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Page 1: CONSUMER WILLINGNESS TO PAY FOR VITAMIN A … · CONSUMER WILLINGNESS TO PAY FOR VITAMIN A ... The study was carried out to determine the willingness to pay of consumers for the

Nigerian Journal of Agriculture, Food and Environment. 8(2):66-73

Published June, 2012 Oni, 2012

NJAFE VOL. 8 No. 2, 2012 66

CONSUMER WILLINGNESS TO PAY FOR VITAMIN A FORTIFICATION IN VEGETABLE OIL IN SOUTH WESTERN

NIGERIA: A CONTINGENT VALUATION APPROACH

Oni, O. A. ABSTRACT Department of Agricultural Economics, University of Ibadan, Ibadan, Nigeria The fortification of Vegetable oil, among other food products with Vitamin A is in a bid to reduce the Vitamin A deficiency status of Nigerian citizens. The study was carried out to determine the willingness to pay of consumers for the fortification of vegetable oil with Vitamin A. This was carried out by first determining the awareness of consumers of the fortification of vegetable oil with Vitamin A, and then estimating their willingness to pay using a contingent valuation method. The contingent valuation method is used to estimate the value placed on non market goods. It works by creating a hypothetical market scenario for a certain good or service and then placing a value on its perceived benefits. The study was carried out in two states in Southwest Nigeria- Lagos and Oyo States. Two local governments were purposively selected from the two states with respondents were randomly selected based on proportionate to size principle. From the study, it is seen that total food, non food and vegetable oil expenditure were N18850.83, N16215.17 and 1824.05 monthly respectively. The result reveals that over 60% of the respondents were aware of Vitamin A fortification in vegetable oil, with 76% willing to pay the premium of N421.37 to obtain the fortified vegetable oil. The probit estimation of the contingent valuation shows that price of vegetable oil, log of household expenditure, log of vegetable oil expenditure, age of household head and location significantly impacted on the probability of being willing to pay for vitamin A fortification in vegetable oil. Thus, it is concluded that there is a reasonable level of awareness and willingness to pay for vitamin A fortification in vegetable oil in southern Nigeria. Arising from the foregoing, it is recommended that policies that will enhance respondents purchasing power should be pursued in order to encourage them to pay for Vitamin A fortified vegetable oil.. Keywords: Fortification, Vitamin A, Willingness to pay, Contingent valuation INTRODUCTION Access to balanced diet is said to be a prerequisite for good growth. In fact, food security is not complete without the dimension of Food Utilization which involves the use and nutritional benefits to be derived from the food consumed. Certain micronutrients present in food however may not be adequately consumed to meet the required needs of the body, and thus there may be a need for fortification of certain food products with such micronutrients. Most of these nutrients have far reaching deficiency consequences. One of such nutrients which need to be adequately present in consumed food is Vitamin A. .Vitamin A, also called Retinol is a Fat soluble vitamin. Its sources include palm oil, carrots, liver, poultry meat, egg yolk and milk. Other plant sources include many of the dark leafy vegetables, oranges, squash, and mango, (De Pee et al, 1998). Being a fat soluble vitamin, therefore gives the benefits that its fortification can be initiated in vegetable oil, which is one of the major cooking oils used in Nigeria. Vitamin A is a very important micronutrient needed for good growth, good vision and other physiological growths. Deficiency of vitamin A in diets leads to reduction in the immune system, poor epithelial growth, bad vision, and even some form of infertility. Thus, there is a need to get adequate amount of this nutrient in the diets of Nigerians to ensure proper growth. This can be carried out through fortification Micronutrient deficiencies are serious health and public health issues, (Kikafunda, 2007). One of such micronutrients is Vitamin A, whose deficiency is a public health issue that affects both children and adults. Vitamin A deficiency is a major cause of childhood blindness worldwide. Deficiency of vitamin A has also been known to cause reduction in the immune defense of the body leading to morbidity and death, especially in children. Murphy (1995) report that an estimated 250,000 to 500, 000 children become blind and close to half of them die in the year and become blind. West, (2002), in a Meta analysis survey shows that about 127 million children experience vitamin A deficiency in one form or another in developing countries. According to the National Food Agency for Food and Drug Administration and Control, NAFDAC in Nigeria, there is a high level of micronutrient malnutrition in Nigeria, especially among women and children. This gave rise to the need for food fortification with Vitamin A and other essential nutrients. There is however a need to examine the response of people to this need for fortification and thus the effectiveness of any ongoing vitamin A fortification process in Nigeria, through consumers awareness and their willingness to purchase the fortified food product. This is one area where this study is out to add knowledge.

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Nigerian Journal of Agriculture, Food and Environment. 8(2):66-73

Published June, 2012 Oni, 2012

NJAFE VOL. 8 No. 2, 2012 67

Fortification is the addition of one or more nutrients into food in order to meet certain nutritional needs of man. The aim of this fortification is to prevent certain deficiencies that may arise from the non use or inadequacy of these nutrients, (Mashid et al., 1999). According to L”abbe et al., 2003, food fortification is a public health initiative used to remedy nutritional deficiencies worldwide. Changing lifestyle and the consumption of more processed food has led to the need for fortification in order to ensure adequate nutritional requirements, (Hoffpauer and Wright, 1994). Food fortification can either be Mass fortification or Universal Fortification. In mass fortification, the initiative is brought about, mandated and regulated by the government of a country in order to meet micronutrient needs of the citizens from the consumption of common foods such as cereals, and spices. Universal fortification involves the fortification of food products for both animals and man’s needs. Vegetable oil is the main cooking oil in many countries. In Uganda, its use is about 91% within the population, (Kikafunda, 2007). Nigeria also uses a great deal of vegetable oil, and thus the study of vegetable oil and its nutritional values has far reaching coverage in any food development project. Vegetable oil is also an important driver of fortification with the micronutrients of concern, since vitamin A is a fat soluble vitamin. However, there is a need to examine and establish local consumption patterns, the awareness of fortification, its acceptance, affordability and overall willingness of consumers to purchase vitamin A fortified vegetable oils as against the non fortified oils. Awareness is expected to lead to the willingness of the consumers to demand for the fortified vegetable oil. Thus, the need to determine first , the level of awareness of the importance of vitamin A fortification in vegetable oil and the premium that consumers are willing to pay to access this fortified product is a major challenge in the public health concern of nutrition. This is another area of value addition to knowledge of this study. Nigeria is one of the first countries in the sub Sahara Africa region to mandate fortification of three food produce- maize and wheat flour, vegetable oils and salt. Thus, there is a policy on ground as regards the prevention of deficiencies arising from the inadequate consumption of critical micronutrients. The need therefore arises for the sustainability of such policies and program in order to fully combat the problem of micronutrient malnutrition, especially as regards Vitamin A, which affects the most vulnerable in the society-women and children. The determination of the level of awareness and hence willingness to pay of consumers for vitamin A fortified vegetable oils is important in providing the relevant agencies involved in food regulation and administration the relevant data/information needed to determine, develop and sustain efficient food fortification programs. There have been different analytical techniques used in the evaluation of willingness to pay, including the transportation cost, hedonic pricing, contingent valuation and the choice experiment. However, this study will make use of the contingent valuation approach. While this approach started with the valuation of environmental goods/services as well as public goods, its use in food valuation have been on the increase. The advantage of this method is that it is not necessary to develop attributes for determining the willingness to pay. Also , the use of this method will enable the study determine the price value placed on fortification of vegetable oil with vitamin A and hence help both marketers and policy makers in having direct price values. This will allow for determination of the consumers’ characteristics that influence willingness to pay for a hypothetical good (Contingent valuation). The overall objective of this study is to determine the willingness to pay for vitamin A fortification in vegetable oil. Firstly, we describe the level of awareness of respondents on vitamin A fortification in the study area and identify the factors that determine willingness to pay for the fortified vegetable oil in the study areas. Then, we estimate the mean willingness to pay for vitamin A fortification in vegetable oil in the study areas. Literature review Functional foods include whole food items, food that are fortified, enriched or enhanced for their potential benefits on their health. The major stakeholders in functional food development include the consumers, local and national health sectors, the government and the food industry as a whole, (McConnon and Pearman, 2002). The consumers are interested in functional foods for their health benefits, the government and food regulatory sector for the health of the citizens and the food industry as a result of the higher values that accrue to the food which translates into higher margin. The development and sustainability of functional food is in a great way determined by the awareness the end users have about the health benefits of the food items. Childs and Poryzees (1997), reports that socioeconomic characteristics such as gender, income and education are significant in determining awareness of foods with health benefits. Others include personal traits, processing methods, price of the products and consumer perception, (Bech-Larsen and Grunert, 2003) However, functional foods may not be acceptable as expected as a result of certain factors such as high prices and skepticism about the health claims. Food fortification is therefore a more pragmatic means of making sure that people access essential nutrients. Food fortification is important in treating/preventing nutritional deficiencies as well as promote general well being, usually targeted to specific population. Food fortification could also be used to restore nutrient lost during processing, such as nutrient lost during grain milling, (Park et al, 2000).However, the effectiveness of a food fortification programme is dependent on its acceptance, purchase and consumption by the target population, the improvement in the health status of the population . There is also a need to incorporate food fortification

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Nigerian Journal of Agriculture, Food and Environment. 8(2):66-73

Published June, 2012 Oni, 2012

NJAFE VOL. 8 No. 2, 2012 68

programmes as a part of a comprehensive strategy to reduce micronutrient imbalance, in order to ensure the success and sustainability of the programme, (FAO, 2003) Willingness to pay for foods is naira value a consumer places on the perceived health benefits of the food item, and thus it could be used to measure the benefits of the products to consumers, (Golan and Kuckler, 1999). The willingness to pay function identifies the price a consumer is willing to pay for a given quantity of food given specific levels of price and utility. Since such ideological benefits as food safety and nutrition are hard to measure, the use of willingness to pay is important in placing the perceived value that consumers place on the ideological benefits. It is also important in the food industry in placing the right premium on product innovation, (Unnevehr et al, 1999). Willingness to pay for foods is affected by factors that include socioeconomic characteristics of the consumers, product attributes and government regulation. Socioeconomic factors such as age, gender, income, education and household sizes determine consumer willingness to pay, (Govindasamy and Italia, 1999, Kikafunda, 2007). Product quality and other attributes also determine the levels of willingness to pay for functional foods, (Van Ravensway and Wohl, 1995, Lancaster, 1966). The study intends to use both the Contingent Valuation method in examining the willingness to pay of consumers for vitamin A fortification in the vegetable oils they consume. Willingness to pay is the naira amount a consumer is willing to give up or pay in order to acquire a good or service. It could also be described as the sum that represents the difference between a consumer surplus before and after making an improvement in the said attribute of the food product. One of the main ways in determining consumer willingness to pay is the contingent valuation method. Initially used in valuing environmental and public goods, it has been extended to being used for food products as well as private goods. Thus, the contingent valuation method is generally used to estimate the values that individuals place on goods not sold in the markets, such as good health, food safety, and environmental integrity. The contingent valuation method works by creating a hypothetical market scenario for a certain good or service, (Maynard and Franklin, 2003). It quantifies the value the consumers place on a certain food attribute improvement. The method asks the respondent to provide the price or the percentage above current price he/she is willing to pay for a product. This assumes that there are premium prices, which are got by carrying out a pilot study .In carrying out a contingent valuation; the survey seeks to use specific designs to determine consumer willingness to pay for the goods and services. The survey could either be open ended or close ended in its questions. The contingent valuation method is very useful in the analysis of willingness of consumers to pay for certain food or non food products. The method is quite simple to understand and carry out. The method also requires only the comparison between different options rather than directly valuing them. The contingent valuation method is also the only method that is able to reveal the benefits of knowing that a good exists even if it has not been experienced. However, the contingent valuation method is limited in the type of information to be collected from the consumers, thus there might be no actual representative sample. Survey design for contingent valuation is sensitive and must be carefully framed to collect the type of information required. Theoretical framework The issue of choice and hence willingness to pay are based on the theory of Random Utility. Utility in itself is the perceived benefit an individual has to certain goods/services. A subjective phenomenon, it can however be measured by how much the consumer is willing to pay in order to achieve the utility he desires. This theory, pioneered by McFadden (1980), is based on the utility maximization theory of consumer preference. The consumer is assumed to be governed by this utility maximization rule, in which he chooses among a selection of brand the one that gives him the highest utility. However, while there are some characteristics that determine the choice a consumer makes, utility in itself is not a totally deterministic variable, thus the term random utility. Any deviation from the consumer actual and predicted choice is assumed to be due to the random error. Consider a consumer faced with a choice between two baskets of goods, A and B, with expected utility of UA and UB. The theory of utility assumes that a consumer is rational and thus will choose a basket of good, B if the UB > UA. However, we cannot predict utility exactly as result of certain characteristics of the consumers and the product as well as the choice situation confronting the consumer. Thus, we presume a random nature in utility, which assumes that utility, Uit, derived from a product j by consumer i is composed of a deterministic component, vij and a random/stochastic component ԑij, i.e.

ijijij vu ………………………………………1 Thus, the probability of consumer i, choosing j from a set of choices is given as :

jjijijij uuP ''Pr ……………………….2

jjijijijijij vvP '''Pr ………………..3 The error terms are the unobserved random variables which may be taken as a joint distribution of all the error terms, i.e T

iiii )( 321 . They may be estimated by a cumulative distribution or a probabilistic

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distribution. The usual model in this estimation is the multinomial logit model. However, in statistics, most unobserved error terms are taken as normally distributed, (Train,2003), for which it can be modeled as a Probit model, which this study will employ. The )(f is assumed to be the joint distribution of the error terms, having mean, and a covariance matrix; making it a probit model. The probit model takes the error term to be independently and identically distributed, and thus the probability of making the choice of product “j” can be shown as:

jvvP kjkjkj Pr ………………………4

= jkkjk

vv

kj

jj ddff

jkj

k

)))(()((

……………..5

= jjkjjkj

jej dvvFfj

))()((

……………6

METHODOLOGY Data The data used for this study was a primary data soured from two states in Southwest Nigeria, Lagos State and Oyo State, from which one local government each-Ikeja and Ibadan Northwest local government areas, respectively were purposively selected. Ikeja local government area is one of the 20 local government areas in Lagos state. The capital of Lagos state, it is an uprising area, with an estimated population of about 313,000 (NPC, 2006). With a land area of 46km2, the local government area is made up of the following communities: Oregun, Ojodu, Opebi, Akiode, Alausa, Agidingbi, Ikeja, Ogba and Maryland. Ikeja local government is home to a lot of industrial acivities, such as the Murtala Mohammed Airport, the Nigerian Civil Aviation Authority. The residential areas in the local government are well planned and quiet with shopping malls, supermarkets and other small and medium enterprises around. Residents of Ikeja are mainly thought to be high income earners. Ibadan Southwest Local government area , carved out of the Ibadan Municipal Government in 1991, has its administrative headquarters in Oluyole Estate. Other areas within this local government include Apata and Odo ona Using the 2006 census estimates and simulating a 3.2% growth, the 2010 population estimate of the local government is about 320, 000(three hundred and twenty thousand) people. Although, there are no serious agricultural activities within the local government areas, it is home to a lot of agricultural processing firms such as Caps feed, Zartech, Bronco, Avians and Ajanla farms. Large and medium scale industries also abound within this local government. Inclusive of these is 7Up bottling company, Procter and Gamble ltd, Yale Foods, Sumal food ltd and vital foods ltd. The choice of the two local governments in the two states chosen is entirely purposive. It is assumed that information and awareness of micronutrient fortification is higher among the urban and educated populations, which may be found in such places as Ikeja and the residential areas of the Ibadan Southwest Local government areas. At the second stage of the sampling selection, however, random sampling was used. A simple random sampling using proportionate to size principle by different locations mentioned in the Local government area was carried out to select 150 respondents from Ikeja community in the Ikeja local government area. However, for Ibadan North West local government area, the local government was stratified into two- High income earners in Oluyole estate and middle to low income earners in Apata and Odo ona residential areas. A random sampling proportionate to size was used to select a total of 150 respondents. Analytical method The contingent valuation method estimates the value that an individual places on non market goods such as health, safety, environmental integrity. Thus, if the person must purchase the good, the naira equivalent that the person will pay while still keeping his utility is the measure of his willingness to pay for that good. This can be expressed as:

),,,(),,,( 0100 UQqPEUQqPEWTP ……………………1

Where, 10 , qq are the quantities of the product with q1>q0. Q s the vector of other non market goods, U is the consumer’s utility when he consumes q1 In estimating the variations in consumer willingness to pay for a good, an econometric function can be expressed using a cumulative distribution function. It is to be noted that the willingness to pay response comes as a dichotomous distribution, and thus is either estimated in a logistic (logistic regression) or normal (probit

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regression) distribution. Estimating willingness to pay in a model estimates the bound of the WTP , and is expressed as

XYeYZGWTP IiII )( ………………………………………………….2

Where

nYieYZG

eYZG

iI

iI

,...,10)(

,1)(0

……………………………………………………………….3

Thus, each jth individual’s willingness to pay is a function of income(Y), Z I, which is a vector of consumers’ socioeconomic characteristics and e is the error term which is assumed to contain a vector of unobservable household characteristics. Assume that a price of NA is placed on the fortified vegetable oil; the probability that an individual will be willing to pay that sum of money is given by:

P(WTP/A) =1

/)ln(exp1

A

AYYZ i

i ………………………..4

Empirical Estimation of the Probit Model The probit model that will be used to estimate the probability of purchasing the fortified vegetable oil under alternative scenario is given by:

)( 1 iUXfY ………………………………………..5 Where, Y is the consumer willingness to pay for vitamin A fortification (yes,=1 otherwise,=0) Xi is the vector of explanatory variables Α is the vector of parameters Ui is the error term For the study, the variables of interest are as follows: X1=Bid price (hypothetical price for which the fortified vegetable oil is sold) in Naira X2= Square of bid price in Naira X3=Gender of household head (Male=1, Female=0) X4= Age of household head (Years) X5= Age squared (Years) X6=Years of formal education X7= household size (Number) X8= Natural log of Household food expenditure (Naira) X9= Natural log of Household Vegetable oil expenditure (Naira) X10=Natural log of Household Non-food expenditure (Naira) X11=Location (Lagos =1, Oyo =0) Socioeconomic characteristic of respondents Table 1 presents a summary of the socioeconomic characteristics of the respondents in this survey. These are the socioeconomic factors that are expected to a priori have some kind of effect on the willingness to pay for vitamin A fortification in vegetable oil. RESULTS AND DISCUSSION Table 1 show that the average, male respondents constitute about 47% representation. On the average, the respondents’ age is estimated at 34 years old. The age range distribution shows that over 76% of the respondents are less than or equal to forty years of age. The average household size is found to be 5 members. Consumers in the study areas have on the average,15 years of formal education, i.e some form of tertiary education; the educational attainment distributions shows that over 76% of the respondents have tertiary education. The occupation group distribution shows that there are more civil servants (given at 34%) than other occupational groups. The mean expenditure on food, non food and vegetable oil are given as N18850.83, N16215.17 and 1824.05 respectively. This implies that the expenditure on vegetable oil is almost 10% of total food expenditure in Southwest Nigeria, showing the importance of vegetable oil in the diet of Nigerians. The average price that consumers are willing to pay for fortified vegetable oil is given as N421.37, which is almost 100% the price of non-fortified vegetable oil in the markets (N240-250).

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Table 1: Socioeconomic characteristic Variables Freq. Percent Mean Std. Dev. Sex (1=Male, 0=Female) 0.47 0.50 Age (years) 34.84 9.09 Years of formal education 15.28 4.67 Household size 4.77 2.20 Food Expenditure 18850.83 15286.55 Non-food Expenditure 16215.17 19607.43 Vegetable oil Expenditure 1824.05 1793.37 Willingness to pay for fortification 0.79 0.41 Awareness of Vit A fortification 0.64 0.48 Mean Price 421.37 110.88 State (1=Lagos, 0=Ibadan) 0.50 0.50 Occupational Group Professionals 42 14.00 Civil Servants 101 33.67 Artisans 33 11.00 Traders 48 16.00 Others 76 25.33 Age group <=30 119 39.67 31-40 110 36.67 41-50 52 17.33 > 50 19 6.33 Educational Group Primary 23 7.67 Secondary 48 16.00 Tertiary 229 76.33 Source: Computation from field survey About 64% of the respondents were aware of vitamin A fortification in vegetable oil and 79% of these were willing to pay a premium to purchase the fortified vegetable oil. In all, these socioeconomic characteristics are evenly distributed between the two states. Probit model analysis of willingness to pay for vitamin A fortification in Vegetable oil. Table 2 shows the result of the normal distribution analysis of willingness to pay using a probit regression. The result reveals that the log likelihood ratio is significant at 1%; the pseudo R2 indicates that about 85% of the variations in the dependent variable (WTP) is explained by the independent variables. Thus, from the diagnostic tests, we show that the model fits the data properly. Seven of the variables have significant coefficients at various levels of significance. The price (positive) and price squared (negative) are significant determinants of willingness to pay for fortification in this study. This implies willingness increases with price to a limit after which it declines as price goes higher. The coefficient of age of the consumer has the expected signs and is significant. This implies that as the consumer grows older, the willingness to pay for fortified vegetable oil decreases. However, it is seen that the age square though not significant has a positive sign, probably implying that there is a more conscientious effort by older people in consuming healthier and safer food products. The natural log of household expenditure and vegetable oil expenditure which serve as proxy for disposable income and share of income meant for vegetable oil are significant and show the expected signs. An increase in the consumer’s income is expected to increase his willingness to pay since he is now able to afford the premium placed on the fortified vegetable oil. In the same vein, if the income for vegetable oil consumption increases, there is a likelihood that the consumer will be willing to pay for the vitamin A vegetable oil. A percentage increase in the log of household food expenditure is expected to increase the willingness to pay by 0.07 percent, while an increase in log of vegetable oil expenditure by1 percent will increase the willingness to pay of the consumer by 0.03 percent. The result also shows that being a resident of Lagos state rather than Oyo state increases the probability of being willing to pay for vitamin A fortified vegetable oil by 0.5 percent

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Table 2: Maximum Likelihood Estimation of the Contingent Valuation Variables Coefficient Standard Error Elasticities Price 0.082*** 0.026 0.234 Price squared -0.0001*** 3.5E-5 -0.097 Gender(1=male, 0=female) 0.753 0.466 0.002 Age(years) -0.452* 0.251 -0.106 Age squared 0.005 0.003 0.044 Years of formal education 0.005 0.049 0.005 Household size 0.079 0.111 0.003 Ln of household food expenditure

1.030** 0.517 0.067

Ln of household vegetable oil expenditure

0.698** 0.339 0.034

Ln of household non food expenditure

-0.323 0.361 -0.020

Location(1=Lagos, 0=Ibadan)

1.595*** 0.529 0.5

Constant -21.522*** 5.793 Log Likelihood -23.25*** Pseudo R-squared 0.849 *,**,***: significance level at 10%, 5% and 1% respectively CONCLUSION AND POLICY RECOMMENDATION The use of the contingent valuation method was used in estimating the willingness to pay for the fortification of vitamin A in vegetable oil in Nigeria. It was found that a high percentage of consumers are aware and willing to pay for the fortification of the vitamin A they consume. The bid price of N421.37 represents the price that the consumers are willing to pay to stays healthy in terms of this micronutrient. Arising from the foregoing, it is recommended that policies that will enhance respondents purchasing power should be pursued in order to encourage their willingness to pay for Vitamin A fortified vegetable oil.. REFERENCES Bech, Larsen T. and Grunert K. G, 2003, “The Perceived Healthiness of Functional Foods: Co joint Study of

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