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British Food Journal
Market values for olive oil attributes in Chile: a hedonic price function
Rodrigo Romo Muñoz Mario Lagos Moya José M. Gil
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Rodrigo Romo Muñoz Mario Lagos Moya José M. Gil , (2015),"Market values for olive oil attributes in
Chile: a hedonic price function", British Food Journal, Vol. 117 Iss 1 pp. 358 - 370
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Market values for olive oil
attributes in Chile: a hedonic
price function
Rodrigo Romo Muñoz and Mario Lagos Moya
Department of Business Management, University of Bío-Bío,
Chillán, Chile, and
José M. Gil
The Centre for Research in Agro-Food Economics and Development (CREDA),
Barcelona, Spain
Abstract
Purpose –Focused on the olive oil sector in Chile which is a non-traditional market (both in
production and consumption), the purpose of this paper is to determine the implicit value of the most
relevant attributes of olive oil on the final price charged by supermarkets to consumers through the
hedonic pricing methodology.
Design/methodology/approach –Field work was carried out between September and October 2012
in 12 supermarkets belonging tothe four most important Chilean retail chains. A log-linear price-attribute
function was used to estimate the hedonic price function. The sample included 248 observations olive oil
prices available to consumers in the leading supermarkets in the city of Chillán (Chile).
Findings –The model estimation results led to the observation that the attributes that most positively
influenced final price are oil acidity level, tin can container of imported oil, and origin. On the other
hand, the attributes that most negatively influenced final consumer price are retailer house brand
and plastic container.
Research limitations/implications –A limitation of this study is associated with the geographic
area where it was carried out, that is, the city of Chillán in the Bío-Bío Region, which is the second
largest region and accounts for 12 per cent of the total population. Further research should include
other cities such as Santiago (capital), Concepción, Curicó and Valparaíso.
Originality/value –This study can be considered as a first approximation of a hedonic pricing model
estimation for olive oil in non-traditional markets like Chile, which is considered an emerging market.
Keywords Chile, Market value, Olive oil attributes
Paper type Research paper
1. Introduction
Olive oil is perhaps one of the most characteristic elements of the Mediterranean diet
(Lazaridis, 2004) and is appreciated worldwide for its proven health benefits (Hu, 2003;
Martínez-González and Sánchez-Villegas, 2004). Currently, 70 per cent of world olive oil
British Food Journal
Vol. 117 No. 1, 2015
pp. 358-370
Emerald Group Publishing Limited
0007-070X
DOI 10.1108/BFJ-01-2014-0009
Received 8 January 2014
Revised 4 August 2014
Accepted 13 August 2014
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0007-070X.htm
© Rodrigo Romo Muñoz, Mario Lagos Moya, José M. Gil. Published by Emerald Group
Publishing Limited. This article is published under the Creative Commons Attribution (CC BY
3.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this
article (for both commercial and non-commercial purposes), subject to full attribution to the
original publication and authors. The full terms of this licence may be seen at: http://creative-
commons.org/licences/by/3.0/legalcode
This study was funded by a regular internal research project (code No. DIUBB 123518 2/R)
and a University Extension project (code No. PREUS-11-2012) of the Universidad del Bío-Bío.
The authors are grateful to Dr Alfonso Rodríguez Ríos and Dr Guillermo Petzold Maldonado for
their comments to improve the initial versions of the study.
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production and 60 per cent of consumption are concentrated in Mediterranean
countries of the European Union (International Olive Oil Council (IOOC), 2012), which
are considered as traditional producers and consumers. Olive oil production (including
extra virgin, virgin, and common olive oil) reached 3.1 million t in 2012 and increased
by more than 20 per cent between 2000 and 2012 (IOOC, 2012). Spain leads world oil
production (43 per cent) and is followed by Italy (14 per cent), Greece (10 per cent), and
Portugal (2 per cent). A second group of countries account for 24 per cent of production:
Syria (6 per cent), Tunisia (6 per cent), Turkey (6 per cent), Morocco (4 per cent), and
Algeria (2 per cent). All these countries are located in the Mediterranean Basin and are
considered as traditional olive oil producers (Mili, 2006); their historical importance in
growing olive trees goes back to the Roman Empire (Ben Kaabia and Gil, 2011).
The remaining 6 per cent of world production is provided by a third group of
countries known as “non-traditional”oil producers, which includes Chile, Argentina,
Australia, New Zealand, and South Africa (IOOC, 2012). Chile accounts for only
0.2 per cent of the world area allocated to olive trees and 0.6 per cent of world oil
production. It has, however, experienced substantial growth in production and
consumption rates (all production corresponds to the highest quality olive oil, i.e., extra
virgin). Central Chile (between the third and seventh regions) is benefitted by
a temperate Mediterranean climate and soil fertility, which is the perfect combination
to produce high-quality olive oil. Production has increased exponentially from 192 t
in 1997 to 21,600 t in 2012, with a projected 35,000 t by 2015 (ChileOliva, 2012).
This significant increase in production has generated an abundant supply of olive oil
for local consumers. On the other hand, some local producers have recently participated
in fledgling export ventures of Chilean olive oil.
As for demand, olive oil consumption is longstanding in traditional markets
and deeply rooted in the population’s eating habits (Mili, 2006); people have become
knowledgeable consumers with a vast experience of product preferences (Krystallis
and Ness, 2005; Delgado and Guinard, 2011). Among traditional producers, Greece
leads world consumption with a yearly per capita of 24 L, followed by Spain and Italy
with 14 and 12 L, respectively. The second group of countries has a yearly per capita
consumption of approximately 7 L (IOOC, 2012).
Although the consumption rate is notably lower in the Chilean market, yearly per
capita consumption has increased approximately1,000 per cent from 77 ml in 1997 to
824 ml in 2011 (Sudy and Cortés, 2012). Basically, two reasons explain this increase: the
health benefits and nutritional properties of this product, and this product is associated
with the Mediterranean diet which is considered as one of the most healthy and balanced
diets in the world. The United Nations Educational, Scientific, and Cultural Organization
(UNESCO, 2010) declared the Mediterranean diet as an Intangible Cultural Heritage of
Humanity on 16 November 2010 . In this context, there has been an increasing concern
about the quality of diet in Chile. Economic growth in Chile has been significant in the last
two decades (OCDE, 2013) (4.1 per cent, between 1991 and 2009, and over 5 per cent
between 2010 and 2013) with two main effects on food consumption: eradication of
hunger, and increasing malnutrition. In fact, the prevalence of obesity is one of the highest
among Latin-American countries (29 per cent). Several governmental initiatives have been
recently approved. Law 20670/2013 launched the “Elige Vivir Sano”(Choose to Live
Healthy) programme to encourage the population to change its food habits and in which
the Mediterranean diet plays a pivotal role. Rozowski and Castillo (2004) already showed
a convergence process between the Chilean and Mediterranean-type diets although they
were also concerned about the move away from the traditional Chilean diet.
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attributes
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Despite the dynamism that olive oil has recently been experiencing in the Chilean
market, this product continues to be relatively new for most consumers and is not fully
included in the population’s daily diet. Consumers are therefore not familiar with the
product and do not have a sustained consumption experience although product
availability has increased. This has limited consumption in two ways because people
might not be skilful enough to value each of the product attributes (both intrinsic and
extrinsic) and their impact on the final product price. If the final product price is no
more than the sum of implicit values of different attributes, it is then important to know
the consumer’s valuation of these on the final of olive oil. No systematic research on
this topic has been undertaken in Chile. Therefore, the objective of this study was to
fill this gap by estimating market values for individual attributes of extra virgin olive
oil, the highest quality olive oil which concentrates almost 100 per cent of Chilean
production[1].
Knowledge about price and the implicit value of attributes will guide company
pricing policy efforts and directly affect product demand. Price plays an important
role in the exchange relationship between the retailer and consumer because it is one
of the most determinant variables in the decision to purchase the product (Angulo et al.,
2000; González and Melo, 2008). Results can guide producer investment decisions
and strategies that retail companies would like to implement as well as directing
government policies to enhance domestic consumption.
The hedonic pricing method is an appropriate tool to determine the implicit value
of different extra virgin olive oil attributes; it is based on the regression of the price of
a container of extra virgin olive oil on its main attributes. Waugh (1928) was the first to
use the hedonic pricing method applied to asparagus in the Boston market. However,
in his seminal paper, Rosen (1974) simulated a pure competition model for product
differentiation that established the theoretical basis for hedonic price functions. Under
a competitive market structure assumption, Rosen (1974) shows that market demand
and supply for attributes interact in the long-run equilibrium to determine implicit
marginal market attribute prices which can be interpreted as the value consumers
place on an additional unit of the corresponding attribute (Combris et al., 1997).
Hulten (2003) points out that Rosen’s theory has been accepted as the fundamental
hedonic pricing approach.
The emerging Chilean extra virgin olive oil market can be characterised as competitive;
this makes the hedonic price function approach suitable for this study. In fact, an
increasing number of producers and consumers are practising a price-taking behaviour
(market shares among producers are still quite low) and information flows are adequate
between producers and consumers to make decisions. With the exception of some
investments in infrastructure, no barrier to entry seems to exist (the number of producers
has been continuously growing in the last decade). Transaction costs for trading extra
virgin olive are minimal and do not create any obstacle to attain market clearing prices.
Based on Rosen’s (1974) work, there have been a number of applications of the
hedonic pricing method in the agri-food industry where its use is common. Some
products of this sector that have been studied by this method are breakfast cereals
(Morgan et al., 1979; Stanley and Tschirhart, 1991; Shi and Price, 1998), the aquaculture
industry (McConnell and Strand, 2000; Carroll et al., 2001), apples (Tronstad et al., 1992;
Carew, 2000; Carew and Smith, 2004; Troncoso and Aguirre, 2007), organic tomatoes
(Huang and Lin, 2007), avocados (Troncoso et al., 2008), beef (Unnevehr and Bard, 1993;
Wahl et al., 1995; Loureiro and McCluskey, 2000; Boland and Schroeder, 2002; Gracia
and Pérez, 2004), and pork (Parcell and Schroeder, 2007).
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Wine is without a doubt the product that has been most extensively analysed
by the hedonic pricing method in the agri-food industry with more than 25 studies
(such as Oczkowski, 1994; Gil and Sánchez, 1997; Angulo et al., 2000; Combris et al.,
2000; Schamel and Anderson, 2003; Melo et al., 2005; Lecocq and Visser, 2006; Schamel,
2006; Troncoso and Aguirre, 2006; Rodríguez and Castillo, 2009; Benfratello et al., 2009;
Ortuzar and Alfranca, 2010; Boatto et al., 2011; Panzone, 2011). This is largely because
wine is a highly differentiated product where attributes significantly influence final
price.
Olive oil is similar to wine in that it exhibits a large number of attributes (both
intrinsic and extrinsic) so that it can be differentiated. Producers and consumers
in traditional producer countries are knowledgeable about the impact of different
attributes on final price. However, a lack of awareness exists on this matter in
non-traditional countries ( producers and consumers). Despite the importance of this
product in some countries, such as Spain and Italy, there are few available studies in
the literature that apply this hedonic pricing method. Karipidis et al. (2005), in the Greek
market, has published the only study from a producing country. The objective of the
present study is to contribute to the literature with a novel application in an emergent
country. Results of both studies will be compared to a certain extent since market
conditions are significantly different between these two countries.
2. Materials and methods
The hedonic price function assumes that market goods consist of a set of characteristics
that can be represented by a vector kof attributes:
z¼z1;z2;...;zk
ðÞ (1)
Under this assumption, the utility function for a representative consumer is expressed
as:
U¼Uz
1;z2;...;zK;aðÞ (2)
where z
k
is the quantity of the kth attribute contained in market goods and αis
a parameter of consumer preferences. The level of the kth attribute achieved by this
consumer will depend on the number of units (Q
i
) of the different market goods that are
consumed. Units are related to z
k
through the variable x
jk
which represents the amount
of the kth attribute contained in one unit of the jth product. Based on this, it is possible
to write zas:
zk¼fkQ1;Q2;...;Qn;x1k;x2k;...;xnk
ðÞ(3)
Taking into account Equations (2) and (3), an individual’s utility level is based on the
attribute level per unit of product and the number of products consumed:
U¼UQ
1;Q2;...;Qn;x11 ;...xnk
ðÞ(4)
According to economic theory, the consumer will maximize expression (4) subject to
budget constraints stated as:
M¼X
n
j¼1
PjQj(5)
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Market values
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attributes
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where P
j
represents the price of the jth market good. The solution to the maximization
problem is:
Pj¼fx
j1;xj2;...;xjk
(6)
where x
jk
is the quantity of attribute kassociated with a unit of Q
j
. Expression (6) can
adopt different functional forms; the semi-logarithmic form is the one that is mostly
used in the literature (Lusk et al., 2011). This functional form has been widely used in
hedonic price studies (Lecocq and Visser, 2006; Schamel, 2006; Benfratello et al., 2009;
Melo et al., 2005; Troncoso and Aguirre, 2006; Rodríguez and Castillo, 2009).
Two common elements found in most hedonic pricing studies that influence
results are: the functional form of the estimation model being used; and the selected
attributes. In the case of the functional form of the estimation model, the relationship
between price and product attributes is not defined by the hedonic theory (Lusk et al.,
2011). The most widely used functional form in hedonic pricing research is log-linear
(dependent variable is Napierian logarithm of price) (Lusk et al., 2011). Some reasons to
justify its use are found in the literature: the relationship between price and the
different attributes is not linear, especially when attributes are introduced in the model
as dummy variables; the easy interpretation of coefficients since these can be analysed
as the percentage change of the price variable with a unit change of an independent
variable (Rodríguez and Castillo, 2009); and a better control of heteroskedasticity
problems that may arise (Schamel and Anderson, 2003).
Whether one attribute or another is selected depends on its relative importance in
the respective markets and if it is identified as relevant for consumers and producers.
These attributes can be extrinsic or objective (studies in the wine industry consider
elements such as type of wine, vintage year, type of grape, producer size, geographic
origin, and bottle colour) or intrinsic or subjective (quality, sensory, and taste
characteristics). In each of these studies, researchers have used different strategies to
select attributes in the best way (individually or combined) so as to explain more
precisely the implicit value of each attribute on final price. Results from the most recent
studies focused on the wine industry have shown that some subjective attributes are
relevant for explaining the price of wine (intensity and finesse of aromas, complexity,
body, tannin concentration, and acidity) (Lecocq and Visser, 2006; Schamel, 2006;
Benfratello et al., 2009). Most of these studies have determined that extrinsic attributes
best explain the final product price although some subjective attributes are significant
(especially in markets with experienced consumers). This is confirmed by Combris
et al. (2000), who mention that objective attributes of a product are easier to identify
than subjective attributes (sensory) and are considered as the principal determinants in
price formation.
Attributes in this study were selected by taking into account a literature review and
the specific characteristics of the Chilean extra virgin olive oil market. Literature
addressing the estimation of a hedonic price function for olive oil is very limited. In fact,
these authors are only aware of one paper published that is related to the Greek
market (Karipidis et al., 2005) where the following attributes and attribute levels
were considered: natural characteristics (extra virgin, virgin, special character),
production/processing conditions (organic, without thermal processing), packaging
(size, innovative packaging), quality system (ISO 9001, Protected Designation of Origin),
additional label information elements (nutritive elements, aroma), product information
(advertising, customer line), vertical integration (supermarket, cooperative), and type of
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retail supplier (hypermarket, Athens, Thessaloniki). It can be observed that many of
the attributes selected in the above-mentioned study are only applicable to traditional
markets where both producers and consumers value each one of these attributes.
A few, such as origin, natural characteristics (organic or traditional), quality system,
and nutritional properties cannot be considered in the Chilean market since neither
producers nor local consumers are sufficiently aware of them. In addition, Chilean
producers and retailers in the domestic market do not include more information
on labels than what is strictly required by existing regulations. For instance,
information about intrinsic attributes, such as flavour, aroma, or olive variety,
is not included; this information is commonly used in producer countries as
a differentiation strategy.
The final set of attributes in this study was selected by taking into account
the previous study as well as the results from qualitative research consisting of
observation in retail stores and one focus group with ten extra virgin olive oil
consumers in the study area: acidity (percentage); origin (Chilean or imported); package
size (in ml); packaging ( plastic, tin can, or glass container); brand (retailer or
manufacturer); and type of retailer (hypermarket or supermarket).
Information was collected from the main retailers found in Chillán (Bío-Bío Region,
which is the second most important region in terms of population and participation in
Chile’s gross domestic product). Field work was carried out in September and
October 2012. A total of 12 supermarkets were visited, which belong to Chile’s four
main retail chains and account for 88 per cent market share of the food sector.
The leading group is Walmart Chile which owns the Híper Líder, Líder Express, and
Ekono supermarkets (33.4 per cent market share) followed by the Cencosud holding
company (30.5 per cent) with its Jumbo and Santa Isabel supermarkets. The third
retailer is the Saieh group (SMU) (23.9 per cent) which owns the Unimarc chain and the
fourth group is Falabella (6.3 per cent) with Tottus. Eight supermarkets are located
downtown while the remaining four are on the outskirts of the city. A total of 248
containers of extra virgin olive oil were analysed in the 12 supermarkets, which were
characterised by considering their selling price as well as the above-mentioned
attribute levels.
Table I shows some descriptive statistics about the prices for containers of extra
virgin olive oil considered in this study[2].
In general terms, the price of imported oil is 30 per cent higher than the price of
domestic oil. The greatest price difference occurs in the 250 ml volume size where the
variation is almost 50 per cent. This is mainly due to the fact that olive oil imported
from Spain or Italy mostly comes in 250 or 500 ml containers.
Volume (ml) Origin Mean price ($) SD ($) % difference
250 Domestic 1,931 384 48
Imported 2,864 310
500 Domestic 2,956 429 26
Imported 3,736 1,250
1,000 Domestic 5,155 596 8
Imported 5,562 373
Note: $, Chilean pesos
Table I.
Descriptive statistics
about consumer
prices for containers
of extra virgin olive
oil in Chillán (Chile)
supermarkets
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3. Results and discussion
Equation (6) was estimated in semi-logarithm form including all the above-mentioned
attributes and attribute levels. Table II shows how attribute levels are included in
the model.
Two likelihood ratio statistics were performed to verify if the semi-logarithmic
functional form was significantly preferred to a linear or double-log specification,
respectively. Results indicated that the adopted functional form was clearly superior
to the other two alternatives. Goodness-of-fit was quite high with an adjusted R
2
of 0.85
and was significant (F-statistic o0.01). The adjusted R
2
of the present study was much
higher than the values obtained in studies of olive oil (Karipidis et al., 2005) and in the
most recent studies in the wine sector (Lecocq and Visser, 2006; Schamel, 2006;
Benfratello et al., 2009; Rodríguez and Castillo, 2009; Panzone, 2011); values found in all
of these studies are not greater than 0.7, with the exception of Boatto et al. (2011),
who obtained 0.79. All the estimated coefficients were individually significant with
at-statistico0.01. In addition, the estimated model showed no problem with the
normality of residuals ( probability of Jarque-Bera statistic of 0.2). Estimation results
were generally higher than those obtained by Karipidis et al. (2005), who found an
adjusted R
2
of 0.65.
Misspecification tests were also conducted to check model adequacy. First,
eigenvalues and the variance inflation factor (VIF) were calculated to check potential
multicollinearity problems. The highest eigenvalue and VIF were 4.08 and 8.80,
respectively, which indicates that the estimated model had no multicolinearity
problems. Heteroskedasticitywas tested by the Breusch-Pagan-Godfrey and White test
statistics. The null hypothesis of homoscedasticity in the error term was rejected in
both contrasts ( probability F-statistic o0.01), which indicates heteroskedasticity
problems. White’s robust estimation strategy to obtain the parameter standard errors
was used to tackle this problem. The estimated hedonic price function parameters
are shown in Table III.
The sample mean price for extra virgin olive oil was $3,522. All the estimated
parameters had the expected sign except for the acidity attribute. Higher acidity implies
lower quality and we expected a negative sign. The positive sign can be explained by the
more expensive imported olive oil that had higher acidity (0.5-0.8 per cent) compared with
the cheaper domestic extra virgin olive oil (0.2-0.3 per cent). On the other hand, extra virgin
olive oil sold in tin can or plastic packaging was cheaper. The result was the same for
Attribute Description
Acidity Continuous variable as a percentage (acidity should be ⩽0.8% for extra virgin oil in
accordance with regulation CE No. 1989/03)
Origin Dummy variable takes the value 1 if the product is imported and 0 otherwise
Volume Continuous variable (ranging between 200 and 3,000 ml)
Plastic
packaging
Dummy variable takes the value 1 if the product is sold in plastic packaging and 0
otherwise (the base category is a glass container)
Tin can
packaging
Dummy variable takes the value 1 if the product is sold in tin can packaging and 0
otherwise (the base category is a glass container)
Brand Dummy variable takes the value 1 if the product has a private label ( Jumbo or Líder)
and 0 otherwise
Hypermarket Dummy variable takes the value 1 if the product is sold in a hypermarket (Cencosud
or Walmart) and 0 otherwise
Table II.
Extra virgin olive
oil attributes in the
hedonic price
function
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domestic olive oil in tin cans. The parameter of the interaction term between origin and tin
can packaging was positive and indicated that tin can packaging was associated with a
higher price in the case of imported olive oil. Finally, results revealed that extra virgin olive
oil sold under private labels or in hypermarkets was also cheaper than the mean price.
When analysing the magnitude of the coefficients, these must be understood as
the percentage change of the price variable in view of the change in a unit of the
independent variable. In the case of the continuous variables (acidity and volume),
this percentage can be determined as:
@P
@ZK
1
P
¼@LnP
@ZK
¼bm(10)
which can be expressed as a percentage 100 ×β
m
.
When the rest of the dichotomous variables were analysed, percentage variations
were calculated according to Halvorsen and Palmquist (1980) and Kennedy (1981):
100 exp ^
bm0:5Var ^
bm
ðÞ
½
1
(11)
where Var ^
bm
is the estimated variance of parameter m. All the percentage
variations for each of the attributes used in the estimation model are shown in Table IV.
Variable Coefficient (SE)
a
Constant 7.340 (0.04)**
Acidity 0.181 (0.08)*
Origin 0.170 (0.04)**
Volume 0.001 (0.00)**
Plastic packaging −0.196 (0.06)**
Tin can packaging −1.362 (0.13)**
Tin can packaging ×origin 1.616 (0.16)**
Private label −0.163 (0.03)**
Hypermarket −0.073 (0.02)**
R
2
0.853
Adjusted R
2
0.850
Prob (F-statistic) 0.000
Mean dependent variable 8.066
Notes:
a
Calculated using the White heteroskedasticity-consistent covariance matrix. *,**Significant at
1 and 2 per cent, respectively
Table III.
Estimated hedonic
price log-linear
function parameters
Attribute Variation (%)
Acidity 18
Origin 18
Volume 0.1
Plastic packaging 18
Tin can packaging 75
Tin can packaging origin 397
Private label 15
Hypermarket 7
Table IV.
Percentage impact of
attribute variations
on the price of extra
virgin olive oil
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It is clear from the results displayed in Table IV that attributes with a higher positive
effect on the price of extra virgin olive are origin (18 per cent if imported olive oil),
acidity percentage (18 per cent for each additional decimal of acidity), and volume
(0.1 per cent for each additional ml). With the exception of the glass container,
packaging has a negative effect. The combination of imported and tin can packaging
has the highest impact on the retail price of extra virgin olive oil (375 per cent).
The attributes that negatively influence the price of extra virgin olive oil are plastic
packaging (18 per cent), tin can packaging (75 per cent), private label (15 per cent), and
being sold in hypermarkets (7 per cent). The tin can packaging attribute has a greater
negative impact on extra virgin olive oil in Chile. This is mainly because the product
comes in a 3,000 ml size container and the mean price per litre is much lower than in
other types of packaging, such as glass or plastic. This clearly shows that the retailer
price advantage can be easily achieved by domestic producers over imported olive oil.
For example, if domestic olive oil is sold in a hypermarket in plastic packaging, the
retail price will decrease by 25 per cent of the base price.
Although results from this study are difficult to compare with the study conducted
in Greece (Karipidis et al., 2005) because market conditions are significantly different,
some of the aforementioned results coincide in both studies. For example, both studies
concur in the negative effect that the private label has on the price of extra virgin olive
oil. Olive oil sold in hypermarkets appears to be cheaper. These results suggest that
regardless of the type of market being analysed, the last link in the supply chain is the
one which can finally generate a significant decrease in consumer price by offering
a product in their stores or with their private label.
In general terms, it can be noted that results obtained in studies of hedonic pricing
for wine are similar to those for olive oil where extrinsic or objective attributes are the
principal determinants in the price formation of this product. In Karipidis et al. (2005),
attributes with the greatest impact on final price are brand, type of packaging, and
selling in supermarkets. When comparing the latest research applied to the wine sector,
it can be observed that the authors include a series of subjective attributes in an
attempt to explain product price; however, objective variables ultimately exhibit
a greater impact on final product price (Lecocq and Visser, 2006; Schamel, 2006;
Benfratello et al., 2009; Rodríguez and Castillo, 2009).
4. Conclusions
The objective of this study was to determine the implicit value of the most relevant
attributes of extra virgin olive oil in an emerging market such as Chile. A hedonic price
log-linear function was estimated with information collected (retail price and product
attributes) from 248 differentiated products in 12 retail stores. Results obtained suggest
that origin and acidity have a positive influence on extra virgin olive oil. On average,
imported extra virgin olive oil is $633 more expensive than its domestic counterpart.
An additional percentage point in acidity increases mean prices by approximately
a similar quantity ($640). This is an interesting result since an increase in acidity is
related to lower quality (maintaining the 0.8 per cent threshold to be considered as
extra virgin olive oil). This result is related to the higher acidity of imported olive oil
and provides useful information for producers to orient their long-term investments
and marketing strategies. Extra virgin olive oil is still an emerging market in Chile.
If producers are able to adequately communicate the relationship between quality and
acidity, they can offer a very competitive product as compared with the imported
product, and this could compensate increasing advertising costs. Then again,
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producers can reduce costs by increasing acidity and selling the product much cheaper
than imported extra virgin olive oil.
As in many other food products, extra virgin olive oil sold in larger retail storess
(hypermarkets) or under a private label is cheaper (approximately $250 and $510,
respectively). For packaging, the market value is higher for the glass container than the
plastic or tin can container, with the exception of imported extra virgin olive oil where
the tin can has a higher value.
Finally, results from the estimated hedonic price functions can also have some
important policy implications. In an emerging market, government policy should
address stimulating domestic consumption and reinforcing it with institutional
campaigns to give a competitive advantage to Chilean extra virgin olive oil (i.e. acidity).
In recent years, the governmental orientation has been on stimulating exports
at the cost of neglecting the domestic market. For this specific product, it appears that
domestic consumption can increase Chilean production at reasonable costs and in the
future, this can generate a very competitive (relatively lower prices), high-quality extra
virgin olive oil for sale in world markets.
This study was the first attempt to analyse the extra virgin olive oil price structure
in an emerging market such as Chile. It is difficult to compare results obtained in this
study with others found in the literature because they are very limited and centred on
traditional markets such as Greece. The main difference lies in the number or type of
attributes that have been considered. As the market becomes more established,
other attributes, such as certification labels (geographical indication or organic), olive
varieties, or professional tasters’ratings, could be incorporated. More research is
needed in the future to better understand Chilean consumer attitudes and preferences
towards extra virgin olive oil. The two main objectives are to know to what extent
consumer preferences and willingness-to-pay for specific attributes are related to retail
price structures, and identify early adopters through whom the Chilean extra virgin
olive oil market can be consolidated.
Notes
1. The three most important olive oil categories defined by the IOOC are: extra virgin, virgin,
and refined olive oil. Extra virgin oil is obtained by mechanical means without chemicals and
does not contain more than 0.8 per cent free acidity. Virgin olive oil is of slightly lower quality
with free acidity up to 1.5 per cent. Refined olive oil has been chemically treated to neutralize
strong tastes or acid content.
2. Exchange rate: 1 euro ¼690 Chilean pesos ($).
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About the authors
Dr Rodrigo Romo Muñoz is an Assistant Lecturer at the Department of Business Management,
University of Bío-Bío (Chile). He is currently the Director of the Master of Agribusiness, Faculty
of Business Sciences.
Mario Lagos Moya is a Master’s Student in Agribusiness, at the Faculty of Business Sciences
of the University of Bío-Bío. He is currently a Freelance Consultant for agribusiness companies.
Dr José M. Gil is a Professor of Agricultural Economics at the Polytechnic University
of Catalonia and Director of the Centre for Research in Agro Food and Development
Economics-UPC-IRTA (CREDA). Dr José M. Gil is the corresponding author and can be contacted
at: chema.gil@upc.edu
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