Do ecolabels cheapen wines?

Journal of Cleaner Production xxx (xxxx) xxx

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Journal of Cleaner Production journal homepage: www.elsevier.com/locate/jclepro

Do ecolabels cheapen wines? Kar Ho Lim a, *, Michael Reed b a b

Department of Agricultural and Environmental Sciences, Tennessee State University, 3500, John A Merritt Blvd, Nashville, TN, USA, 37209, USA Department of Agricultural Economics, University of Kentucky, 308 Charles E. Barnhart Bldg. Lexington KY 40546-0276, Lexington, KY, 40546, USA

a r t i c l e i n f o

a b s t r a c t

Article history: Received 3 June 2019 Received in revised form 21 August 2019 Accepted 1 October 2019 Available online xxx

While some studies find that ecolabels might impose price penalties to wines, several aspects remain unclear; particularly, if the mainstream consumers are, in fact, disliking ecolabeled wines; if there exists a systematic difference between organic and sustainable wines; or if the ecolabels’ purported negative correlation to prestige is robust. In this study, these questions are investigated with a choice experiment, which estimates the consumption utility of the ecolabels and of the relevant interaction effects. We find that consumers are willing to pay premiums for either organic or sustainable wines; the premium is especially prevalent in the higher percentile of the willingness to pay distributions. Appellations of origin play a role; the willingness to pays for the ecolabels are higher for wines from less-prestigious regions, but it diminishes for wines from higher-prestige regions. No eco-penalty is detected at the mean level, nor do the ecolabels penalize higher-priced wines within the examined price range. However, a small segment of consumer dislikes the ecolabels. Lastly, the preference correlates positively with the perception of quality implied by the ecolabels. We recommend wineries that target mainstream consumers to pursue ecolabels. © 2019 Elsevier Ltd. All rights reserved.

Handling editor: Tomas B. Ramos JEL classification: Q13 Q18 L66 Q57 Keywords: Appellations of origin Choice experiment Eco-penalty Organic Sustainable Willingness to pay

1. Introduction Ecolabels signal to consumers the alternative growing practices that promise better environmental conservation, resulting in a price premium that feeds back to producers’ conservation initiative (Cicia et al., 2002; Diamond, 2005; Dimitri and Oberholtzer, 2010; Hu et al., 2012; Onozaka and Mcfadden, 2011; Roheim, 2008). Given that higher production costs are often involved in sustainable agriculture, the ecolabel’s market hinges upon consumer willingness to pay; where for wines, many reasons support the expectation of a strong consumer preference for ecolabeled products. Grapevines are sensitive to pests and diseases (Ginon et al., 2014), which often translate to copious amounts of pesticide being used in conventional viticulture. Californian vineyards applied over 27 million pounds of agriculture chemicals in 2016, more than the combined 23.8 million pounds that California applied on pistachios,

* Corresponding author. E-mail addresses: [email protected] (K.H. Lim), [email protected] (M. Reed).

tomatoes, and peaches in the same year (California Department of Pesticide Regulation, 2018). In France, the wine sector accounts for 20% of the total volume of pesticide applications, and it jeopardizes the health of vineyard workers (Ginon et al., 2014; Wasley and Chaparro, 2015). According to the influential Dirty Dozen consumer shopping guide, grapes are “frequent offenders” for pesticide residues (Environmental Working Group, 2018). Lastly, environmental-friendly practices could also produce better-tasting wines (Delmas et al., 2016). Therefore, all things considered, rational consumers should prefer products that promise less pesticide residue and less threat to the environment. However, studies on this topic paint a conflicting picture. Some find ecolabeled wines generate no premium, or worse, incur a price penalty, which suggests that consumers avoid ecolabeled wines (Abraben et al., 2017; Delmas and Grant, 2014; Lockshin and Corsi, 2012). In this case, the sustainable wine production practices would then be costly and yet unwelcomed; the reasonable action of any profit-maximizing producers and businesses would be to abandon the pursuit of sustainability. Thus, the eco-penalty could suppress a more widespread adoption of eco-friendly production practices,

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Please cite this article as: Lim, K.H., Reed, M., Do ecolabels cheapen wines?, Journal of Cleaner Production, https://doi.org/10.1016/ j.jclepro.2019.118696

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which could have reduced the environmental footprint of the industry. On the other hand, others have report price premia, affirming the much-discussed notion of heightened consumers’ environmental consciousness; accordingly, dismissing the notion that a profound difference exists in the market of ecolabels between wines and other goods (D’Amico et al., 2016; Sch€ aufele and Hamm, 2017, 2018; Sellers-Rubio and Nicolau-Gonzalbez, 2016; Sogari et al., 2015; Vecchio, 2013; Waldrop et al., 2017). Further, it is also noted that the preference for ecolabels could interact with other dimensions of wine’s demand, which further complicates the matter (Delmas and Lessem, 2017). In any case, the literature lacks clarity and coherence to guide policy and industry decisions. This study aims to clarify consumers’ willingness to pay for ecolabeled wines. A choice experiment with a large nationwide panel of U.S. wine consumer (n ¼ 1047) is conducted. Extending from Delmas and Lessem, 2017, the choice experiment differentiates ecolabels for sustainable and organic practices, so that differences between these ecolabels can be ascertained. Further, the WTP is differentiated by six appellation labels (regions of origin), thus the results provide a more robust representation of appellations’ effect to the preference. Given these, the questions targeted in this study are: whether there exists a willingness to pay for the ecolabels, whether the price premium hinges upon the appellation of origins; and whether there exists a systematic difference in willingness to pay for the two ecolabels; lastly, a model is constructed to discern the roles of behavior, perception, and demographic factors upon the preference for the ecolabels. The results show that consumers’ WTP differs significantly between the two ecolabels. Moreover, the WTP exhibits a pattern of negative correlation with the prestige of the appellation. Our results highlight that the eco-penalty narrative of the present literature is incomplete, particularly on ecolabels’ benefits to lower-to-mid range wines from less-prestigious origins. 2. Background and literature review While much of the literature has observed increasing consumer preference for ecolabeled food products, consumer preference for sustainable or organic wine has been an oddity. Upon summarizing studies published between 2003 and 2012, Lockshin and Corsi (2012) conclude that ecolabels have been and will likely remain trivial as a marketing tool for wines. In Delmas and Grant (2014), a hedonic analysis is conducted on ecolabelsdnamely wines made of organically grown grapes and biodynamically grown grapes. They find that the ecolabels reduce the price of wines by 20%, which they attribute to the negative connotation consumers hold towards ecolabeled wine. Abraben et al. (2017) follow up by analyzing the price of Tuscan wines sold in the Italian and American markets. They find that wines that follow the organic practice, but unlabeled as such, are sold at a premium of 20e30% compared to the nonorganic variants. However, they do not detect a statistically significant premium for wines bearing the organic label. Nevertheless, the scopes of these analyses are worth noting. Delmas and Grant (2014) focus on Californian wines with a perbottle mean price of $35.48; Abraben et al. (2017) study Tuscan wines with a mean per-bottle retail price of $83.77. These prices represent the higher-end wines, which sharply contrast the $10.00 per bottle on average that American consumers spend on wines (Quackenbush, 2017). Other studies reject the notion of an unwillingness to pay by the consumers. Delmas and Lessem (2017) conduct a choice experiment, and they find that respondents prefer lower-priced organic wines from the Lodi region. Yet they note an eco-penalty, where

conventional Napa wines elicited higher WTP than organic Napa wines. From these results, they conclude that the WTP only exists for cheaper wines from less prestigious regions, but the ecolabel hurts wines from prestigious regions. Nevertheless, the conclusion raises questions, because Lodi, “a main engine of California’s wine industry” (Romano, 2018), may not be representative of less prestigious wine regions. It is also unclear if the results apply to other ecolabels that connote sustainability, which is a pertinent issue as the WTP for organic and sustainable wines are different (Waldrop et al., 2017). Waldrop et al. (2017) perform a hedonic analysis on California and Washington wines. Types of ecolabels are distinguished as organic, sustainable, and others. They find price premiums vary significantly by ecolabels. Price premia exist for “Napa Green,” “Low Input Viticulture and Enology,” and certified organic claims, but no premium for “Certified California Sustainable Winegrowing.” These signify the importance of distinguishing the types of ecolabels. Ginon et al. (2014) support the notion, where they find consumers have heterogeneous understanding; in some cases, consumers do not connect applicable ecolabels to wine products. Other studies, however, determine consumers are willing to pay a premium for ecolabeled wines (Di Vita et al., 2019; Pomarici and €ufele and Hamm, 2018; Sellers-Rubio and Vecchio, 2014; Scha Nicolau-Gonzalbez, 2016; Sogari et al., 2016; Vecchio, 2013). Consumers are also observed to prefer other attributes that signal sustainability, such as water-saving production method, organic wines without added sulfites, and salmon or fish-friendly wine production practices (D’Amico et al., 2016; Pomarici et al., 2018; Waldrop et al., 2017). A more recent summary concludes that consumers hold positive perceptions and preference towards the ecolabeled wines, €ufele and Hamm, 2017). signaling a potential turning point (Scha The preference for ecolabels is found to be motivated by consumers environmentalism, which is widely believed to be on the rise (Di €ufele et al., 2018). Vita et al., 2019; Hashem et al., 2018; Scha €ufele and Hamm (2018) show that while an attitude-behavior Scha gap exists pertaining to organic wine purchase, consumers’ expenditure share for organic wine is consistent with their proenvironmental attitude. In sum, this set of studies furnish evidence that supports a positive consumer preference for ecolabeled wines, providing a contrasting view against eco-penalty. Against the backdrop of two diverging sets of literature, there is an unsettled debate whether consumers are willing to pay a premium for ecolabeled wines. The debate is not costless as ecolabels are being considered as product differentiation tools, especially by vineyards and wineries that adopt conservation techniques (Fiore et al., 2017). However, wineries prefer not to clutter up the bottle if the ecolabels do not generate a premium, and the perception of no premium is an inhibitor to sustainable viticulture (Berghoef and Dodds, 2013). Additionally, four out of fourteen Californian wineries, which participate in a sustainability certification scheme, perceive no benefits to the final quality of wine and the health status of the vineyard by their participation (Pomarici et al., 2015). Thus, the lack of demonstrated consumer willingness to pay may have slowed the adoption of sustainable viticulture practices, preventing benefits to the environment, consumers, and the bottom line of the industry. Further, it is argued labeling itself produces a price-penalty, but eco-certified vineyards and wineries that chose to not display the ecolabels on wine bottles produce higher quality wines that generate price premia and higher ratings from wine experts (Abraben et al., 2017; Delmas et al., 2016; Delmas and Grant, 2014); these underline a puzzling fact that eco-certifications raise quality but lower perception of quality simultaneously. Additionally, the growth of organic wines, with a predicted sales of 1 billion bottles

Please cite this article as: Lim, K.H., Reed, M., Do ecolabels cheapen wines?, Journal of Cleaner Production, https://doi.org/10.1016/ j.jclepro.2019.118696

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globally by 2022, is seemingly at odds with the proposition of an eco-penalty (de La Hamaide and Denis, 2018). Together, these unanswered questions call for more research, particularly in revealing the conditions under which consumers are willing to pay premia for ecolabeled wines. 3. Methods This study uses a choice experiment (CE), which allows control over multiple attributes and produces utility estimates consistent with economic theory (Train, 2003). CEs are widely used in consumer preference studies (Lim et al., 2018a; Onozaka and Mcfadden, 2011; Uchida et al., 2014). The method is also applied to explore wine consumer preference for appellations (Perrouty et al., 2006) and organic (Delmas and Lessem, 2017). Thus, a CE demonstrated to be suitable for this study’s purpose. The CE focuses on the influence of appellations and other factors on ecolabeled and non-ecolabeled wine purchase. It uses the widely produced and consumed Cabernet Sauvignon varietal as the representative product, following Delmas and Lessem (2017). The CE presents various combinations of wines that are varied by origin, ecolabels, and prices. The respondents indicate the most desirable alternative within each choice set. The data is subsequently econometrically transformed into utility estimates, which can be used to infer the main and interaction effects of the ecolabels upon consumer preference. In addition, the survey instrument contains questions pertaining to the respondents’ demographic, wine consumption behavior, perception towards the quality of organic and sustainably produced wines. These factors are subsequently used to explain the preference for the ecolabels. 3.1. Design of the choice experiment Because wines are diverse in attributes and the number of choice sets expands rapidly with the complexity of attributes, we apply careful consideration in the selection of the examined levels. This study focuses on two ecolabels. The first, sustainable winemaking, mirrors labels that convey sustainability, such as the California Sustainable Winegrowing Certification program1 and the Sustainable Winegrowing New Zealand program.2 The sustainable label aims to convey aspects of production practice in the grape growing and winemaking process, including lower energy use, natural resource conservation, and wildlife preservation (Wine Institute, 2019). The second, made with organic grapes, applies to wines made with grapes grown without artificial pesticides. The label is distinguished from the “USDA Organic” that further prohibits the addition of sulfites preservative. Because the avoidance of sulfites entails a substantial risk of spoilage, “made with organic grapes” is more commonly used in the market (Waldrop et al., 2017). Most ecolabels in the market fall broadly under sustainable and organic categories (Waldrop et al., 2017). Thus, the CE provides realistic coverage and representation of the market. A main objective is to illustrate the influence of prestige from the wine’s production origin to consumer preference of the ecolabels. As such, six appellations with wide-ranging prestige are chosen. These are Napa Valley; California, USA; which represent the more prestigious winemaking regions. In contrast, Pilesgrove, New Jersey; New Jersey, USA; Outer Coastal Plain (OCP); and Product of USA are four appellations that are relatively lower in prestige. In

1 2

https://www.sustainablewinegrowing.org/. https://www.nzwine.com/en/sustainability/sustainable-winegrowing-nz.

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particular, George Taber, a wine journalist, and New Jersey resident, attached the state with a reputation of “mass production of rotgut” (Davidson, 2013). Lastly, the OCP, with its state of origin of New Jersey removed, represents a wine region not known by many consumers, which reflects a trend for the industry to “market the unknown” with creations of newer designated wine regions (Johnson and Bruwer, 2007). The six appellations included here provide sufficient variation in prestige. This strategy allows us to encompass the various types of appellations, ranging from American Viticultural Areas, states, and the country; thus, allowing the analysis to describe the interaction effect between the ecolabels and origin labeling with more precision. The CE uses four prices that range from $7.99 to $16.99 in increments of $3, chosen to reflect the mean retail price of $10 per bottle (Quackenbush, 2017; Wine Institute, 2019). A 20% discount and a 70% price premium to the mean price is reflected in the chosen range, which bodes well in representing the mainstream consumers. The price range is not comprehensive by design, as Cabernet Sauvignons from Napa Valley range between $12.99 to $569.99 per bottle 3; nevertheless, it stands to reason that the former appeals to most consumers, while the latter is prohibitive except to the wealthy wine drinkers. For this study’s purpose, the mainstream consumers’ preference provides inputs meaningful for policy discussion, more so than the smaller and exclusive niche market. Further, CE is arguably ill-suited to analyze the high-end market, as a selective sample of high-income oenophiles is required. Thus, the results are not intended to be reflective of consumers’ preference for high-end wines. The study elicited responses from 1,047 American wine consumers. Residents of California, Florida, New York, and Texas make up 31.3% of the sample, which closely follows the population statistic of 33% (US Census Bureau, 2019). This is a departure from Delmas and Lessem (2017), where 82% of their sample is Californian; the outsized representation may have implications if Californians’ preference differs from the general population. In addition, the sample corresponds well to the population’s age and education profile (United States Census Bureau, 2017). Therefore, the sample is reasonably reflective of the U.S. wine consumers. The survey was pretested by consumers and experts in accordance to the Tailored Design Method (Dillman, 2007). The sampling is carried out online in November 2017 over a period of twenty-one days by Qualtrics, a professional survey company which also provided the survey software suite (Qualtrics, 2019). The average time taken for to complete the survey is around 13 min. The respondents are incentivized by small token gifts for their participation. The choice sets are generated with D-Efficiency criteria through the Partial Factorial Algorithm in JMP 13 (Crabbe and Vandebroek, 2012). The final design notches a relatively high D-efficiency score of 93.84%; all main effects, as well as the interaction effects, can be estimated (Kuhfeld, 2010). The algorithm yields 24 unique choice profiles, which are distributed into 48 choice sets, each containing two choice profiles and an opt-out option (Hensher et al., 2005). The choice sets are distributed into six blocks. The risk of fatigue is minimal as respondents each completed only eight choice sets (Czajkowski et al., 2014). Further, the definitions of the attributes are not provided, as respondents’ preference could be altered if the information poses a learning effect (Lim et al., 2018b; Uchida et al., 2014; Wakamatsu et al., 2017). Fig. 1 depicts a choice set. A cheap talk script from Lusk (2003) is adapted to minimize the potential of hypothetical biasda phenomenon where respondents of CE inflate their WTP. Cheap talk scripts have been shown to

3

https://www.totalwine.com/search/all?text¼napa&sort¼price-desc.

Please cite this article as: Lim, K.H., Reed, M., Do ecolabels cheapen wines?, Journal of Cleaner Production, https://doi.org/10.1016/ j.jclepro.2019.118696

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Fig. 1. A sample choice set.

reduce hypothetical bias (Lusk, 2003; Tonsor and Shupp, 2011). Our results thus reflect the recommended guidelines regarding hypothetical bias. 3.2. Econometric models Following the Random Utility Model, the utility of individual i from choosing product j in choice set t can be expressed as: Uijt ¼ bxijt þ gyijt þ qzijt þ acijt þ εijt The observable utility splits into four components. Vector x represents all non-price main-level attributes, including the origin labels and the opt-out dummy variabledrepresenting the option of not buying the product in a choice set. Vector y represents the interaction between appellations and organic. Vector z represents the interaction between appellations and sustainable. The scaler c represents the cost of the product. Mixed Logit is used to account for taste variation, as the preference of ecolabels is observed to be heterogeneous (Lim et al., 2018a; Uchida et al., 2014; Onozaka and Mcfadden, 2011). b and q are specified as normally distributed random variables. The spread allows inference pertaining to preferences at the niche level. This information is useful as the mean WTP can be null, yet significant at the niche level (Train, 2003). a is assumed a fixed coefficient to avoid imposition of its distribution near zero, which carries the troubling implication of infinite WTPs (Meijer and Rouwendal, 2006; Train and Weeks, 2005). ε represents all unobservable factors and is assumed to follow the Gumbel distribution, giving rise to the Logit estimator (Train, 2003). The coefficients associated with attributes are divided by the cost coefficient to produce WTP estimates (Train, 2003). 3.3. Hypotheses Three models are estimated. Model 1, the main attributes model, provides a more direct view of the effects of the ecolabels. Model 2 contains the interaction terms between the ecolabels and appellations, furnishing the appellations’ influence on ecolabel. Model 3

estimates the effect of price, demographics, and quality perception on the ecolabels. In model 1, x ¼ [organic, sustainable, organic * sustainable, California, New Jersey, Napa, OCP, Pilesgrove, opt out]. All elements in x are dummy coded. The conventional product bearing a “Product of USA” appellation label represents the baseline category. y and z are null in this model. The first hypothesis to be tested from model 1 is the equivalency of organic and sustainable ecolabels:

H10 : borganic ¼ bsustainable The second hypothesis tests for a complementary or substitution effect between the two ecolabels:

H20 : borganicsustainable ¼ 0 The sign of the coefficient describes if the marginal utility diminishes or increases with the number of ecolabels. In Model 2, x is without the ecolabels. y and z contain 12 elements representing the ecolabels-appellations interaction terms. Where y ¼ [organic*napa, …., organic*ocp] and z ¼ [sustainable*napa, …, sustainable*ocp], respectively. The hypotheses to be tested are:

H30 : gusa ¼ gnapa ¼ … ¼ gocp H 40 : qusa ¼ qnapa ¼ … ¼ qocp The rejection of either hypothesis would suggest that appellations impinge on the preference for ecolabels. Model 3 incorporates the respondents’ age, the typical amount spent per bottle of wine, frequency of drinks per week, perception of quality, and price .4 The model is estimated with the simpler conditional logit, as unobserved heterogeneity is not its goal. The prices are coded as dummy variables, with the highest price level of $16.99 omitted. The vector x consists only of the main attributes; y

4 Income and education are dropped as these failed to yield significant and economically meaningful coefficient estimates. Results are available upon request.

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Table 1 Attributes examined by the choice experiment. Attributes

Appellations Organic Sustainable Price per bottle ($) a

Levels 1a

2

3

4

5

6

Outer Coastal Plain No Organic Claim No Sustainable Claim 7.99

New Jersey, USA Organic Sustainable Wine Making 10.99

Pilesgrove, New Jersey

California, USA

Napa Valley

Product of USA

13.99

16.99

Base Categories of Dummy Variables, Prices are continuous.

and z contain the interaction terms, where y ¼ [organic*age, …, organic* price] and z ¼ [sustainable*age, …, sustainable*price]. g and q thus reveal the influence of demographics, prices, and perception to the preference for ecolabels (See Table 1, Table 2). 4. Results and discussions The three models converged with reasonable model fitness with R-squares of 0.25, 0.33, and 0.16 (Tables 3e5) (Hensher et al., 2005). The higher explained variations of models 1 and 2 are attributed to the unobserved taste heterogeneity accounted by mixed logit. The cost coefficients are all negative; the opt-out estimates are positive. From model 1, the hierarchy of appellations follows expectation; specifically, Napa Valley is the most preferred, followed by California, the country-wide “Product of USA” appellation, then the various New Jersey wines. These indicate that the models reasonably aligned with expectations. 4.1. Model 1 The coefficient estimates for organic and sustainable are positive (both P < 0.001), which indicate consumer preference for the ecolabels (Table 3). Their corresponding standard deviations suggest heterogeneous taste. The mean WTP for organic is $2.25 per bottle, and for sustainable is $1.24 per bottle (Fig. 2). Organic is being valued more than sustainable on average. The difference between borganic  bsustainable is statistically significant (P ¼ 0.0014; Table 6), and the difference in WTPorganic  WTPsustainable is $1.00 per bottle on average (P ¼ 0.002). At niche levels, the higher preference for organic over sustainable holds. The WTP for organic at the 75th percentile is $4.91; compared to WTP for sustainable at $2.64. These suggest that there is a noticeable difference in the way consumers value organic and sustainable wines. Hypothesis 1 is therefore rejected. Marginal utility diminishes when both organic and sustainable are offered (P < 0.001). Nevertheless, the overall effect of offering both still results in positive utility, albeit the effect is roughly the same as offering only organic. This suggests a low saturation point for the number of ecolabels. Hypothesis 2 is rejected, echoing the findings of Waldrop et al. (2017). 4.2. Model 2 Model 2 suggests consumer preference for the ecolabels is dependent on the wine’s appellation. The notion that organic’s effect is equal across the six appellations is rejected (hypothesis 3; P < 0.001); similarly, the notion of equal effects is rejected for sustainable (hypothesis 4; P ¼ 0.013) (Table 4). Thus, prestige is likely a contributing factor to the difference. Organic positively affects four of the tested appellations. The effect is largest for Pilesgrove and OCP, translating to WTPs of $4.04 and $2.71 respectively, which largely eclipse the negative preference that consumers associated with these appellations. The effect

Table 2 Summary statistics of the sample.

Female At least some college Household Income ($)

Sample

Population

52.15% 61.80% 51.780.56 (29041.5)

51.01% 59% 59039

Glasses of wine per week 1e3 glasses 4e7 glasses 8e10 glasses more than 10 glasses

57.4% 28.7% 9.7% 4.3%

Expenditure per bottle of wine less than $7.00 $7.00 to $9.99 $10.00 to $12.99 $13.00 to $16.99 $17.00 to $19.99 $20.00 to $25.99 $26.00 or more

7.7% 20.4% 31.0% 18.7% 10.7% 7.7% 3.6%

N ¼ 1047, 8 missing values in income data. Income of less than $10,000 is coded as $10,000; income of more than $100,000 is coded as $105,000; mid-points are used otherwise. Gender distribution source (Kaiser Family Foundation, 2017).

Table 3 Mixed logit model of main attributes (model 1). Coef

SD

price

0.214 [28.67]

a

opt-out

4.516 [26.38]

a

2.927 [21.69]

org

0.480 [6.27]

a

sust

0.266 [4.32]

orgasust

0.428 [4.29]

R2 LL

0.248 6867.4

Coef

SD

nj

0.473 [5.98]

a

0.751 [5.42]

a

a

cal

0.426 [6.48]

a

0.254 [1.15]

0.865 [10.53]

a

napa

0.668 [9.03]

a

0.998 [8.98]

a

a

0.318 [2.36]

a

pil

0.453 [6.18]

a

0.686 [5.41]

a

a

0.518 [3.44]

a

ocp

0.323 [5.12]

a

0.200 [0.83]

T-value in square bracket. a Denotes significance at 95% level.

is also positive on USA and California; nevertheless, their WTPs are smaller at only $1.54 and $1.24, respectively. Additionally, organic does not generate a statistically significant positive WTP when applied on Napa. These imply that the preference is likely negatively correlated to the prestige of appellation, where it has higher positive impacts for the less prestigious appellations. From these, we deduce that organic is an effective product-differentiation

Please cite this article as: Lim, K.H., Reed, M., Do ecolabels cheapen wines?, Journal of Cleaner Production, https://doi.org/10.1016/ j.jclepro.2019.118696

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Table 4 Mixed logit model with interaction terms (model 2). Coef Main Effects price 0.252 [23.17]

SD

Coef

a

orgausa opt-out nj cal napa pil ocp a

org sust

5.262 [21.44] 0.439 [2.60] 0.697 [5.35] 0.896 [5.68] 0.837 [5.80] 0.842 [5.48] 0.411 [3.35]

a

3.212 [21.08] 0.146 [0.46] 0.376 [1.99] 1.253 [10.04] 0.574 [3.30] 0.574 [3.81] 1.043 [8.58]

a

a

a

a

a

a

a

orgacal organapa a

organj a

orgapil a

orgaocp a

sustausa a

sustacal sustanapa sustanj sustapil sustaocp

R2 LL

SD

Interaction Terms

0.387 [2.77] 0.314 [2.05] 0.075 [0.42] 0.043 [0.29] 1.018 [6.46] 0.682 [4.95] 0.171 [1.20] 0.093 [0.71] 0.150 [1.05] 0.116 [0.61] 0.041 [0.25] 0.452 [3.42]

a

a

a

a

a

1.113 [5.50] 0.636 [1.62] 0.069 [0.20] 0.028 [0.10] 1.414 [5.38] 0.508 [2.13] 1.160 [5.08] 0.101 [0.36] 0.182 [0.67] 2.136 [8.68] 1.666 [6.93] 0.067 [0.21]

a

a

a

a

a

a

0.334 6804.6

T-value in square bracket. a Denotes significance at 95% level.

Table 5 Conditional logit model with demographic, behavior, and price (model 3). Coef

Coef

Coef

price

0.162 [17.66]

*

org

0.671 [2.73]

*

sust

0.343 [1.51]

opt out

2.592 [20.28]

*

org*p1

0.359 [3.19]

*

sust*p1

0.0212 [0.19]

nj

0.188 [3.13]

*

org*p2

0.0618 [0.53]

sust*p2

0.104 [1.00]

cal

0.383 [6.62]

*

org*p3

0.0233 [0.23]

sust*p3

0.103 [0.97]

napa

0.57 [10.02]

*

org*exp

0.121 [5.92]

*

sust*exp

0.134 [7.09]

*

pil

0.321 [5.58]

*

org*age

0.146 [7.03]

*

sust*age

0.144 [7.42]

*

ocp

0.181 [3.28]

*

org*nd

0.0753 [1.91]

sust*nd

0.00877 [0.24]

org*qual

0.341 [10.04]

sust*qual

0.161 [4.66]

R2 LL

*

strategy for these appellations of lesser prestige. The results do not support the notion of an eco-penalty at the mean level. In particular, the coefficient borganic*Napa is not statistically significant. Our results, which contradict Delmas and Lessem (2017), thus diminish the notion of an eco-penalty for organic wines from Napa Valley. The sustainable winemaking label affects only the OCP wines at the mean level (P ¼ 0.001), with a WTP of $1.79 per bottle. Three standard deviation terms associated with the ecolabel are statistically significant, which suggest the potential for these wines at the niche level. The WTPs at the 75th percentile is around $4.00 to $5.00 per bottle for wines from USA, New Jersey, and Pilesgrove. These show that the sustainability label can attract niche consumers.

*

0.16 7729.97

Notes: * denotes significance at 95% level. T-value in square bracket. p1 ¼ $7.99, p2 ¼ $10.99, p3 ¼ $13.99. Exp ¼ expenditure; nd ¼ glasses of wine consumed per week; qual ¼ perceived quality.

4.3. Model 3 Perception of quality positively affects the preference for both ecolabels (Table 5). More respondents have rated organic as “far above average” in quality (24.7%) than sustainable (11.75%); more than half of the respondents (52%) have rated sustainable wines as average or below in quality (Fig. 3). Thus, quality perception may explain the higher preference for organic than sustainable, where consumers may be more familiar and knowledgeable about the better-established organic label than the sustainable label, as Ginon et al. (2014) have observed. These results underscore the importance of quality perception. Do the ecolabels disproportionately penalize higher-priced wines in general, as Delmas and Lessem (2017) suggest? If it is true, the utility associated with higher-price ecolabeled wines would be more highly negative. Nevertheless, only one of the six price-ecolabel interaction terms is significant. The positive coefficient gorg*p1 suggests a nonlinear higher utility when organic wine is sold at $7.99; the other price-ecolabel coefficients are statistically insignificant, which suggest that the ecolabels do not interact with the higher prices. Incidentally, when the prices are modeled as linear in the interaction term, the price-ecolabel term is negative and statistically significant, which reflect Delmas and Lessem (2017) .5 But it is likely that the present specification of model 3 is more accurately describing the utility structure, given a better log-likelihood score (7730 vs 7732.9) is recorded (albeit P < 0.20 from a likelihood ratio test, suggesting that the improvement is not statistically significant). Thus, our results indicate that the ecolabels do not disproportionately penalize higher-price wines, at least for wines that are within the examined price range. In contrast, the results suggest that the preference for ecolabels increases with expenditure. The higher expenditure level indicates a desire for higher quality, it reaffirms that consumers are referencing the ecolabels as quality indicators, which reflects the finding €ufele and Hamm (2018). of Scha Younger consumers prefer ecolabels more. This contradicts the observation of Pomarici and Vecchio (2014). The difference could be due to the preference divergence between the samples (i.e., U.S. versus Mediterranean). Here, the results indicate that younger consumers are more accessible to the sustainable wine industry. This coincides with the observation that baby boomers emphasize cost more than the younger generation when it comes to consumption of green goods (Williams and Page, 2011). If the preference does not decrease as time transpires, this would suggest that the U.S. market for ecolabeled wine will expand, as the now younger wine drinkers expand into a larger segment the overall

5

Results available upon request.

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Fig. 2. Willingness to Pay Estimates Implied by Model 1 and 2. Notes: S denotes Sustainable Winemaking; O denotes Organic; * denotes interaction terms. The ends of whiskers denote 10th and 90th percentile; the boxes enclose the 25th and 75th percentile. Diamond and double notch denote the mean WTP and median WTP respectively.

Table 6 Hypotheses testing. Hypothesis/Calculation

Results

H 10 : borganic ¼ bsustainable (Model 1) H 20 : borganicsustainable ¼ 0 (Model 1)

c2 ð1Þ ¼ 10:18; Prob > c2 ¼ 0:0014 c2 ð1Þ ¼ 18:43; Prob > c2 < 0:0001

H 30 : gusa ¼ gnapa ¼ … ¼ gocp (Model 2)

c2 ð5Þ ¼ 35:81; Prob > c2 < 0:0001

: qusa ¼ qnapa ¼ … ¼ qocp (Model 2) WTPorganic  WTPsustainable (Model 1) The non-linear price specification is nested within the linear price specification (Model 3)

c2 ð5Þ ¼ 14:51; Prob > c2 ¼ 0:013

H 40

wine market. 4.4. The case for an eco-penalty Do all consumers prefer ecolabeled wines? The results suggest otherwise. About one-fifth of the sample believes that ecolabeled wines have lower than average quality (Fig. 3); the inferred preference from the econometric models also support this notion, where the WTPs for the ecolabels spread into the negative domain (Fig. 2). These suggest that the ecolabels are not valued by all consumers. Three organic WTPs and four sustainable WTPs from the appellation-ecolabel interaction terms distribute into the negative region. When appellations are not accounted, 16% and 21% of the sample are willing to pay less for sustainable and organic wines, respectively. For USA, NJ, and Pilesgrove, the WTPs for the ecolabels are partially distributed in the negative region; thus, these suggest that some consumers may perceive ecolabels negatively when applied on less prestigious wines. However, the negative results do not hold for Napa and California wines, which suggest that the ecopenalty does not prevail for the more prestigious appellations. Therefore, in general, more consumers prefer ecolabeled wines than those who do not. While the ecolabels may repel some consumers, they attract a larger number, resulting in a net plus. The industry is thus recommended to pursue ecolabeled wines while

WTPorganic  WTPsustainable ¼ 1:003; P ¼ 0.002

c2 ð4Þ ¼ 5:93; Prob > c2 ¼ 0:2045

being mindful that the ecolabels may dissuade some consumers. The industry can promote the fact that ecolabeled wines are associated with higher wine scores, which may persuade consumers of the quality aspects of ecolabeled wines (Delmas et al., 2016). 4.5. Implications The results suggest that ecolabels can increase competitiveness and serve as a tool for product differentiation. However, the benefit is dependent upon the place of origin. The ecolabels are likely more beneficial when applied to less-renowned wine production areas. This observation generates practical implications both to the industry and the research community, particularly on the behavioral mechanism that contributes to the likely inverse relation between ecolabels and prestige. A plausible explanation is that the ecolabels serve a complementary role, in that it elevates the perceived quality of less prestigious wines. In contrast, wines from prestigious origins benefit less, as the prestige may have saturated the minimum requirement for quality by consumers; in this case, the place of origin competes and dominates the quality signal of the ecolabels. Thus, the ecolabels can have both complementary and substitution effects, contingent upon the origins’ prestige. Moreover, the difference in quality perception between organic and sustainable is noteworthy. It implies that organic may have

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Fig. 3. Quality Perception of Organic and Sustainable Wines. Notes: Scale of 1 ¼ Far Below Average, 2 ¼ Somewhat below average, 3 ¼ Average, 4 ¼ Somewhat above average, 5 ¼ Far Above Average.

more potential as a product differentiation tool. Nevertheless, the ecolabels’ profit implication depends on the cost of production and certification (Jourjon et al., 2016). It is likely that organic, which requires a more drastic change in production technique, would be more expensive than sustainable, which can be accomplished by adopting less costly techniques such as the Integrated Pest Management (United States Environmental Protection Agency, 2015). Thus, the producers should compare the cost and benefit of both ecolabels closely. Future research can further explore the difference in quality perception between organic and sustainable. Previous research has noted the difference and explored its underlying factors, nevertheless, the industry can benefit from deeper insights on how the perceptions are formed, such as the role of information, and a person’s inherent attitude towards environmentalism and food €ufele and Hamm, 2017). Further, it is safety (Ginon et al., 2014; Scha not clear if the perceived superiority of organic to sustainable is justified, future studies can focus on the methods’ implication to wine quality and their life-cycle effects on the environment. Such investigations can be useful to guide the industry, the consumers, and the literature.

4.6. Limitations As with all stated preference analyses, this study has limitations. First, while a cheap talk script is used, it is not certain if the procedure eliminates hypothetical bias, which may exaggerate the magnitude of the preference (Loomis, 2014; Penn and Hu, 2018); it is thus possible that the results accurately reflect the direction of marginal utilities, but the willingness to pay estimates may be inflated. Second, as noted, the study focusses on consumer preference of mid-range wines; it is doubtful that the results can translate seamlessly to the higher-price segments of wines, where consumer preference are likely predominantly guided by prestige and brand. With these in minds, we thus recommend more research, where this study can serve as a useful guide.

5. Conclusions It has been suggested that an ecolabel does little to increasedor worse, decreasedthe price of wines (Delmas and Grant, 2014; Abraben et al., 2017). Further, it is also suggested when consumers are interested in such labels, they are only interested if the ecolabels are attached to cheaper wines from lesser-known appellations (Delmas and Lessem, 2017). However, this narrative is incomplete; it is uncertain consumers are unwilling to pay for ecolabel that conveys sustainability, and whether consumers prefer ecolabeled wines from only less-prestigious appellations. Such gaps inhibit producers and policy decisions that may promote greater adoption of sustainable viticulture. This study, conducted on a nationwide sample of wine drinkers, focuses on ecolabels’ effect on consumer preference that is differentiated by appellations. It yields three main results. One, consumers are willing to pay a premium for organic wine and sustainably produced wine. Two, the WTP for the ecolabels is appellation-dependent. Specifically, higher WTPs for ecolabels apply to appellations of lesser prestige. Three, the ecolabeled wines preference is driven by the perception of quality; the WTP for organic wine is higher than sustainable wines, which may reflect the higher perceived quality of organic wines. These add to the present knowledge, where they translate to recommendations for the industry to invest in ecolabels. Equally important is the absence of a pervasive eco-penalty, as observed in Delmas and Lessem (2017), Delmas and Grant (2015), and Abraben et al. (2017). Contrary to the previous reports, the results illustrate that only a small segment of consumers have negative WTP for ecolabels. There is no evidence of an eco-penalty when the ecolabels are applied to wines from more-prestigious origins, such as Napa Valley and California. Nor do the results indicate the ecolabels disproportionately penalize higher-price wines. The results suggest that there are healthy WTPs to support the ecolabel wine industry, albeit the benefits may be larger for wines from less-prestigious origins.

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