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Pricing economic value of organic rice under dichotomous choice framework: an environmental perspective

Authors:

WMCB Wanninayake ,

Senior Lecturer (PhD), Department of Marketing Management, University of Kelaniya, LK
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A Aruna Shantha

PhD Candidate, School of Economics, Collage of Business, Northern University of Malaysia, MY
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Abstract

In Sri Lanka, rice accounts for 25 percent of total cultivable land, and more than two million families are engaged in farming as their main occupation. Intensive paddy farming in Sri Lanka has destructive effects on land, water, animals and human. Growing organic rice rather than commercially produced rice is the environmentally healthy choice and it is a fast growing agricultural segment in Sri Lanka during recent decades. However, organic farming faces challenges such as higher management cost; the risks of learning new farming methods, a fragmented industry that is still young; higher cost of marketing the value of organic rice; and the higher cost of consumer engagement. Further, willingness to pay extra for organic products was less than anticipated. This study attempts to determine the economic value of organic rice by eliciting customers’ willingness to pay (WTP) using contingent valuation method followed by single bounded dichotomous choices. Ecoliteracy, perceived importance and demographic variables were employed as independent variables for the study. A stepwise backward binary multivariate logistic regression model was used to measure WTP and to determine the factors that influence the variation in WTP. Primary data were obtained from 1,158 local customers from 36 supermarkets in Colombo districts. The study found that majority of local sampled customers (57.5%) refused to pay any additional payment for organic rice even though it was environmentally friendly product. However, 42.5% sampled customers agreed to pay an additional payment for organic rice. As estimated parametric logistic model the mean value of WTP for green rice at higher bidding level is Rs. 126.71/kg However, that value at medium bidding level was Rs. 98.61/kg and at low bedding level it was Rs. 81.78/kg. According to the empirical results H1 and H2 were fully supported and H3 were partially supported. In conclusion, policy makers can identify the range of price increase of such organic rice without damaging the existing demand for organic rice and it is a timely need to introduce new marketing strategies to expand the market segment in organic rice in Sri Lanka.

DOI: http://dx.doi.org/10.4038/kjm.v2i2.6547

Kelaniya Journal of Management Vol.2(2) 2013:1-22

How to Cite: Wanninayake, W. & Shantha, A.A., (2014). Pricing economic value of organic rice under dichotomous choice framework: an environmental perspective. Kelaniya Journal of Management. 2(2), pp.1–22. DOI: http://doi.org/10.4038/kjm.v2i2.6547
Published on 05 Feb 2014.
Peer Reviewed

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