DETERMINANTS OF THE DEMAND FOR ORGANIC AND CONVENTIONAL FRESH MILK IN GERMANY– AN ECONOMETRIC ANALYSIS

An increasing number of studies deals with consumer decisions regarding organic food, but only a few provide quantitative estimates of price and income elasticities. This paper contributes to the existing literature by providing own-price elasticity estimates as well as an analysis of the sociodemographic determinants of demand for organic milk. The analysis is based onthe GfK Consumer Scan Scanner panel dataset on food purchases of German households covering a sample period of four years from 2004 to 2007. A two-step estimation procedure is applied. First, a probit regression examines which household characteristics affect the probabilityto buy organic milk. Second, a fixed-effects panel regression determines factors thathave an impact on the quantity demanded. Finally, the study investigates whether the price elasticity of demand depends on income, age or household size and whether the price elasticity varies among different retail formats. The results show that the probability to buy organic milk increases with education and income level. Furthermore, the demand is on average higher in households with young children and with a female being mainly responsible for food purchases. However, the probability declineswhen there is more than one child per household. The results of the fixed-effects regression indicate that the demand for organic milk in Germany is highly price-inelastic. Low absolute price elasticities for organic milk indicate that price promotions at retail level will not lead to an increase in sales. As expected, for all types of milk price sensitivity is higher, but still inelastic, in discount shops than in other retail formats such as supermarkets or large-scale retail. Demand in organicfood shops is the least responsive to price changes. Besides, households headed by aperson younger than 25 or older than 45 years show a higher price responsiveness than middle-aged households.