Estimating organic premiums in the US fluid milk market

Using actual retail purchases from the 2006 Nielsen Homescan panel data, we estimate a hedonic model on price premiums and discounts associated with household characteristics, market factors, and product attributes focusing on the organic attribute for fluid milk. The organic attribute carries a significant price premium, which is largest of all product attributes considered 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-branded organic 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 that milk on sale was priced 26 cents per half gallon, or 14.3%, less than the regular average price. Although household characteristics exert little influence on price relative to product attributes and market factors, the study does find that unmarried households and those with children under six pay slightly higher prices for milk, possibly due to time constraints.