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Organic Industry in Malaysia

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Chapter 1


1.1 Introduction

Today, with the advancement of science and technology, humans have more exposure to information technology, knowledge and education than ever before. As a result, people become more aware and sensitive to the environment and their surroundings. A quality and healthy lifestyle have becomes a kind of necessity to the modern generation. Among others, “Organic Food” is recognized to be one of the contributors to a healthy lifestyle. Almost every day, you can read or see “Organic” topic everywhere around you. From newspaper, magazine, billboard advertisement, internet and etc, “Organic” has slowly becomes a trend to the modern society.

However, a few issues have been identified in the Organic Industry in Malaysia. These factors have a strong role in influencing the purchasing and consuming of Organic Food in Malaysia. Therefore, it is important to identified and understand every factor of influence that affect the purchasing and consuming of organic food in Malaysia as all this factors will affect the entire industry from farmer, retailer, produces and even the consumers.

1.2 Background of Study

1.2.1 What is organic food

Based on United State, European, and international definitions, organic food is define as without using any material substance in the food itself, but instead by the "holistic" methods used on organic farms. According to Gracia and Magistris (2007), the intention of organic production is to eliminate chemical used on the food production in order to promote healthier and safety food. Moreover, organic food also means that it is not cultivated using chemical-derived pesticides fertilizers and herbicides. As an alternative, the process of planting and farming the organic food are by using holistic methods such as compost, crop rotation, and biological agents over a natural period of time. According to National Organic Standard Board of the U.S Department of Agriculture (USDA) in year 2000, they established a national standard for the term ‘organic'. Organic food, it is defined by “how it cannot be made rather by how it can be made”, which “must be produced without the used of sewer-sludge fertilizers, most synthetic fertilizers, and pesticides, genetic engineering(biotechnology), growth hormones, irradiations and antibiotics” (TheStar, 2005). From the individual's point of view, organic means it is grown in a natural environment without any chemical, antibiotics, genetic engineering, and any synthetic products or in simple way, organic mean natural or go back to the traditional way of modes of agricultural.

As an overview, the developments of organic food always work in cooperation with nature environment. Normally people's definition of organic food maybe was just vegetables and fruits, but actually plenty of foods category like meats, eggs, livestock, dairy products and many more are also conclude as organic food. This issues supported by the research conducted by Padel and Foster (2005) where respondents only associate organic term with vegetable and fruit. Generally, organic food includes plenty of categories which include vegetables, fruits, bread, meat, eggs, coffee, juice, rice, tea, potatoes and etc. Other than that, organic food like egg, meat must be free of all kinds of antibiotics or growth naturally in a clean environment.

To sum up, organic food is more environmental friendly since it does not create any pollution and waste to the earth. Besides, they give a tremendous opportunity to human being which led to healthy lifestyle and provide a better environment. Organic consumers carry a meaning of who are not only prefer an improved and healthier lifestyle but also environmental exportation and responsible to take care of the nature (Midmore et al, 2005). In addition, it also brings advantage to whole economy by increase business activities, trade, production and consumption.

1.2.2 The fact of organic

The rise of demanding organic food and healthy lifestyle in both developed and developing country is not just a passing fad. The popularity of consuming organic food is now in an increasing manner in all over the world where it also includes Malaysia. Increased consumers' concern and care regarding food safety and quality as well as health and nutritional aspect of food resulted in increased demand toward organically produced food. Such trend is a kind of reaction to numerous health affair related to processed food (Davies et al, 1995). Refer to the press release post by Nestlé Malaysia in year 2008, it shows that organic growth reached 8.9% including 3.4% of real internal growth. In Europe, organic growth of Nestlé's total Food and Beverages business is about 5.4% and the growth rate is presented around 9.5% in United State and Asia, Oceania and Africa is at the rate of 14.2%. Functional food such as health supplements and organic food was projected reach RM234bil (US$65bil) in 2003 at global market place. It is estimated reach RM601bil (US$167bil) in 2010 by has the growth rate of 14% annually.

According Federal Agricultural Marketing Authority (FAMA), in the year of 2001 the sale for organic food has achieved USD 8 billion world wide. The sale value of organic food is estimated to have growth rate at 20-30% by year 2005. The organization stated that if compared with others agricultural products, organic food has high potential for commercialization in Malaysia. Demand for healthy, environmental friendly processed food, minimally chemical used fresh food, organic food and natural food are caused by increasing of consumer awareness in nutrition value and health conscious (Malaysia Industrial Development Authority, MIDA, 2009). Malaysian start to increase their demand since they believe that consuming organic food is one of the best ways that led to a healthy lifestyle and they view this as a worthy “investment” for their heath. The concern of consumers toward food safety, quality and the environment give an opportunity to the organic industry and become more valuable for producers and retailers. As a part from that, it also activates the organic agriculture sector in Malaysia.

The rises of consumers' awareness of healthy lifestyle along with environment free of pollution have created a wonderful opportunity and market for organic food. However, it is hard for producer or businessman to manage the right products at a right time, right price and still right place with attractive promotion since the changes of consumer behaviour was so unstable due to various kind of reason, so it is very complicate to fix or to define how the consumer behave. Consumer behaviour carries the meaning of activities people undertake when obtaining, consuming and disposing of products and services (Kozak, and Decrop, 2009). As a result, study and understanding the consumer behaviour and willingness of consumers to pay for organic food is a vital knowledge for marketers, producers and businessman. There is a behavioural model proposed by Von Alvesleben (1997) address that product information, product perception and attitudes are the main factors that drive consumer behaviour. When we believe that an object or brand possess favorable attributes or have good feeling then we will have good attitudes toward it. As we all know, when consumer attitudes are more desirable, the intention to purchase is stronger. In this research, it is more focus on consumer preferences and their willingness to pay when they wish to obtain organic food. The result can help marketers and policy makers develop strategies to reach customers more effectively and efficiently.

1.2.3 Natural Food vs Organic food

Most of the people are often confuse about the different between organic food and natural food. Moreover, people though organic food and natural food own the same attribute and tend to treat or mean both the same. In fact, there are certain features that distinguish organic food and natural food.

Obviously, the main factor difference the two is organic food must be certified by United Stated Agricultural Department (USDA) and organic food possessed higher quality. We can notice that organic food have labelled “organic” and this label represent the products are considered as organic by USDA and get the stamp of approval from designed organization. Products which stamp by USDA or labelled with “organic” must contain at least 95percent organic. Organic food can either labelled by foreign certification which is USDA or certify by local organization which is Malaysia Organic Scheme (SOM). Products that labelled with SOM carry a meaning which is the process of production inspected by department's Crop Quality Control Division. The standard where SOM follow is Sirim MS 1529:2001 standards. The guideline applied to control whole process of organic food which includes “production, processing, labelling and marketing of plant-based organically produced food” and lastly, series number will be provided in order to ease the identification process (SOM). Previously, certification only offer for limited organic food such as vegetables, fruit and etc. In general, Malaysia organic aquaculture products were under the governance of Thailand's Organic Aquaculture Farms and Products Certification Centre (OAPC). In order to enhance aquaculture industry in Malaysia, fisheries department provide organic scheme for organic aquaculture production. Additional, this action can minimize the cost of apply organic aquaculture certification from other country.

Moreover, organic food always free of chemical fertilizers, pesticides, bioengineering or irradiation during produce, manufacture and handle (Annadana,2009). Besides, livestock must be free of growth hormones and antibiotics. On the others hand, there is not any specify standard for natural food and it is grown with pesticides, herbicides and chemical fertilizers. Basically, natural food have minimal processing and do not contain refined sugar or artificial ingredients and without altering the raw product (Hermitt, 2006).

1.2.4 Consumer vs Customer

Generally, most of the people have categorized both consumer and customer in the same category where it carry the meaning of purchase any products from sellers. Conversely, both of the words carry different meaning. According to Kotler and Armstrong (2006), consumer is the person who purchases any products for personal use or they call end user. Basically, consumer is the individual who had previously purchased or current users for particular product. On the other hand, the word “customer” carries different meaning in different perspective. In business market, customer is the individual or organization who purchase the product but not for own consumption. The products will become their inventory for further production or resell to end user (Kotler and Armstrong, 2006). Customer can either is a current user or only a potential customer for the product (Wikipedia).

1.2.5 Organic industry in Malaysia

Since 1990s organic market has grown in a favorable beat. Thus, sale of organic food and products are forecasted to be between USD 20 and USD 30 billion yearly. USA is the biggest organic market follow by Germany and United Kingdom. In certain country such as Denmark, Sweden, Austria and Switzerland have 4% share of organic food which exceed in the total food sales. On the other hand, organic market in developing countries is small but considers growing especially in upper income developing countries. Figure 1.3 shows the coverage of organic farm in different country in year 2005.

Malaysia is located in Southeast Asia and consists of two mainlands which is Peninsular (west) Malaysia and East Malaysia with an area of 329,750 km2. The agricultural sector in Malaysia is about 10.24% (738,677 / 75,657) of GDP in year 2008 (Department of Statistics Malaysia). Organic farming in Malaysia was started by Center for Environment, Technology and Development, Malaysia (CETDEM). During year 1986 CETDEM started their organic farm in Sungai Buloh with only one hectare plot. According to Department of Agriculture (DoA), there is 131 hectares of organic farm in Malaysia during year 2001 and approximates organic farming increase to more than 1000 hectares in year 2005. In year 2008, there are about 1000 hectares of registered and 2800 hectares of unregistered organic farm.


Organic farming and production had started up during year 1990. Due to increase in favorability and demand toward organic products this niche market is growing continuously. Consequently, there is increase in the number of organic organization which include government department and non government organization (Table 1.2).


Malaysian organic scheme (SOM) is the organization that has the right to give certification to organic farmers. Today, there are 28 Malaysian Organic Scheme (SOM) Certificate Holders in nationwide with a total area of 1244 hectares (Table 1.3).


Due to increasing in organic farming and production, the number of organic retail outlets is also in the increasing manner. As a result, there are many organic companies have started their business such as Justlife, BMS, Country farm, ZenXin, Woots and etc. Organic food was previously consumed by cancer patients or patients who had serious health problem. Today, organic food becomes a choice for every family or even each and everyone. As we know, Justlife is a famous retailer of organic food and organic products. Justlife has only owned half of a whole retail shop at SS2, Subang Selangor with limited organic products and food. Recently, they are success and owning eight retail shops in Malaysia. Accordingly, we can observe that consumer demand of organic food and products is rising in recent year.

Since the demand of organic food and products are increasing, government has putting effort in order to encourage producers to involve themselves in organic farming. Besides, government mentioned in Ninth Malaysia Plan (2006-2010), they estimating the value for organic farms industry will be worth RM800 million after five year and plan to have 20,000 hectares of organic farm in year 2010 (Economic Planning Unit). During year 2001, Organic Alliance Malaysia (OAM) was found and this organization act as a private sector association to form national network. Government has tried to match the demand by increase the number of producer and organic farmer. However, we still supported by imports and the amount of foods that we imported from other country is about RM10.9bil or 8.7% of total import. Therefore, a study on consumer behaviour is crucial in order to forecast the demand and prepare for supply.

According to local report, a supplier Kerby Ho of KK Hoganik told that demand for organic fruits and vegetables were increase at about 8%-10% every month (NST, 2008). Informed by organic-certified wholesaler Radiant Code's manager- Loke Siew Fong in local report, the sale is experiencing double digit growth. She added that consumers are having higher awareness on health issues nowadays and search for organic food rather than conventional foods (NST, 2008). As a result, research on consumer behaviour can tell supplier with fact reason why they demand for organic food and better understanding the trend of organic market.

Moreover, the needs of communicate for both organic concept and build market confidence are vital in Malaysia market. Most of the citizen were still choosing conventional foods as usual and refuse to purchase organic food due to their own personal reason such as inconvenience, price, knowledge and others. Consequently, marketers have to know the concern of customers or citizen in order to better target the market and segments.

In short, organic market is in an encouraging rate and it is a potential market for marketers, farmers, suppliers, wholesalers and retailers to aim. The reason why and how the demand increase is important for them to study in order to server the organic fans at the right time and right place with sufficient supplies.

1.3 Research Problem

Consume organic food has become an important subject for today in changing social graphic and emerging trend. Government had been aware of the importance of organic sector since early of 1990s. The Organic Trade Association forecasts sales of organic food will be increase by 18% annually through 2010. Organic products become part of the picture for everyone at the present time and customer base of organic sector expected to rise and retailers continue to provide wider variety of organic food. Commission's communication <<European Action Plan for Organic Food and Farming>> were presented in December 2002 that they are planning to increase their efficiency, transparency and consumer confidences in order to develop the market for organic food (Gracia and de Magistris, 2007).

Refer to a report found in OAM in November 2008, Katherine diMatteo, president of the International Federation of Organic Agriculture; consumers seek organic produce as a way of environmental degradation, or as the best way to eat healthy foods. Besides, government and others view that purchasing organic is a good way for developing fair trade due to most of the organic farmers are small-scale producers. The trend of eating and purchasing organic has boosted up the organic sector in constructive rate. Transaction and trade of business have increase indirectly and these also bring a healthy rate for Malaysia economy. Consumers also willing to pay for organic food during economy down turn in June 2008. Economy down turn do not brought a strong impact to this industry and the sale of organic food still in a healthy and encouraging rate. As a result, we confidents there are something behind the consumers to motivate and move them to purchase organic food.

At one time, people always believe that consumer's choice was unstructured and natural but at this moment, people know that human behaviour is manipulated, push or even forced by reason. For instance, health conscious is affecting consumers where they will hunt for organic food in order to replace conventional foods. Nevertheless, this is only one of the hypotheses or assumption that we can made, we cannot prove that this is the accurate explanation for the question: “Why the demand of purchasing organic food is increased from year to year?” Additionally, there are many factors that keep moving people from conventional foods to organic food. Hence, study on the factor that affect consumer's willingness in purchasing organic food is an essential issue to further understand consumer's mind and support organic.

Furthermore, dynamic issues and factors which influence consumers are changeable among individual and purchase decision of organic food will depend on many variables such as consumers' attitudes toward environmental protection and healthiness (Gracia and de Magistris, 2007). Human behaviour and customers' choice is not impulsive, unconscious, inborn and natural. Conversely, consumers' behaviour is always motivated by the environment, enthusiasm, sensation and emotion (Ajzen and Fishbein, 1980). Consumer willingness to pay for organic food may influence by numerous factors. Human beings easily get influenced by the environment and objects surrounding them. We have no capability to freeze their consumption and purchase behaviour. The only way that we can do is to study deeply on what are the main aspects they are focusing and what are the essential factors that manipulate their purchasing. More to the point, people perception and motivation in purchase organic food are vary from country to country. There is different demand in different county with different culture.

In order to have a good explanation to answer the entire question and have a bottomless understanding of customers' willingness to pay during obtain organic food, we come out with the problem statement: What are the main aspects that manipulate consumers' willingness to pay for organic food. Policy maker seek consumer oriental analysis in organic sector since the information is crucial for them (Gracia and de Magistris, 2007). The study not only can improve the understanding of consumer behaviour and factors that affect customers but it is also a necessary research to help marketers to market the products, help government to better know the needs of citizen, help retailers or wholesalers to do some related activities to encourage consumers in order to choose organic food and help producer to estimate the production in future.

1.4 Research Objective

The main purpose of this research is to recognize some of the essential variables that motivate or stimulate citizen in Malaysia in purchasing organic food. Organic market is a potential and profitable market for marketers to have a deep study on it since the demand of organic food is keep increasing nowadays. Besides, organic industry did contribute to Malaysia economy and citizen's health, as well as the environment. In my opinion, customers' belief, feeling, attitudes, motivation and demand trend would bring a deep impact on food industry and this will bring challenges for marketer to design marketing strategy. The following objectives are built to achieve goals of this study.

i. To study the determinants that motive consumers' willingness to pay for organic food.

After identify all the factors, we can better target and server our customers when they doing their purchase. When retailers know all the factors and possess this advantage, they can come out with following step such as education fair, seminar or others kind of exhibition to influence or encourage customers in order to purchase organic food. Moreover, eating organic food can save and secure the earth. Consume organic food not only healthier but also more environmental friendly if compare with conventional foods. By educating others customers about the benefit of consuming organic food, sales of organic food will definitely continue to double up in the future. By the way, this also can help marketers to better market the products and also target potential customers easily. Lastly, this as well will contribute to economic growth and better environment for next generation.

ii. To better understanding consumer buying decision and contribute precise data to policy makers.

There is a problem that release by NST on November 2008 which is the number of organic supporter is increasing however; there are too few farmers to serve the large pool of consumers. As a result, we can overcome the problem of supply and demand after knowing the reason why customers purchase organic food or not. Moreover, most of the researchers showed consumers are willing to pay for high quality food. If this research can prove that there is a significant result between quality and willingness to pay. Related organization can immediately take action in order to strengthen organic production governance.

iii. To study the impact on organic food industry due to the issue of health conscious.

Recently, health conscious became a latest issue among citizen in Malaysia. Most of them are practicing healthier lifestyle and willing to spend and search for supplements and healthier foods. They try to avoid themselves in consuming oily, high sugar level and high cholesterol foods. They seek for more healthy activities such as yoga, dancing and search for natural or original products in their daily life. Throughout this study, we can collect precise and significant result to see whether health conscious can increase the number of organic food fans. Furthermore, government can use the result of this research to allocate more funds and capitals to develop small farmers and help them to shift from convention production to organic production.

iv. To study the relationship between consumer behaviour and organic food purchases.

Many studies pointed that consumer behaviour toward organic food is crucial for decision makers. Obviously, we can understand that the popularity of organic food is in an encouraging rate. However, most of the people are still choosing convention foods as their first choice. This is due to the availability of convention foods is higher than organic food. Although organic food is a potential market, yet customers still cannot get organic food in most of the hypermarket or night market. As we know, most of the consumers in Malaysia will go to night market to purchase their daily or even weekly foods since they can get all kinds of vegetable, fish or meat at lower price at night market. Even there is high demand of organic food; however it is inconvenience for consumers to purchase organic food. Although customer have positive attitudes and high intention to purchase organic food but there are some external factors that will influence customers' purchase decision. Accordingly, research on consumer behaviour can help marketer to study the consumers' preferences and do a more appropriate and suitable plan to serve the customers.

v. To analyze the willingness to pay for organic food.

Consumer always wiling to pay a premium price to obtain any thing or object that they are perceive as a valuable and high quality product. As we all known, organic food is priced higher as compare with convention food. As we all known, consumer has different consumption pattern, attitude and response towards organic food. There is a number of customers are not willing to pay for the premium. Beside that, most of the customers prefer to purchase and consume conventional food instead of organic food. However, some of the consumers are still willing to pay for organic food and they believe this is a “profitable” investment for them. Consequently, segment of organic consumer is getting bigger and bigger. Therefore, it is essential for this study to analyse consumer purchase decision and offer contribution to the decision makers, society, famers and also nation economy.

1.5 Significant of Study

Although the concept of “green” living and consume organic food are becoming one of the favorable issue in this moment that always be discussed and concerned by most of the population today. However, the amount of people who purchase organic food is considered low. According to Fotopoulos and Krystallis (2003), customers are aware of the benefit brought by organic food but there is only small proportion of them willing to pay for it. Additionally, distance brought a significant issue to potential customers (Padel and Foster, 2005) since coverage of organic food shop is low and cause customers who have the intention to purchase organic food face difficulty when they wanted to buy.

Additionally, there are a number of research focus on organic industry had been conducted by researchers from others country (for instance, Gracia and de Magistris, 2007; Fillion and Arazi; 2002). However, there is only few researchers are focusing on the organic industry in Malaysia. As a result, this study can helps in better understanding about organic agriculture in Malaysia and contribute to organic industry in Malaysia.

As a result, this study aims to analyse in depth the factors that influence consumers' feeling and motivate customers to pay for organic food. Apart from that, this study is crucial to show the brief picture to all related parties who involved in organic food industry such as farmers, department of agriculture, wholesalers, retailers and others. This study also plays as an important role and sources for education sector, marketers and small-medium entrepreneur (SME) to understand more about consumer behaviour and factors that influence consumers' willingness to pay for organic food. By the end of the day, the result can help them to do their marketing plan more smoothly, effectively and successfully.

According to a report posted by Food, Nutrition & Science in May 2009, stated that Organic Trade Association (OTA) published the sales of organic have hit $22million. As a result, knowledge and pool of database are crucial for policy makers in order to implementing their marketing plan. Once wealth of data and evidence presented in the industry, all the parties can significantly gain from the benefit. This study can indirectly support small farmers to have more confidents in produce more and more organics foods. Increase in number of production not only can fulfill the demand of Malaysian and self sufficient but also have the opportunity to export the quality foods to others country. Besides, it give a more visual result to government in order to increase their expenditure in helping small farmers to involve in organic farming. Furthermore, objective of some of the related agency such as CETDEM, FiBL, DOA and OAM can become more achievable. After knowing consumer behaviour in depth, retailer shops such as Justlife and Country farm can have more confidents on their effort and increase the coverage of their business in order to reach more potential and profitable customers.

In addition, this study will help us in understanding consumer mind and know the reason behind every purchase of organic food. We can know the aspects that always push and move consumers to purchase organic food instead of conventional foods. On the other hand, we also can see the barriers that influence consumer refuse to purchase organic food and stay with convention foods which offer a lower price and have a high coverage. This also can assist us to understand the barriers faced by most of the population from their point of view. The barriers can be narrow down when we know the root cause of the barriers. Marketer can use the valuable information to run their marketing mix (4P-people, promotion, place, product) and promotion mix (advertising, personal selling, direct marketing, sponsorship, promotion, public relation). Other than that, consumer organic food is one of the ways to save and secure the earth. This can give a hand to the group who are environmental friendly and always love and care the earth. “Green life” with organic food can provide a bright future for the entire citizen to own a healthier life style and also a superior environment. Moreover, we can keep a more natural and fantastic earth for our next generation. By exposing more people to organic product, we are able to educate them the importance of growing this industry in Malaysia. As the demands increase, it will benefit all level of people as it will boosts our economy to a higher level. It will provide more jobs opportunity, more researches and bring more involvement in this sector. Eventually, it reflects directly on Malaysia GDP, attracts foreign investment and technology transfer.

1.6 Scope of Study

The main focus of this study is to identify how organic consumers behave and their willingness to pay for organic food. This research will be targeted on consumers instead of customers since consumers are the group of people who already takes their action in organic consumption. The information provided by them is more precise and accurate if compared to each other. According to information, organic include organic food and organic products. However, the popularity and acceptability of organic products in Malaysia still consider low. Consequently, this research will focus on organic food such as can food, fresh vegetable, fruit and others.

As we all known, consumers' willingness to pay is an issue that difficult for marketer to predict. People always change according to the environment, people, object and others surrounding them. However, people who possess the same characteristics or in the same categorize will always have the same respond to particular matter. Consequently, we will come out some possible hypotheses and do a research on it to help related parties in the industry to make their decision. Beside that, we will study consumers' willingness to pay for organic food since organics foods industry still in a growth stage in product life cycle (PLC). We believe that the outcome of this research will be very useful and valuable for marketers and retailers. In addition, questionnaire will be distributed in Selangor. This is caused by most of the organic retail outlets are located in mentioned area and this will ease the researcher to collect pool of data. Most of the information collected will be vital for us to study the relationship between consumers' willingness to pay and organic food. The variable such as health conscious, income, knowledge, quality and others will be investigate in order to obtain the result.

1.7 Limitation

There is limitation that will be faced at the moment of conducting this research. The number of organic shop needs to be taken into account since organic shop only located at town area. Beside that, some of the respondents may only purchase particular range of organic food and this will create response bias. More than that, there are parts of customers will refuse to do the survey or providing inaccurate answer. Last but not least, limited resources and time also one of the limitation that faced in this studies.

1.8 Chapter Outline

The primary objective of this research is to study the relationship between consumer behaviour and intention to purchase organic food or in a simply ways, the study is to know the factors that affect consumers purchase organic food. Initially, a general introduction about organic food was given in current chapter and it provided the introduction, background of study, research problem, research objective, significant of study and scope of study.

A comprehensive literature review is made in Chapter 2 to study and review the previous works and research about consumers' willingness to pay for organic food. The variables had previously identified by others researches can give a rough idea to conduct this study. By referring the previous works, it helps us to recognize the dependent and independent variables associated in purchasing of organic food. Theoretical assumption and empirical result can be produce in studying the implication between the variables.

Chapter 3 presents the research framework of independent and dependent variable. The graphical appearance can help readers have a clear picture of the relationship between dependent variable and independent variables. Theoretical assumption and empirical result can be produce in studying the implication between the variables. Moreover, few hypotheses will be made in this chapter. Besides, the sources of data and research procedures will be explained in chapter 3.

The development of the questionnaire will be distributed to respondents or chosen population. The questionnaire will be given to the citizen in Selangor to fill by consumers who had and have purchase organic food. Research framework will be drawn to clarify the process among the variables relationship. After the data collected, the results will be analyzed and process by using SPSS (The Statistical Packages for Social Science) software. The study and discussion of the result collected will be presented in chapter 4.

The recommendation and conclusion of the research will be suggested in the last chapter. Short coming and limitation of the research will be identified and suggestion will be given to solve any problem that will be face by future study in the parallel area. To sum up, a conclusion will be making based on the result and study.

Chapter 2

Literature Review

2.1 Introduction

In the context of a research paper or thesis, literature review is a critical synthesis of previous research. This chapter will be focusing on reviewing the previous research or studies from different sources which had been analyzed by others marketer or researcher. Literature concerns research on several variables obtained from past research discussing on consumers' willingness to pay for organic food. In addition, information about consumers' motivation, intention, behaviour and perception towards organic food will be present here. We can evaluate the information which is related to particular topic and its help in proposed studies. Furthermore, the chapter presents theoretical frameworks that built the conceptual foundation for the study and guide the research design and methodology.

In this study, I will focus on the independent variables that affect consumers' willingness to pay for organic food. Previous researchers point out that those variables such as gender, income, distance, place and etc, will manipulate the willingness of consumer to purchase organic food. This chapter will start with the definition of some of the important term and focus on few variables which are: health conscious, level of product knowledge, price, quality of food, consumer behaviour, environmental attitudes, animal welfare and social-demographic. In this chapter, core study will be reviewing previous researchers' outcome which related to mentioned variable and analyze the acceptability of organic food in consumers' mind. This chapter is crucial to support my further analysis and research.

2.2 Definition of term

2.2.1 Willingness to pay and price for organic food

There are a plenty of studies conducted by past researchers focusing on consumer behaviour, attitudes, motivation, perception toward organic food in many Europe countries, US and other countries. Consumer willingness to pay and purchase organic food may reflected by many motivators such as healthiness, environmentalism, perception, awareness and etc (see, for example, Davies, Titterington and Cochrane, 1995; Schifferstein and Oude Ophuis, 1997; Harper and Makatouni, 2002; Cicia, Giudice and Scarpa, 2002; Dimara, Petrou and Skuras, 2003; Zeng and WeiXia, 2005; Krystallis and Chryssohoidis, 2005; Midmore et al, 2005; Urena et al, 2007; Chen, 2009; Aryal et al, 2009; Millock, Hansen, Wier and Andersen, 2002; Batte, Hooker, Haab and Beaverson, 2007). Those studies point out the empirical result detail the finding of factors that influence willingness to pay for organic food. Refer to the above researcher, health and environmental issues, as well as food safety and quality are the most important buying motives. Therefore this research will investigate the relevant determinant that reflecting the willingness to pay of the consumers and their purchase behaviour. As Thompson (1998) observe, “accounting for where foods are purchased is likely to be important in understanding where potential growth in organic food might occur” (p. 1117). According to Rodriguez, Lacaze and Lupin (2007), willingness to pay is “sum of money representing the difference between consumers' surplus before and after adding or improve a food product attributes” (p. 189) Willingness to pay is a ratio of variable of interest and price is a monetary variable which press the value of the variable of interest for different attributes level (Hensher, Rose and Greene, 2005) Price

When topic related to willingness to pay, the crucial element included will be price. From the economic aspect, money is the medium of exchange, unit of account and store of value. Price is an exchange ratio which price provides consumers information about the money that they should scarify in order to obtain an object. On the other hand, for a marketer, pricing is one of the essential elements in marketing mix which is an important strategy to attract consumers. According to Fotopoulos and Krystallis et al (2003), consumers are willing to pay premium price when they purchase organic food. Consumer always perceived price as a parameter and guarantee for food quality (Cicia, Giudice and Riccardo, 2002; Pellegrini and Farinello, 2009). As we all know, organic food always have premium price if compare with conventional food. According to Vlosky, Ozanna and Fontenot (1999) the price above the “fair” price is justified by the “true” value of the product

2.2.2 Health conscious

Organic food consumption is strongly motivated by health conscious and ethical driven could be one of the determinants as well (Harper and Makatouni, 2002). Chen (2009) point out that organic farming system is free of synthetic fertilizers, pesticides, and chemicals and with this system, the food produced contain higher nutrients and safety to consume since they reduce the possibility to get food poisoning. Consequence, consumers perceived organic food is healthier and safety than conventional food (Cicia, Giudice and Scarpa, 2002).Harper and Makatouni (2002) explained that when household got the health conscious, they will concern about food defect and nutrients composition. For instance, additives, amount of fat, refined sugar and etc. According to Midmore et al (2005), health conscious can be divide into two categories; first issues is concern about the product characteristic (freshness, no contaminate, naturalness, production system); second issues is aware by themselves due to others or their own health problem (sickness, special need people) where organic food is needed to control or maintain.

2.2.3 Level of product knowledge

According to Beatty and Smith (1987), product knowledge is defined as consumers' perception toward particular product, as well as previous using experience. Moreover, this knowledge also based on memories or known knowledge (Bruck, 1985). Lin and Zhen (2005) defined product knowledge as consumers' awareness, confident and understanding about the products. Study by Mithcell and Dacin clarify that when customers deeply understand the characteristic of the product such as brand available, impact of performance and etc, they can be categorized as customers who own high level and broader of product knowledge. Product knowledge is an important tool to differentiate the feature and quality of organic food and conventional food (Gracia and de Magistris, 2007). Concept of product knowledge relating to the understanding of organic production, recognize organic labelling, organic farming standard, perception of organic food characteristic in term of quality and safety.

2.2.4 Quality of food

Worldwide health problem and genetic engineering bring uncomfortable to consumers and this rise the demanding of higher quality, healthier and safety food (Verdurme and Viaene, 2003). In this competitive business era, quality of food or product becomes an instrument to measure the food product attractiveness (Ilbery and Kneafsey, 1999). Monroe and Krishnam (1985) point out that quality of product defined as its capability to satisfy consumers. Product itself must carry reliable performance, freshness and others attributes (Rosen, 1984). According to Pellegrini and Farinello (2009) offer insight that quality of organic food always act coherent with the concern toward environment, food safety, healthy and natural. Based on the research conducted by Bell and Valentie (1997), methods of production and country of origin of the food produced contribute an important sign to consumer for quality evaluation. Moreover, consumers always perceive organic food got a higher quality due to the use of safety processing techniques (Midmore et al, 2005). Ophuis and Trijp (2005) stated that quality consist of intrinsic cues and extrinsic cues (Table 2.2).


2.2.5 Labelling and Certification

According to Zeng and WeiXia (2005), the meaning of green food certification is “a system to confirm the conformity of certain products to a set of standards” (p. 1). The information carries by organic certification include quality of the product and also safety of organic food (Midmore et al, 2005). According to the Malaysian Organic Scheme (SOM), certification must be based on a set of organic standard which concerns about “production, wrapping, transportation and direct sale of the cultivated organic crop”. According to USDA standard, “100percent organic food” or USDA label will be found on the product when it is totally organic (Abdelaziz, 2009). Author pointed that “organic” label will be available on the organic products when it is not less than 95percent organic, organic product which contain 70percent organic ingredient cannot labelled with organic seal but only can mentioned as “made with organic ingredient”.

2.2.6 Consumers' behaviour

Theory of Reasoned Action (TRA) is the common behavioural model used by most of the research in order to analysis consumers' behaviour and consumer attitudes (wikipedia). The founder for this theory is Fishbein and Ajzen in year 1975. Ajzen and Fishbein (1980) pointed “attitudes could explain human actions”. The theory explains that consumers' behaviour always determinant by their intention. Combination of both attitude and subjective norm will be an important element which performing consumers intention.

Consumers are more willing to pay when they possess desirable attitudes towards organic food (Fotopoulos and Krystallis, 2003). According to Von Alvesleben (1997), product information, perception and attitudes will constrain consumers' behaviour. Additionally, health information, safety, enjoyment and etc, as well as product perception will shape consumers' attitudes toward organic food. An attitude is depending on their belief and we can see the outcome from consumer behaviour (Chen, 2007). Furthermore, consumers' attention is the most proper predictor to determine how they behave (Gracia, A. and de Magistris, T., 2007). According to the author, consumers' attitudes, subjective norm (beliefs) and perceived behavioural control will give impact on consumers' intention. Subject norm will be affected by the opinion of the person who is important for the consumers (Moven, 1993). Perceived behaviour control may impact on consumers' intention. Chen (2007) defines perceived behaviour control as “consumers' perception of personal control over what to buy and eat” (p. 1011).

2.2.7 Environmental attitudes

The growing of concern about ethical production in consumer mind had stated in the studies by Browne et al in year 2000. According to Schifferstein and Ophuis (1997), environmental friendliness among public had boost the development of organic agriculture. Chen (2009) informs that issues regarding environmentalism give an impact on business. In 1998 United Nation and Agriculture Organization state that organic farming system creates a favourable impact on environment. The reason behind is organic farming may rise the level of soil fertility and reduce water “contamination'' Chen (2009). According to Silverstone (1993), environmental consciousness means growing of consumers' awareness toward planet resources. Moreover, the emerged of “green consumer” always putting effort to transform the business environment into an environmental friendly business era. Green consumer is people “who like to spend their money on products they seem as healthy and ecologically benign” (Porritt and Winner, 1988). Other than that, environmental attitudes possess the meaning that consumers prefer to purchase products which are environmental friendly and safety for the society (Harpet and Makatouni, 2002). According to Midmore et al (2005), environmental attitudes emphasize on care for nature and prohibit from pollution act.

2.2.8 Animal welfare

In addition, previous research show that high percentage of consumers are interested about the topic related to animal welfare and they tend to pay more for livestock which achieve animal welfare standards such as organic meat (Bennett, 1996). Definition of animal welfare in consumers' mind is “natural rearing and humane slaughter” (Harper and Henson, 1999). Therefore, Harper and Makatouni (2002) declared that organic animal production, process of feeding and medicines used are the issues concerned by consumers. In that study, it stated that consumers will be motivated if they are informed about “the way that the animals were treated and places where they were kept”. Apart from that, we can clarify the reason of why organic market is favourable and always growing in a desirable rate.

2.2.9 Social-demographic

Social demographic is mention about the relationship between cultural factors and social factors and how both of these influence the characteristic of population (Sharma, 1989). The variable will be focus on certain attribute, which included age, gender, income, size of family and educational level of the responders. Consumers' characteristic or demographic information always play as an important foundation to let policy makers access their consumers and better understanding consumers buying behaviour. Demographic information always provides a great opportunity for decision makers to grab more market share and better targeted on potential customers.

2.3 Research variables

2.3.1 Willingness to pay

The number of consumers who are willing to pay a premium price for the organic food is in an increasing rate, the whole market for organic was growing as well (Aryal et al, 2009). As a result, the study indicated that willingness of people to pay premium price is crucial to identify. Therefore, price to pay and how willing to pay have a direct association. Additionally, ethically based driven and customers based driven are the main motives that manipulate the willingness to pay of consumers. The reasons behind of organic consumers include food quality, health issues, environmentalism and life quality (Pellegrini and Farinello, 2009).

Additionally, knowledge, intention and attitudes are three important aspects in order to influence peoples' willingness (XiaWei and Zeng, 2005; Aryal, 2009).Purchase decision will influence by customer internal factors and their own characteristics (XiaWei and Zeng, 2005). The authors also found age and perception toward organic food show significant result in affect customers' willingness to pay. Public intention towards healthy lifestyle and environmental issues are low while the media institution and medical expert constantly emphasize on fitness, wellbeing and etc (Pellegrini and Farinello, 2009). However, he stated that only organic consumers have a propensity in environmental protection and concern about health issues. A study compared between consumers' willingness to pay for organic food and conventional food conducted by Pellegrini and Farinello (2009) showed that consumers are willing to pay higher price for organic produced food. Price

As we all know, price of organic food always higher than conventional food (Figure2.2).

According to the law of demand, the relationship between willingness to pay and price is contrast, yet the in the consumers' point of view, price depend on the type of product (Aryal et al, 2009). He showed that consumer are perceive that the price of organic food is reasonable if compare with conventional food.

Premium price for organic food is not a barrier for consumer to consume and choose organic food since they view it as a long term investment for their health (Sandalidou, Baourkis, and Siskos, 2002). Krystallis and Chryssohoidis (2005) indicated that there is less price sensitive in organic food sector. This issue also supported by Urena et al (2007) that consumer willing to pay for organic food because they perceive organic food is healthier and bring less environment damage. Consumer willing to pay for organic food when it's price is 10% more than conventional food, yet frequent consumers are willing to pay for a 15% increment if compare with conventional product (Urena, 2007). Batte et al (2007) observed that factors that influence consumers' willingness to pay is different with the factors which influence the amount that consumers willing to pay. Cicia et al (2002) found consumer view price as a parameter for quality, hence when the price of organic food parallel with conventional food, consumers will associate with low quality product.

On the others hand, Davies et al (1995) found one of the reasons why consumer did not buy organic is caused by price. In the studies conducted by Wong (2007) declared premium price of organic cotton caused consumer did not buy it. According to local report (TheStar) in February 2005, price becomes a main barrier to purchase organic food for Malaysian. There is a research examined on the willingness of consumer to pay for environmentally certified wood products by Mohamed and Ibrahim (2007) in Malaysia. It shows that only 32% of respondents are willing to pay for the premium price and they are willing to pay around 14.4% of increase. A study showed there are about 64 (81%) respondents out of 79 respondents was agreed that price is an important indicator for them to make decision. Furthermore, Padel and Foster (2005) pointed that price for organic food does not act as a barrier for consumers when purchasing organic food, yet price is an aspect which consumer take into account during their decision making process and price is the element that make the process more complicated. The authors concluded value and reason of high price can encourage consumers to pay for organic food. High proportions of the respondents are not willing to pay premium price for organic food although organic food is healthier and does contribute to their own health (Piyasiri and Ariyawardana, 2002).

2.3.2 Health Conscious

Previously, some of the studies are concerning on sensory attributes (for example, Fillion and Arazi, 2002). However, consumers start to consume organic food due to non sensory attributes such as environment protection and production system. Although there is not any scientific data show that organic food is much healthier, however consumer perceive organic food contain higher level of nutrition and more safety to consume due to its production system. In particular, some of the studies have been found to be significant in explained organic consumers concerning about health issues (Schifferstien and Oude Ophuis, 1998; Magnusson, Arvola, Hursti, Aberg and Sjoden, 2001; Magnusson, Arvola, Hursti, Aberg and Sjoden, 2003; Krystallis and Chryssohoidis, 2005; Mondelars, Verbeke, Huylenbroeck, 2009). Many studies indicated that health conscious is the predominant concern among organic consumers (For example, Padel and Foster, 2005). Health conscious is a critical matter in order to have an effect on consumers' attitudes (Von Alvesleben, 1997; Plyas

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