Modeling demand for organic foods

Summary

The market of organic foods has experienced tremendous growth during the period 1997-1998. Highest growth is
experienced at the bread/cereal group where the volume share has increased by 143% during the whole period.
During this period, relative organic prices have decreased, except for meat. Organic volume shares are highest for dairy products (10%), which is more than twice the share for bread/cereals (5%) and other foods (4%), which covers fruit and vegetables. In the bottom is the share of organic meat (1%). The model estimates price and
budget elasticities. The consumption of animal products (dairy, meat) is more sensitive to price changes than
consumption of vegetables, cereals, fruit and bread. The demand is characterized by very high elasticities,
especially for organic foods. The high price elasticities can be explained by the fact that conventional and organic
commodities are very similar. The high budget elasticity can be explained by the luxury nature of organic
commodities. In the study, scenario analyses are carried out. These scenarios show that if the relative organic price decreases by 20% consumption grows considerably. The volume share of organic dairies will increase to 15%, the
share of organic bread/cereals to 7%, the share of organic meat to 2% and the share of fruit/vegetables to 6%.