Estimating organic premiums in the USfluid milk market

Using actual retail purchases from the 2006 Nielsen Homescan panel data, we estimate a hedonic model on price premiumsand discounts associated with household characteristics, market factors, and product attributes focusing on the organicattribute for fluid milk. The organic attribute carries a significant price premium, which is largest of all product attributesconsidered in this study. Further, additional price variations among organic milk are observed for differences in fat content,container size and branding. Specifically, the results suggest that organic price premiums for half-gallon milk range from$1.23 for whole private label organic milk (60–68% above conventional counterpart) to $1.86 for nonfat/skim-brandedorganic milk (89–109% above conventional counterpart). The study also found that milk sold in a discount store (i.e.,supercenter or club warehouse) was price 13 cents per half gallon, or 7.4%, below milk sold through other venues, and thatmilk on sale was priced 26 cents per half gallon, or 14.3%, less than the regular average price. Although householdcharacteristics exert little influence on price relative to product attributes and market factors, the study does find thatunmarried households and those with children under six pay slightly higher prices for milk, possibly due to time constraints