Factors Affecting Consumers Preferences for Specialty Eggs in Canada A Thesis Submitted to the College of Graduate Studies and Research In Partial Fulfillment of the Requirements For the Degree of Master of Science In the Department of Bioresource Policy, Business and Economics University of Saskatchewan Saskatoon By Liou Huang Copyright Liou Huang, January 2013. All rights reserved. PERMISSION TO USE In presenting this thesis in partial fulfilment of the requirements for a Postgraduate degree from the University of Saskatchewan, I agree that the Libraries of this University may make it freely available for inspection. I further agree that permission for copying of this thesis in any manner, in whole or in part, for scholarly purposes may be granted by the professor or professors who supervised my thesis work or, in their absence, by the Head of the Department or the Dean of the College in which my thesis work was done. It is understood that any copying or publication or use of this thesis or parts thereof for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and to the University of Saskatchewan in any scholarly use which may be made of any material in my thesis. Requests for permission to copy or to make other use of material in this thesis in whole or part should be addressed to: Head of the Department of Bioresource Policy, Business and Economics University of Saskatchewan Saskatoon, Saskatchewan S7N 5A8 i ABSTRACT The past decade has seen a significant increase in the consumer demand for specialty eggs in Canada. This egg consumption trend has reflected the fact that current egg consumers are not only content about eggs as a staple, but also demand egg products with enhanced attributes, such as nutrition, health, animal welfare and food safety. A large body of literature has reported that consumers are willing to pay a premium for specialty eggs that embody value-added qualities. Thus, marketing information about heterogeneity in consumer preferences and characteristics when purchasing eggs is needed for developing effective marketing plans and serving consumers’ needs. In order to address this issue, a choice experiment approach is adopted to elicit respondents’ preferences toward various characteristics of eggs and egg purchasing behaviours through an online survey of 647 egg consumers in Canada. Egg consumers were asked to make choices from three alternative egg products, or none, on the basis of five attributes including price, shell colour, production method, feed, and pasteurization. Additionally, to test an alternative production method (verified free run), I developed two versions of choice responses: one with verified free run, one with only free run. Results show that Canadian consumers’ willingness to pay for different types of egg attributes varies significantly, shell colour is found to be related to consumers’ preferences for some credence attributes (including free run, organic and pasteurization). Compared to white regular eggs, respondents are willing to pay the most for white free run eggs (premium is $1.18 per dozen), followed by omega-3 enhanced eggs (premium is $ .57 per dozen), brown organic eggs (premium is $.52 per dozen) and brown free run eggs (premium is $ .57 per dozen), and are indifferent towards verified free run eggs, vitamin-enhanced eggs and white pasteurized eggs. In addition, consumers generally require a discount of $ .70 per dozen to purchase brown ii pasteurized eggs relative to white regular eggs. Furthermore, results from the extended multinomial (MNL) model and the mixed logit (ML) model confirm the existence of preference heterogeneity for egg attributes amongst Canadian consumers. Results from this study will not only help egg producers, retailers and other stakeholders to develop targeted marketing plans to expand choices within egg markets, but will also benefit egg consumers with different requirements for egg quality and egg attributes. iii ACKNOWLEDGMENTS I am extremely grateful to my two major supervisors: Dr. Hayley Hesseln and Dr. Jing Zhang. I am genuinely thankful to Dr. Hayley Hesseln for her tremendous patience in mentoring me to become an eligible researcher, for her continuous support and encouragement and providing me with the invaluable advice on improving my thesis. Dr. Jing Zhang has constantly encouraged me to conduct high quality research in a professional manner, and I greatly appreciate her for her generous suggestions and help with my survey design and data analysis and guiding me throughout the research process. I would also like to extend my appreciation to my committee members, Dr. Jill E. Hobbs and Dr. Kenneth W. Belcher for their guidance and feedback. I am also grateful to Dr. Marjorie Delbaere for serving as external examiner and providing valuable comments and advice during the defense. I gratefully acknowledge the financial support from the Alliance for Food and Bioproducts Innovation (AFBI) and the Department of Bioresource Policy, Business and Economics during my graduate studies. I am truly thankful for my classmates and the office staff in the Department of Bioresource Policy, Business and Economics throughout my entire study-especially to Buwani Dayananda, Xiaoyu Liu, Alphanso Williams, Deborah Rousson, Barb Burton and Heather Baerg for their help and support. I also want to thank all the survey participants; this research would not have been possible without their participation. At last, I really want to thank my family for their incredible support and encouragement in all of my endeavours. iv TABLE OF CONTENTS ABSTRACT .................................................................................................................................... II ACKNOWLEDGMENTS ............................................................................................................ IV LIST OF TABLES ....................................................................................................................... VII LIST OF FIGURES ................................................................................................................... VIII INTRODUCTION .......................................................................................................................... 1 1.1 BACKGROUND ...................................................................................................................... 1 1.2 PROBLEM STATEMENT AND RESEARCH OBJECTIVES ........................................................... 4 1.3 ORGANIZATION OF THESIS ................................................................................................... 6 LITERATURE REVIEW ............................................................................................................... 8 2.1 INTRODUCTION .................................................................................................................... 8 2.2 CONSUMER PERCEPTION OF FOOD QUALITY ........................................................................ 8 2.3 CERTIFICATION SCHEMES AND INFORMATION ASYMMETRY ................................................ 9 2.4 FACTORS AFFECTING CONSUMER PREFERENCES FOR CREDENCE GOODS .......................... 11 Socio-demographic and Economic Factors .......................................................................... 11 Attitudes towards Food Quality ............................................................................................ 12 Purchasing Behavior and Knowledge .................................................................................. 14 2.5 SUMMARY OF RECENT CANADIAN EGG RESEARCH ........................................................... 15 2.6 CONCLUSION ...................................................................................................................... 17 THEORY AND SURVEY DESIGN ............................................................................................ 18 3.1 INTRODUCTION .................................................................................................................. 18 3.2 DEMAND AND THE CHOICE EXPERIMENT APPROACH ......................................................... 18 3.3 THE SURVEY DESIGN ......................................................................................................... 20 3.4 SURVEY QUESTIONS ABOUT RESPONDENTS’ CHARACTERISTICS ....................................... 25 3.5 SURVEY INSTRUMENT, COMPOSITION AND ADMINISTRATION ........................................... 27 EMPIRICAL METHODOLOGY ................................................................................................. 29 4.1 INTRODUCTION .................................................................................................................. 29 4.2 CHOICE MODELLING FRAMEWORK .................................................................................... 29 4.3 ALTERNATIVE MODEL SPECIFICATIONS ............................................................................. 32 Multinomial Logit Model ...................................................................................................... 33 4.3.1.1 Hypothesis testing ............................................................................................. 34 4.3.1.2 MNL model including interaction terms between attributes ............................ 35 4.3.1.3 Extended MNL model with respondents’ characteristics ................................. 36 Mixed Logit Model ...............................................................................................................