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 Title: Demand for certified aflatoxin-free grains Author(s): Venkateswaran, Gowthami Advisor(s): Baylis, Kathy Contributor(s): Winter-Nelson, Alex; Michelson, Hope Department / Program: Agr & Consumer Economics Discipline: Agricultural & Applied Econ Degree Granting Institution: University of Illinois at Urbana-Champaign Degree: M.S. Genre: Thesis Subject(s): aflatoxin willingness to pay certification discrete choice experiment Abstract: According to a recent World Bank report (2018), unsafe food costs low and middle-income economies nearly USD $110 billion in lost productivity and health expenses each year. Asia and Sub-Saharan Africa face the highest losses from unsafe food in terms of food and nutritional security, human development, and international trade. In addition to frequent outbreaks of foodborne illnesses, another cause of unsafe food is through toxic contaminants like aflatoxins. Aflatoxins are a family of carcinogenic toxins found commonly in agricultural crops in warm and humid regions, and chronic exposure can result in liver cancer, lung cancer, growth retardation, immunosuppression among others. A warming climate and extreme weather events may worsen the situation by making conditions more conducive for the growth of aflatoxin-producing fungi. Our estimates from India show heavy infestation of aflatoxin in grains with levels over 26 times the permissible limit. These grains are then exported worldwide where they are either rejected at port resulting in huge losses for farmers or fall through the cracks and reach consumers in other countries. The cost of such rejected food shipment is enormous (about$10000 per lot in transportation, storage, and dockage fees; (Wu, Liu, & Bhatnagar, 2008), even if the lot can be returned to the country attempting to export the food. Inability to meet these important food safety standards lead to lower prices for smallholders and welfare losses for both farmers and consumers. If consumers are willing to pay enough for safe foods to cover the extra costs associated with their production and certification, a perfect market would be expected to provide food safety. However, imperfect information in the food value chain can lead to market failure. One problem could be that ‘safety’ might not be an easily observable attribute; consumers, millers and traders might not trust that the product they are being sold is ‘safe’. Further, not only does there need to be enough value placed on food safety by consumers, enough of that value must reach each participant in the supply chain so that they have an incentive to provide and certify food safety. This pass-through of food safety premiums may be reduced if market intermediaries have substantial market power. To tackle information inefficiencies, we provide details about food safety and aflatoxin to end consumers and traders. We ask whether there is enough benefit in the supply chain to afford the costs to produce and ensure food safety by improving food safety production techniques and establishing a certifying system. We estimate willingness to pay for food safety of various actors along the supply chain to see if the potential consumer premium is reflected along the supply chain. This thesis evaluates the demand for government and third-party certification on aflatoxin in India. We first test rice, wheat and maize samples from small farmers for the presence of aflatoxins and find a high incidence of contamination. We find that approximately 45 percent of maize, 30 percent of wheat and 12 percent of rice samples had aflatoxin levels higher than the permissible limit of 20 ppb. We estimate the impact of providing aflatoxin information to retail consumers, traders on their willingness to pay for certified aflatoxin-free grains in India. We study the entire value chain of the three major food grains in India to understand the gaps in demand and incentive structures for food safety. Study Design To understand the existing demand for aflatoxin-free grains, we survey consumers, traders and millers in urban, semi-urban and rural areas in India. We also collect samples from local farmers to test the levels of aflatoxin in grains. We find that none of the end consumers and supply chain intermediaries at the baseline are aware of the negative health effects of aflatoxin in food grains. After providing them information on the detrimental health effects of consuming aflatoxin contaminated grains, we ask them to participate in a discrete choice experiment. We then measure the consumers’ and intermediaries’ demand for different levels of aflatoxin in rice, wheat and maize, along with preferences for the type of food quality certification agencies. To test for hypothetical bias in the stated choice experiment and ensure incentive compatibility in the elicitation mechanism, we also conduct a real choice experiment using binding-sale scenarios with retail consumers in both rural and urban areas. We also measure the demand for food safety from the middle stream stakeholders, the small traders in Bihar. We conduct a choice experiment to elicit the demand for different aflatoxin levels for grains and the demand for hermetic bag storage. As discussed by McFadden, Tye, & Train (1977), the Independence of Irrelevant Alternatives (IIA) property implies that the variables that are omitted from the model are independent random variables. This might not be true in our case; hence we use a mixed logit model for analysis since it does not require the IIA property and captures preference heterogeneity, being more appropriate for estimating the Willingness to Pay in this study. We conduct a choice-benefit analysis for the farmers to estimate the benefits of securing a certification label. We calculate our cost estimates from an existing organic certification agency in India and the benefits are calculated from the stated consumer demand in the choice experiment. Results Results from our mixed logit model suggests that consumers are willing to pay a large premium for safe levels of aflatoxin in food grains. For aflatoxin levels below 20 ppb, retail consumers are willing to pay nearly 30 percent more than the current market price for food grains. As compared to the participants of discrete choice experiment, the real binding-scenario choice experiment participants revealed a slightly lower willingness to pay for private agency certified food grains with permissible levels of aflatoxin below 20 ppb. We find very low willingness to pay for aflatoxin-free food grains among traders, millers in the food grain value chain in India. The traders might not be willing to pay in this experiment because we test a process certification instead of a product certification. Traders might not believe that the process of storing grains in hermetic bags leads to aflatoxin-free grains, and/or they may be concerned that consumers would not be willing to pay a premium for grains stored using this process. We discuss the implications of this demand gap and strategies to address the market failures associated with the supply chain structure and explore the scope and demand for food quality certification in India. Issue Date: 2019-07-17 Type: Text URI: http://hdl.handle.net/2142/105950 Rights Information: Copyright 2019 Gowthami Venkateswaran Date Available in IDEALS: 2019-11-26 Date Deposited: 2019-08
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