chapter 2 - Bentham Science

Research Topics in Agricultural
and Applied Economics
Volume 2
Editor
Anthony N. Rezitis
University of Western Greece

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CONTENTS
Foreword i
Preface ii
Contributors iv
CHAPTERS
1. The Italian Demand for Imported Virgin Olive Oil: A Threshold Almost Ideal Demand
System Approach 3
M. Ben Kaabia and J. M. Gil
2. Food Crisis: Did Agricultural Prices Rise Faster than they Fell? 19
M. Stigler and P. Tortora
3. New Trends in Consumer Needs: Functional Foods in the European Market 31
A. Annunziata and R. Vecchio
4. Consumer Knowledge of Animal Welfare Standards 46
R. Vecchio and A. Annunziata
5. Consumer Geographic Segmentation and Valuing Attributes of Wine in Supermarket: An
Hedonic Approach 58
J. C. Ortúzar and O. Alfranca
6. Territory Image and Notoriety as Sources of Equity in the Wine Market 73
D. C. Dopico
7. Means-end Chain Analysis of Food Products with Origin Quality Labels: An Application to
Wine with Designation of Origin 85
R. Barrena and M. Sánchez
8. Is there a Future Market for Genetically Modified Food? An Analysis from Southern Spain
Consumer Preferences 107
M. R.-Entrena and S. Sayadi
9. Global Crisis and Agricultural Public Spending in Kenya: A SAM Multiplier Approach 121
M. Sassi
10. Measuring the Relative Efficiency of Bank Branches: The Case of the Agricultural Bank of
Greece 143
A. N. Rezitis, A. Pailas and M. A. Kalantzi
11. Measuring Labor Productivity and Market Viability of Rural Tourism Activities in Japan 155
Y. Ohe
Index 168

FOREWORD
Volume 2 of the E-Book Series “Research Topics in Agricultural and Applied Economics,” edited by Professor
Anthony Rezitis provides a number of papers that are excellent examples of advanced empirical work applied to
relevant problems. Readers, in particular applied economists, will find the work presented useful for its illustration
of how to apply advanced techniques such as Almost Ideal Demand Systems and conjoint analysis to real world
problems.
The results of the analyses presented also will prove useful to those in the applied world of agricultural economics.
The topics addressed are quite relevant ranging from modeling trade in virgin olive oil to valuing attributes of wine.
This collection provides a valuable contribution to the continuation of applied economics in providing insight to
relevant problems.
Blake Brown
Hugh C. Kiger Professor
Agricultural and Resource Economics
North Carolina State University
i

ii
PREFACE
The aim of the e-book series of Research Topics in Agricultural & Applied Economics (RTAAE) is to publish high
quality economic research applied in both the agricultural and non-agricultural sectors of the economy. Subject
matter areas of this e-book series include, among others, supply and demand analysis, technical change and
productivity, industrial organization, labor economics, growth and development, environmental economics,
marketing, business economics and finance. By covering a broad variety of economic research topics, this e-book
series is addressed to a wide spectrum of academic agricultural and applied economic researchers and scientists but
it could also be useful to industry specialists and government policymakers.
The present volume of RTAAE (Vol. 2) contains the following 11 chapters:
Chapter 1, entitled “The Italian demand for imported virgin olive oil: a Threshold Almost Ideal Demand System
Approach”, examines the import demand for virgin olive oil in Italy. The methodology used is based on the
specification of a Threshold Almost Ideal Demand System (TAIDS) in which special attention has been paid to the
stochastic properties of the series involved.
Chapter 2, entitled “Food Crisis: did agricultural prices rise faster than they fell?”, examines the issue of asymmetry
between downward and upward price transmission by investigating a sample of small wheat importing countries. It
uses time series models which allow for asymmetries – namely regime switching cointegration techniques – to
examine whether the international price spike and its subsequent decline have been transmitted to domestic markets
to the same extent.
Chapter 3, entitled “New trends in consumer needs: functional foods in the European market”, offers an overview of
the functional food (FF) market in Europe and ascertains the opportunities for further expansion of this segment.
Consumer behaviour towards FFs was analyzed through a quantitative survey conducted on 400 Italian food shoppers.
Chapter 4, entitled “Consumer knowledge of animal welfare standards”, analyzes consumer knowledge of the
welfare standards of laying hens based on the results of a direct survey on 300 Italian food shoppers. The findings
highlight important market opportunities and policy implications.
Chapter 5, entitled “Consumer geographic segmentation and valuing attributes of wine in supermarket: An Hedonic
Approach”, determines the relevance of the main attributes for wine, in some geographic areas in supermarkets of
Santiago, Chile. Brands and ranking appear to be relevant characteristics for wine value in all segments.
Chapter 6, entitled “Territory image and notoriety as sources of equity in the wine market”, investigates which
sources of brand equity could endow the product with a higher differentiation by studying five Spanish collective
brands: Rioja, Valdeorras, Ribeiro, Rias Baixas, and Ribera de Duero. A panel of 296 consumers assessed the
dimensions of brand equity for each of them.
Chapter 7, entitled “Means-end chain analysis of food products with origin quality labels: an application to wine
with designation of origin”, analyzes relationships between origin-based differentiation features of food products
and the personal values on which consumers base their purchase decisions by applying means-end chain
methodology through an interviewing technique known as laddering.
Chapter 8, entitled “Is there a future market for Genetically Modified Food? an analysis from southern Spain
consumer preferences”, examines consumer behaviour regarding Genetically modified (GM) foods in southern
Spain based on a survey of 448 people. Some questions regarding to food safety and quality are raised in order to
know consumer’s concerns and the Conjoint Analysis (CA) method is applied to estimate consumer’s preferences in
relation to a hypothetical genetically modified (GM) cornflakes cereal, as an alternative of real product.
Chapter 9, entitled “Global crisis and agricultural public spending in Kenya: a SAM Multiplier Approach”, focuses
on Kenya with the purpose of understanding the role of public spending in the primary sector in addressing the

current food crisis and in contributing to overall economic growth and alleviating poverty and food insecurity
according to the first Millennium Development Goal.
Chapter 10, entitled “Measuring relative efficiency of bank branches: the case of the Agricultural Bank of Greece”,
investigates the relative efficiency of a sample of 19 bank branches of the Agricultural Bank of Greece for the years
2002 and 2003 by using the Data Envelopment Approach (DEA).
Chapter 11, entitled “Measuring labor productivity and market viability of rural tourism activities in Japan”,
evaluates diversified rural tourism activities from the perspectives of economic viability and endogenous utilization
of rural resources and investigates labor productivity of eight rural tourism activities. It finds that rural tourism in
this country is undersupplied at a social optimal level.
iii
Anthony N. Rezitis
University of Western Greece

iv
Alexander Pailas
Agricultural Bank of Greece, Greece
Anthony N. Rezitis
CONTRIBUTORS
Department of Business Administration of Food and Agricultural Enterprises, University of Western Greece, Greece
Azzurra Annunziata
Department of Economic Studies "S. Vinci", University of Naples "Parthenope", Italy
Domingo Calvo Dopico
Economic Analysis Department and Business Administration, University of A Coruña, Spain
José M. Gil
CREDAUPC-IRTA (Centre for Research in Agroffod and Development Economics), Barcelona, Spain
Juan Carlos Ortúzar
Departament d'Administració d'Empreses i Gestió Económica dels Recursos Naturals, Univesitat de Lleida, Lleida, Spain
Macario Rodríguez-Entrena
Agricultural Economics and Rural Studies, Institute of Agricultural Research and Training (IFAPA), Granada, Spain
Maria A. Kalantzi
Department of Business Administration of Food and Agricultural Enterprises, University of Western Greece, Greece
Maria Sassi
Department of Management Studies, University of Pavia, Italy
Matthieu Stigler
Consultant for the Food and Agricultural Organization (FAO) of the United Nations, Rome, 00153; Italy
Mercedes Sánchez
Departamento de Gestión de Empresas, Universidad Pública de Navarra, 31006 Pamplona, Spain
Monia Ben Kaabia
Department of Economic Analysis, University of Zaragoza, Spain
Oscar Alfranca B
Agricultural Engineering and Biotechnology, Universitat Politechnica de Catalunya, Barcelona, Spain
PieraTortora
Consultant for the Food and Agricultural Organization (FAO) of the United Nations, Rome, 00153; Italy
Ramo Barrena
Departamento de Gestión de Empresas, Universidad Pública de Navarra, 31006 Pamplona, Spain
Riccardo Vecchio
Department of Economic Studies "S. Vinci", University of Naples "Parthenope", Italy

Samir Sayadi
Agricultural Economics and Rural Studies, Institute of Agricultural Research and Training (IFAPA), Granada, Spain
Yasuo Ohe
Department of Food and Resource Economics, Chiba University, Japan
v

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 3-18 3
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 1
The Italian Demand for Imported Virgin Olive Oil: A Threshold Almost Ideal
Demand System Approach
Monia Ben Kaabia 1,* and José M. Gil 2
1 Department of Economic Analysis, University of Zaragoza, Dotor cerrada 1-3, 50005 Zaragoza, Spain; 2 CREDA-
UPC-IRTA (Centre for Research in Agroffod and Development Economics) 08860-Castelldefels (Barcelona) Spain
Abstract: This paper analyses the import demand for virgin olive oil in Italy, which concentrates more than 80%
of European Union (EU) imports. More precisely, it aims at determining the relative position of Mediterranean
EU and non-EU countries exports in the Italian market and their degree of substitutability or complementarities.
The methodology used is based on the specification of a Threshold Almost Ideal Demand System (TAIDS) in
which special attention has been paid to the stochastic properties of the series involved. In an empirical context,
the paper aims at providing a set of import demand elasticities that can be useful in trade policies. Results point to
Spain as the leader in the Italian virgin olive oil market. It is expected that this position will be maintained in the
future. Greece has improved its relative position after its accession into the EU. However, imports coming from
Greece are highly dependent on the situation in Spain. Tunisia has good potential for future exports development
as a consequence of new perspectives of trade liberalisation taking into account its relative position in the Italian
market, in spite of its current exports constraints due to existing quotas.
Keywords: Virgin olive oil, Italy, elasticities, imports, TAIDS.
INTRODUCTION
Olive trees have a long tradition in Mediterranean countries as we have noticed that in the Roman Empire olivegrowing
was common practice. In any case, olive oil is not a homogeneous product (EU Commission, 2004). There
are currently several categories of olive oil in the market: virgin oils (mechanically extracted direct from the olives),
which comprises the "extra virgin" and "virgin" classes (which are ready for consumption) - and lampante olive oil
(which has to be refined); "Composed" olive oil is a blend of refined and "virgin" or "extra virgin" olive oil; and,
finally, the olive pomace oil, which consists of a blend of refined olive pomace (residue from the mechanical
extraction) oil and "virgin" or "extra virgin" olive oil. Although in this paper, in some cases, we are going to deal
with global olive oil, in general, most of our analysis, as well as our empirical work, will concentrate on virgin oils,
excluding the lampante oil, that is, only the high quality categories ready for consumption.
Nowadays, the Mediterranean basin concentrates around 98% of the world's olive trees and accounts for the bulk of
world olive oil production. The European Union (EU) uses to be not only the world’s largest market for
Mediterranean products but it also remains the prime outlet for the non-EU Mediterranean countries’ exports 1 , on
which their national economies depend largely. Imports of olives and olive oil, however, are not very substantial
primarily because of the leading position that Spain, Italy and Greece hold within the EU market. However,
production in non EU Mediterranean countries is still high. Tunisia, Turkey and Syria are the world’s fourth, fifth
and sixth largest olive producing countries respectively, while Tunisia is a prime olive oil supplier for the EU.
The EU has conceded a number of trade privileges either directly to certain countries or to the whole area
(Barcelona Agreement in 1995 for the creation of a Free Trade Area in the Mediterranean basin); thereby allowing
for closer trade cooperation with these countries. This Trade Area, free from duties and other import barriers, will
affect both the non-EU Mediterranean countries, that will be allowed easier entrance to a large market, and the
southern EU Member States (mainly Greece, Italy and Spain), that produce similar products and will be faced with
increased competition that might lead to lesser market shares in a previously 'exclusive' market.
*Address correspondence to Monia Ben-Kaabia: Department of Economic Analysis, University of Zaragoza, Dotor cerrada 1-3, 50005
Zaragoza, Spain; Tel: +34976762759; Fax: +34976761996; E-mail: monia@unizar.es
1 Mainly, Tunisia, Turkey

4 Research Topics in Agricultural and Applied Economics, Vol. 2 Kaabia and Gil
The main objective of this paper is to assess, by conducting import demand analyses, the price competitiveness and
the export performance of the olive oil sectors in the Mediterranean regions. Moreover, it aims to providing results
that may prove helpful for decision-making at the Community level at a time that the changing environment, both
intra-EU (Common Agricultural Policy (CAP) reform, EU enlargement) as well as extra-EU (World Trade
Organization (WTO) negotiations, ongoing globalisation and liberalisation of international markets) urges for
detailed knowledge regarding potentials and future market trends.
Taking into account that more than 80% of total EU virgin olive oil imports go to Italy, in this paper we have
decided to take Italian imports as representing total EU imports. Moreover, as Italy is an important producer
country, this assumption will facilitate us to relate our results to domestic prices in order to specify an appropriate
model to calculate import elasticities. In this context, it is not unrealistic to assume non-linear adjustments of
imports to changes in domestic prices. In other words, trade patterns may be different depending on price
differentials between domestic and foreign markets. To tackle with this issue, in this paper a Threshold Almost Ideal
Demand System (TAIDS) is specified, which is the main contribution, from a methodological point of view, to the
existing literature on estimating import demand models.
To achieve the above mentioned objective, the paper has been structured into the following sections. Section 2
presents some descriptive statistics about olive oil trade patterns in the Mediterranean basin. The theoretical
background is presented in Section 3. Section 4 describes the data series used as well as their stochastic properties,
which have ultimately determined the econometric approach followed in this paper. The TAIDS model is specified
and estimated in Section 5, as well as the calculated elasticities. The paper finishes with some concluding remarks.
OLIVE OIL TRADE PATTERNS IN THE EU
The production of olive oil is heavily conditioned by both agronomic and climatic conditions. As much of the
cultivated surface is not irrigated, drought periods are particularly harmful for olive trees (i.e. Spain in 1995/96).
Moreover, production is determined by alternate bearing, a characteristic of olive trees whereby bumper crops tend
to be followed by lower production the following year.
In the last few decades, olive oil production has featured periods of growth followed by stagnation (EU
Commission, 2004). At the beginning of the 1980s world production was about 1.8 million tonnes, 40% up on the
figure recorded in the mid-1960s. After a relatively stable period, production again showed an upturn in the second
half of the 1990s, to reach 2.5 million tonnes. Average world production for the last three marketing years has been
about 2.7 million tonnes.
The Community is the dominant player on the olive oil market. However, until 1981 it was a net importer as its
425,000 tonnes accounted for only one third of world production. In 1986, after the accession of Greece (1981),
Spain and Portugal, the EU became the market reference, averaging 80% of world production. The 1990s saw a
rapid rise in EU production as a result of increases in acreages and yields. Compared with harvests in the early
1990s the average production for the last three marketing years doubled in Spain, while Italy and Greece recorded
increases of 16% and 18%, respectively. Production in Portugal was fairly stable whereas French production,
although very modest in relation to the total for the Community (0.16%), went up slightly. Overall, Community
production has gone up 51%. Spain is the world leader producer, accounting for about 35% of world production
during the last three marketing seasons. Italy is next, with about 30%, followed by Greece, with around 16%.
Among the non-EU Mediterranean countries, Tunisia, Turkey and Syria are the main producers, accounting for 6, 5,
and 4% of total world production, respectively.
The recent enlargement of the EU has had only a limited impact on Community olive oil production since only three
of the new Member States are producers but at a rather small scale. The quotas allocated to them are 6,000 tonnes
for Cyprus, 400 tonnes for Slovenia and 150 tonnes for Malta, which together represent 0.4% of the combined
national guaranteed quantities of the other Member States.
Since olive oil tends to be consumed in production areas, external trade represents an average of less than 20% of
world production. At the beginning of the 1990s the EU accounted for just over half (55%) of world exports of olive

The Italian Demand for Imported Virgin Olive Oil Research Topics in Agricultural and Applied Economics, Vol. 2 5
oil, the corresponding figures for Turkey and Tunisia being 32% and 8%, respectively. Since mid 1990s, world olive
oil exports significantly grew. Italian and Spanish exports - which represent 90% of the total for the EU as a whole –
almost doubled. Greek exports, after falling in the mid-1990s, rose 30% (Fig. 1). Among non EU-countries,
Tunisian exports decrease up to represent 21% of world exports while those from Turkey and, specially, from Syria
increase to represent 10 and 5%, respectively of world exports.
In terms of categories Greek exports essentially consist of extra virgin olive oil (73% in 2001/02), whereas the
figures for Italy and Spain are 45% and 44%, respectively (EU Commission, 2004). In terms of market preparation,
all of Greek exports and 91% of Italian exports are in small immediate containers. Exports in bulk represent an
appreciable share of Spain's exports (35%), however.
700
600
500
400
300
200
100
0
Source: FAOSTAT
Figure 1: Evolution of exports from main world suppliers (thousands t).
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
TUNISIA GREECE ITALY SPAIN
Apart from the EU countries (mainly Italy), the United States, Australia, Japan and Canada account for practically
all EU exports (Fig. 2) and tend to be in immediate containers of less than 18 kg. The other major exporters to nonproducing
countries were Turkey (mainly to Canada, the United States, Australia and Japan), Tunisia (mainly to the
United States) and Argentina (mainly to Brazil).
Unlike its exports, the EU imports are fairly stable, with specific changes brought about by differences in
production. Reduced levels of imports correspond to years in which world output was low or in which the EU
production was very high. Conversely, high levels of imports correspond to years in which Community production
was relatively small (EU Commission, 2004). Italy tends to account for the bulk of the Community's imports while
German, Portuguese, United Kingdom (UK) and French imports have nearly always been negligible and those of
Spain have been only noticeably in 1995 due to the severe drought in that country.
A very interesting point in UE olive oil trade is the inward processing arrangements. Under inward processing
arrangements import duty and other commercial policy measures are waived when products are imported from nonmember
countries for re-exportation in the form of finished products after processing within the Community. Under
"by equivalence" inward processing arrangements the importer must export an equivalent quantity of processed
olive oil, but not necessarily the actual goods that were processed. They play a major role in the context of
Community imports, accounting for 60-80% of the total volume of imports (Table 1).

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 19-30 19
Food Crisis: Did Agricultural Prices Rise Faster than they Fell?
Matthieu Stigler * and Piera Tortora
Food and Agriculture Organisation of the United Nations; Rome, 00153 Italy
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 2
Abstract: International agricultural markets have experienced important price fluctuations recently, with prices
spiking in 2007-2008 and then declining sharply in 2008. While domestic prices generally followed these
increases, there is concern that they remained at high levels despite decreases in international prices. This issue of
asymmetry between downward and upward price transmission has been widely discussed in economic literature,
and some authors have argued that such asymmetry is the rule rather than the exception. With its sustained price
increase followed by a large decrease, the food price spike provides an ideal case to test this hypothesis. We
assess this question empirically by investigating a sample of small wheat importing countries. We use time series
models which allow for asymmetries - namely regime switching cointegration techniques - to examine whether
the international price spike and its subsequent decline have been transmitted to domestic markets to the same
extent. Out of the four countries we investigate, we find a clear case of a downward asymmetry, a clear case of
upward asymmetry, the remaining two countries yield less definitive results.
Keywords: Asymmetric price transmission, agricultural price spike, nonlinear cointegration, regime switching models.
INTRODUCTION
World prices of agricultural and other commodities have been rising since 2003, and the price of wheat, maize and rice
surged dramatically in 2007-2008. The price spike meant increased food bills for many of the world’s poors and the
break out of an international food crisis. This situation raised crucial questions for analysts, policy makers, and the
international community. What caused the crisis? What are its international and domestic impacts 1? What can be done
about it? It is in the light of these questions that several analysts investigated the underlying issue of whether and to
what extent the price spike had been transmitted to domestic markets. Although answers to the latter question are
highly country-specific, many studies concluded that indeed domestic markets followed the international price increase.
The rapid price increase reversed in 2008-2009 but -by contrast to the price spike- this decline seems to have received
limited attention. To our knowledge, there have been no studies appraising how the price decline was transmitted to
domestic prices. However, a preliminary analysis by the FAO Global Information and Early Warning System (GIEWS)
points out that in July 2009, more than half of the 860 domestic price series monitored were at the same or higher levels
than before the crisis, while the international prices had returned to pre-crisis levels (FAO 2009). This suggests that the
price decline in the international market was not fully transmitted to domestic markets, and that domestic prices may
have responded differently to the world price spike than they did to the decrease that followed.
The idea that prices may be transmitted asymmetrically is not new, and various studies have observed this
phenomenon in diverse contexts. With its skyrocketing peaks and large decreases, recent world price fluctuations
provide ideal ground to investigate this hypothesis. We thus apply time series models that allow for asymmetries -
namely regime switching cointegration techniques - to examine the price transmission of the recent world price
movements. Due to the complexity of the models and to limited public data availability, we restrict our attention to
*Address correspondence to Matthieu Stigler: Food and Agriculture Organisation of the United Nations, Rome, 00153, Italy; Tel: +39 06 570
533 64; E-mail: matthieu.stigler@gmail.com
1
For country-specific studies see: Arndt et alii (2008) for Mozambique; Benson et alii (2008) for Uganda; Cudjoe et alii (2010) for Ghana; Ul
Haq et alii (2008) for Pakistan; and Ivanic and Martin (2008)] for nine low income countries. For a comprehensive review of the causes and
consequences of the food crisis see Headey and Fan (2010).

20 Research Topics in Agricultural and Applied Economics, Vol. 2 Stigler and Tortora
one commodity - wheat - and to a sample of small importers (India, Peru, South Africa, and Ethiopia) over the period
2000-2010. Wheat is actually one of the three main commodities that experienced the spike and it is also a key staple food
for millions of people. Despite sharing the common feature of playing a minor role in the international wheat market, the
four countries considered have very different import patterns as well as policy schemes. This makes our choice about the
sample countries interesting, as it allows to see how domestic prices reacted in very different contexts.
The contribution of this paper is thus threefold. Firstly we attempt to shed light on the until now unanswered
question of how the international price decline was transmitted domestically. This has in fact important implications
for the debate on the impacts of the food crisis on the local populations, since a weak transmission of the price
decline translates into sustained high food bills. Secondly, we contribute to the price transmission literature by
investigating whether the finding of asymmetric transmission in other markets also applies to the grain markets in
the time of the crisis. This too is relevant for the debate on the impacts on the crisis where it is often implicitly
assumed that price increases and decreases are transmitted in the same way. This paper finally gives insight as to
whether the analytical tools generally used to asses price transmission and asymmetry are well suited to analyze
exceptional events such as the food crisis.
The article is organized as follows: in the next section we review recent empirical works on asymmetric price transmission
and the explanations provided to such empirical findings. Then we describe the asymmetric models proposed in the
literature and the specific model that we use. Next, we present the data and the results. Finally we conclude.
ON THE EXISTENCE AND DRIVERS OF ASYMMETRIC PRICE TRANSMISSION
In this paper, we adopt the commonly used definition of “asymmetric price transmission” as the situation where the
response of a price to another price’s change depends on whether the change was positive or negative. When a price
increase is better transmitted than a price decrease, it is said “positive” or “upward” asymmetry, the opposite case
being called “negative” or “downward” asymmetry. Other definitions, as well as a classification of different
typologies of asymmetries, can be found in Meyer and von Cramon-Taubadel (2004) and Frey and Manera (2007).
Asymmetric price transmission has received considerable attention in the literature on agricultural markets,
especially as applied along the market chain (i.e. vertical price transmission) since it implies a transfer among
economic agents with major welfare and policy implications. For example, in an influential article, Peltzman (2000)
examines the transmission from the wholesale to the retail level of over 100 commodities and, finding that increases
are transmitted more rapidly than decreases, concludes that asymmetric price transmission is the rule rather than the
exception. A number of other studies finds similar results in relation to specific agricultural commodities, for
example Goodwin and Holt (1999) for the U.S. beef sector and von Cramon-Taubadel and Loy (1996) for wheat.
Asymmetric vertical price transmission has also been widely investigated in relation to other markets such as in the
cases of crude oil and gasoline prices (see Geweke (2004) for an informal review of the numerous papers on this
subject), or interest rates (Karagiannis et al. (2010)).
In the context of transmission from the international to domestic markets, asymmetries haven’t been studied as
much. Several papers in fact analyze if, and to what extent, world prices are transmitted to domestic prices (Baffes
and Ajwad, 2001; Baffes and Gardner, 2003), but they do not address the question of asymmetries. An important
exception is Morisset (1997, 1998), who observes that commodity prices fell over the period 1975-1994 on
international markets while they increased domestically in industrial countries. Morisset sees the behaviour of large
international trading companies as main cause of this asymmetry. Mohanty et al. (1995) also observe asymmetries in
the spatial transmission of U.S. wheat prices: upward asymmetry to Argentina and the European Union, and
downward asymmetry to Canada and Australia. However, Cramon-Taubadel and Loy (1996) question these results,
and by using more refined methods of analysis find much less asymmetry. Conforti (2004) finds signs of upward
asymmetry in coffee prices in Indonesia, for maize and Sorghum in Ethiopia, wheat in Turkey and Egypt, and
downward asymmetry for pig meat in Costa Rica. Shepherd (2005) also reports asymmetries in the transmission of
the coffee international price, but sadly does not precise whether those concern positive or negative asymmetry.
To our knowledge, neither vertical nor spatial asymmetric price transmission has been tested with respect to the four
countries that compose our sample, but a few works have investigated the pass through of the 2007-2008 price spike to

Food Crisis Research Topics in Agricultural and Applied Economics, Vol. 2 21
their domestic markets. Dawe (2008), for example, pinpoints that transmission of wheat prices was partial in India due
to commodity-specific policies put in place to stabilize domestic prices. Ulimwengu et al. (2008) report that in Ethiopia
food inflation rates increased over the period 2004-2008 when the world prices were also rising, yet the domestic price
surge seemed to have significant local causes as well. Headey and Fan (2008) further emphasize this point, stressing
that rather than having to do with price transmission, the fast price surge in Ethiopia was the consequence of local
factors, such as policies and droughts. With respect to Peru, the domestic prices of wheat and other agricultural
commodities were found responsive to movements in the international market in the period preceding the crisis (see
Rapsomanikis and Sarris, 2008). We are not aware of specific studies on price transmission in South Africa.
The explanations for both vertical and spatial asymmetry range from market power to adjustment costs, the effect of
inventory and public policies. Along agricultural value chains, imperfect competition is thought to be widespread in
food manufacturing and retailing, while more competitive markets usually characterize the upstream stages (primary
production). Market power is therefore a key issue in agricultural economics and many papers finding asymmetric price
transmission point to it as a possible explanation. One could intuitively think that the exercise of market power will
lead to positive asymmetry, since price-setting firms will adjust to price increases more than to decreases. By contrast,
Ward (1982) argues that market power may cause negative asymmetries due to the strategic behaviour of oligopolistic
firms. A firm may in fact assume that if it increases its sale price other firms will keep their prices unchanged, whereas
they will react by decreasing their prices if the firm does so. Some empirical studies examine price transmission to infer
on the presence of market power along value chains, like Loyd et al (2006a, 2006b, 2009). However, as noted by
Hallam and Rapsomanikis (2006), these studies do not adopt structural econometric models with theoretical
foundations and thus fail to establish a clear relationship between price transmission and market power.
With regards to adjustment costs - which are the costs implied in changes in quantities or prices of inputs or outputs -
they are widely acknowledged as a source of less than full pass-through of prices. In the context of vertical
transmission, the model in Azzam (1999) 2 suggests that farm price increases are transmitted more to retail prices than
decreases, and rigidities in the retail price in times of decreasing farm prices may be due to re-pricing costs. Empirical
studies as well point out that adjustment costs can lead to asymmetries in vertical transmission. Interestingly enough,
both positive and negative asymmetries are attributed to adjustment costs. In spatial price transmission, it is intuitive
that high transaction costs may explain discontinuous trade and threshold effects (see next section), since they make
arbitrage profitable only for large price changes. Furthermore, when transaction costs -and especially transport costs-
vary depending on the sign of the price change, asymmetries in spatial price transmission may also arise.
ASYMMETRIC AND REGIME-SWITCHING MODELS
Models capturing asymmetries in price dynamics date back to Farrell’s study of irreversible demand functions
(Farrell, 1952). A survey of the subsequent models can be found in Meyer and von Cramon-Taubadel (2004) and
Frey and Manera (2007). The former classify the models in pre-cointegration and cointegration techniques. The precointegration
techniques were based on splitting positive and negative price changes in univariate specifications
such as ARDL 3 . These models were able to tackle the non-stationarity of data series and to avoid spurious
correlations by using variables in differences rather than in levels (see Granger and Newbold, 1974). These precointegration
models were nevertheless criticized on the grounds that they did not take into account the important
fact that non-stationary variables can be cointegration (Ardeni, 1989). Cointegration, introduced by Engle and
Granger (1987), states that non-stationary variables can share a stationary long-run equilibrium relationship. Indeed,
Engle and Granger (1987) show that if the variables studied are non-stationary, but there exists a linear combination
of them that is stationary, they can be represented in a Vector Error Correction Model (VECM):
A A A
A A
A
p t AA,1 AB,1 p
t 1
AA, p AB, p p
tp
t
ECTt
1
...
B B B
B
B
B
p t
BA,1 BB,1 p t 1
BA, p
BB, p p
tp t
2 Using a two-period spatial competition model, Azzam (1999) assumes optimizing behaviour and, in line with other spatial competition models,
that retailers face a concave spatial demand.
3
Auto-regressive distributed lag model
(1)

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 31-45 31
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 3
New Trends in Consumer Needs: Functional Foods in the European Market
Azzurra Annunziata * and Riccardo Vecchio
Department of Economic Studies "S. Vinci", University of Naples "Parthenope", Naples 80133, Italy
Abstract: Over the last decade foods have not been intended only to satisfy hunger and provide necessary
nutrients but also to prevent nutrition-related diseases and improve the physical and mental well-being of
consumers. Hence healthier food products have entered the global markets with force in the past few years and
rapidly gained market shares. The food industry has reacted to this trend by developing a growing variety of new
products with health-related claims and images. However, due to limited consumer knowledge and awareness of
the health effects of newly developed functional ingredients, there are strong needs for communication activities.
The role of information is crucial since consumers cannot perceive the benefit directly from the product, unlike
taste and other sensory characteristics. The type of information and trust in it regarding the effect of a particular
product on health represent additional factors behind the success of functional foods. Based on these
considerations this chapter offers an overview of the functional food (FF) market in Europe and ascertains the
opportunities for further expansion of this segment. Consumer behaviour towards FFs was analyzed through a
quantitative survey conducted on 400 Italian food shoppers. Our findings reveal that respondents are confused
due to the ambiguity of what FF products are, and that consumers perceive products that are intrinsically healthy
such as yogurt, cereals and juice, as preferable and credible carriers of FFs. Moreover, use of principal
components analysis highlighted the key role played by the perception of healthiness in determining shoppers’
attitudes towards FF.
Keywords: Consumers, functional foods, European Union, factor analysis.
INTRODUCTION
The various food emergencies that have occurred, especially in Europe in recent years, have led to a collapse in
consumer confidence, which has indirectly affected purchases. As a result a new demand for food has emerged,
more geared towards healthiness. According to many studies, consumers are also increasingly reflective in matters
of health and willing to adopt health-oriented changes in their eating habits (Prattala, 2003; Saba, 2001).
Consequently, nowadays foods are not intended to only satisfy hunger and to provide necessary nutrients but also to
prevent nutrition-related diseases and improve physical and mental well-being of the consumers.
Numerous studies in the literature have sought to estimate the value of health for individuals under different
conceptualizations. Olsen (2006), following Sparks and colleagues (2001), refers to the ‘health-conscious selfidentity’
as the extent to which health is an important component of a person’s self-concept. Likewise, Maddock et
al. (1999) use ‘involvement in healthy eating’ to evaluate the importance of healthy eating for individuals. Other
authors measure health concern to capture individuals’ concerns about food and health-related issues or use health
interests to evaluate the value of health for an individual person (Bower et al., 2003; Sun, 2008). The importance of
concerns about health can be interpreted as being due to a number of factors not just related to socio-demographic
changes occurring in society over recent years, but also to the major progress made in scientific knowledge
concerning the interactions between diet and health. The increase in life expectancy contrasts with increased
incidence of diseases correlated to incorrect dietary habits, including chronic diseases such as osteoporosis, cancer,
cardiovascular diseases, hypertension and diabetes, that entail significant increases in health costs. All this has made
health an increasingly important buying motivation in food choices (Aschemann & Hamm, 2008).
*Address correspondence to Azzurra Annunziata: Department of Economic Studies "S. Vinci", University of Naples "Parthenope", Naples
80133, Italy; Tel: +393495373316; +390815475407; Email: azzurra.annunziata@uniparthenope.it
* Sections 1 and 2 are written by Riccardo Vecchio; sections 4 and 5 by Azzurra Annunziata. Conclusions are written by both authors.

32 Research Topics in Agricultural and Applied Economics, Vol. 2 Annunziata and Vecchio
Health and safety needs, however, clash with another peculiarity of modern consumption, namely the time-saving
feature of food shopping. The phenomenon known as one-stop shopping satisfies the needs of consumers with an
ever more limited availability of time for shopping (De Rosa & Turri, 2000). To meet these needs, the food industry
plays an important role in promoting a healthy diet, expanding the supply of high value-added products. New
frontiers in nutrition are undoubtedly represented by novel foods, nano foods and functional foods. In recent decades
consumer demands in the field of food production have changed considerably (Giannetti et al., 2009). In particular,
functional foods are a relatively new concept, which has emerged as a result of the recent increasing focus on, and
awareness of, the influence of diet on health (Poulsen, 1999). Functional foods (FF) represent one of the most
interesting areas of research and innovation in the food industry (Schaafsma & Kok, 2005; Jones & Jew, 2007;
Doyon & Labrecque, 2008; Sirò et al., 2008).
The term functional food itself was first used in Japan, in the 1980s, for food products fortified with special constituents
that possess advantageous physiological effects (Hardy, 2000; Kwak & Jukes, 2001; Stanton et al., 2005). The
European Commission’s Concerted Action on Functional Food Science in Europe (FuFoSE), coordinated by
International Life Sciences Institute (ILSI) Europe, defined functional food as follows: ‘‘a food product can only be
considered functional if together with the basic nutritional impact it has beneficial effects on one or more functions of
the human organism thus either improving the general and physical conditions or/and decreasing the risk of the
evolution of diseases. The amount of intake and form of the functional food should be as it is normally expected for
dietary purposes. Therefore, it could not be in the form of pill or capsule just as normal food form’’.
In order to increase the chances of success in this market a food firm cannot afford not to broaden its knowledge on
FF consumer perception, the cultural, psychological and social motivations under which the consumer behaves
(Urala & Lähteenmäki, 2003; Sirò et al., 2008). Undeniably, despite the vast interest of the food industry and the
alleged prospect of a bright future for FFs, few empirical studies of European and Italian consumer acceptance based
on primary data collection have been reported (e.g. Saba, 2001; Vassallo et al., 2009).
FUNCTIONAL FOOD DEVELOPMENT IN THE EUROPEAN MARKET
The world market for FFs and beverages is highly dynamic. In many ways it may even be characterized as an
experimental environment (Bech-Larsen & Scholderer, 2007). However, the diversity of definitions used
internationally to classify FFs makes it difficult to collect homogeneous statistical data on this market (Goldberg,
1994; Sheeby & Morrissey, 1998; Roberfroid, 2002; Gray et al., 2003).
Based on a definition by which FFs are any products with claims regarding health and their health-promoting
properties, we can say that the European market for functional foods is the largest with 43% of claims, against Asia
with 31% and North America with 15%. Food types most involved in the FF market worldwide, between 2005-
2008, are long-distance dairy products followed by alcohol-free beverages and foods for children.
In Europe, FF sales have increased significantly; Germany, France, the United Kingdom and the Netherlands represent
the most important countries within the FF market (Makinen-Aakula, 2006). However, many other European markets
are experiencing high growth rates, such as the Netherlands (Makinen-Aakula, 2006) and Spain (Monar, 2007).
Europeans are not only suspicious of the safety of novel foods, but are also critical of the whole process through which
food production becomes increasingly anonymous and distanced from everyday life (Poppe & Kjærnes, 2003).
Therefore, European acceptance of FFs would appear less unconditional, better thought-out, and with more concerns
and reservations as compared to US consumers
1 Furthermore, demand for FFs within the EU varies considerably from country to country mainly due to food
traditions and cultural heritage (Castellini et al., 2002), and in general the interest of consumers in FF in central and
northern Member States is higher than in Mediterranean countries (Van Trijp, 2007). Niva (2000) as well as Makela
1 This may also originate from the recent sequence of food safety scares (see Verbeke, 2005).

New Trends in Consumer Needs Research Topics in Agricultural and Applied Economics, Vol. 2 33
and Niva (2002, 2007) indicated that the need for FFs is increasingly questioned in Northern European countries,
hence yielding the conclusion that consumer acceptance of functional foods cannot be taken for granted. By
contrast, attitudes towards FFs were more positive in Finnish consumers compared to consumers in Denmark or the
United States (Bech-Larsen & Grunert, 2003).
Relevant papers that addressed cognitive, motivational and attitudinal determinants of consumer acceptance of
functional foods in different European countries provided insight in the profile of functional food consumers (e.g.
Bech-Larsen & Grunert, 2003; Urala & Lahteenmaki, 2004; Verbeke, 2005). From this literature it is possible to infer
that attitudes and lifestyle factors together with demographic factors such as gender, age or education, strongly affect
the acceptability or intention to use functional foods. Particularly, the main factors influencing purchasing behavior of
functional foods can be identified in lifestyle variables, health consciousness and attitudes towards healthier products
(e.g. Urala and Lahteenmaki 2004) and variables closely related to the product’s extrinsic and intrinsic attributes (Urala
2005; Verbeke 2006). Gray, Armstrong, and Farley (2003) observed that functional foods have to answer consumers’
needs for convenience, health and good taste. Verbeke (2005) found that believing in the health effects of functional
foods is the most crucial factor affecting consumers’ acceptance. Urala & Lahteenmaki (2004) found seven dimensions
describing consumers’ willingness to use functional foods: reward from using FF; confidence in FF; necessity for FF;
FF as medicine; FF as part of a healthy diet; absence of nutritional risk in FF and taste. These dimensions affected the
willingness to use functional food products in different ways, depending on the type of functional product. The type
and trust in the information about the effect of a particular product on health constitute additional factors of functional
foods’ success (Urala, 2005). Saher and colleagues (2004) findings revealed the existence of three factors that describes
impressions of functional food consumers: disciplined, innovative and gentle.
In Italy, although the FF market does not reach the size of other countries, in recent years the consumption of
products in the functional foods category has increased considerably, despite the fact that Italy represents a reference
country for the Mediterranean food model (Sirò et al., 2008). Italian consumers, like other Europeans, are paying
increasing attention to health-promoting foods: despite the current economic crisis, the most important factors
influencing the Italian consumers’ product choice are the quality and health value, then the brand, followed by price.
followed by the increasing interest towards the functional aspects of food (Giannetti et al., 2009).
Several nationwide surveys have also shown that Italian families, especially those with children, seek quality and
healthiness of food products ahead of price (Ac Nielsen, 2007) in contrast with the general decrease in food
purchases; at the end of 2007 30% of families claimed to consume FFs (ISMEA, 2007; Nomisma, 2008).
In literature there are few papers that explore the factors that influence consumers’ acceptance of FFs based on primary
data collection. Del Giudice and Pascucci (2010) in their empirical study on Italian consumer attitudes toward FF
analyzed the factors influencing the acceptance of FFs of three distinct groups of young Italian consumers. Their
findings showed that different sources of information and knowledge (e.g. the internet, newspapers and universities),
judgments and motivations (e.g. taste and health effects credibility) are key elements in the acceptance of FFs.
On the contrary, Messina et al. (2001) have investigated older people's perceptions of FF across eight European
countries, including Italy, showing that familiarity was the key driver in products' distinction.
MATERIALS AND METHOD
The success of FFs is widely recognized to depend on consumer acceptance of the products as part of the daily diet
(Lahteenmaki et al., 2007). As noted by Bech-Larsen and Scholderer (2007), little research attention has been paid to the
factors that influence consumers’ acceptance of FFs. Particularly for the Italian market, empirical studies of consumer
attitudes based on primary data collection (Del Giudice & Pascucci, 2010; Saba, 2001) are few and far between.
Based on the preceding considerations this paper explores the factors which influence consumer attitudes towards
FFs, presenting the results of a quantitative survey conducted on 400 Italian consumers, responsible for household
food shopping. General attitudes concerning food, nutrition and health; consumer awareness and interest in
functional foods; motivation to buy this type of food or to reject it; knowledge and beliefs about specific benefits of
foods are analyzed in depth.

46 Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 46-57
Consumer Knowledge of Animal Welfare Standards
Riccardo Vecchio and Azzurra Annunziata
Department of Economic Studies "S. Vinci", University of Naples "Parthenope", Naples 80133, Italy
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 4
Abstract: European Union (EU) directives identify specific quality and quantity characteristics of the spaces
where animals are kept and detailed breeder behaviour aimed at minimizing animal suffering. The development
of European legislation over the years has been characterized by broadening of the scope of action and by an
increase in the number of species covered by definitive rules. However, while EU legislation has progressively
focused on granting animals better possibilities to express their behavioural repertoire, recent analysis shows that
consumer knowledge of animal welfare compulsory standards is still quite limited. This is particularly true for the
farming conditions of layer hens even though animal welfare in poultry production systems in the EU has
received great legislative attention. Drawing on the results of a direct survey on 300 Italian food shoppers, our
research analyzes consumer knowledge of the welfare standards of laying hens. Our findings show that, although
the majority of the sample (79%) expressed concern on hen husbandry systems, 67% of respondents were
unaware of the current mandatory labelling system for eggs. Through cluster analysis three segments were found:
the inactive consumer cluster (39%) that groups respondents claiming not to take animal welfare into account in
their food purchasing decisions, the so-called conflicted consumer cluster (48%) including individuals that are
reluctant to accept responsibility for animal welfare through their demand for animal-friendly food products, and
the ethically competent consumer cluster (13%) consisting of respondents very concerned about animal welfare.
Our findings highlight important market opportunities and policy implications.
Keywords: EU animal welfare standards, laying hens, Italian consumers.
INTRODUCTION
Ethical questions concerning food have become a widespread concern throughout Europe (Bryant & Goodman, 2004;
Miele & Bock, 2007). Specific initiatives are produced by the European Union (EU) which stipulates minimum
requirements, through directives, which Member States are obliged to implement through national legislation (Stevenson,
2004; Caporale et al., 2005). The directives identify specific quality and quantity characteristics regarding animal housing,
and specify breeder behaviour aimed at minimizing animal suffering. The development of European legislation over the
years has seen a broadening of the scope of action and an increase in the number of species covered by definitive
regulations (Macri, 2005). The first EU legislation on this matter was enacted in 1974, with a later milestone being the
1999 Amsterdam Treaty that introduced a specific ‘Protocol on protection and welfare of animals’. EU policy on animal
welfare received a further impetus with the latest reform of the Common Agricultural Policy in which animal welfare
becomes one of the criteria required under so-called cross compliance, the set of obligations with which farmers have to
comply in order to receive payments. Briefly, the most significant change has been the shift in the general regulatory
approach, that has become progressively more independent of health requirements and focused on granting animals the
possibility to express their behavioural repertoire. Overall, Sweden, Norway and the UK have taken the lead, with stricter
regulations for all farm animals covered by EU regulations (Bock & van Leeuwen, 2005) whereas in other countries like
Italy the regulations are at the level of European standards (Veissier et al., 2008). Moreover, a number of animal welfare
schemes have been promoted and developed in Europe by non-governmental animal protection organisations in cooperation
with the food industry. Among these we can distinguish schemes that focus only on animal welfare (e.g.
Freedom Foods; Neuland), schemes that focus on various aspects including animal welfare (e.g. organic labelling; Label
Rouge in France, Shechita in the UK) and schemes that focus on aspects other than animal welfare but have some positive
*Address correspondence to Riccardo Vecchio: Department of Economic Studies "S. Vinci", University of Naples "Parthenope", Naples
80133, Italy; Tel: +393383498393; +390815475407; E-mail: riccardo.vecchio@uniparthenope.it
Sections 1, 3 and 4 are written by Azzurra Annunziata; sections 2,5 and 6 by Riccardo Vecchio.

Consumer Knowledge of Animal Welfare Standards Research Topics in Agricultural and Applied Economics, Vol. 2 47
side-effects on animal welfare (e.g. certain EU PDO/PGI schemes). Although in Italy no distribution chain has specific
schemes that focus only on animal welfare, as occurs in other European countries, some chains (Natura Si, Esselunga, Coop,
Conad) offer a range of so-called animal-friendly products, while at other retail outlets these foods are very limited (Despar,
Proda, Sigma, Standa, GS-Carrefour). These products do not carry special statements on animal welfare, nor do they refer to
regulated definitions, but they embrace a set of information on the type of farming in which the animal is reared (e.g.
outdoor, extensive) or the sort of feed given. Moreover, the animal-friendly brand is never used explicitly as a strategic
factor, but appears alongside other elements, such as health aspects and organoleptic characteristics of the product.
Although most European citizens share generally similar opinions in terms of animal welfare attributes and certain
species needing a higher welfare level, there are profound differences tied to the country of origin with respect to some
major related aspects such as direct knowledge of animal farming conditions and the willingness of the purchaser to
pay more for improved animal welfare. In addition, the Italian literature on consumer concerns about animal welfare is
quite limited and mostly consists of specific surveys done by retailers or animal rights associations.
The current research analyzes the results of a direct survey on Italian consumers’ knowledge of laying hens’ welfare
standards, investigating the most important extrinsic cue used to communicate welfare information: labelling. The chapter
starts with an overview of Italian egg production and consumption. We then empirically analyse Italian consumer concern
for laying hen husbandry systems and knowledge of the current labelling scheme. At the end of the chapter, the empirical
results are discussed and further addressed in the light of prior animal welfare research. The chapter aims to provide fresh
viewpoints on consumer knowledge of animal welfare standards and stimulate national policy makers and marketers.
BACKGROUND
Since the Second World War, egg production in developed countries has intensified: farm size, productivity of the laying
hen, and the number of laying hens per unit of labour have increased enormously. Intensification has been due mainly to
the large-scale introduction of the battery cage system, which has resulted in mechanization of feed and water distribution,
egg collection, and manure handling. Nevertheless animal welfare in poultry production systems is given more legislative
attention in the European Union (EU) than in many other regions. The EU position is partly induced by specific features of
the production environment and because several surveys (Eurobarometer, 2005; European Commission, 2007) prove that
animal welfare is an issue that citizens rank highly in importance. In particular, according to these surveys the conditions
of laying hens are judged to need the highest improvement in terms of welfare/protection (44%), followed by broilers
(42%) and pigs (28%). Therefore EU legislative action concerning commercial egg production underlines the importance
of housing systems. The introduction of the European Council Directive 1999/74/CE set the minimum standards for the
welfare protection of laying hens in cage, barn and free range housing systems.
1 and Regulation 2295/2003 mandated that the housing system must be specified on the box and on the eggshell. The
codes used are 0 for organic production, 1 for free range, 2 for barn, and 3 for cage systems. As regards the cage
system, starting from 2012, only eggs from hens housed in the so-called enriched cages will be allowed 2 .
In Italy poultry production is one of the greatest livestock productions. Nowadays the number of laying hens reared for
eggshell production is almost 45 million. About 86% of the hens are reared in cages and only 3% of these cages are
enriched. As for the remaining 14%, 9% are reared in barn systems, 2% in free-range systems and 3% in organic systems
(Ferrante, 2009).
According to a recent study (Principe et al., 2010) Italians purchase eggs mainly at large retailers (53%), followed
by small retailers (25.2%), producers (16%) and local markets (5.8%). Moreover, it was found that around 70% of
1
The Council Directive 1999/74/EC, adopted in 1999, distinguishes three types of rearing systems for laying hens: enriched cages where laying
hens have at least 750 cm² per hen of cage area, measured in a horizontal plane; un-enriched cage systems where hens have at least 550 cm² of
cage area per hen measured in a horizontal plane, non-cage systems (alternative systems) with nests (at least one for 7 hens), adequate perches
and where the stocking density does not exceed 9 laying hens per m² of usable area. Battery hens are usually considered to have the lowest level
of animal welfare because they are kept in small cages. Barn hens are allowed to move more freely, but do not have access to outdoor areas, and
are therefore usually considered to be better off than battery hens, but worse off than free-range and organic hens.
2
Various authors have estimated the additional cost resulting from the use of enriched cages at a significant share of current production cost:
Horne estimate 13%, Blandford and colleagues report similar findings.

48 Research Topics in Agricultural and Applied Economics, Vol. 2 Vecchio and Annunziata
consumers buy packaged eggs and only 6.4% loose eggs. National consumption of eggs has been calculated at
around 215 per head a year or 13.55 kilograms (official data of the National Union of Aviculture, 2009). While the
Italian consumer can find a broad range of products at very different prices on the supermarket shelves, the
mandated information on hen housing systems contained on the egg does not appear an effective instrument to
inform shoppers. Despite the findings from several surveys (Eurobarometer, 2005; European Commission, 2007),
there is widespread confidence that farm animal welfare is less important in Italy when held in comparison with
other countries such as the UK and Scandinavia, probably due to government resistance to a toughening up of recent
European Union animal welfare legislation and general base-level conformity to pre-existing standards.
Recently consumption of welfare-friendly food products and its determinants have witnessed growing research
interest among professionals and academics.
Some scholars have focused on the methods to elicit values for farm animal welfare, highlighting that the value to
society of measures to improve animal welfare needs to be assessed in a cost-benefit framework (Bennett & Blaney,
2003); and often benefit-cost ratios from stated preference studies are arbitrary (Chilton et al., 2006). Other
researches have explored the characteristics of animal-friendly food consumers, delivering contrasting results 3
(Maria, 2006; Vermeir & Verbeke, 2006; McEachern et al., 2007; Vanhonacker et al., 2007). Furthermore many
studies have argued that the construction of discourses and claims about farm animal welfare is still closely linked to
notions and representations of food quality (e.g. Miele et al., 2005; Buller & Cesar, 2007; Skarstad et al., 2007).
Martelli (2009) has investigated the readiness of consumers to pay more for a higher animal welfare level of laying
hens, concluding that the majority of European consumers (57%) are willing to pay more for eggs sourced from
animal-friendly systems. However, the increase in price has, in general, a limited extent (5-10%).
Not withstanding the importance of the available researches, up till now few scholars have focused on consumer
knowledge of existing animal welfare standards.
Moreover, little information is available on the segmentation of individuals based on their perceived importance of
animal welfare and their knowledge of animal welfare standards when purchasing food.
Our research highlights that the animal welfare issue, albeit a major and growing concern amongst Italians, has not
been effectively conveyed to the general public.
METHODS
The current study employed a questionnaire administered during face-to-face interviews. The main objectives of the
survey were to observe Italian consumer knowledge of laying hen welfare standards and verify the existence of
market segments formed by consumers with a different propensity towards high-welfare products and their labels, in
order to subsequently suggest and develop appropriate marketing strategies.
For the above-mentioned reason the questionnaire was developed to allow for the previous literature on consumer
knowledge of animal welfare standards and labelling. The questionnaire was piloted on a sub-sample of 30 consumers
employing the same methodology as the final survey. The questionnaire was revised in light of the pilot results.
The final questionnaire, comprising 34 questions, was sub-divided into three sections addressing specific topics: in
the first section general interest towards animal welfare issues, consumer attitude and purchasing habits of animalfriendly
food products were analysed. The second section investigated Italian food shoppers’ awareness of current
laying hen welfare standards, and respondents’ attitudes toward information printed on labels also with the aid of
stimulus materials. The third, and final, section covered consumers’ socio-demographic aspects such as age, gender,
marital status, annual income and education level, plus additional questions on life style.
3 For an extensive review see also Kjaernes et al., (2007) and Mayfield et al. (2007).

58 Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 58-72
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 5
Consumer Geographic Segmentation and Valuing Attributes of Wine in
Supermarket: An Hedonic Approach
Juan Carlos Ortúzar 1,* and Oscar Alfranca 2
1 Departament d'Administració d'Empreses i Gestió Económica dels Recursos Naturals, Univesitat de Lleida, Pl. de
Víctor Siurana, 1, E-25003 Lleida, Spain and 2 Agricultural Engineering and Biotechnology, Universitat
Politechnica de Catalunya, (08860) Castelldefels, Barcelona, Spain
Abstract: The main objective of this study is to determine the relevance of the main attributes for wine, in some
geographic areas in supermarket of Santiago, Chile. The study allows us to estimate how different the value of
wine characteristics could be depending on different geographical areas. The information used is a panel database
for stores. Information from wine guides is also to be considered. These wine guides relate ranking positions with
quality attributes. An hedonic model will be estimated. Hedonic models have been widely applied to determine
the main characteristics of wine. In general, hedonic studies have focused on wine color or price level
segmentation, but these have not been associated with different geographic areas associated with different
socioeconomic levels. In this paper, brands and ranking appear to be relevant characteristics for wine value in all
segments, mainly because consumers have been exposed to marketing activities, and can detect quality
differences between wine brands. The size of bottle is very relevant.
Keyword: Hedonic model, wine, geographic segmentation, supermarket.
INTRODUCTION
For any market-driven corporation, consumer segmentation is a widely-used tool which reports improvements on the
efficient use of resources and client satisfaction. (Kotler, 1991). In highly competitive and heterogeneous markets
such as wine, it is very important for companies to segment markets (Gluckman, 1990). Segmentation, in turn,
allows for the determination of the different value of wine attributes. The purpose of the current study is to
determine the value of attributes in several different wine consumer segments in supermarkets in Santiago of Chile.
There are multiple types and levels of segmentation, but those used most frequently by the wine industry are fall into
the four classic marketing segmentation bases. These are: geographic, demographic, psychographic and behavioral.
(Thach & Olsen, 2006).
In the wine industry, geographic segmentation has been used in several studies which have established the different
value of wine attributes according to segments. Sanchez and Gil (1997) state that the Protected Geographical Indication
(“Denominación de Origen” 1 ) are valued differently in Navarra and Aragón. Rural consumers tend to choose local
wines because they are more regional behavior and knowledge about their markets. Young people do not value wine in
the same way as older people. On the other hand, Schamel (2006) holds that wine consumers are more region-based
and value brands which are specific to the region due to a better knowledge about wines within that region, which is
unknown to consumers from other areas. Orth, McGarry and Wolf (2005) state that attributes such as quality, price,
social aspect, emotional connection, ambient, relation to the person, and geographical origin of denomination are
valued in different ways. The most highly valued attribute for all segments is origin, among the 8 groups of wine
consumers which were studied. There are consumer segments which value their local wines in different ways
(Kolyesnikova, Dodd & Duhan, 2008). This kind of segmentation is very suitable for Santiago de Chile (Geve, 2005),
*Address correspondence to Juan Carlos Ortúzar: Departament d'Administració d'Empreses i Gestió Económica dels Recursos Naturals,
Univesitat de Lleida, Pl. de Víctor Siurana, 1, E-25003 Lleida, Spain; Tel: 562- 9552817; E-mail: ortuzar.juancarlos@gmail.com
1 Protect the names of regional foods.

Consumer Geographic Segmentation and Valuing Research Topics in Agricultural and Applied Economics, Vol. 2 59
which is clearly divided according to income levels, and each sector is characterized as homogenous groups of people
living in the same area (Rodriguez & Winchester, 2004). For the current study, a geographic grouping criterion will be
used. This criterion groups counties in Santiago in terms of socioeconomic characteristics. In spite of the high
homogeneity levels within counties, there will always be homes with characteristics of other socioeconomic levels
within categories. In order to estimate the percentages of each socioeconomic group within each county, we used the
European Society for Opinion and Marketing Research 2 (ESOMAR) guidelines, which take into account the education
level of household heads and the possession of certain goods which are conceptually related with income, cultural level
and wealth stock of each family. Taking this into account, 5 socioeconomic levels were established: ABC1 is the group
with the highest income level, with a monthly net income in chilean pesos is above $1,700,000 (US$ 3,400). The
second group is labeled C2, with a monthly income of $600,000 (US$ 1,200), the third one is C3 with a monthly
income of $400,000 (US$ 800). Following this is group D with a monthly income of $200,000 (US$ 400), and finally
group E, with a monthly income which is below $ 200,000. Income-based segmentation affects the type and amount of
wine consumed (Angulo, Gil & Gracia, 2000; Selvanathan & Selvanathan, 2004). On the other hand, geographic
segmentation is widely used by retailers, since it allows them to determine store location, their performance, and
customer behavior (Mendesa & Cardoso, 2006). Then we can expect that consumers will purchase in the stores in the
same area located their houses. Established a link between the type of wine sold in stores and consumers routinely buy
and their socioeconomic characteristics.
In general, studies about the Chilean wine consumer have focused on factors which affect wine purchase more than
segmentation (Jiménez, 2006; Schnettler & Rivera, 2003). These studies have determined that the Chilean consumer
is highly influenced by prices when they purchase small amounts. However, it is very possible to find habitual
consumers who buy the same brand, because it represents a variety of attributes and is associated with quality.
This study examines wine attributes through the hedonic model, which has been widely used (Cardebat & Figuet, 2009;
Costanigro, McCluskey & Mittelhammer, 2007; Schamel, 2006; Schamel & Anderson, 2003; Combris, Lecocq, & Visser,
1997; Nerlove, 1995; Oczkowski, 1994 ). Among these studies, only two of them have researched the value of different
consumer segments. Costanigro et al. (2007), using Winespectator as a database, determined consumer segmentation,
based on prices. The range goes from the ultra-premium, or highest value, to commercial. The main difference in the
valuation of attributes among commercial wines and ultra-premium is that he impact of increased production is five times
more negative for ultra-premium wines than for commercial wines. Another difference is the impact of wine tasting
scoring, where Premium products are more affected than commercial wines. Another difference is given because the score
of taste has a greater impact on premium wines than on commercial wines. Finally, with regards to vintages, these are
valued in different ways by each segment. Schamel and Anderson (2003) used local wine guides and compared the
Australian and New Zealand markets, and stated that the first one has evolved more because there is more attribute
differentiation in areas such as origin. Similarly, the Australian market takes into account guide scores more strongly,
which can be due to higher per capita income and wine consumption, with regards to New Zealand. In general, it can be
state that the differentiation among markets and/or segments is due to the heterogeneity of consumer wine.
There have been several hedonic studies about the Chilean wine market. Buzeta, (2005) drawing on Geve (2005),
used a supermarket wine database to determine that the extrinsic attributes of wine (size, awards, origin, vintage,
type, package, harvest, alcohol degree, wine scoring) are more valued as in other hedonic studies. But none of these
studies include any kind of segmentation.
The Chilean Wine Market
Wine is an important component of Chilean food culture (Palma, 2004), an increase in the purchase of wine is
attributed to special occasions, family celebrations or social gatherings (Schnettler & Rivera, 2003), and the increase
in purchases occurs during the celebration of the Chilean Independence Day (September) and end of year holidays
(December). These seasonal purchases constitute 36.8% of the yearly wine consumption (Nielsen, 2006).
According to Servicio Agrícola.Ganadero of the total land destined for wine, the most important varieties are:
cabernet sauvignon (36.1%), merlot (11.7%), carmenere (5.5%), chardonnay (6.9%) and sauvignion blanc (6.7%).
2 ESOMAR is the world organization for enabling better research into markets, consumers and societies

60 Research Topics in Agricultural and Applied Economics, Vol. 2 Ortúzar and Alfranca
These five varieties represent 70% of the total of varieties grown. Varieties of grapes have been widely studied by
hedonic wine research (Troncoso & Aguirre, 2006; Geve, 2005; Cardebat & Figuet, 2004; Schamel & Anderson,
2003; Landon & Smith, 1997; Oczkowski, 1994).
Consumers have evolved in their knowledge of wine attributes, and they tend to look for more quality wines, rather
than consuming larger quantities of it (Schnettler & Rivero, 2003). On the other hand, in a specific market such as
the Chilean market where new world producers participate, it is expected that wineries focus on differentiating
elements among them, rather than commonalities. Therefore, brands appear to be more valued than origin, because
consumers are exposed in more direct ways to marketing activities by major wineries (Schamel, 2006). On the other
hand, it has been established that brand is a differentiating component because it plays a key role in wine choice by
displaying attributes associated with quality and wine styles (Jiménez, 2006; Deltas & Eleftherios, 2006; Diewert,
2003). Brand wine is not a clear-cut concept (Mitchael & Greatorex, 1989; Glukman, 1990), and the best way for it
to represent the specific characteristics of a product is its greater degree of disaggregation, because it represents the
relationship between characteristics and price in a better way (Requena-Silvente & Walter, 2007)
In the Chilean market, glass bottles wine prices are higher than wines in other packaging materials (Buzeta, 2005). In this
paper, glass, box and plastic have been considered as packaging materials. The database shows that glass bottles have an
average price of $3,456 whereas other packages are on average $1,581. This shows that there is a high price difference.
Wine guides only consider glass bottled wine for their evaluations, because glass bottles can ensure a minimum degree of
quality (Sanchez, Sanchez, Prieto & Prieto, 2007). Then the type of package has an association with the quality of wine.
Size of packaging has an impact on the consumer’s satisfaction (Gerstner & Hess, 1987), in the case of the Chilean wine
market; size has a high impact on value, although this percentage decreases as size of packaging increases its value
(Buzeta, 2005).
In the first section of this article, we provide an analysis of research evidence on the importance of availability, a
brief description of the Chilean wine industry and a literature review of hedonic studies of wine, specially about the
Chilean market. In the second section, we provide a description of the database, segmentation and hedonic
methodology, and hedonic estimation and discussion.
DATABASE
Store panels 3 have been used in hedonic analysis of different products (Ioannidis & Silver, 1999; Silver & Heravi,
2001; Heravi, Heston & Silver, 2003, among others).
The store panel used for the current study (Nielsen Scantrack 4 ) includes 340 Chilean supermarkets, and it provides
census information of sales, prices, and percentages of market share, and weighted distribution 5 in terms of bar code
products. It includes a splitting of Santiago in 6 areas. The database covers a time period that runs between the week
starting on September 19 th 2004 and the week ending on September 10 th , 2006. This represents a total of 104 weeks.
The price is in Chilean currency (peso chileno), and the attributes for wine are color, brands, weighted distribution,
bottle size and type of packaging (e.g., glass or plastic). Many of these variables will be treated as dummies due to
their nature. Only bottle size and weighted distribution will be treated as continuous variables.
Unfortunately, this information is aggregated, and there is no information by store or supermarket chains, as a result
of a confidentiality agreement of cooperation between supermarkets and Nielsen Chile.
Regular prices were adjusted with the Consumer Price Index (CPI) for alcoholic beverages (provided by INE),
because for the period considered for this study inflation in Chile has been 10.5% in two years (time period cover by
this study). Inflation is reported on a monthly basis and in order to adjust it to the weekly basis of the database, the
monthly inflation was divided by four or five weeks, depending on the length of each month.
3
Store panel is a data from a number of observations over time on stores, specifically for this case. supermarket store
4
Nielsen Scantrack is the name of database used in this study.
5
Weighted distribution is the percentage of stores in volume of category, which sell a specific product. Its frame of reference is all the existing
supermarkets in Chile

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 73-84 73
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 6
Territory Image and Notoriety as Sources of Equity in the Wine Market
Domingo Calvo Dopico *
Economic Analysis Department and Business Administration, University of A Coruña, A Coruña ZIP code: 15071, Spain
Abstract: The world wine market is mature, together with an increasingly global, open and very competitive
environment. Companies have to face the challenge of achieving differentiated quality based on the creation of
equity. One of the mechanisms to build this differentiation is the creation of strong brands. The objective of this
paper is to find out which sources of brand equity could endow the product with a higher differentiation. To
respond to this objective, we carried out a study with five Spanish collective brands: Rioja, Valdeorras, Ribeiro,
Rias Baixas, and Ribera de Duero. A panel of 296 consumers assessed the dimensions of brand equity for each of
them. Results reveal that the most important source of equity, from the consumer’s point of view, in explaining
the formation of brand equity, is territory image. Territory image is a differentiating factor used by consumers to
identify and recognise a specific brand among the many alternatives, as well as shaping an excellent source to
equity in the consumer’s mind. Another important source of equity is notoriety. Individual or collective efforts in
investments to create notoriety and territory image would be very important in creating a strong brand. This is an
excellent way to build authentic brand equity. Regarding wineries, the procurement of authenticity will be critical
in commanding price premiums and obtaining an advantage against potential competitors.
Key Words: Consumer behaviour, brand equity, wine market.
INTRODUCTION
The world wine market is mature, with a very slight increase, together with an increasingly global, open and very
competitive environment. This level of competition has risen with the appearance of new competitors with growing
wine production such as Argentina, Chile, Australia, South Africa and the United States. Elsewhere, we are faced
with a very disperse market, with thousands of individual brands (over 10,000 domestic brands in the Spanish
market) that are battling to defend a position in this huge international market. Faced with this scenario, companies
have to look for solutions based on a better offer in terms of equity. Spanish companies need to face the challenge of
achieving differentiated quality and aim to improve their competitive position (Vrontis and Paliwoda, 2008). One
mechanism to build this differentiation is the creation of strong brands (Spawton, 1998) which are necessary in very
mature and competitive markets such as the one in question.
However, as we have just mentioned, there are numerous individual brands, and many of these belong to small
producers or vineyards. These producers lack the economic and financial resources necessary to create a commercial
brand. One of the brand strategies that can be used in the sector is the creation of collective brands (e.g. designation
of origin, geographical indication, quality mark, etc.). A collective brand is the result of a combined effort of
different producers in order to create a differentiated quality. The objective of this paper is to find out which sources
of brand equity could endow the product with a greater differentiation. Previous literature (Aaker, 1996; Keller
1999, 2003; Keller and Sood 2003) has proposed various sources of brand equity such as are awareness, quality,
image, loyalty and other assets.
However, we need to know and to research the nature and meaning that each of these dimensions has for the market,
as well as to discover the weighting of each of these in brand equity, viz., the contribution each one makes to the
final brand equity. To respond to this objective, we have divided this work into five sections. First of all, we will
provide a detailed explanation of the theoretical framework and main foundations of brand equity. Next, based on
these foundations, we will develop the model for the case of the wine sector. We will then explain the methodology,
followed by the analysis of results from which we will draw the main conclusions. Lastly, we will explain the key
limitations of the study and future lines of research.
*Address correspondence to Domingo Calvo Dopico: Economic Analysis Department and Business Administration, University of A Coruña,
A Coruña ZIP code: 15071, Spain; Tel: + 34 981 16 70 50; Fax: +34 981 16 70 70; Email address: domingo@udc.es

74 Research Topics in Agricultural and Applied Economics, Vol. 2 Domingo Calvo Dopico
BRAND EQUITY: CONCEPT AND COMPONENTS
Brand Equity: Concept
From the corporate standpoint, brand equity represents the additional monetary profits with regard to those which
would be obtained by selling the product without that brand name (Srivastava and Shocker, 1991). If we believe that
the product offers a functional benefit, and a brand is a symbol or name that increases its value, we can define the
brand equity as "the value-added with which a specific brand endows the product" (Jones, 1996). The contribution
from the Marketing Science Institute (1988) reinforces this concept when it defines it as "the set of associations and
performance that consumers and distributors have of the brand, making it possible for this brand to achieve higher
market shares and bigger profit margins than if the brand name did not exist, and which endows the brand with
competitive, solid and distinguishing market advantages that are sustainable in the long term".
Brand Equity: Components
Existing literature has not only highlighted brand importance but also recognises the sources that enable brand
equity to be created. The multidimensional nature on which the key papers are based has been recognised in the
contributions from Aaker (1991, 1996) and Keller (1993). According to Aaker (1991) brand equity is conceptualised
in a multidimensional way, based on five areas: brand awareness, perceived quality, the image or associations,
loyalty and other proprietary assets such as patents or copyright, etc.
Brand awareness includes the potential capacity of the consumer to recognise or remember the name of a brand
within a certain category of product (Aaker, 1991). Keller (1993) pointed out that this factor is related to consumers’
capacity to identify the brand under different circumstances. Brand awareness represents one of the conditions
required for a brand to possess equity. A further dimension is perceived quality. Perceived quality is defined as the
technical superiority of a product or service that must be valued and perceived by the consumer Zeithmal (1988).
Previous research has tied this variable to a superior differentiation of the brand, as well as a greater predisposition
to pay a price premium (Netemeyer et al., 2004). Next are brand associations. Initially, the concept of brand image
is associated only to symbolic aspects, without taking into consideration any of the functional aspects (Levy and
Glick, 1973). Actually, brand image is the consumers' global perception of the same, including functional and
symbolic associations. Based on this, brand image is defined as the set of associations relating to the brand and
mentally organised in an orderly and coherent way. Associations may or may not reflect the objective reality
(identity), but whichever the case they will influence the buyers’ decision (Kirmani and Zeithaml, 1993; Biel, 1992;
Louviere and Johnson, 1988). The fourth dimension we look at is loyalty. Loyalty refers to the link between the
customer and the brand. Numerous studies and research are showing that this is the variable that has the biggest
influence on brand equity (Atilgan et al., 2005; Mohd et al., 2007). The source of loyalty is to be found in a
purchasing or use experience, unlike notoriety, associations and perceived quality, which can stem from different
perceived or real attributes, even if the consumer has never used the brand. However, this does not exclude the
possibility that, at times, loyalty takes root before such an experience, as a result of the perceived quality or the
associations of some of the brand's attributes. This means that these dimensions are correlated. The brand equity
components would therefore be defined. However, we need to know the nature and meaning that each of these
dimensions has for consumers in the case of the collective brand, as well as the weighting of each of these in brand
equity, viz., the contribution each one makes to the final brand equity. To do this, we will look at both the general
bases of brand equity that will be applied to the sector that concerns us as well as prior research that has been carried
out to date.
SOURCES OF EQUITY IN THE WINE SECTOR AND COLLECTIVE BRANDS
Collective Brand
A collective brand is the result of a collective effort of different individual producers. These producers combine their
efforts in order to create a differentiated quality. An independent body verifies the existence of their exclusive and
specific characteristics (e.g. climate, preparation method, type of grape, vintage, etc.) and guarantees the authenticity
of those intrinsic properties. Brand simplifies the costs of searching for information and reduces the risk that the
agent incurs on evaluating a large number of alternatives or individual brands (Dopico et al., 2009), such as the case
of the wine sector. Simultaneously, the origin is the common union of all of these individual brands and represents

Territory Image and Notoriety as Sources of Equity Research Topics in Agricultural and Applied Economics, Vol. 2 75
the axis over which value is built. Because intrinsic attributes such as the type of grape, the harvest, the soil, the
climate are unmistakably associated to the origin, and that there are other intangible or symbolic attributes such as
know-how and tradition, which are also associated to the origin, we can state that the brand and the origin are the
pillars of the collective brand. Moving on from this point, we will now use the already mentioned principles of brand
equity and the collective brand, remarked on already, to find the fundamental sources of collective brand equity.
Sources of Equity and the Wine Sector
As already explained in the introduction, the dimensions of brand equity evoked by Aaker (1991) and generally
accepted in marketing literature are a) awareness, notoriety or brand fame; b) associations or brand image; c) the
brand’s perceived quality; d) loyalty towards the brand; and e) other assets belonging to the brand (patents,
industrial registers, etc.). Literature has focused on examining the first four.
A lot of attention is focused on research into brand equity and the capital of the region of origin (e.g. Terroir) in the
wine sector. The main research has been the following: Spawton (1998; 1999); Nowak et al., (2002); Orth et al.,
(2005) and Nowak et al. (2006). These lines of research emphasized the importance of the equity and the creation of
strong brand as the strategy to differentiate between wines (Spawton 1998; 1999); the creation of variables, such as
rooms for wine-testing as well as the generation of positive experiences that can build brand equity (Nowak et al.,
2002; 2006); or researching the factors with influence on the building of equity (price, social acceptance, emotional,
environmental value, and human value). All of these studies, except that of Orth et al., (2005), focused on the
research of individual brands –individual level.
However, this research emphasizes the collective brand, not just the individual brand. In addition, it includes the
importance of region equity, a very important dimension researched in one of these studies (Orth et al., 2005). In
this case, as already mentioned, we are not going to analyse the individual brands but rather a brand that pools
together the different individual brands and which is known as the collective brand.
Awareness or Notoriety and the Collective Brand
According to Aaker (1991, 1992) and Keller (1993, 2003), awareness or notoriety is related to the consumer’s
likelihood of recognising or remembering a brand, and the ease with which it is done. In other words, awareness
reveals the consumer’s capability to identify or remember a brand in different contexts or situations. On the other
hand, many consumers may not be familiar with a product, in our case a specific wine, so the probability of a wine
being chosen increases with the fame or recognition that they have of this collective brand. Viz., many consumers
may be involved with a product, in our case a specific wine, so that the probability of a wine to be chosen increases
with the notoriety that they have of the collective brand. This dimension will take on greater importance in the wine
sector, where there are many competing brands. This means that, a priori, those collective brands that have greater
notoriety will have greater likelihood of being chosen.
Perceived Quality and the Collective Brand
The perceived quality or intrinsic quality Zeithaml (1988) refers to the excellence of a product. So, the quality of a
wine is defined by the intrinsic properties that endow products with quality, in our case wine. Landon and Smith
(1997); Combris et al. (2000); Orth and Krska (2002) and Charters and Pettigrew (2003) have researched the
indication of quality in the wine or in the purchase process. These will include the following: the type of grape, the
colour of the wine, flavour, aroma, origin, harvest or year. However, from the consumer’s point of view, many of
these are not easily perceived (Charters and Pettigrew, 2007). From the consumer’s point of view, in the case of
wine, brand and origin are the most important aspects, not only to infer a specific quality-level but also to perform
the action of purchasing Dopico and Blazquez (2004). That is, collective brand name will be associated to a specificlevel
which can be recognised by consumers. Likewise, because the collective brand is built on the basis of the
wine’s geographical origin, which is a quality indicator, and the brand a quality guarantee for consumers we can
conclude that perceived quality is a source of brand equity. That is, those collective brand associated to a specificquality
level will have a greater likelihood to be chosen or recognised. Indirectly, perceived quality will be greatly
associated to the image of the territory. We will analyse this next.

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 85-106 85
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 7
Means-end Chain Analysis of Food Products with Origin Quality Labels: An
Application to Wine with Designation of Origin
Ramo Barrena * and Mercedes Sánchez
Departamento de Gestión de Empresas, Universidad Pública de Navarra, 31006 Pamplona, Spain
Abstract: For some agro-food companies, a product-positioning strategy based on product origin or a specific
production method has become a viable option in increasingly globalized settings. The adoption of this approach
to create added value for consumer products nevertheless requires balanced consideration of objective productperformance
factors and the subjective judgments of potential consumers. This study sets out to analyze
relationships between origin-based differentiation features of food products and the personal values on which
consumers base their purchase decisions by applying means-end chain methodology through an interviewing
technique known as laddering. The resulting proposal is that food-product positioning or communication
strategies should not be based on attributes alone, but should also consider consumer personality factors. The
study uses the wine market, where many of the products are differentiated by means of origin quality labels, to
measure the relative impact of objective and subjective (or emotional) factors on the purchase decision, taking
consumption frequency into account. The results show that regional sentiment and quality issues dominate the
choice process, while consumption is associated with a sense of belonging and hedonic benefits. Consumers less
interested in DO-labelled wine pay less attention to quality cues and product differentiation factors.
Keywords: Quality of origin labels, purchase decision, personal values, means-end chain, laddering, wine.
INTRODUCTION
The saturation of agro-food markets in developed countries is a phenomenon familiar to all. The situation is increasing
the competition or rivalry between companies, forcing them to find the strategies or actions that will allow them to
survive in difficult market conditions. The supply side is also facing a demand side that is increasingly demanding,
fragmented and information-laden. Furthermore, the generic environment where the exchange between agro-food
marketers and consumers takes place is becoming increasingly complex, due to the tremendous impact of the
globalization phenomenon or internationalization of the market place. Thus, as noted by Grunert (2005), in order to
survive, businesses have to try to be efficient, offer quality products to meet the demands of their target customers and
generate adequate added value. In other words, presenting a quality offer to the market and generating added value is
the key course of action for the majority of firms. It is within this type of marketing strategy that one expects to find
food suppliers offering to the market products differentiated by means of quality labels identifying the product with a
particular geographical area, production method, or traditional speciality. At EU level, Regulation (CEE) 2081/92,
amended under amendment 510/2006, defines Designations of Origin (DO) and Protected Geographic Indications PGI)
on agricultural and food products; and European Parliament and Council Regulation (CE) 882/2004, amended under
amendment 509/2006 identifies the guaranteed traditional specialities of agricultural and food products.
The EU supports this differentiation format as a means to diversify this type of mature market (Van der Lans, Van
Ittersum, De Cicco & Losegy, 2001), and as an opportunity to generate more added value (Bonetti, 2004; Freitas &
Ribeiro 2005; Thompson, Anders & Herrman, 2006; Umberger, Thilmany & Smith, 2009), and more recently to
promote rural development and maintain the structures (European Commission, 2006; Ilbery, Morris, Buller, Maye &
Kneafsey, 2005; among others).
The inclusion of these details on labels in order to differentiate food products also generates a degree of information
asymmetry on the demand side of the market, which calls for some control of these differentiation factors in the
market. The presence of this asymmetry and the need to control it, together with the twofold (objective/subjective)
*Address correspondence to Ramo Barrena: Departamento de Gestión de Empresas, Universidad Pública de Navarra, 31006 Pamplona, Spain;
Tel: 0034 948169394; Fax: 034 948169404; E-mail: ramo.barrena@unavarra.es

86 Research Topics in Agricultural and Applied Economics, Vol. 2 Barrena and Sánchez
approach to quality (Grunert, 2005), create the need for a deeper understanding of the assessment that consumers make
of these food differentiation strategies. The Economics of Information Theory assigns three types of attributes to a
product: experience, search and credence attributes (Caswell & Modjuska, 1996, Brunsǿ, Fjord & Grunert, 2002 1 ;
European Communities, 2006). Experience attributes are those that can only be assessed after purchasing and tasting
the product. Search attributes are those that can be identified at the time of purchase. Finally, credence attributes are
those that cannot be verified either before or after purchase. In the type of product that concerns us here, the originrelated
attributes used by marketers would class as credence attributes (Sánchez & Barrena, 2008; Umberger et al.,
2009). Thus, although the research on food consumer behaviour has traditionally taken experience attributes as the key
cues in the choice process, a more diversified offer and changes in shopper culture created a more complex situation, in
which credence attributes have started to play an important role in several food categories, triggering major changes in
agro-food marketing, which can be seen in the type of differentiation that concerns us in this chapter. This Economics
of Information proposal for the analysis of consumers’ assessment of the components of a food product is
complemented by the multi-attribute product concept 2 , which distinguishes between the intrinsic and extrinsic attributes
of a product. An intrinsic attribute is one that is inherent in the product or process and an extrinsic attribute is one that is
valued by the purchaser but not inherent in the internal characteristics of the food product. Taking geographical origin
to be an extrinsic attribute for the consumer, we are faced with a product differentiation option in which the information
needs to be conveyed clearly to the consumer, since it is a credence attribute and features among the search and
credence attributes today’s consumers pursue most intently.
Given the importance of this type of product differentiation, several authors have examined the valuation of the
presence of origin-based quality labels from the consumer perspective. Bello & Gómez (1996) insisted on the
multidimensional and eclectic nature of the concept of Designation of Origin, which, as they acknowledge, can vary
according to the type of product. In a similar vein, Van der Lans et al. (2001) stressed the fact that origin brands are
more than a quality cue, especially when they incorporate the concept of region. Grunert (2005) also consider origin
brands as a particular type of differentiation, suggesting the need for a separation between region and product.
A model developed by Kuznesoff, Tregear and Moxey (1997) to reflect the consumer perspective on regional food
products also identifies region and product as two separate key components in the differentiation of products using
origin brands and proposes the additional incorporation of tradition and heritage values. Ilbery et al. (2005) take
place and product together with a third component, the production process, as determining factors when selecting
from the available options for the differentiation of food products in both the European and US markets. More
recently, several authors (Tanner, Lusk & Tyner, 2006; Iversen & Hem, 2008) have broadened their approach to the
study of origin-based quality labels by considering three types of component: cognitive (relating to information),
affective (relating to symbolic and emotional values) and normative (relating to social norms and personal beliefs).
All this enables us to draw conclusions regarding the complexity of this quality cue from the consumer perspective in
view of the influence of emotional, symbolic and situational factors in its valuation (Loureiro & McCluskey, 2000; Van
der Lans et al., 2001; Sánchez, 2006; Van Ittersum, Meulenberg, Van Trijp & Candel, 2007; Umberger et al, 2009). It
is therefore particularly important that the method selected for the analysis of purchaser behaviour should contemplate
these emotional factors and the impact of individual personal values. This is the line of reasoning behind the Meansend
chain (MEC) methodology, through which it is possible to detect the connections made by consumers between the
attributes they consider before purchasing a product and the consequences or benefits they hope to obtain from those
attributes, and then between the desired benefits and the personal values influencing their purchase decision.
In this chapter, therefore, MEC methodology will be used to analyze differences in cognitive structure, first,
between consumers and non-consumers and then across consumption frequency levels, in wine, a product
commonly differentiated on the basis of origin. In recognition of the potential influence of situational variables in
the symbolic and emotional dimensions of wine consumption, this study focuses on consumer behavior in relation to
1
This classification is based on Economic Theory, to which the earliest contributors were Nelson (1970) and Darby & Karni (1973).
2
These models were originally developed by Fishbein & Ajzen (1975), Azjen & Fishbein (1980) and Olson & Jacoby (1972). They are based on
the multi-dimensional product concept defined by Lancaster.

Means-end Chain Analysis of Food Products with Origin Quality Research Topics in Agricultural and Applied Economics, Vol. 2 87
home consumption of wine. The decision to examine variation in consumer behaviour based on frequency of
consumption arose from the fact that several authors, using different methodological options, have identified the fact
that consumers’ relationships with origin-based quality labels are influenced by how much they know about the
region and the product (Josling, 2006; Sánchez, 2006; Chang, Campbell & Sniekers, 2007; Chocarro, Cortiñas &
Elorz, 2009). The reason for using the wine market to conduct this analysis is because it is the leading agro-food
sector in terms of marketing volume marketing an origin-based quality branded product, at least in Mediterranean
Europe (Mtimet & Albisu, 2006; Gálvez, 2009).
The rest of the chapter is organized in four parts beginning with a description of the theoretical framework for the analysis.
That is followed with some details regarding the methodology, the nature of the product, the data collection process and
the in-depth interviews that this entailed. Next, come the results presented in two parts, the first from an analysis of
differences in the cognitive structures of consumers based on their level of interest in origin-based quality brands and the
second based on observed differences associated with consumption frequency. The chapter concludes with the main
findings obtained from the analysis and a discussion of the limitations and possible future extensions of this research.
Theoretical Framework. The “Means-End Chain” Theory
Although the psychoanalysts Tolman (1932) and Smith (1934) and the economists Abbot (1955) and Norris (1941)
established the basic tenets of the “means-end chain” theory, it was Gutman (1982) who applied it to the field of
marketing and consumer research. Gutman (1982) oriented the means-end chain towards the exploration of
consumers’ interpretation of their own behaviour. Thus, the means-end chain is a cognitive structure linking the
consumer’s product knowledge to his self-knowledge in relation to certain consequences and values, as explained in
a series of studies for a variety of markets (Ter Hofstede, Audenaert, Steenkamp & Wedel, 1998; Zanoli & Naspetti,
2002; De Boer & McCarthy, 2003; Fotopoulos, Krystallis & Ness, 2003; Leppard, Russell & Cox, 2004; Russell,
Busson, Flight, Bryan, Van Lawick & Cox, 2004, among others).
The main premise of MEC is that consumers learn to select products that possess the attributes that allow them to
achieve their desired ends (Reynolds & Gutman, 1984; Ter Hofstede et al., 1998; Walker & Olson, 1991; Grunert &
Valli, 2001; Olson & Reynolds, 2001; Fotopoulos et al., 2003; Costa, Dekker & Jongen, 2004). MEC theory
suggests that product knowledge in consumers is hierarchically organised 3 by level of abstraction (Howard, 1977;
Young & Feigin, 1975; Gutman, 1982; Reynolds, Gengler & Howard, 1995). In other words, consumers’ product
knowledge relates to product attributes, the personal consequences they produce, and the personal values they
satisfy. The higher the level of abstraction in the decision-making process, the stronger and more direct the personal
involvement of the consumer (Olson & Reynolds, 1983).
This, therefore, puts the attribute under a new perspective, since, as noted by Nielsen, Bech-Larsen & Grunert
(1998), a product attribute has no inherent relevance, but only acquires relevance when it represents desirable or
undesirable consequences that are then turned into personal values. To express this in means–end chain terminology,
a chain begins with a product attribute, which is then followed by a sequence of links leading to own concepts
(personal values) through perceived consequences and benefits of the initial attribute.
There are two important general assumptions within this model. The first is that consumers’ product choices depend
on the perceived influence on their behaviour; in other words, defined values are end states, which play a dominant
role in guiding choice patterns (Fotopoulos et al., 2003; Costa et al., 2004). The second assumption has to do with
the level and concern of the behavioural decisions linked to consumption. Consumers accept the need to make
voluntary, conscious choices between alternative products, guided by the desire/search for positive consequences
and/or the avoidance of negative outcomes (Olson & Reynolds, 2001; Costa et al., 2004).
To simplify their choice, consumers group products into classes (Fotopoulos et al., 2003). In the analysis of mental
images, each basic level of abstraction can be subdivided into distinct categories of abstraction. In this respect,
Walker and Olson (1991) propose a six-level MEC. The three lower levels (concrete attributes, abstract attributes
3
Note that although most of the literature assumes the hierarchical structure of the MEC theory, this has been challenged by some authors in
recent years (Pieters, Baungartner & Allern, 1995; Bagozzi & Dabholkar., 1994; Van Rekom & Wierenga., 2007, among others). The present
study assumes the hierarchical structure because it is the most widely accepted

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 107-120 107
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 8
Is There a Future Market for Genetically Modified Food? An Analysis from
Southern Spain Consumer Preferences
Macario Rodríguez-Entrena * and Samir Sayadi
Agricultural Economics and Rural Studies, Institute of Agricultural Research and Training (IFAPA), P.O. Box 2027,
18080 – Granada, Spain
Abstract: Genetically modified (GM) foods have generated intensely negative consumer attitudes in the European
Union (EU); so the concerns about food safety and environmental conservation have increased. Based on a survey of
448 people, an empirical application in the southern Spain is presented. Firstly, some questions regarding food safety
and quality are raised in order to know consumer’s concerns about these issues. Secondly, the Conjoint Analysis
(CA) method is applied to estimate consumer’s preferences structure in relation to a hypothetical genetically
modified (GM) cornflakes cereal, as an alternative of real product. Later, to analyze the sensitivity of the attributes
considered in the experimental design, which characterized the GM cornflakes cereal, market shares have been
simulated. Finally, market segments based on consumer’s preferences for the GM cereal are identified by means of
Cluster analysis. The main results indicate that consumers prefer the conventional ones, despite the advantages
offered in the research by GM cornflakes. Notwithstanding, consumers reject the 2 nd generation of GM foods less
than the 1 st generation ones. In this regard, the GM cornflakes enriched with Omega-3 would get a relevant market
share in the future. Additionally, findings show that five market segments have been determined. Two segments
called “Anti-GM” and “Extremely Anti-GM” show the highest resistant to purchase products derived from genetic
engineering. On the contrary two segments are related to the GM food accepters (“Pro-GM”; “Pro-2 nd GM”) and the
last one focuses on the price (“Price sensible and indifferent quality”).
Keywords: Genetically modified foods, consumer preferences, conjoint analysis, market segmentation.
INTRODUCTION
The application of genetic engineering on agricultural products, which results on the so-called genetically modified
(GM) foods 1 , is one of the most controversial scientific, political and social debates, particularly in the European
Union (EU). The main conflicts have arisen because of the uncertainty which surrounds the potential risks and
benefits of GM foods consumption for both human health and environment.
At international level, the 1 st generation of GM crops 2 has increased worldwide from 1.7 million hectares to more
than 134 million between 1996 and 2009–e.g. soy 52%, corn 31%, cotton 12%, and canola 5% (James, 2009); so
that the International Service for the Acquisition of Agri-Biotech Applications (ISAA) reports the boom of GM
crops in the agri-food sector. Nevertheless, the EU has not had this fast adoption process of biotechnology. In the
Community, only one event of GM maize and one of potato 3 have been authorized to cultivate; and GM crops have
had a marginal adoption rate 4 .
Part of this meagre success of the GM crops adoption in the EU is attributed to the social distrust of transgenic food.
In fact, some literature points out that consumers tend to avoid GM foods (Bredahl, 2001, Grunert et al. 2001,
Grunert et al. 2003, Gaskell et al. 2003, Gaskell et al. 2006, Koivisto-Hursti and Magnusson 2003, Lusk, Roosen,
*Address correspondence to Macario Rodríguez-Entrena: Agricultural Economics and Rural Studies, Institute of Agricultural Research and Training
(IFAPA), P.O. Box 2027, 18080 – Granada, Spain; Tel: +34958895270; Fax: +34958895203; E-mail: macario.rodriguez.ext@juntadeandalucia.es
1
Genetically modified foods are used for food with some raw material from a genetically modified (GM) organism, mainly transgenic organisms,
or composed by the aforementioned GM organism.
2 st
The 1 generation of GM organisms was focused on the incorporation of productive traits that benefited producers (e.g., insect-resistant and
herbicide-tolerant crops).
3
The GM potato has been authorized in 2010. Currently, this crop has not been cultivated yet.
4
Spain is the only EU country which has a high adoption rate of GM crops (21.40% in 2009). The land allocated by GM maize has increased
from 22,317 hectares in 1998 to over 76,057 in 2009 [13].

108 Research Topics in Agricultural and Applied Economics, Vol. 2 Rodríguez-Entrena and Sayadi
and Fox, 2003, Bernard, Pesek, and Pan, 2007). As a result, the prospects of agrobiotechnology have decreased in
the EU (Brookes, Craddock and Kniel, 2005, Demont et al. 2007, Papatryfon 2007).
The early limited contact of the European consumers with GM foods has been via 1 st generation of GM crops whose
benefits are destined for farmers or industry. Proponents of biotechnology attribute the current consumer resistance to GM
foods due to the lack of tangible benefits that the consumers derived from this technology (Pew Initiative on Food and
Biotechnology 2007, James 2009). Some studies support this view, and they suggest that the concerns over biotechnology
dominate purchase behavior when there is not a direct benefit for consumers (Koivisto-Hursti and Magnusson 2003, Lusk
et al. 2004, Onyango 2004, Veeman et al. 2005, Hall and Moran 2006, Christoph, Bruhn and Roosen 2008).
The response of biotechnology industry has been the research on innovatory products which benefit the consumers
by means of enhanced healthy, quality or nutritional traits –e.g., more vitamins, omega-3 fatty acids, antioxidants,
etc.–, the so-called “2 nd generation” of GM foods, with higher functional properties (Powell, 2007). The social
acceptance of this 2 nd generation of GM foods is expected to be higher than the one derived from the 1 st generation
of these goods (Lähteenmäki et al. 2003, Mucci, and Hough 2004, Onyango and Nayga 2004, O’Connor et al. 2005,
O’Connor et al. 2006, Giannakas and Yiannaka 2008, González, Johnson and Qaim 2009). However, the consumer
behavior regarding functional GM foods has not been fully explored by the literature. In order to contribute by
means of better and real information, increasing the knowledge on consumer behavior and preferences when the
market choice involves GM foods, we have developed a consumer preference model and an empirical application
which has been carried out in the southern Spain (Andalusia). So the main aims of this study are: 1) to know
consumer’s opinions and concerns about food safety and quality, especially on the use of genetic engineering in
food; 2) to evaluate consumers’ preferences regarding a hypothetical GM cornflakes cereal, identifying the relative
importance of selected attributes related to this cereal by Conjoint Analysis (CA) method; 3) to determine GM
cornflakes’ market shares in a hypothetical future market; and 4) to identify market segments for this product by
cluster analysis, based on the preferences obtained from CA.
The paper is structured as follows. After presenting the research methodology in Section 2, the main results related
to consumer’s opinion about food safety and quality are shown in Section 3. Later, consumer’s preferences for GM
cereal, the market shares and the market segments are shown. Finally, we conclude the paper with a review of the
main conclusions and a brief discussion of the most relevant issues.
METHODOLOGY
Sample Data
The data has been compiled by means of 448 face-to-face surveys (sampling error of 5%). The reference population
is of Andalusian consumers on a yearly basis regardless of the family member who does the shopping for household.
The sample has been a random stratified proportional methodology, using the following socio-demographic
variables: place of residence, gender and age (INE, 2007). The surveys were carried out between January and April
2008. In Table 1 are described the socioeconomic data from the sample.
Table 1: Socioeconomic characteristics of respondents
Characteristics Sample Data (%)
Gender Female 51.0
≥ 18 years ≤ 34 years 35.0
Age
>34 years ≤ 49 years
>49 years ≤ 64 years
27.9
19.2
> 64 years 17.9
Primary or no studies 38.0
Studies
Secondary studies 32.0
University studies 30.0
≤1400 Euros 25.7
Household income
>1400 Euros ≤ 26000 Euros 46.4
>2600 Euros 27.9

Is There a Future Market for Genetically Modified Food? Research Topics in Agricultural and Applied Economics, Vol. 2 109
Table 1: cont….
Occupation
Place of residence
Employee 55.6
Self-employed 9.2
Unemployment 6.2
Retired 10.9
Student 9.8
Homemaker 8.3
Rural inhabitant 28.8
Urban inhabitant 33.5
Metropolitan inhabitant 37.7
The questionnaire was divided into four types of questions regarding: i) behavioral and opinion variables about safe,
quality and labeled food; ii) consumer’s knowledge, attitudes and opinions about GM foods; iii) willingness to
consume, social preferences and willingness to pay for non-GM or GM foods; and iv) socio-economic features,
lifestyles and environmental awareness.
Conjoint Experimental Design
The experimental design for the consumer preference model has been based on the Conjoint Analysis (CA) method.
Conjoint is “a practical set of methods predicting consumer preferences for multiattribute options in a wide variety of
product and service contexts” (Green, and Srinivasan, 1978). This methodology has been widely used in consumer
marketing due to its capacity to predict what products or services people will choose, and to assess the weight given by
people to various factors that underlie their decisions. Therefore, CA is appropriate for evaluating hypothetical products
or attributes (Steenkamp, 1987) concretely, in our study to determine the consumer’s preference structure for a
hypothetical GM cornflake. The model is designed under the assumptions that: 1) a product can be described according
to levels of a set of attributes, and 2) the consumer’s overall judgment is based on these attribute levels.
Utility is the conceptual basis to measure the value in CA; it is a subjective judgment of unique preference to each
individual. To apply the CA method we assume that utility model is a linear function of the partial utilities (partworths)
from each attribute level. Thus, the total utility is represented by the sum of the alternative component
utilities (Hair, Anderson and Tathan, 1992). Conjoint measurement is therefore focused on a decomposition
approach (Green and Srinivasan, 1978) given by:
0
n
mi
TotalValue U a
(1)
where:
i1 j1
i = 1,…, n: number of attributes;
j = 1,…, mi: number of levels for attribute i;
U0 = constant;
ai j = part-worth for attribute i and level j.
ij
The product designed was a ½ kg package of the above-mentioned cornflakes cereal. The most representative attributes
of the GM product in consumer purchasing preferences and their respective levels were selected by means of interviews
with agri-biotech experts and focus-group discussions (Table 2). The product chosen is justified both by the previous
authorization of some GM maize (insect-resistant resulting in a pesticide reduction) to human consumption in the EU,
and the foreseeable authorization of the traits Omega-3 fatty acid and water reduction in the short-medium term.
We identified four attributes, namely Environment, Health, Quality and Price. All attributes have three levels of
evaluation, except Health which included two different levels (Table 2). This implies a total of 54 (3 3 x 2) theoretically

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 121-142 121
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 9
Global Crisis and Agricultural Public Spending in Kenya: A SAM Multiplier
Approach
Maria Sassi *
Department of Management Studies, University of Pavia, 27100 Pavia, Italy
Abstract: This paper focuses on Kenya with the purpose of understanding the role of public spending in the primary
sector in addressing the current food crisis and in contributing to overall economic growth and alleviating poverty and
food insecurity according to the first Millennium Development Goal. The empirical investigation, based on the 2003
Social Accounting Matrix, integrates two distinguished models the unconstrained and constrained multiplier
models for a better characterisation of the country’s economic linkages in a context of international market
volatility. Results point to the potential positive impact of government intervention in agriculture on economic
development and its limits, particularly with reference to the growth-equity nexus.
Keywords: Food security, agricultural public expenditure, social accounting matrix, multiplier analysis, Kenya.
INTRODUCTION
On 9 June 2002, the New Partnership for Africa’s Development endorsed the Comprehensive Africa Agriculture
Development Programme (CAADP) as a framework for contributing to food insecurity and poverty alleviation in
Africa and as part of the strategy aimed at reaching the first Millennium Development Goal (MDG) of halving
poverty and hunger by 2015 (CAADP, 2009). In July 2003, after several meetings, the Ministers for Agriculture and
of the African Union Assembly of the Head of State and Government adopted the Maputo Declaration that provided
political support to the CAADP and become a reference point for planning its actions (FAO, 2004). The Declaration
includes important resolutions regarding agriculture but prominent among them was the commitment to the
allocation of at least 10 percent of national budgetary resources for their implementation within five years, that is, by
2008 (Assembly/AU/Decl. 7(11), 2003). These obligations are based on the acknowledgement that agriculture is a
strategic sector for development in Africa and that inadequate investment has been one of the main constraints to its
growth. Consequently, with the Maputo Declaration, agriculture is put at the heart of the development agenda and
public agricultural spending is considered the core method for promoting its role (Fan et al., 2009).
This view has been recently reconfirmed and is widely shared at the international level at a time in which volatility
on international markets is putting pressure on global food security. For example, the 2008 World Development
Report by the World Bank underlines, as a main recommendation, the need for a more prominent place of
agriculture in government and donor priorities in order to capture the sectoral potential for development (World
Bank, 2008). Moreover, with the Joint Statement on Global Food Security produced by the G-8, the international
community has put agricultural growth for food security on the top of the political agenda. This message has a
specific importance in Sub-Saharan Africa (SSA) where agricultural growth is a pre-condition for economic growth
and development, beyond the contribution that mining and tourism can give to this process (de Janvry & Sadoulet,
2009). Further, over 80 percent of the population in the region depends on the sector and 70 percent of them live in
poverty conditions in rural areas where they are mostly reliant on food production as small farmers or agricultural
labourers (Odhiambow, 2007; FAO, 2001). Thus, mobilizing resources towards agricultural productivity growth is
of essential importance in generating food supply and income for improving access to food in SSA. In this context,
the international community also recognises public spending in the primary sector as one of the most direct and
effective interventions in addressing the current food crisis and in contributing to overall economic growth to
alleviate poverty and food insecurity, according to the first MDG (Fan & Rosegrant, 2008).
This perspective requires putting on the top of the current research agenda the identification of the mechanisms that
connect the relevant socio-economic groups and overall development to agricultural growth supported by public
investment. The paper focuses on Kenya and addresses this issue with a twofold objective. The first is concerned
*Address correspondence to Maria Sassi: Department of Management Studies, University of Pavia, 27100 Pavia, Italy; Tel: +39-0382-986465;
Fax: +39-0382-986228; E-mail: msassi@eco.unipv.it

122 Research Topics in Agricultural and Applied Economics, Vol. 2 Maria Sassi
with revealing the economic structure of Kenya as a framework for a better interpretation of the nature and extent of
the linkages among public spending in agriculture, economic growth, income generation, and poverty and
distribution implications for different categories of households, which represents the second purpose of the analysis.
Frequently, the empirical literature refers to Social Accounting Matrices (SAMs) and fixed-price multiplier models
to address these aspects; particularly, the latter are adopted for a first-cut estimate of a policy or external shock due
to their simplicity and transparency (Round, 2003).
The paper follows the same approach, introducing some advancements. It considers the 2003 SAM for Kenya (Kiringai
et al., 2006) properly adjusted to the specific objective of the study and, first, simulates the effects of an exogenous
demand-side shock represented by a change in government spending on agriculture, based on an equation system
referred to an unconstraint SAM multiplier model. Then, the empirical investigation goes further than this traditional
perspective in order to take into account, by means of a constrained SAM multiplier approach, the possibility for the
agricultural sectors not to be able to respond to changes in demand. This assumption is particularly appropriated for
Kenyan agriculture where the frequent and severe shocks to production systems and the prevailing small size farms make
the sector mostly supply-constrained. The traditional perspective only seldom limits the supply capacity of the primary
sector. Consequently, the impact of linkages effects is overestimated (Haggblade et al., 1991).
The study takes into consideration also the loss of government intervention effectiveness at the introduction of supplyconstrained
sectors introducing a specific indicator and pays particular attention to the impact of the simulations on
household expenditures and income accounts with the objective of understanding the implications on poverty reduction.
The paper begins with an analysis of public spending on agriculture in Kenya. Then, the SAM for the country is
presented. A third section is dedicated to methodological issues where the constrained and unconstrained SAM
multiplier models are illustrated. Finally, results achieved are presented and discussed in the conclusion.
PUBLIC SPENDING ON AGRICULTURE IN KENYA
From 2000–2005, following the Maputo Declaration, SSA has, in total, increased the share of agricultural expenditure, on
the overall government spending and on the agricultural GDP, at a significant rate if compared with the other developing
regions; in 2005 the area reached the 6 percent of total budget target (Fan et al., 2009) (Table 1). However, this average
aggregate data masks important country variations: budget allocation by governments has been, in the majority of them,
low, sometime declining and with a limited effectiveness. For example, according to the available information for a
sample of 35 over 47 SSA countries, only 8 are above the 10 percent target (Ghana, Mali, Malawi, Ethiopia, Senegal,
Guinea, Niger, and Burkina Faso), for 14 this share is between 5 to 10 percent (Chad, Mozambique, Gambia, Madagascar,
Togo, Zambia, Zimbabwe, Nigeria, Benin, Mauritania, Namibia, Tanzania, Sudan, and Uganda) while 13 devote less than
5 percent of their total budget to agriculture (Swaziland, Kenya, Burundi, Botswana, Cameroon, Rwanda, Lesotho,
Mauritius, Central African Republic, Cote d’Ivoire, Congo Democratic Republic, Gabon, and Guinea Bissau).
In addition to this, over time, donor contributions to agriculture have declined dramatically. In general terms, despite
the well recognised potential of the right investment in agriculture, particularly in favour of smallholder farmers, for
fighting hunger and poverty, in SSA there has been a gross under-investment in the sector over the years.
Table 1: Total and agricultural government spending by developing region (1980-2005)
% value % change
1980 1990 2000 2005 1980-1990 1990-2000 2000-2005 1980-2005
Gov. exp. on GDP 41,87 29,06 28,22 29,64 -30,59 -2,89 5,03 -29,20
North Africa Agr. exp. on total 6,07 5,34 5,68 3,68 -11,99 6,30 -35,29 -39,46
Agr. Exp. on agr. GDP 14,76 8,71 10,97 7,96 -40,98 25,94 -27,43 -46,07
Gov. exp. on GDP 18,51 22,51 28,83 28,92 21,60 28,07 0,31 56,23
SSA Agr. exp. on total 7,07 5,48 3,78 6,34 -22,43 -31,06 67,80 -10,26
Agr. Exp. on agr. GDP 4,09 3,73 3,67 6,42 -8,80 -1,60 74,93 56,96

Global Crisis and Agricultural Public Spending in Kenya Research Topics in Agricultural and Applied Economics, Vol. 2 123
Table 1: cont….
Gov. exp. on GDP 19,01 17,01 20,01 21,29 -10,52 17,63 6,39 11,99
Asia
LAC
Total
Source: based on Fan et al. (2009)
Agr. exp. on total 14,93 12,34 6,33 6,48 -17,31 -48,72 2,45 -56,55
Agr. Exp. on agr. GDP 9,57 8,63 7,87 10,22 -9,82 -8,80 29,86 6,79
Gov. exp. on GDP 18,47 26,59 22,08 26,32 43,96 -16,96 19,20 42,50
Agr. exp. on total 7,75 2,09 2,51 2,55 -73,00 19,80 1,61 -67,13
Agr. Exp. on agr. GDP 14,18 5,77 9,12 9,4 -59,30 58,05 3,07 -33,70
Gov. exp. on GDP 19,54 19,67 20,97 22,67 0,66 6,60 8,10 16,01
Agr. exp. on total 11,08 7,88 5,24 5,49 -28,92 -33,40 4,71 -50,43
Agr. Exp. on agr. GDP 10,27 7,93 7,84 9,86 -22,78 -1,13 25,76 -3,99
In this context, Kenya represents an interesting case study on the role of public spending on agriculture and its impact
on addressing the current crisis. From 1990/92–2004/06, in the country, the number of undernourished people has
increased by 35 percent, against an average of 26 percent of SSA. According to the FAO estimates, some of the 11
million people are malnourished and the majority of the 70 percent of the population that is dependent on agriculture
for their livelihood is unable to meet their daily requirements (http://www.fao.org/countries/55528/en/ken/).
In this situation, government expenditure on agriculture over total is well below the Maputo Declaration target: in 2008, it
was 4.8 percent, and this share has reduced over time after having reached a peak in 2005 (Fig. 1). This decline is even
more dramatic if it is compared to the first decade of independence (1965–75) when, on average, the country spent over 10
percent of its total budget on the sector (Akroyd & Smith, 2007). The same direction characterises the agricultural aid on
total aid, a variable that often accounts for a large share of government expenditure on agriculture; this trend reflects the
decreasing donors’ priority in supporting the primary sector (Fig. 2). Not only is Kenya far from the Maputo Declaration
Target, but also agricultural development expenditure, which represents around 30 percent of total agricultural expenditure
(Government of Kenya, various years) and is mostly allocated to research and extension, has been low and variable in
effectiveness (for the analysis of the main determinants, see, for example, World Bank (2004a; b) Muyanga and Jayne
(2006). Further, over time, budgetary support has become strongly politicised and unpredictable.
In this environment, the Government of Kenya is committed to key reforms particularly in the areas of public expenditure
management, governance and privatisation with the aim of improving efficiency and effectiveness in public spending
delivery (Akroyd & Smith, 2007). In this spirit, in 2004 the government produced a Strategy for Revitalization of
Agriculture to face low agricultural productivity, poverty, and unemployment in rural areas; the increase in the share of
public spending on the primary sector from 2007 to 2008, illustrated in Fig. (1), partly reflects this commitment.
7
6,5
6
5,5
5
4,5
4
2002 2003 2004 2005 2006 2007 2008
Source: based on Fan et al. (2009)
Figure 1: Trend in the share of government expenditure on agriculture on total public spending (2002-2008).
In addition, the Government of Kenya has adopted a Medium-term Expenditure Framework for strengthening the linkages
between the national development policies and the annual budget and, in this context, a Public Expenditure Review
process assesses the effectiveness and impact of public expenditure on agriculture representing, at the same time, an
important instrument for allocating public resources to the sector. Despite these efforts, the budgetary process still suffers
from several weaknesses and studies on the role of public expenditure on agriculture for hunger and poverty alleviation are
essential to stimulate the Government of Kenya to increase the share of resources to the sector and their effectiveness.

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 143-154 143
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 10
Measuring the Relative Efficiency of Bank Branches: The Case of the
Agricultural Bank of Greece
Anthony N. Rezitis 1,* , Alexander Pailas 2 and Maria A. Kalantzi 1
1 Department of Business Administration of Food and Agricultural Enterprises, University of Western Greece, 2, G
Seferi St, Agrinio, Greece and 2 ATE Bank, Filiates 46300, Greece
Abstract: This paper investigates the relative efficiency of a sample of 19 bank branches of the Agricultural Bank
of Greece for the years 2002 and 2003 by using data envelopment analysis. The present study uses the
intermediation approach to define bank inputs and outputs. The empirical results indicate that 36.8% of the bank
branches operated fully efficiently in both years. In addition, the results indicate that for the input-oriented DEA
the mean efficiency levels are 81.9% and 79% for the years 2002 and 2003, respectively, while for the outputoriented
DEA the mean efficiency levels are 129.9% and 135.7% for the years 2002 and 2003, respectively. The
efficiency performance is also related to the profitability performance. It is found that several bank branches
operated at low efficiency levels and meliorated profitability standards. Another issue that is analyzed is the
procedure for changing the levels of inputs and outputs to increase the branching efficiency. The results indicate
that the branching efficiency can be increased by reducing loans whose payback is delayed for over 180 days.
Finally, a sensitivity analysis is performed, which indicates that efficiency is rather more sensitive to loans whose
payback is delayed for over 180 days and to commission fees and other non-interest incomes.
Keywords: Bank branches, efficiency, DEA, sensitivity analysis.
INTRODUCTION
The Agricultural Bank of Greece (ABG) was established in 1929. Towards the 1950s, the ABG founded a number
of companies, which produced farming products and exploited resources all over the country. Up until the early
1990s, it operated as a specialized financial institution on behalf of the Greek state to support the development of the
country’s agricultural sector. It mainly aimed at implementing programs not only for financing the activities of the
primary sector of the economy and the processing and marketing of agricultural products but also for enhancing
rural development. Since the middle of the 1990s, it has expanded into the non-agricultural sector, by developing
both a broad branch network all over Greece and a variety of new financial products and services due to the
deregulation of the international financial markets, the establishment of the economic and monetary union (EMU)
and the introduction and advancement of information technology. In addition, in 1991, the ABG became a Société
Anonyme (S.A.), broadened its spectrum of banking and financial services and acquired participating interests in
specialized financial companies, thereby expanding the ABG group of companies. It also increased its capital in
order to enter the Athens Stock Exchange, where its shares have been listed since 2001. In recent years, the ABG
has been the head of a dynamic and integrated group of financial companies. Its financial affiliates include
insurance, leasing, cards, technical services and rent.
The present study is the first one to measure the relative efficiency of the ABG’s branches. In particular, the purpose
of this paper is to investigate the relative efficiency of a sample of 19 branches of the ABG for the years 2002 and
2003 based on the concepts and principles of data envelopment analysis (DEA). The present study also measures the
efficiency performance of those branches in relation to their profitability performance. It is notable that banks,
especially in the industrialized countries, have been in search of new management tools to improve their
performance. Most frequently, they have tried to achieve this by improving cash management and offering new
services to attract additional funds. The importance of operating efficiency has been put into evidence recently by
the study of Sherman and Gold (1985). According to this study, a 1% decrease in operating expenses would have
resulted in more than a 2% increase in net income and earnings per share. Furthermore, the present study analyzes
*Address correspondence to Anthony N. Rezitis: Department of Business Administration of Food and Agricultural Enterprises, University of
Western Greece, 2, G Seferi St, Agrinio, Greece; Tel: +26410 74139; Fax: +26410 74179; E-mail: arezitis@cc.uoi.gr

144 Research Topics in Agricultural and Applied Economics, Vol. 2 Rezitis et al.
the procedure for changing the levels of inputs and outputs so that the branching efficiency can be increased and
performs a sensitivity analysis to determine the inputs and outputs to which the efficiency is more sensitive.
There is a small number of studies that have investigated the relative efficiency of Greek bank branches. The studies that
estimate the efficiency of different branches of the Commercial Bank of Greece are those by Vassiloglou and Giokas
(1990) based on 20 branches; Giokas (1991) on 17 branches; Donatos and Giokas (1995) on 187 branches; Giokas and
Athanassopoulos (2000) on 47 branches; and Donatos, Giokas and Athanassopoulos (2002) on 63 branches. However,
there is a growing international literature of DEA studies that investigates the efficiency of different bank branches. It is
considerable that most of them use a sample of fewer than 50 branches. In particular, the studies using the DEA
methodology to measure the efficiency of bank branches around the world are those by Sherman and Gold (1985) and
Golany and Storbeck (1999) based on bank branches in the US; Schaffnit, Rosen and Paradi (1997), Edelstein (2004)
and Paradi and Schaffnit (2004) in Canada; Lovell and Pastor (1997) in Spain; Rouatt (2002) and Yang (2002) in India;
and Jablonsky, Fiala, Smirlisand and Despotis (2004) in the Czech Republic. The remainder of this paper is organized as
follows. Section 2 outlines the methodological framework. The data sample is discussed in Section 3. Section 4 discusses
the empirical results obtained, while Section 5 offers a conclusion.
METHODOLOGY
The present study applies data envelopment analysis (DEA), which was initially developed by Charnes, Cooper and
Rhodes (1978), known as CCR, and was introduced to the banking sector by Sherman and Gold (1985). The detailed
formulation of the CCR model is given as:
Maxh
subject to
s
r 1
o m
uy
r rjo
vx
i ijo
i1
s
r 1
m
i1
r rj
i ij
1
u , v , r 1,..., s, i 1,..., m, j 1,...,
n
r i
uy
vx
where ho is the relative efficiency of branch o; o is the branch being assessed from the set of j=1,…,n bank branches; j is
the number of branches (j=1,…,n); r is the number of outputs (r = 1,….,s); i is the number of inputs (i = 1, ….,m); yrj is
the observed output r at branch j ( r=1,…,s); xij is the observed input i at branch j (i=1,…,m); ε is a small positive number
whose value in the present study is ε=10 -6 ; and ur, vi are virtual multipliers for input i and output r, respectively.
The above functional model is replaced with a linear programming equivalent through a series of transformations. In
the case where output enhancement is emphasized, the formulation is written as:
s
Maxh u y
(2)
subject to
o r rjo
r 1
m
vx
1
i ijo
i1
s m
uy vx 0
r rj i ij
r1 i1
u , v , j 1,...,
n
r i
(1)

Measuring the Relative Efficiency of Bank Branches Research Topics in Agricultural and Applied Economics, Vol. 2 145
In the case where input reduction is emphasized for each branch, the formulation is given as:
m
Minh v x
(3)
subject to
o i ijo
i1
s
r 1
r rjo
1
s m
uy vx 0
r rj i ij
r1 i1
u , v , j 1,...,
n
r i
uy
The application of the CCR model to a set of branches allows the comparison of each of them with the rest of the
sample and the implication of a number of conclusions. In the case of output enhancement, each bank branch being
h , which implies relative efficiency, or h 1,
which implies
evaluated will have a derived efficiency rating of o 1
o
relative inefficiency, whereas in the case of input reduction, an efficiency rating of o 1
efficiency and ho 1 implies relative inefficiency. If o 1
h signifies relative
h , the branch is not necessarily efficient but it is not less
efficient compared with the performance of the other branches in the data set, while if 1
o
h or ho 1,
the branch is
inefficient compared with the performance of the other units in the observation set in the input-oriented DEA or
output-oriented DEA, respectively.
It is also of great use to make clear that efficiency does not necessarily imply profitability. In other words, a higher
level of efficiency does not necessarily imply a higher level of profitability since profitability might be the result of
the efficient use of resources or due to favorable exogenous factors. Fig. (1) presents the combination of the
efficiency performance with the profitability performance. A branch’s classification in any quadrant of the
aforementioned figure could depend on the operating efficiency and the exogenous factors. It has been observed that
the bank branches illustrated in the upper-right quadrant constitute examples of efficient operations and favorable
exogenous factors while the bank branches depicted in the upper-left quadrant are profitable but their profitability is
due to the favorable environment in which they are activating and is not due to operating efficiency. In addition, the
bank branches illustrated in the lower-left quadrant present low profitability, which is probably due to operating
inefficiency rather than negative exogenous factors whereas the bank branches depicted in the lower-right quadrant
are efficient but their lower profitability is probably due to negative exogenous factors.
Profitability
High Profitability High Profitability
Low Efficiency High Efficiency
Low Profitability Low Profitability
Low Efficiency High Efficiency
Figure 1: The combination of profitability and efficiency performance.
Efficiency

Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 155-167 155
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.
CHAPTER 11
Measuring Labor Productivity and Market Viability of Rural Tourism
Activities in Japan
Yasuo Ohe *
Department of Food and Resource Economics, Chiba University, Matsudo, Chiba, 271-8510, Japan
Abstract: This paper evaluated diversified rural tourism activities from the perspectives of economic viability and
endogenous utilization of rural resources and investigated labour productivity of eight rural tourism activities. First, we
presented a conceptual framework on how to evaluate economic viability and the endogenous mobilization of rural
resources. Second, we empirically evaluated economic viability, the supply shift effect of endogenous utilization of
rural resources and labour productivity with regard to rural tourism. The main findings are as follows. First,
examination of the three main activities, i.e. accommodation, restaurant operation and direct selling of farm products,
showed that both full-time and part-time labour input contributed more effectively to better annual sales in those three
activities than in the other activities examined, such as farm experience services. This means that those activities are
viable whereas activities that provide farming experience services did not show evidence of a viable farm business.
Second, we could not confirm the supply shift effect of endogenous innovative use of rural resources. Overall, we
found that rural tourism in this country is undersupplied at a social optimal level. In the long run, institutional
conditions for market formation and management skills for endogenous innovation in utilization of rural resources
should be more intensely developed as a part of rural resource management policy.
Keywords: Rural tourism, farm diversification, labour productivity, production elasticity, multifunctionality of
agriculture, market viability, rural resource management.
INTRODUCTION
Activities in rural tourism have been diversifying, and a firm market for some of these activities has developed.
Whether development of rural tourism can be sustained is dependent on whether rural operators can appropriately
respond to emerging new social demands for recreational and educational functions of agriculture and the rural
environment. Rural tourism’s endogenous utilization of rural resources increases in importance in this context.
Through exploration of rural tourism activities and their relationship with rural resources, new roles for agriculture
and the countryside can be revealed, which will eventually lead to further diversification of rural tourism activities.
The relationship between endogenous utilization of rural resources, including agriculture, and actual rural tourism
activities has been given little attention conceptually and empirically from an economic perspective. This is despite the fact
that farm and rural tourism has been intensively analyzed from various disciplines (Bryden et al. (1993) for the British,
French and German cases, Maude and van Rest (1985), Hoyland (1982), Evans and Ilbery (1989, 1992a, 1992b) for
British, Pevetz (1992) and Pichler (1991) for Austrian, Oppermann (1997) for German, Vanslembrouck et al. (2005) for
Flemish, Ohe and Ciani (1998) for Italian, Ohe (2008a, 2010) for Japanese) and anecdotal reports (Nakamichi (2003)).
A characteristic of rural tourism is that it is a labour intensive service activity, which differs from production of traditional
farm products. Thus, in examination of rural tourism, it is necessary to examine the factor input relationship of human
resources and utilization of rural resources and to clarify conditions for viable development of new markets for these
services. For this purpose, we should evaluate each activity involved in rural tourism, not rural tourism in general. No
previous study has fully addressed the issue of rural tourism from these aspects. For example, Hall et al. (2004) dealt with
rural tourism from the aspect of sustainable business and Hall and Richards (2000) approached it from community
development aspects. Fleischer and Tchetchik (2002) took the approach of the production function and Vanslembrouck et
al. (2005) and Ohe (2007, 2008b) examined the relationship between multifunctional aspects of farming and rural tourism.
Robinson et al. (2000) and Pender and Sharpley (2005) studied management issues.
*Address correspondence to Yasuo Ohe: Department of Food and Resource Economics, Chiba University, Matsudo, Chiba, 271-8510, Japan;
Tel: +81 (0)47 308 8916; Fax: +81 (0)47 308 8916; E-mail: yohe@faculty.chiba-u.jp

156 Research Topics in Agricultural and Applied Economics, Vol. 2 Yasuo Ohe
In this paper, we will firstly conceptually characterize rural tourism activity in comparison with past production of
farm products and tourism activities resulting from rural resource use and provide a basic framework to conduct an
empirical evaluation of the state of market formation of rural tourism activity in Japan. Secondly, we examine the
relationship between utilization of rural resources and rural tourism. Thirdly, we estimate marginal labour
productivity of rural tourism activities and examine the formation of the market for rural tourism in connection with
utilization of rural resources. Finally, we consider policy implications for the development of rural tourism.
CONCEPTUAL CONSIDERATION
Declining Process of Rural Resource Use and Emerging New Social Needs
We give conceptual consideration to rural resource use, which sets the foundation for a conceptual framework for
the following empirical studies. To this end, we contrast two processes of utilization of rural resources to
characterize the recent trend of such utilization compared with that of the past.
Firstly, we look at the process of decline in rural resource use during the phase of rapid economic growth, such as
the high economic growth period in Japan after the Second World War. Suppose one typical model farmer or a
group of farmers, and this farmer or group acts along with the principle of subjective equilibrium when the farmer or
the group uses farm resources. Suppose there exists a labour market that enables farmers to hold off-farm jobs and to
set an opportunity cost of labour. Fig (1) illustrates the level of activity in utilization of rural resources or products
made from such rural resources, including agricultural activity. Specifically, products include processed food made
from farm products such as seasonings like soy sauce and miso, or soybean paste, in the Japanese case, rope made
by rice straw, and traditional rural crafts and cuisines. During this period, rural resources were fully utilized. MR
symbolizes the farmer’s marginal revenue line and MC the marginal cost line measuring the quantity of farm
products from farm and rural resources horizontally and the value vertically. To simplify the discussion here, ceteris
paribus, only labour input is considered because these products require intensive labour input. The initial
equilibrium point is e0 where MR0 meets MC0.
Figure 1: Declining process of utilization of traditional rural resources
¥
x
O
MR 1
e 2
MR 0
e 1
MC 1
MC 0
k h m
Degree of utilization of
rural resources
As economic development progresses, MC, the marginal cost line, will shift left and upwardly from MC0 to MC1 due to the
rising opportunity cost of utilization of these resources. The reason for this rising opportunity cost is the increase in wages in
the fast growing industrial sector. This rise in industrial wages affected farm wages, causing wage increases in the farm sector
and eventually resulting in an increase in farmer’s opportunity cost of these traditional on-farm activities. This process is
based on the historical events that Japanese society experienced during the era of high economic growth. This rise in
opportunity cost influences the whole range of farm and rural activities. Consequently a new equilibrium will move leftward
from the initial point e0 to e1 where the activity level or quantity of products is lowered from the initial level Om to Oh.
e 0

Measuring Labour Productivity and Market Viability Research Topics in Agricultural and Applied Economics, Vol. 2 157
On the other hand, the increase in industrial mass production of traditionally processed food, e.g. soy sauce and miso,
replaces the demand for these domestically produced products provided by farmers themselves. This demand shift causes
a shift in marginal revenue from MR0 to MR1, then the equilibrium point moves more leftward to e2. So if the demand
will drop further, the operation will be halted since the final equilibrium point e2 is the lowest operational limit (Ox).
Thus, it is safe to say that this process of rise in opportunity cost and shrinkage in demand describes the pathway by
which traditional farm products and full utilization of rural resources became history. The abandonment of the
woodland and grassland adjacent to agricultural settlements, called ‘Satoyama’ in Japanese, was a typical example
of the desolation of rural resources despite Satoyama’s significance in maintaining biodiversity and its richness in
useful rural resources that support traditional farm life (Takeuchi et al. (2003)).
Emerging New Market
Secondly, let us explore the recent trend of rising demand for rural tourism, rural amenities and the educational function
of the rural heritage and the environment, which is generalized as multifunctionality of agriculture (for multifunctionality
see OECD (2001, 2003, 2005), Brower (2004), van Huylenbroeck and Durand (2003) and Ohe (2007)). The rural
indigenous environment and heritage are reflected in this new demand. In this context, there is commonality with the
traditional products in terms that both originate from rural resources. Nevertheless, the demand is not for traditional farm
products per se, but is a different demand emerging as a new market resulting from social development.
The following points explain how new market goods and services differ from past products. First, these new social
demands for recreational and educational purposes have characteristics of service goods in addition to farm processed
products. Secondly, these new services have the positive externality typically observed as multifunctionality due to the
initial stage of the market formation and partly to its trait of public goods such as maintenance of cultural heritage and
bio/cultural diversity and educational effects with regard to these aspects and the rural environment. ‘Satoyama’ and the
terrace paddy are the most typical traditional rural resources that are now attracting increasing attention for this purpose
in Japan (Takeuchi et al. (2003)). Therefore, we need to position services related to these resources as a new market.
Figure 2: Diversified markets for rural tourism and market equilibrium
¥
y
O
D a
Initial stage Evolutionary stage
e g
i
a
f
j
b
MC a
e n
D b
SC a
MC b(private MC)
SC b(social MC)
e s (e s * if MCb=SC b)
Degree of
activity
In Fig. (2), D symbolizes the demand line for a rural tourism service and MC the marginal cost line measuring the
quantity of farm products by farm and rural resources horizontally and the value vertically. To simplify the
discussion here, ceteris paribus, only labour input is considered because these products require intensive labour
input. Fig. (2) has two kinds of marginal cost lines due to the existence of positive externality; MC represents the
farmer’s private marginal cost line and SC represents the social marginal cost line.
e p
q
t
r

168 Research Topics in Agricultural and Applied Economics, Vol. 2, 2011, 168-169
A
Almost Ideal Demand System 11,12,15,19,22-24
Asymmetry 21,23,25-27,29,31-36,108
B
Bootstrapping 10
Brand Equity 83,89,90-94,96-102,104-105
C
Conjoint Analysis 84,101,135-137,144,148,149
Consumer Behaviour 14,37,89,108-109,126-127,130,136
Cointegration 8,13-15,17,21-22,24-26,29,33-35
D
DEA 176-178,180-184,187-188
E
Economic Viability 192
Efficiency 153,176-191,206
Elasticities 1-2,4,9,11-12,14-15,18
F
Factor Analysis 37,40,46-48,95,105,141
Food crisis 21-22,33-34,141,145,150-151
Functional foods 37-40,42,44,47-52,145,148
H
Hedonic Model 70-71,75,77,80
L
Laddering 107,111-113,127-131
Labour Productivity 192-193,201,203-204,206
M
INDEX
Management 13,15,64,82-83,96,99-101,127-128,149,153,174,177,192-193,207
Means-End Chain 64,107,109-112,124,126-131
Market Share 6-8,11-13,17,19,37
O
Origin Labels 107,119
Anthony N. Rezitis (Ed)
All rights reserved - © 2011 Bentham Science Publishers Ltd.

Index Research Topics in Agricultural and Applied Economics, Vol. 2 169
P
Policy 2-3,21-22,28,33-36,48,50,55,62,64
Price transmission 21-25,32-34
Principal Components Analysis 37,43,45
Public Spending 150-153,159,165,173-174
Purchase decision 107,109,126,142
R
Regime Switching 21-22
S
Segmentation 57,60,62,65,70-73,75,77-78,80,82,84
Social Accounting Matrix 151,154,174-175
Supermarket 40,57,70,72-74,77,79,83
T
Threshold 1,9-10,12,14,18,24,26-27,29-34,36
Tourism 150,192
V
Volatility 150,164,173
W
Welfare standards 55-58,60-61,63-64,67
Wine Market 72-73,76,81,84,89,92-96,99-102,107,109,127