The organic food sector is one of the most rapidly growing sectors in the food market. Organic price premiums and patterns of substitution between related organic and conventional products are important for organic products certification and market entry and expansion decisions of organic producers. In this project we analyzed price differentials (premiums) between organic and conventional eggs and between three categories of organic and conventional chicken products: whole birds, boneless breasts and whole legs. Farm level prices for delivery to first receivers for the period January 2004 and December 2013 show that, in absolute terms, the highest average organic premium is commanded by boneless skinless breast meat followed by organic eggs. We also estimated the demand functions for conventional eggs and chickens where the presence of organic prices as the right-hand-side variables enable us to obtain cross-price elasticities of conventional demands with respect to organic prices. In line with the extant literature, our results show highly inelastic and statistically significant own price effects for both conventional chickens (elasticity equals -0.13) and conventional eggs (elasticity equals -0.139). The cross-price elasticities of conventional chicken meat demand with respect to the price of organic chickens and the cross-price elasticity of conventional eggs demand with respect to organic egg price, which are rarely found in the literature, confirm the intuitively expected result that the conventional and organic varieties of the same product are substitutes. The estimated cross-price elasticity of conventional chicken meat demand with respect to organic chicken price equals 0.153 and the cross-price elasticity of conventional eggs demand with respect to organic eggs price equals 0.679.
Keywords: Demand estimation, own-price elasticities, cross-price elasticities
Jel Code: D12, Q11, Q13