Consumers' Willingness to Pay for Fruit Juice in Afghanistan

Consumers' Willingness to Pay for Fruit Juice in Afghanistan
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  − 175 − 報告論文   Consumers’ Willingness to Pay for Fruit Juice in Afghanistan   - An Experimental Analysis of Domestic versus Imported Fruit Juice -   University of Tsukuba  Mustafa NASIRI ・ Kiyokazu UJIIE Our experiment aims to evaluate consumers’ preferences of domestic versus imported fruit juice and determine whether consumers’ willingness to pay (WTP) changes with new information. Consumers’ WTP were elicited using the Becker–DeGroot–Marschak (BDM) auction mechanism in four rounds. Our experiment proved that ad campaigns about the importance of buying domestic can change consumers’ preference toward domestic goods at the initial stage, but when further information is provided on hygiene issues, ingredients, and nutritional facts, the country of srcin becomes less important. The findings also reveal that most Afghan consumers judge products based on prior reputation. Keywords : WTP, Country of Origin, BDM Auction, Fruit Juice, Afghanistan 1.   Introduction Fruit juice customers are not limited to a  particular age group, or to any other specific group with special characteristics, such as alcoholic or non-alcoholic, students or workers, and white collars or blue collars. In societies where alcoholic beverages are prohibited, non-alcoholic beverages are highly demanded. Afghanistan is also one of those societies where alcoholic beverages are strictly prohibited due to religious restrictions, and there is very high demand for non-alcoholic beverages, especially fruit juice. Fruit juice is considered the most preferred soft drink due to its certain attributes, such as healthiness, reasonable price, and nutritional benefits. However, being an agricultural country, Afghanistan’s major exporting commodities are horticultural goods, especially fresh and dried fruits. The abundance of fresh fruits has led to the establishment of many domestic fruit processing companies during the new era. The economic reform at the outset of the Karzai regime with the political and financial support of western allies, the establishment of the Afghanistan Investment Support Agency (AISA) aimed to support investment, and the activation of the Afghanistan Chamber of Commerce and Industries (ACCI) attracted many investors to launch small- and medium-scale industries. Currently, there are many domestic brands of fruit juice competing with their imported rivals, mostly Iranian and Pakistani. In this study, we analyze consumers’ willingness to  pay (WTP) for domestic versus imported fruit juice using experimental auction mechanism. We try to elicit consumers’ WTP for three apple juice brands, with three different countries of srcin: Afghanistan, Pakistan, and Iran. The Becker–DeGroot–Marschak (hereinafter BDM) auction mechanism is used in four rounds to elicit participants’ WTP for each of the apple juice brand. BDM mechanism is an incentive-compatible auction method that elicits WTP (Becker et al., 1964). To our knowledge, this could be the first time that BDM auction mechanism is used in a research on Afghanistan. In a BDM auction, the market price is drawn randomly from a price generator box. Moreover, in contrast to second price auction, which has only one winner or n th  and random n th  price auctions where (n-1) highest bidders win the auction, in a BDM auction, the number of winners are individually determined. Bidders who bid higher than the market  price pay the market price and win the auction (Lusk and Shogren, 2007). Many researchers have used BDM mechanism for different research purposes. Some have investigated  フードシステム研究第23巻3号 2016. 12 − 176 −  local versus non-local products using a similar approach, while others have evaluated consumers’ WTP. Anne et al. (2003), using either second price auction or BDM procedure, designed three stages of  bidding to investigate the impact of new information about food safety on subjects’ WTP for food products. They found that buying prices for non-certified food  products decreased when new information was  provided. Chen and Gao (2013) studied Chinese consumers’ knowledge, perception, and WTP for orange juice. The results of their study revealed that safety was the most concerning factor when consumers purchase  juice and juice drinks, followed by flavor as the second important attribute. Chinese consumers were willing to pay more for juice with higher juice content. Earlier researchers have found that consumers’ WTP tended to change if they were informed whether the product was local or non-local. Price premium could be increased if rice producers informed consumers in their local market that the rice was local with lower food miles (e.g., Nayga et al., 2013). However, little research has been conducted to investigate the domestic versus imported brands in fruit juice markets using any of the auction mechanisms. Our main objectives for conducting this research are as follows: 1)   To investigate consumers’ WTP for domestic versus imported apple juice. 2)   To investigate whether new information or ad campaigns such as “buy domestic” can change consumers’ WTP. 2.   Materials and Methods 1)   Experiment Design A non-hypothetical experimental auction mechanism (BDM method) was designed in four rounds to elicit consumers’ WTP. A sample size of 200 consumers was randomly assigned to 15 groups. The experimental auction was implemented in Kabul city of Afghanistan during August and September 2015. The participants (mostly junior high school, high school, and university students) are the main consumers of fruit juice. The experiment was designed as follows: •   In each auction session, between 10 and 20  participants aged 12–50 and over 50 participated. •   The seats were arranged such that all participants could clearly see the three products under auction; however, they were unable to see each other’s bidding sheets. •   Three types of apple juice were selected for  bidding containing 250 ml each (for Afghani and Pakistani) and 180 ml (for Iranian), but based on a homogenous retail price of Afs 10 per unit (Note 1). •   At the beginning of every session, participants were oriented about the auction mechanism and experiment. •   All participants were assigned a participation number and were asked to write the same number on their bidding sheets in every round. •   A separate bidding sheet was distributed to every  participant before each round. •   Before the real auction in four rounds, a practice round was conducted in which participants had to  bid for a cookie in order to completely understand the procedure of the auction mechanism. •   In the first round, participants were asked to bid for three apple juices with undisclosed brand names and only the country of srcin revealed through a label stating “Afghani”, “Pakistani”, and “Iranian.” •   In the second round, participants were given the information sheet about the importance of buying domestic. In the third round, they were given the information sheet about ingredients, nutritional facts, and hygiene of each juice. •   In the fourth and final round, all the three  products were disclosed and revealed to  participants.  − 177 − 報告論文   •   After the final round, one of the rounds and one of the products were selected randomly as the  binding round and binding product. •   The transaction price was also identified randomly from a price generator box (prepared  beforehand). •   All the bids of the binding product in the binding round were compared with the transaction price. •   Bid/s higher or equal to transaction price was/were identified as winner/s. Winner/s had to  pay the transaction price and get the binding  product. •   After the experimental auction, all participants were asked to fill out a questionnaire. •   All participants were given a participation fee of Afs 100, equivalent to US$ 1.8. 2)   Hypothesis We hypothesize in our research that new information and ad campaign such as “importance of  buying domestic” has no effect on consumers’ WTP. Therefore, our hypotheses are formulated as follows: Null hypothesis (H 0 ):    WTP of round 1 = WTP of round 2. Comparing WTP of round 1 with WTP of round 2, we want to investigate the impact of information sheet about the “importance of buying domestic” on consumers’ WTP, which were distributed to the  participants in round 2. This comparison will also help observe whether ad campaigns can change consumers’ preference in favor of domestic products  by campaigns such as “buy domestic” or “buy Afghani” in Afghanistan, “buy American” in USA, or “buy Japanese” in Japan.    WTP of round 2 = WTP of round 3 Comparing WTP of round 2 with WTP of round 3, we want to know the impact of new information about labeling of each product (where the label contains information about juice content/ingredients, nutritional facts, and hygiene of each product). This information sheet was distributed to participants in round 3.    WTP of round 3 = WTP of round 4 In round 4, all the products along with their respective information were revealed to participants. Comparing WTP of round 3 with that of round 4, the aim is to evaluate consumers’ preference for the packaging and design of juice containers, labeling, as well as their  preference of a particular brand. Alternative hypothesis (H 1 ):    WTP of round 1 ≠  WTP of round 2    WTP of round 2 ≠  WTP of round 3    WTP of round 3 ≠  WTP of round 4 3.   Results and Discussion 1 )   Demographic Characteristics In total, 200 participants participated in this experiment. However, after data cleaning and entry, 198 were eligible for analysis. The gender ratio of  participants comprised 64% male and 36% female; 49% were aged 12–20, while 46% were aged 21–35. The age categories of 36–50 and over 50 were 3% and 2%, respectively. Of the participants, 44% were either undergraduate degree holders or undergraduate students, 25% secondary level students, 20% high school students or graduates, and the rest were  primary and master/PhD students, each comprising with 8% and 3%, respectively. Overall, 33% were school students. The second highest percentage in the category of participants` occupation was private sector employees with 22%. This was followed by university students and public sector employees with 19% and 15%, respectively. Further, 9% were self-employed, while others were either unemployed or belonged to other occupational categories. Most of the respondents had either no income (33%) or had less than Afs 5,000 per month (25%), as many respondents were students. However, many of the university students were also employees of public and  private sectors. Of these employees, 17% had an income range of Afs 12,501–30,000, 15% had Afs 5000–12,500, 6% had Afs 30,001–50,000, followed  by 3% and 2% with a monthly income of Afs 50–100  フードシステム研究第23巻3号 2016. 12 − 178 −  thousand and more, respectively. 2 )   Four Rounds of Auction Consumers’ WTP of each round is compared with that of the following round using descriptive statistics in mean and standard deviation formats. However,  paired t-tests are used to test our hypotheses at the 1%, 5% and 10% significance levels. As can be seen from Table 1, the difference of WTP for Afghani juice between round 1 and round 2 is significant at the 5% level (p-value = 0.0339). Similarly, the difference for Pakistani juice is significant at the 5% level (p-value = 0.0502), while that for the Iranian juice is significant at the 1% level (p-value = 0.0081). Hence, the null hypothesis that WTP of round 1 = WTP of round 2 is rejected. We can also understand from Figure 1 that the mean WTP for Afghani juice has increased from Afs 16 to Afs 18. This is after the distribution of the information sheet about the importance of buying domestic. Table 1. t-test results between R1 and R2 Round 1 vs. Round 2  p-values Afghani R1 vs. R2 0.033935313** Pakistani R1 vs. R2 0.050293015** Iranian R1 vs. R2 0.008101437***  Notes: H 0 is significant at p ≤  0.05 and p ≤  0.01. ** and *** indicate significance at the 5% and 1% levels, respectively. The t-test is conducted based on two-tailed distribution, paired type. R stands for Round. Figure 1. WTP of R1 compared to R2 (Afs).  Note: Error bars indicate standard deviations. However, at this stage, consumers’ WTP for Pakistani and Iranian juice has decreased by 1% and 2%, respectively. This implies that ad campaigns such as “buy domestic” can change consumers’ preference toward domestic products. Governments can create more “buy domestic” awareness campaigns and advertisements in order to protect domestic industries from the regional competition. Table 2 shows the comparison result of round 2 with round 3. In round 3, the changes in WTP for Afghani and Iranian products are quite significant. For Afghani and Iranian products, the difference is significant at the 1% level; however, the WTP for Pakistani product does not change significantly. Figure 2 shows a considerable decrease of Afs 5 in consumers’ mean WTP for Afghani juice in round 3 compared to round 2. In contrast, consumers’ mean WTP for Iranian juice has increased by Afs 6 in round 3 compared to round 2. In the third round, participants were provided with three kinds of information: ingredients/juice content, nutritional facts, and hygiene of each of the three apple juices under  bidding. Only the Iranian juice contained information about the percentage of pure juice content (20% pure  juice), and a certification number provided by the department of public health of Iran. It was also mentioned on the label of Iranian juice that the quality has been tested and approved by the department of  public health. However, these two important attributes were not provided on the labels of Afghani and Pakistani juice. Moreover, it can also be understood from Figure 2 and round 3 that Afghan consumers do consider hygiene issues and healthiness of products. Furthermore, labeling information of a product can change consumers’ perception and preferences significantly, regardless of the country of srcin of  products. It also clarifies that if Afghan consumers are informed about the hygiene and safety of products, they do consider the safety and hygiene while making a decision to buy a product.  − 179 − 報告論文  Table 2. t-test result between R2 and R3 Round 2 vs. Round 3  p-values Afghani R2 vs. R3 0.000000000*** Pakistani R2 vs. R3 0.220604889 Iranian R2 vs. R3 0.000000007***  Notes: H 0 is significant at p ≤  0.01. *** indicates significance at the 1% level. The t-test is conducted  based on two-tailed distribution, paired type. R stands for Round. Figure 2. WTP of R2 compared to R3 (Afs). Table 3 shows significant changes in the mean WTP of Afghan consumers for Afghani and Pakistani  products. Figure 3 shows that in the fourth and the final round, consumers’ WTP for Afghani juice has increased tremendously from Afs 13 to Afs 22.5. It has also increased by Afs 4 for Pakistani juice, while that for Iranian juice has increased by only Afs 1. Table 3. t-test result between R3 and R4 Round 3 vs. Round 4  p-values Afghani R3 vs. R4 0.000000046*** Pakistani R3 vs. R4 0.000155892*** Iranian R3 vs. R4 0.444450655  Notes: H 0 is significant at p ≤  0.01 and p ≤  0.05). ** and *** indicate significance at the 5% and 1% levels, respectively. The t-test is conducted based on two-tailed distribution, paired type. R stands for Round. Figure 3. WTP of R3 compared to R4 (Afs). In this round, all three products were uncovered. Their appearance, packaging, design, and label information were demonstrated to participants. The brand of Afghani product in our experiment was the most popular domestic brand in Afghanistan. Consumers already knew the juice quality of this  particular brand although the information about hygiene was not provided in the label of this product. Thus, it can be inferred that Afghan consumers understand juice quality by brand names. The increase of Afs 9 in the WTP for the Afghani  product can be due to the prior reputation of the Afghani brand. It might also be associated with good  packaging and design. However, in case of the Iranian  product, considering that it was not well packed, making it difficult to insert the straw, the WTP of consumers should have decreased. In contrast to our expectations, the figures show not a decrease, but rather an increase of Afs 1. Therefore, it can be inferred that consumers assign more importance to quality, juice content, and hygiene issues than  packaging and appearance. We can also conclude that Iranian juice already attracted many consumers in round 3 due to its rich label information, higher hygiene, and pure juice content (Note 2). 4.   Conclusion  This paper reports the results of an experimental auction carried out in four rounds, aimed at eliciting the Afghan consumers’ willingness to pay (WTP) for three kinds of apple juice with three different countries of srcin, namely Afghanistan, Pakistan, and Iran. Small sized container apple juice was selected with an equal retail price of Afs 10. The experiment had two main objectives. The first one was to investigate consumers’ WTP for domestic versus imported apple juice. The results of the first round show that Afghan consumers are willing to pay more for domestic products. The second objective was to investigate whether new information changes consumers’ WTP. The results of the second and third
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