What are the overall implications of rising demand for organic fruits and vegetables? Evidence from theory and simulations

Abstract

US consumers currently eat less fruits and vegetables (FV) than recommended by dietary guidelines. Inadequate FV consumption exists alongside rapid growth in demand for organic FV. Since the viable production area of FV is finite, organic and conventional FV are linked in production while serving as substitutes in consumption. Rising purchases of organic FV may have important implications for prices and quantities consumed in the conventional FV market. In this paper, we analyze the implications of rising demand for organic FV when organic and conventional FV are linked in supply and demand. More specifically, we use a multi-market equilibrium displacement model to examine the impact of rising demand for organic produce on prices and total quantities consumed of conventional and organic FV under two scenarios: product differentiation (i.e. organic versus conventional produce) while assuming that consumers have identical preferences that can be represented by a single market demand function for each good; and product differentiation with segmented markets, which allows for two types of consumers with unique demand functions. Both scenarios were simulated with and without an offsetting shift in demand for conventional FV. Our simulation results indicate that the increasing demand for organic FV may result in decreased consumption of combined conventional and organic FV, and that the direction of changes in FV consumption may vary by consumer segment. Under the most realistic assumptions, when one segment of consumers increases its demand for organic FV, this segment's overall consumption of organic plus conventional FV falls; the other segment's overall consumption rises. We provide sensitivity analyses and discuss caveats and directions for future research.