The Prices of Organic Farm Products and the Receptivity of Consumer: A Comparative Analysis between California, U.S.A. and Japan

Abstract

The high prices of organic farm products have been considered as one of the main factors hampering the expansion of organic food market and the development of organic agriculture in Japan. This study examined the conditions in which the development of organic food market and organic agriculture could be promoted, by comparing the price performance both between organic and conventional and between California, U.S.A. and Japan, respectively. The five conditions for developing organic agriculture were derived by a theoretical approach. That is, i) Organic/conventional relative price ratios sufficient to facilitate the transition from conventional to organic (relative price condition). ii) Product prices proportional to changes in the productivity of scarce resources (productivity conditions). iii) Profitability not lower than conventional agriculture (profitability conditions). iv) Appropriate price formation both for producers and for consumers (consensus formation condition between producers and consumers). v) Appropriate distribution margins that help induce distributors’ entry into the organic markets (distribution margin condition). The comparative analysis between California and Japan showed the following results. i) The producer price ratios of organic/conventional farm products in California were much higher than the yield ratios of organic/conventional crops. ii) The average consumer price ratio of organic/conventional products was about 1.35, much lower than the producer price ratios. iii) The consumer’s purchasing power for organic farm products in San Francisco was significantly higher than Tokyo in all of the surveyed products. iv) Higher retailer margins than the conventional and organic price premium higher than producer were found in California. These results can have important policy implications for the development of organic food markets and organic agriculture in Japan.