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Organic milk demand ‘more sensitive’ to income, price fluctuations – USDA

By Mark Astley+

18-Apr-2013

Organic fluid milk demand is “more sensitive” to swings in household income and food prices than demand for conventional milk, a US Department of Agriculture (USDA) study has discovered.

The report - Households’ Choices Among Fluid Milk Products: What Happens When Income and Prices Change? - sought to establish how consumers adjust their fluid milk choices in the face of fluctuations in household income and food prices.

It found that during the recent economic recession – between December 2007 and June 2009 – organic fluid milk sales growth “stalled” as household income in the US declined, and food prices across the country increased.

According to the report, the median US household made 3.6% less money in 2008 after adjusting for inflation, while fluid milk prices increased by 11.6% in 2007, and 6% in 2008.

Under these circumstances, US households attempt to alleviate the impact by “switching from more expensive to less expensive products.”

US consumers “stretch their food dollar”

“Many households experienced a decrease in income during the 2007-2009 recession. At the same time, food prices rose,” said the report.

“Households experiencing an income decrease may look for ways to stretch their food dollar, such as seeking out promotions or shopping at less expensive stores like supercenters.”

According to the report, milk that is higher in fat, organic, or packaged in small containers is more expensive per gallon than milk that is lower fat, conventionally produced, or packaged in large containers.

During times of economic instability, US consumers are more likely to opt for the cheaper option, the USDA claimed.

“Households typically switch to less expensive products when their incomes decrease. For instance, households save money by choosing fluid milk products with a lower fat content or by switching from organic to conventional milk,” said the report.

Organic milk demand “sensitive” to economic change

According to the report, the baseline purchase probability for organic fluid milk is 3% compared to 97% for conventionally produced milk.

The USDA found, however, that if milk prices increased by $1 per gallon, the purchase probability for organic milk would fall below 1%. In another scenario, the purchase probability for organic milk would increase to 3.7% in household income increase by 10%.

“In general, demand for organic milk is more sensitive than demand for conventional milk to swings in income and food prices,” said the report.

“Past research suggests that many buyers of organic milk question conventional production methods and believe organic products to be safe and/or more healthful. Nonetheless, during the recent recession, when incomes declined and prices rose, growth in organic milk sales stalled,” the report added.

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