Co-author of a paper called Impact of delivering green dairy products on-farm in New Zealand Dr Wei Yang says an analysis of international academic papers and empirical research confirmed consumers are prepared to pay more for so-called credence attributes.
“The way we define credence attributes is something that as a consumer we could not observe or identify or ensure the existence of.
“It doesn’t look like colour or taste that we can tell. It’s the kind of thing we cannot tell except by food labelling,” Yang says.
As an economist now lecturing at Lincoln University she was invited to participate in the study because of her understanding of the market and market signals.
Credence attributes were first raised in the mid 1990s and have been widely studied by academics as well as marketers since then. Yang spent two months searching and analysing the existing literature published since the 1990s.
She was careful to include only peer-reviewed studies that were objective rather than grey literature that might be compromised as authors look for the positive results their funders hoped for.
In addition to academic studies she included those focusing on hypothetical decisions but they also provided monetarised estimation of consumer willingness to pay.
There are three possible motivations for consumers to consider credence attributes, Yang says.
“One is more from a food safety and health perspective. They’re worried about the food safety issue and so they pay more for the credence attributes.
“The second motivation is about the environmental or so-called social responsibility so they feel like they are responsible for all those environmental issues and they are willing to pay more.
“The third category is a kind of mix of the other two so it’s really hard for the consumers to tell if it is driven by their personal interest or if’s driven by the social responsibility.”
Whatever the reason, researchers have concluded consumers are prepared to pay more for products they believe have credence attributes.
Because the issues of carbon neutrality is relatively new in the marketplace they use environmentally friendly as a proxy.
It showed consumers are prepared to pay a 24% premium for environmentally friendly attributes.
But in a list of seven credence attributes, environmentally friendly actually ranked lower than organic, for which consumers would pay a 35.8% premium, as well as country or region of origin, food safety, hormone or antibiotic-free, animal welfare and grass-fed.
Though other businesses along the value chain would all take their share Yang used historical United States data to calculate 30% of the premium could be returned to farmers.
After including carbon-neutral certification fees and the cost of offsetting emissions that are impractical or impossible to eliminate on-farm, such as biogenic methane, the results show producing carbon-neutral dairy products can increase farmer profit by up to 15%, assuming the gas offset cost is $25 a tonne.
