DEMAND FOR ORGANIC AND CONVENTIONAL BEVERAGE MILK

Sales of organic milk in mainstream supermarkets have grown over the last 8 years, reaching $75.7 million in 1999, as more organic milk processors enter the market and more mainstream supermarkets sell organic products. National-level scanner data for mainstream supermarkets are employed to assess market shares and price premiums, as well as to estimate key demand elasticities. Container size is important in analyzing market shares for organics. Half-gallon containers are the principle organic market with volume shares ranging from 1.6% to 2.8% in 1999. Market shares for quarts and gallons of organic milk are considerably below 0.5%. Price premiums for organic milk averaged 60% of branded prices and 75% of private-label prices during the study period (November 1996-December 1999). Own-price elasticities suggest considerable response to lower organic prices, although the magnitude of this response declines as expenditure shares increase in later months. Cross-price elasticities indicate that organic and branded milks are usually substitutes but with considerable asymmetry in responses; branded prices affect organic purchases much more than the converse. Expenditure elasticities for organic milk imply that as milk expenditures decline, quantities purchased of organic milk will increase. Jointly, the elasticities suggest considerable response to changing retail prices.