Investigating the Business Characteristics, Purchasing Agreements, and Perceptions of Organic Grain Buyers in the Midwest

Nicholas Allan Lancaster, Purdue University

Abstract

Demand for organic food products has grown at rates as high as 20% since the 1990s. Organic grains compose 11% of total organic food demand, and are used in livestock production which represents 43% of organic food demand. Though the demand for organic grains is arguably increasing, domestic production of organic grains is lagging. Producers in the U.S. are hesitant to transition to certified organic grain production for a number of reasons. However, a lack of information pertaining to the organic grains market is one of the most prominent barriers to entry. One method that may provide insight into marketing opportunities available to organic grain producers is to create classifications of organic grain buyers. These classifications may allow for the comparison of business demographics, perceptions of the organic grain market, relationship formation and maintenance factors, and characteristics of purchasing agreements across buyer classifications. These comparisons would allow producers to identify potential marketing opportunities by providing insight regarding types of assistance offered by buyers, how to form a relationship with buyers, types of purchasing agreements used, and purchasing agreement characteristics and requirements. Producers would then be able to identify appropriate buyers for their respective situations based on times contracts are signed, payment timing, storage and transportation requirements, and the amount of organic practice documentation buyers require. Similar classifications have been proposed for organic producers, but, to date, no such classification exists for organic buyers. This work proposes two classifications of organic buyers. First, a classification of committed organic buyers versus pragmatic organic/pragmatic conventional buyers is motivated by similar classifications of organic producers found in previous works. Secondly, this work also introduces a classification of buyers that are sellers versus end-users of organic grains. Literature has suggested that the type of organic grain buyer (seller or end-user) gives rise to differences in functionality regarding interacting with producers and purchasing agreement characteristics. A sample of 45 organic grain buyers in the Midwest was utilized to characterize business demographics, perceptions of the organic grain market, relationship factors, and purchasing agreement characteristics on the two aforementioned categorization of organic grain buyers. A mixed methodology approach was utilized involving data collection via phone interviews and an online questionnaire. Initial data analysis suggests that data from the two data collection methods statistically differed in some measures of business demographics, perceptions of the organic grains market, and types of assistance offered to producers. This suggests that buyers responding to a phone interview may be more willing to assist producers and have more positive perceptions of the organic market. Thus, each analysis separates phone interview and online questionnaire responses. Due to a small sample size, means comparisons were utilized for the proposed categorizations of buyers. Data were found to not adhere to the normality assumption, requiring the use of nonparametric methods. A Chi-square test was conducted for binary variables, while a Wilcoxon-Mann-Whitney test was utilized for continuous and categorical variables. Results suggest that committed organic grain buyers are smaller in terms of gross sales than pragmatic organic/conventional buyers. Fewer committed organic grain buyers require the grain supplier to pay for grain delivery when compared to pragmatic buyers. Both the comparison of committed organic versus pragmatic buyers and the comparison of sellers versus end-users suggest that there is a bifurcation in organic grain buyers, indicating potential conventionalization within the organic grain industry. Additionally, both categorizations also indicate the buyers anticipate future supply and demand to both increase, but do not expect future price to increase. Thus, it can be concluded that buyers believe future supply will increase at a greater rate than demand, decreasing price. Alternatively, buyers may expect future supply and demand to grow proportionally, keeping price constant. Though the sample is representative of the population of buyers present, the small sample size suggests results of this work should be interpreted with caution.

Degree

M.Sc.

Advisors

Torres, Purdue University.

Subject Area

Marketing|Agriculture|Agronomy|Animal sciences|Economics|International Relations

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