34.3 per cent. The highest average price premium of 43.1 per cent is ceteris paribus paid for fairtrade labels. In the case of fairtrade labels, tea products earn the highest implicit prices with 74.0 per cent, followed by ground coffee (54.9 per cent), espresso (24.7 per cent), and single-serve coffee (18.9 per cent). Originality/value – The present analysis supplements the discussions around the willingness to pay for fairtrade certified products by the German buying public, a product differentiation between coffee products and the introduction of labelled tea. As the data set includes daily purchases, it allows analysis of consumer behaviour on a disaggregated level, given detailed information on prices, stores, origins, FLs, and so on. Keywords Hedonic price analysis, Tea, Coffee, Fairtrade, Food label Paper type Case study 1. Introduction Lately, food labels (FLs) are a fundamental instrument to determine the buying behaviour of consumers given that one in three dollars is spent on labelled basic essentials. Correspondingly, the global market share of labelled products from Germany was about 34 per cent in 2013, solely passed by the market share of labelled products from Great Britain (41 per cent), Spain (41 per cent) and Switzerland (45 per cent) (Nielsen, 2014). Initially, the idea behind the introduction of labels into markets was to reduce information asymmetry between producers and consumers by creating a quality signalling (see e.g. Akerlof, 1970; Spence, 1973; Stiglitz, 1989). Certainly, asymmetry of information is frequently discussed on food markets, as consumers are not aware of the products qualities before (“experience attributes”) or even after (“credence attributes”) consumption (Nelson, 1970). In this context, FLs are interpreted as signals to indicate the quality attributes of agricultural commodities (Golan et al., 2001). Moreover, fairtrade[1] labelling pushed the distribution of fairly traded products (e.g. World Shops) into the mainstream food market (e.g. supermarkets) (Moore, 2004). Nowadays, a new dimension of quality labels is introduced to national and international retail markets. This new dimension is depicted as the ethics of a production process and the ethics in trading intermediate and final commodities. Since ethical or more precisely fairtrade labels are upcoming marketing instruments the objective of this paper is to identify and quantify the consumers’ willingness to pay for fairtrade coffee products and tea to answer the question whether a non-private regulation of ethical FLs is feasible. Until now it has lacked empirical research of actual purchase data of German households. 1801 Received 31 October 2016 Revised 22 February 2017 Accepted 8 March 2017 British Food Journal Vol. 119 No. 8, 2017 pp. 1801-1814 © Emerald Publishing Limited 0007-070X DOI 10.1108/BFJ-10-2016-0515 BFJ 119,8 1802 Besides, particularly coffee prices are highly volatile in international markets. Within the research period of this study (2004-2008) the coffee price per pound ranged from USD0.l6, in 2004, to USD1.29 in 2008. After 2008, there have been more ups and downs and finally, the coffee price reached a comparable price level in 2017, namely, USD1.43 per pound ( January 2017) (Macrotrends, 2017). Finally, those price fluctuations are smoothed by a fair floor price to generate a more secure situation for producers in the south (FLO, 2011). Price fluctuations are less distinct, in the case of the agricultural commodity, tea. However, tea prices increase since 2004 until 2017 (besides a slight kink in 2005 and a downward trend since 2012. At the end of our research period (2008), overall tea prices lay by USD2.42 per kg. In 2016, tea costs USD2.64 per kg on the commercial world market. Since those prices are still decreasing it is possible that we reach a more comparable level (relatively to 2008) in the near future (Statista, 2017a). The empirical analysis of this paper is based on 13,000 representative German households provided by the consumer research association, Gesellschaft für Konsumforschung (GfK). The statistics include actual purchase data of ground coffee, single-serve coffee (coffee pads), espresso, and tea for a five-year period from 2004 to 2008. As a methodological approach, the hedonic analysis developed by Lancaster (1966) and Rosen (1974) is used to model coffee and tea prices as a function of time, store, and product characteristics. The study distinguishes between supply- and demand-side effects and introduces a new and detailed insight into remarkable, both in sample size and information content, real consumption data for coffee products and tea certified as fairtrade. For this reason, the use of actual purchasing data overcomes much of the shortcomings of previous studies in the field of ethical consumerism. In doing so, the paper shows a high and significant willingness to pay for fairtrade products. This supports the assumption that it is necessary to think about regulations in the field of ethical labelling. Accordingly, the paper continues with a brief overview of the academic literature concerning fairtrade, food labelling and consumer preferences. The paper is structured as follows. In Section 2, a literature-based overview is given continued in Section 3 by a description of the data used in the analysis. After that Section 4 outlines, the conceptual model and Section 5 presents the empirical results, while Section 6 discusses the findings and policy implications. Finally, Section 7 concludes the paper and gives directions for future research. 2. Literature review Section 2 outlines the findings of the current literature on consumer preferences and the different perception of fairtrade and organic farming in China, Greece, Italy, Sweden, the UK, the USA, and across national borders. The selection of studies and hence, the choice of study areas is not only justified by the thematic relevance (WTP, coffee industry) but also by a study of Andorfer and Liebe (2011), identifying those geographical regions (the UK, USA, EU, and Asia) as an agglomeration of research on fairtrade. Predominantly, the academic fairtrade literature spotlights on labelled coffee products (e.g. Loureiro and Lotade (2005); Didier and Lucie (2008); Maietta (2003); Schollenberg (2012)). Undoubtedly this list of willingness to pay studies on fairly labelled coffee is a little dated from today’s perspective. Nevertheless, those studies are still contemporary and unchallenged. However, they also enable comparison with the results of the study at hand since the research period is comparable. The present analysis supplements the discussions around the willingness to pay for fairtrade certified products by the German buying public, a product differentiation between coffee products and the introduction of labelled tea. The conjoint analysis of Loureiro and Lotade (2005) depicts a more advanced willingness to pay of the American buying public for fairtrade coffee in comparison to organic coffee. Identical predictions are imposed by the study of Didier and Lucie (2008), whereas the premium is higher for chocolate. Galarraga and Markandya (2008) confirm those findings with their analysis of coffee prices in the UK. They predict an increased willingness to pay of British consumers by 11.26 per cent for fairtrade labelled coffee. Even though they combined fairtrade and organic farming, they assume the fairtrade premium to be higher than the one of organic farming. According to Loureiro and Lotade (2005, p. 483): “environmental benefits of organic production are too abstract (coffee and chocolate)”. Following Loreiro and Lotade the environmental impact of organic farming is more obvious in the case of other products, like fruits and vegetable. A plausible explanation could be that those products are mostly sold as unprocessed agricultural commodities without adding intermediate goods. On the contrary, Maietta (2003) illustrates a higher willingness of Italian consumers to pay for organically produced coffee. Within her study, she indicates a price premium of 9 per cent for fairly traded coffee and a superior price premium of 25 per cent in the case of organic coffee production. Consequently, the attempt by Loureiro and Lotade (2005) to explain the observed circumstances is negative, in Italy. A reason for this outcome could be that Italians’ preferences in coffee consumption are slightly different from those of the buying public in other European countries. There is a reason to believe in such an argumentation since the coffee culture is highly implemented into the Italian lifestyle. Moreover, it is more reasonable that consumer preferences vary across country and time. Such a variation, as well as a diverse image of labels and the local market structure, is more likely to be responsible for different findings concerning the consumers’ willingness to pay. This brief overview of the current research on the consumer willingness to pay, in regard to fairtrade and organic labelling, is concluded by three special cases. At first, there is the analysis of Krystallis and Chryssohoidis (2005). Their research reveals that the Greek buying public is totally independent of prices and labelling of organic food, no matter which product. This goes in line with the forgone interpretation and points of a different market structure and a different average consumer in Greece. Another special case carved out by Schollenberg (2012). Until now the highest willingness to pay for fairly traded coffee is, with an average price premium of 38 per cent, registered in Sweden. According to Schollenberg (2012), this result is highly determined by the political alignment of Swedish consumers and the one-sidedness of his investigation. Lastly, there is a third case, particularly the Chinese market. Although the Chinese coffee market is less distinct as in Europe, the price premium reaches an average value of 22 per cent and thus is highly comparable with the willingness to pay for fairtrade products of European citizens (Yang et al., 2012). After all, the young Chinese generation aligns their interests and purchasing choices within the food sector to international markets, which justifies the increase in coffee consumption in a tea-consuming nation. To round this brief overview over the willingness to pay of the buying public in different European, American, and Asian countries off, the results of a transnational study are provided. Hiscox et al. (2011) analysed the buying behaviour of people buying coffee via the internet sales platform ebay.com. Within the period between 2007 and 2009 consumers were willing to pay a price premium of 23 per cent for fairly traded and labelled coffee. The given literature review leads directly to the main research question of this paper as follows: RQ1. What are German consumers willing to pay for fairtrade certified products and how are they got in the lane with the previous performance? To answer this question, the paper continuous with the model setup and some descriptive statistics. 3. Data and descriptive statistics The empirical analysis of this paper is based on the homescan panel data ConsumerScan provided by the GfK consumer research association, which is the largest in Germany. Ethical food labels 1803 BFJ 119,8 1804 The GfK panel contains food purchase information of about 13,000 representative German households[2] buying products from retailers and special food shops for a five-year sample period from 2004 to 2008[3]. As the data set includes daily purchases it allows analysis of consumer behaviour on a disaggregated level, given detailed information on prices, stores, origins, FLs, and so on. Searching for fairtrade labelled products in the GfK panel two commodity categories could be identified. Those are tea (medicinal, herbal, and fruit) and coffee, while the category coffee is differentiated in the subcategories of ground coffee, single-serve coffee portions (pads and capsules), and espresso. Coffee (including espresso) and tea are both fundamental components of the German beverage market. Coffee (coffee beans, ground coffee, coffee portions, and soluble coffee) is ranked as the third best-selling beverage in 2015, with a market share of 49.8 per cent of beverages bought by the German population (Statista, 2016b). Meanwhile, tea managed rank six (30.9 per cent) at the same ranking list (Statista, 2016b) and a forecasted of German coffee and tea consumption proclaimed 7.8 liters per capita in 2014. This goes in line with the average annual consumption of coffee and tea within the entire period from 2004 to 2008, which lay by 7.62 liters per capita (Groß, 2015). Consequently, preferences of consumers on the German beverage market seem to be nearly equal over time. Beyond that, coffee and tea products were two of the first and major commodities in the field of ethical production debates. Finally, coffee is the first product certified as fairly traded, whereas the certification of the first tea plantation took place in 2000 (Buser, 2012; Transfair, 2009). Due to a long history of fairly traded coffee and its establishment within the fairtrade market, the growth rates of fairtrade certified coffee and tea products have been steady over time (Fairtrade International, 2015). Furthermore fairtrade certified coffee ranks highest in fairtrade sales statistics, because 47 per cent of fairtrade farmers are coffee producers. Tea ranks a little bit lower at the 5th place in sales statistics and accounts for 20 per cent of all fairtrade producers (Statista, 2016a, c). Against this backdrop, the current study based on homescan panel data from 2004 to 2008 is unique in size and to the point of the German beverage market. In Table I, descriptive statistics of the variable used in the empirical estimations are given, based on daily product purchases. Relatively to the high number of observations, products with a fairtrade label are very rare in the GfK panel, with an average share of lower than one per cent. This should not be surprising taking the time period into account. At the time only a few fair-traded products were available in the German shopping markets. The same applies to organic products with an observation average of about 2.5 per cent, also. It is particularly interesting to note that branding is more important within the coffee industry than it seems to be for tea products. Since varied roasting and feeding of diverse flavours lead to highly differentiated products in the coffee industry, tea, on the other hand, is less about complex process units than about adding a flavour to the original main product. Hence, branding is more likely about the image than about product differentiation within the tea market. Moreover, organic farming is more important within the tea market than in the coffee market. A plausible explanation could be a difference between consumer groups and the medical application of some teas. The deflated[4] average prices for coffee, portions, espresso, and tea were 6.07, 14.86, 13.03, and 37.06 EUR per kg, while more than half of the products within the sample were bought in discounters. Also regarding Figure 1, it becomes apparent that the average price (EUR/kg) is highest for tea and the coffee prices rise with a higher level of manufacture (order: ground, espresso, and single-serve coffee). Hence, the price for manufactured coffee products increases subject to higher product costs, respectively, with increasing production costs. As mentioned before the relative price levels for coffee and tea seem to be very steady over time. Meanwhile, the Variables Unit Coffee Portions Espresso Tea Price Real in EUR/kg 6.07 (1.45) 14.86 (6.34) 13.03 (3.15) 37.06 (28.93) Trend Monthly ( January 2004 ¼ 1) 32.1 (16.9) 42.0 (13.0) 31.5 (16.7) 33.2 (16.0) Spring DV (RC: Winter) 0.25 (0.43) 0.24 (0.43) 0.24 (0.43) 0.23 (0.42) Summer DV (RC: Winter) 0.24 (0.43) 0.24 (0.42) 0.26 (0.44) 0.19 (0.39) Fall DV (RC: Winter) 0.27 (0.44) 0.28 (0.45) 0.24 (0.42) 0.28 (0.45) Winter DV (RC) 0.24 (0.43) 0.24 (0.43) 0.27 (0.44) 0.31 (0.46) December DV (RC: January to November) 0.10 (0.29) 0.11 (0.31) 0.10 (0.30) 0.10 (0.29) Specialty stores DV (RC: discounter) 0.01 (0.12) 0.01 (0.09) 0.05 (0.22) 0.01 (0.08) Other stores DV (RC: discounter) 0.02 (0.15) 0.04 (0.20) 0.04 (0.20) 0.01 (0.12) Supermarkets DV (RC: discounter) 0.04 (0.20) 0.02 (0.15) 0.02 (0.15) 0.07 (0.26) Hypermarkets DV (RC: discounter) 0.32 (0.46) 0.36 (0.48) 0.37 (0.48) 0.28 (0.45) Discounter DV (RC) 0.61 (0.49) 0.57 (0.49) 0.51 (0.50) 0.63 (0.48) Promotion DV (RC: standard price) 0.36 (0.48) 0.16 (0.37) 0.09 (0.29) 0.03 (0.18) 3.6 (51.7) 282.8 (352.3) 540.8 (588.5) 11.2 (114.8) Transport costs Distancea in km Pack size In kg 0.50 (0.05) 0.15 (0.06) 0.26 (0.08) 0.02 (0.01) Brand DV (RC: private label) 0.85 (0.35) 0.83 (0.37) 0.84 (0.36) 0.66 (0.47) Organic DV (RC: non-organic) 0.01 (0.10) 0.01 (0.08) 0.03 (0.16) 0.05 (0.22) Fairtrade DV (RC: non-fair trade) 0.01 (0.09) 0.00 (0.04) 0.04 (0.18) 0.00 (0.03) Observations 459,295 64,099 10,613 148,351 Notes: DV, dummy variable; RC, reference-category. aDistance from the capital city of products origin to Berlin Source: Authors’ calculations using the GfK ConsumerScan (2004-2008) data 1805 Table I. Descriptive statistics of mean (standard deviation) pricecoffee price portion price espresso price tea 60 50 EUR per kg Ethical food labels 40 30 20 10 0 5 10 15 20 25 30 month 35 40 45 50 55 60 Source: Authors’ calculations using the GfK ConsumerScan (2004-2008) data fluctuations of tea are a little more distinct in comparison to coffee prices. A plausible explanation could be a seasonal deviation in the production of the agricultural commodity, namely, tea. This assumption is confirmed by the periodic sequences, as price fluctuations are nearly at the same level and occur all five to ten months. This can also be seen in Table I since the tea frequency of purchase per season reaches from 0.23 per cent in spring to 0.31 per cent in Winter. On the contrary, the seasonal variation in case of coffee products is less definite, because of differences in the harvest. Furthermore, it must be kept in mind that even overall prices fluctuate within delimited bounds the standard deviation between coffee, portions, espresso, and tea products is of Figure 1. Real price development in the period from January 2004 to December 2008 BFJ 119,8 about 23.9, 42.7, 24.2, and 76.9 per cent. Hence, the standard deviations suggest a high degree of price variations across the observed products, which might be due to the fact of highly differentiated product characteristics e.g. fairtrade labels. A commonly known empirical method to evaluate such product characteristics is the hedonic price analyses as shown in Section 4. 1806 4. Empirical model Hedonic price analyses can be used to disaggregate product prices into their single components and estimate implicit prices for the existence of several characteristics. This approach was proposed by Lancaster (1966) and Rosen (1974). In particularly with regard to the disclosure of implicit prices for “credence attributes” (Nelson, 1970) such as FLs the hedonic analysis is very helpful (Costanigro and Mccluskey, 2011). In general, the hedonic analysis differentiates consumers’ total utility, by deriving the sum of utilities associated with each individual attribute of a product. Thereby prices paid by consumers were attributed to the mixed set of characteristics a single product contains and through this a price-quality relationship is explored to evaluate implicit characteristic values. The underlying assumption states that the observed price of a product is equal to the sum of marginal monetary values associated with the single characteristics in the following manner (Ladd and Suvannunt, 1976): pricej ðxÞ ¼ f j ðx1 ; x2 ; x3 ; . . .; xn Þ (1) where x donates a vector of all product characteristics k ¼ 1,…, n which are related with product j. General theory Equation 1 shows the equilibrium price which is determined simultaneously by product characteristics demanded by consumers and supplied by producers. Accordingly, the implicit price of a characteristic x contains the per unit marginal cost per unit of production as well as the relative value a consumer attributes to a certain characteristic (Schröck, 2014). Based on this theoretical background of the hedonic price analyses the empirical model estimated in this study is determined by supply- and demand-side variables including the vectors time effect (TE), point of purchase (PP), cost of distribution (CD) and FL in the following price-dependent[5] form: pricejht ¼ b0 þ 5 X a¼1 b1a TE a; jht þ 4 X b¼1 b2b PP b; jht þ 3 X c¼1 b3c CDc;jht þ 3 X b4d FLd; jht þejht (2) d¼1 where pricejht is the real price in EUR per kg for the product j paid by household h in period t. The remaining vectors are defined along these lines: 5 X b1a TEa; jht ¼ b11 trendþb12 springþb13 summerþb14 winterþb15 december (3a) a¼1 4 X b2b PPb; jht ¼ b21 specialty þb22 other stores þb23 supermarketsþb24 hypermarkets (3b) b¼1 3 X c¼1 b3c CDc; jht ¼ b31 promotionþb32 transport costsþb33 pack size (3c) 3 X b4d FLd; jht ¼ b41 brand þb42 organicþb43 fairtrade (3d) d¼1 where the vector TE takes a continuous price development in the observed periods (trend) as well as seasonal structures into account. The variable December controls especially for price effects of cultural family festivities during Christmas and New Year, as there is an increased demand observable for coffee and tea products in Germany at this time. The Vector PP denotes the characteristics of different distribution strategies of suppliers (respectively, retailers)[6]. It can be expected that higher investments in distribution channels (e.g. specialty stores) lead to higher prices. Furthermore, retailers distribution costs are implicated by the vector CD. Hence, it could be expected that product promotions[7] and bigger package sizes lead to a reduction in prices, while transports over a longer distance increase prices. Taking the known literature into consideration, all three FL variables brand, organic, and fairtrade should lead to higher product prices (see e.g. Hassan and Monier-Dilhan, 2006; Cranfield et al., 2009; Galarraga and Markandya, 2008). Using the hedonic price model from Equation 2 supply- and demand-side variables can be estimated to distinguish between implicit prices for the defined characteristics of foods. Although it may be argued that some of the characteristics (e.g. fairtrade labels) are affected also by supply- (e.g. higher production costs) and likewise demand-side parameters (e.g. consumer preferences) the observed effects should go in the same direction. The following Section 5 shows the estimated results of the models for coffee, portions, espresso, and tea. 5. Results Since the hedonic theory does not provide a preferred functional form, the model of Equation 2 was estimated in several functional specifications. Both kinds of linear and semi-logarithmic specifications fit the data well, have good explanatory power (R2 and F-value), and provide plausible and robust coefficients ( p-value). Therefore, the model was estimated linear and semi-logarithmic. Regression results with robust standard errors are presented in Table II. Based on the hedonic price function almost all coefficients are highly significant (0.1 per cent level) and plausible. The only exceptions are the seasonal and December variables. This could be due to the classification of coffee and tea products as foodstuff for daily use and the yearlong availability of each product type on the market. Evaluating the adjusted R2 and F-values all estimations have a good model fit. Therefore, higher diversified shop types (more ranges), and transport costs (longer distances) lead to higher prices, while price promotions and larger packages reduce the product prices on the other hand. Regarding the variables of interest branding a product leads ceteris paribus to an average[8] price premium of 22.1 per cent[9], while the organic FL achieves an average price premium of 34.3 per cent. The highest average price premium of 43.1 per cent is ceteris paribus paid for fairtrade labels. In the case of fairtrade labels, tea products earn the highest implicit prices with 74.0 per cent, followed by ground coffee (54.9 per cent), espresso (24.7 per cent), and single-serve coffee (18.9 per cent). 6. Discussion Regarding descriptive statistics, brands have been depicted as an essential component within the coffee industry and a little less important within tea marketing. The analysis at hand states that an average consumer is willing to pay an additional price premium of 22.1 per cent for branded coffee products and tea in Germany. The empirical evaluation of Netemeyer et al. (2004) implicitly provides an average price premium for US-American brands (mostly within the textile industry), with a share of 69 per cent of the actual Ethical food labels 1807 BFJ 119,8 1808 Table II. Estimated results of the hedonic price analysis (2004-2008) Model Estimators Constant Trend Spring Summer Fall December Specialty stores Other stores Supermarkets Hypermarkets Promotion Transport costsa Pack sizeb Brand Organic Fairtrade Observations Adjusted R2 F-value Coffee (1) price (2) ln price 8.022*** (0.09) 1.336*** (0.01) 0.004*** (0.00) 0.001*** (0.00) 0.033 (0.03) 0.008 (0.01) 0.211*** (0.04) 0.036*** (0.01) 0.056 (0.04) 0.009 (0.01) −0.130* (0.06) −0.022* (0.01) 1.913*** (0.03) 0.255*** (0.00) 0.716*** (0.02) 0.096*** (0.00) 0.055** (0.02) 0.009** (0.00) 0.307*** (0.01) 0.045*** (0.00) −0.357*** (0.01) −0.052*** (0.00) 0.001*** (0.00) 0.010*** (0.00) −5.808*** (0.19) −0.397*** (0.01) 0.827*** (0.01) 0.143*** (0.00) 1.410*** (0.03) 0.200*** (0.00) 3.776*** (0.04) 0.389*** (0.00) 459,295 0.236 0.231 9,482*** 9,213*** Portion (3) price 18.051*** (0.11) −0.031*** (0.00) −0.280*** (0.08) −0.065 (0.08) 0.099 (0.08) 0.026 (0.10) 9.965*** (0.38) 3.713*** (0.19) 1.335*** (0.14) 2.225*** (0.05) −3.272*** (0.07) 0.009*** (0.00) −44.323*** (0.57) 1.871*** (0.04) 3.547*** (0.20) 2.895*** (0.45) 64,099 0.500 4,280*** (4) ln price 1.211*** (0.01) −0.003*** (0.00) 0.000 (0.00) 0.011*** (0.00) 0.015*** (0.00) 0.003 (0.01) 0.447*** (0.01) 0.168*** (0.01) 0.044*** (0.01) 0.122*** (0.00) −0.167*** (0.00) 0.055*** (0.00) −0.626*** (0.01) 0.129*** (0.00) 0.242*** (0.01) 0.169*** (0.02) 0.645 7,779*** Model Espresso Tea Estimators (5) price (6) ln price (7) price (7) ln price Constant 13.608*** (0.11) 2.006*** (0.01) 30.090*** (0.65) 1.780*** (0.04) Trend −0.022*** (0.00) −0.002*** (0.00) −0.011* (0.01) −0.001*** (0.00) Spring 0.233** (0.08) 0.021*** (0.01) −0.701*** (0.20) −0.014** (0.00) Summer −0.058 (0.10) −0.008 (0.01) −0.742*** (0.20) −0.007 (0.00) Fall 0.395*** (0.09) 0.031*** (0.01) 1.020*** (0.20) 0.022*** (0.00) December −0.095 (0.13) −0.011 (0.01) 0.367 (0.27) 0.012* (0.01) Specialty stores 1.649*** (0.15) 0.126*** (0.01) 93.942*** (1.77) 1.204*** (0.02) Other stores 1.924*** (0.18) 0.127*** (0.01) 21.863*** (0.91) 0.422*** (0.01) Supermarkets 1.004*** (0.19) 0.084*** (0.01) 10.421*** (0.31) 0.215*** (0.01) Hypermarkets −0.459*** (0.07) −0.028*** (0.01) 12.427*** (0.24) 0.295*** (0.00) Promotion −0.535*** (0.10) −0.054*** (0.01) 3.108*** (0.49) 0.119*** (0.01) a 0.002*** (0.00) 0.030*** (0.00) 0.062*** (0.01) 0.194*** (0.00) Transport costs −7.997*** (0.31) −0.318*** (0.01) −508.337*** (30.54) −0.308*** (0.01) Pack sizeb Brand 0.817*** (0.09) 0.060*** (0.01) 19.222*** (0.27) 0.450*** (0.00) Organic 0.390** (0.13) 0.032** (0.01) 24.085*** (0.35) 0.725*** (0.00) Fairtrade 2.987*** (0.10) 0.236*** (0.01) 35.266*** (3.93) 0.424*** (0.05) Observations 10,613 148,351 0.305 0.323 0.356 0.351 Adjusted R2 F-value 312*** 338*** 5,455*** 5,344*** Notes: Robust standard errors reported in parentheses. aAccordingly ln(transport costs + 1); baccordingly ln(pack size). Coefficients with *,**,***significant at the 5, 1, 0.1 per cent level, respectively Source: Authors’ calculations using the GfK ConsumerScan (2004-2008) data consumer price. Certainly, these values are lower within the agrarian sector, but it gives a clue about the valence of the 22 per cent achieved by the evaluations at hand. Furthermore, fairtrade labels increase the average consumer’s willingness to pay for a commodity of our product category by 43.1 per cent, whereas organic labels account for an average price premium of 34.3 per cent. The direction of this result goes in line with the findings of a consumer choice experiment by Grebitus et al. (2009). Their survey implicitly proclaims a higher willingness of Germans to pay for fairtrade coffee (26.45 per cent) in comparison to the willingness to pay for organic coffee (13.19 per cent). The sample year is stated as 2008 and comprises the pronounced willingness to pay for the labelled coffee before consumption, within Germany. As the empirical analysis at hand has a larger sample size at its disposal and comprises actual purchase data, a higher willingness to pay could be reasonable. The paper portrays that consumers are highly interested in a fairtrade label, within the sample period. Since the sales volume of fairtrade products grew steadily in Germany during the last years (sales 2004: 58 million Euro; sales 2015: 978.35 million Euro (Statista, 2017b), one can assume that the consumer’s interest in a fairtrade label increased even further. This presumption is underlined by a survey of 885 coffee and 904 tea consumers in Germany. Finally, the Germans buying decision is influenced by the fair trade idea in the product category of coffee/tea by 9 and 6 per cent, respectively, in 2017 (Statista, 2017c, d). Besides, the underlying questioning (how do you pick your coffee?) underpins the previously evaluated consumer’s preference for fairtrade labels over organic farming, in the case of coffee. This research did not depict an unambiguous picture for tea since the difference lay solely by 1 per cent, in favour of organic farming (Statista, 2017c, d). An assumption would be that an average consumer expects the impact of fairly traded products on circumstances in producer countries to be higher than the effect of organic farming. One can assume that fairtrade, whose idea it is to promote development in less developed nations and to improve farmers’ living condition, is more important than the environmental impact of farming in high- and middle-income countries. Alternatively, it could be about the actual label, as well. Maybe, fairtrade labelled products sold on German consumer markets are more trustworthy than those of organic farming. Besides, the findings of this study are in line with the predictions made by Loureiro and Lotade (2005) for the US market. Namely, consumers are more likely to be interested in fairtrade than in organic farming concerning the products at hand. The cultivation of coffee and tea is more about southern countries with a lower level of economic development, low-income levels per capita and a high-poverty rate. Consequently, organic production is secondary. Comparing the given values with those of the brief literature review in Section 2, one can see that the price premium for fairtrade labels is highest in Germany. These findings of ethical consumerism are in compliance with an analysis of The Social Investment Consultancy (2010) about ethical consumerism. According to this study, 30 per cent of the German buying public considers ethical issues while buying a product. This ranking of ethical consumerism between nations pronounces a leading position for Germany, followed by the UK, France, and Spain (The Social Investment Consultancy, 2010, p. 3). German consumers care most about ethical standards in comparison to their neighbours and as a consequence record the highest willingness to pay for organic and fairtrade certified products. This finding is confirmed by an article of Auger et al. (2007) about ethical beliefs of consumers around the world. Thus, the German buying public ranks the importance of minimum wages (one fundamental idea behind the concept of fair trade) highest in comparison to other nations like Spain or the USA. The empirical findings of this paper are able to confirm the initial statement of a high market share of labelled products, as well as the argumentation of Germans to be ethically influenced in their consumer preferences at a high level (looking at the results of the literature review and the empirical findings stated ahead). Subject to the consumer data provided by GfK, the fairtrade organisations, GEPA, Transfair, and Tempelmann are the most important while talking about tea and coffee certification. This goes in line with actual market shares of the organisations, whereas Tempelmann is a German coffee roaster, basically selling coffee labelled with the fairtrade certification mark (Tempelmann, 2016). Moreover, Transfair certifies products and cooperates with GEPA, fairtrade and many other organisations. Meanwhile, GEPA is the first licensee of the label provided by Transfair since 1992 (Fairtrade Deutschland, 2016). Meanwhile, the bottom line for a recommendation for labelling policy could be that a non-private FL could be interesting, especially for fairly traded products on the Ethical food labels 1809 BFJ 119,8 1810 beverage market. The willingness to pay was highest and the concept of fairtrade could be supported and enhanced by the introduction of a state-owned FL. Such a label could be comparable to the European label for organic farming. It could be assumed that a government intervention leads in this case to a higher level of trust and a continuative reduction of information asymmetries. Moreover, a state-owned label could improve local circumstances of workers in the producing south. Finally, fairtrade organisations are regularly criticised by their standard setting processes and the compliance of those regulations. Nevertheless, this second part would be the crucial point in case of governmental certification. Lastly, the certifier would not be a southern government, as their level of institutionalisation is less developed and know-how is missing. Rather, it will be a northern government which has to report standards in order to prevent fraud. As the producing companies are abroad, expenditures to set standards and implementing certifications will be an issue. Those expenditures have to be paid at taxpayers expense and a state-owned label not might be counting, neither on the side of the government nor on the side of the consumer and producer. Finally, a state-owned label refers to higher certification costs to guarantee fairtrade quality and finance the required monitoring process. In the case of organic farming, the circumstances differ, as producers and certifiers live in the same area and certification costs are manageable. 7. Conclusion The paper at hand performs an empirical analysis on the basis of a consumer household panel of a representative number of the German buying public between 2004 and 2008. More precisely, the paper comprises a hedonic price analysis of coffee product (coffee, single-serve coffee portions, and espresso) and tea (medicinal, herbal, and fruit) prices, while focussing on ethical labels (fairtrade labels). As a result, the willingness to pay of German consumers is highly significant for fairtrade and organic farming. Hence, German consumers are willing to pay a price premium for fairtrade labelled products of 43.1 per cent. Furthermore, the highest implicit prices are reached by tea products labelled as fairtrade (74.0 per cent), followed by ground coffee (54.9 per cent), espresso (24.7 per cent), and single-serve coffee (18.9 per cent). The empirical calculations ahead represent the highest price premium for fairly traded tea, followed (after a gap) by ground coffee. Such a result could be logical as tea has a minimum amount of processing and thus is mostly cultivated in the least developed nations, like Indonesia, Sri Lanka, and Kenia (Statista, 2016d). Certainly, the conducted analysis has same limitations considering the given time period and product categories. The underlying data takes place in a time when only a small group of products were certified with a fairtrade label, while ethical consumerism had a high demand on the market. Nowadays fairtrade labels are widely used and spread for a great range of products. Likewise, coffee and tea products are major commodities in the field of ethical production. Accordingly, it could be expected, that label effects are much stronger for these products compared to others. Hence, the effects found must be taken with caution since those could be overestimated due to time-effects and upcoming analysis should be based on updated data and product categories. Besides, it would be interesting to analyse the willingness to pay for fairtrade labelled tea of a specific origin (e.g. Indonesia) in comparison to fairly traded coffee of the same nation. Following the assumption stated ahead the willingness to pay should be comparable for coffee and tea. Acknowledgements The authors would like to thank the two anonymous reviewers and the Guest Editor Dr Mariarosaria Simeone for the helpful comments, which have improved the quality of the paper. Moreover, the authors would like to thank the staff members of the Department of Agricultural and Food Marketing at the University Kassel under the Direction of Professor Dr Ulrich Hamm for providing the underlying GfK data set to the Institute of Agricultural Policies and Market Research at the University Giessen for further research. Ethical food labels Notes 1. Please be aware that the paper at hand refers to the labelled product, by using the expression fairtrade. Whenever a different spelling, in particular fair trade, is applied, the authors relate to the general idea of the fair trade concept, independent of a label and certification process (Transfair e.V., 2017). 1811 2. The GfK panel is based on a random household sample, selected on demographic as well as geographic parameters to insure the representativeness of the panel. Households contained in the consumer panel had to record their food purchases regularly (mostly daily, but at least weekly) and continually (at least one year) in a so-called digital housekeeping book. All households received an EAN-scanner to scan the products EANcode (i.e. products information) and were able to add further information by hand. All households obtained an individual identification number by which the observed purchases can be identified. 3. Since the data acquisition of the GfK panel is associated with high costs, it is primarily designed for commercial use. As a result, academic provision is delayed so that the sample period for this analysis was restricted to 2004-2008. Nevertheless, as we argue in the introduction and will show in the later discussion, the given panel period is a good indicator of the current development of the German coffee and tea market. 4. Due to the observed time period of five-years changes in prices and income levels should be considered. Hence, all prices were deflated by the German consumer price index for food (base year, 2005 ¼ 100). 5. In the literature also a quantity-dependent model exists, which is discussed controversially (see e.g. Nerlove, 1995). Since, the GfK data are a household panel the price-dependent approach is used, because it could be assumed that consumers not only act as price takers, but can select prices by choosing specific shops or products (see e.g. Schröck, 2014). 6. The variable specialty stores includes all kind of specialized stores for organic, fairtrade, coffee, or tea products, while other stores shops means which are not primary provide food (e.g. gas stations). 7. 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