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ISSN : 1225-8504(Print)
ISSN : 2287-8165(Online)
Journal of the Korean Society of International Agriculture Vol.33 No.4 pp.338-348
DOI : https://doi.org/10.12719/KSIA.2021.33.4.338

# Consumers’ Valuation of Local Specialty Coffee: The Case of Philippines

Karen R. Laurico*, Ji Yong Lee**†, Byoung Hoon Lee**, Jeong Hwan Kim**
*Department of Agriculture, Western Visayas, Philippines
**Department of Agricultural and Resource Economics, Kangwon National University, South Korea
Corresponding author (Phone) +82-33-250-8663 (E-mail) jyl003@kangwon.ac.kr
August 23, 2021 September 17, 2021 September 24, 2021

## Abstract

The niche market of specialty coffee is emerging in the Philippines despite the stiff competition from imported low-priced coffee due to the efforts and initiatives of the producers and retailers of locally grown coffee. The main objective of this study is to identify consumers’ valuation of local specialty coffee in Philippines. The willingness to pay for local specialty coffee was estimated using the double-bounded dichotomous-choice contingent valuation method. The results revealed that consumers are willing to pay a premium for quality products, which suggests that coffee consumers have a positive preference for the local specialty coffee. Increasing the awareness and understanding of consumers about the facts of specialty coffee is important to increase the specialty coffee appreciation and market demand. Based on a consumer welfare analysis, consumers gain welfare from the introduction of local specialty coffee even when a price increases approximately 40 percent relative to conventional coffee.

# 로컬 스페셜티 커피의 소비자 가치 평가: 필리핀을 사례로

카렌 라우리코*, 이지용**†, 이병훈**, 김정환**
*필리핀 서부 비사야스 농무부
**강원대학교 농업자원경제학과

## INTRODUCTION

Coffee is the second most consumed beverage inside the household next to the water (Food Editorials Beverages Guide). In the Philippines, nine out of ten households have coffee in their pantries and eight out of ten adults in the country drink an average of 2.5 cups of coffee every day. Coffee will always be part of the lives of the Filipino people both of the poor and the wealthy. In addition to this, Filipinos have shifted from being moderate to heavy coffee drinkers, according to a study by Kantar Worldpanel Philippines. The Philippine Coffee Board Incorporated (PCBI) also stated the increasing coffee consumption of Filipinos in all forms be it specialty or instant (Comunicaffe International, 2015;Philippine Coffee Board, 2017). A quality coffee is considered as super food and a healthy drink because it has many ingredients that have a beneficial effect on our body. Coffee is richer in antioxidants where unprocessed coffee beans contain about 1,000 antioxidants and more antioxidants are produced during roasting. Antioxidants neutralize free radicals and protect us against certain tumor formations. The 2018 Jama International Magazine Survey concludes that people who drink up to 8 cups of coffee a day are less at risk of premature death than those who avoid drinking coffee. The likelihood of premature death in those who consumed 2 to 5 cups of coffee a day during the study was 12% less than those who did not drink coffee in general (Dabov Specialty Coffee).

Specialty coffee brings the most benefits because it is made from selected beans and is skillfully roasted. According to Dabov Specialty Coffee, the more special the coffee bean, the healthier the coffee beverage from it. Specialty coffees are grown and processed under conditions that are optimal for preserving their quality, so that they do not need to be over roasted to hide their defects, like the case with ordinary coffees. Specialty coffees are sweet and not bitter and their taste is pleasant and sugar and cream are not necessary to swallow them. It lacks bitterness because the coffee bean comes from a fruit and, as a fruit, it is sweet and sour. Coffee is tasty enough and over roasting is not important to acquire a bitter taste (Dabov Specialty Coffee).

Specialty coffee refers to the high-quality coffee, with a rating of 80 on a scale of 100 given by the best professional tasters usually linking to the whole supply chain, using single origin or single estate coffee. It is related to what is known as the Third Wave of Coffee and it refers to a modern demand for exceptional quality coffee, both farmed and brewed to a significantly higher than average standard. This can be a mixture of Arabica blends, organic coffee, Civet coffee (Alamid coffee). It caters to middle and upper-income coffee lovers and is highly preferred by specialty coffee shops such as Starbucks and Figaro. Specialty coffee is synonymous of good quality, sustainability, and traceability (Specialty Coffee Association). Moreover, local specialty coffee is made from high-quality beans sourced out from major coffee producers in the Philippines with a coffee score of 80 or higher graded by Licensed Q Graders under the Coffee Quality Institute, and it has all the details of the farms, the bean varietal or varietals if it’s a blend, as well as the percentages, and the cupping or tasting notes.

Local specialty coffee is important for the local coffee farmers. Local food represents an identification of food products with a particular region. Thus, it could promote the recognition of unique and distinct-quality food products. Food products with local information may assure consumers of the high-quality products. In particular, consumers recently care about ethical properties of food products such as the production method and production region. The provision of local information could thus differentiate the products from other competing products, and it could offer local farmers an opportunity to obtain higher prices. It will help improve the livelihood of local coffee farmers.

The coffee industry in the Philippines has a very favorable enabling environment because the government and private organizations are supporting local coffee farmers from planting the best coffee trees in the best places, producing and roasting the best coffee, along with the cupping scores to enter the specialty market. Likewise, coffee is one of the identified priority commodities of the country with an allotted budget from different national government agencies mandated by High Value Crops Development Act (Republic Act 7900) to promote the production, processing, marketing, and distribution of high-value crops (Department of Agriculture and Department of Trade and Industry, 2018). Moreover, the Department of Agriculture envisioned having a market-driven and private sector-led agribusiness sector ready to face the threats of the economy creating an improved quality of life for the Filipino people. In line with this, the government offers marketing support, extension support and postharvest or value-adding and product development through the provision of processing equipment (e.g., depulper, dehuller, roaster), postharvest equipment (coffee dryer), and establishment of the community-based processing facility for coffee roasting to coffee farmers (Department of Agriculture and Department of Trade and Industry, 2018).

One of the biggest challenges to the whole coffee industry development in the Philippines is the imported coffee from Vietnam and Indonesia. The specialty coffee industry in the Philippines is evolving despite the difficulties for growing and processing specialty coffee in the country. The specialty coffee industry in the country is new and far from its potential but there is a rising demand for specialty coffee and increase investment in specialty coffee shops (Perfect Daily Grind). Identifying consumer valuation for the locally produced specialty coffee could provide evidence to develop marketing strategies and policies that could help increase the market demand and expand the market for local specialty coffee.

Coffee is a buyers-driven supply chain, where roasters, retailers, and traders maintain a high level of opacity enabling them to capture most of the gains (Panhuysen & Pierrot, 2018). Hence, farmers are always encouraged to roast their own coffee or invest in more entrepreneurial activities to shorten the supply chain. However, there is still not enough study about consumer purchasing behaviour, preferences, and valuation of local specialty coffee in the Philippines. Therefore, the objectives of this study are to (i) identify and estimate consumers’ valuation of local specialty coffee in Philippines, and (ii) enhance the understanding of the coffee farmers, producers, and possible investors on the consumer behaviours, and preferences of coffee drinkers in the region and the relationship of the factors influencing consumers’ valuation of local specialty coffee.

We used double bounded dichotomous choice contingent valuation method to elicit the consumers’ willingness to pay (WTP) for local specialty coffee. Measuring the WTP is very relevant to private business owners and academics because consumers’ willingness to pay (WTP) is “the cornerstone of marketing strategy” that drives important marketing decisions and the central input for price response models that inform optimal pricing and promotion decisions (Andersen et al., 1992). In addition, a new product’s introductory price must be carefully chosen, because a poorly considered introductory price can jeopardize the investments in its development and threaten innovation failures (Ingenbleek et al., 2013).

## MATERIALS AND METHODS

The study was conducted through an online survey in June 2020 on a group of 300 respondents living in the Western Visayas region in the Philippines.1) The main respondents of the study were coffee drinkers aged 18 to 64 years old. According to the marketing research conducted by Statista in September 2020, this age group represents the primary coffee drinkers in the Philippines (Statista web site). The respondents’ ages and provinces were considered before allowing them to access the online survey forms. According to the local census in 2015, approximately 6.97 million people live in Western Visayas, and approximately 3.95 million people are aged between 18 to 64 years old (Philippine Statistics Authority, 2015).

We used a structured questionnaire as an instrument to gather data to examine the socioeconomic characteristics and coffee consumption behaviour of coffee drinkers and to identify the willingness to pay (WTP) for local specialty coffee in Western Visayas, Philippines. The questionnaire was developed and adopted from related previous studies by Choi et al. (2018), Jelison (2017) and Yee et al. (2014). In the survey, respondents were required to follow the given instructions and answer the questions without bias. A brief summary of the purpose of conducting the research was stated on the first page of the survey questionnaire.

The questionnaire is consists of the socioeconomic profile of the respondents (e.g., age, gender, marital status, educational attainment, and average monthly income), consumer knowledge and consumption behaviour (e.g., amount spent on coffee shops, most preferred coffee type, most preferred time to drink coffee, coffee drinking frequency, most preferred place to purchase coffee, most preferred coffee flavour and aroma), willingness to pay for local specialty coffee using double bounded dichotomous choice (DBDC) questions. Descriptive statistics analysis was conducted by applying frequency and percentage to expound the socioeconomic characteristics and coffee consumption behavior of the respondents.

### Contingent Valuation of Local Specialty Coffee

The respondents’ valuation of local specialty coffee was examined using a double bounded dichotomous choice (DBDC) contingent valuation (CV) questions through an online survey. Contingent valuation method is one of the most commonly used techniques for valuing non-market and other consumer goods because of their alleged advantages for avoiding so many of the biases known to be essential in other value elicitation formats (Choi et al., 2018;Yen et al., 2019)

Nowadays, this method is preferred over alternative methodologies, because it lessens the cognitive burden placed on the respondent, and imitates the behaviour of people in regular marketplaces. When follow-up questions were used to acquire more accurate information about the respondent’s WTP amount, the analysts usually examine whether mean WTP would change with each new round of information as a result of strategic behavior on the part of respondent. However, the contingent valuation method may suffer from hypothetical bias due to the hypothetical nature of the question. The respondents usually overstate their WTP values to avoid undesirable traits, which leads to overvaluation of the good or service in question. Nonetheless, proper application of contingent valuation can and will provide valuable information to policy-makers and donor agencies seeking to assess the benefits of intervention, or the revenues associated with investment in infrastructure.

In this study, we provided the respondents with detailed and clear information about the definition and description of local specialty coffee. The respondents were selected from the total population at random by using the non-probability sampling method called convenience sampling method whereby data is collected only with respondents who are willing to cooperate with the researchers by completing the questionnaire. The respondents were given coffee gift certificates as a form of incentive for participating in the survey.

The questionnaire was pre-tested to 30 pilot test samples before the final survey to ensure the quality, reliability, and accurateness of the research study. The result of the pilot survey served as a basis for constructing different price distribution levels used in this study. The upper and lower values were revised from the original price distribution based on the respondents’ answers in the pilot survey. Out of 307 respondents who participated in the final online survey, 300 responses were valid.

The format of the willingness to pay (WTP) questions was based on the DBDC method because more information is elicited about the respondent’s WTP, thus, this method is statistically more efficient than a single bounded technique (Hanemann et al., 1991;Mergenthaler et al., 2009). A first bid value was randomly selected from the predetermined price distribution (5 levels of prices from PHP 50.00 to PHP 90.00 with an increment of PHP 10.00) for each respondent to avoid a starting-point bias. For the final survey, a cheap talk script was included in the questionnaire (see the Appendix) prior to the CV WTP questions to possibly lessen hypothetical bias (Cummings & Taylor, 1999;Lusk, 2003, Aadland & Caplan, 2006;Silva et al., 2011).

In the CV survey, after carefully describing local specialty coffee, the respondents were asked the following question: “If a cup (regular size) of a normal/conventional brewed coffee in Western Visayas, Philippines costs PHP 42.00 (approximately 1 USD), are you willing to pay above PHP ____ for local specialty coffee?” A follow-up question was asked to the respondents based on their responses. If a respondent replied “yes” to the first question, he/she was asked if he/she would be willing to pay twice the amount suggested in the first question. If a respondent replied “no” to the first question, he/she was asked whether he/she would be willing to pay half the amount specified in the first question (see Figure 1). For example, if a respondent was questioned whether he/she would be willing to pay more than PHP 50.00 in the first question and he/she replied with a “yes” (“no”) to the question, he/she was then asked if he/she would be willing to pay PHP 100.00 (PHP 25.00) in the follow-up question.

It was presumed that the willingness to pay (WTP) of the consumer is influenced by respondents’ observable socioeconomic characteristics (i.e., age, gender, education level, and income), coffee consumption patterns (i.e., frequency of drinking coffee per day, purchasing price level of coffee/ cup, and how long the participants have been drinking coffee), their prior awareness of specialty coffee, and their future plan to purchase specialty coffee to analyze the DBDC data from the CV. The mean WTP and the correlation of the factors and WTP were analyzed by running doubleb command in Stata 16. Given this assumption, the WTP for the local specialty coffee can be specified as

$W T P i = β ′ x i + ε i$
(1)

where WTPi is individual i’s unobservable true WTP; xi is a vector of socioeconomic factors, coffee consumption patterns, their prior awareness of specialty coffee, and their future plan to purchase specialty coffee; β is the vector of parameter estimates; and εi is an i.i.d. component.

Given the use of the DBDC format, four possible response cases: (yes, no), (yes, yes), (no, yes), and (no, no) were generated (Hanemann et al., 1991). The probability of each of the four cases can be provided by

$B i d i 1 = 1 ( y e s ) and B i d i 2 = 0 ( n o ) Pr ( B i d i 1 = 1 , B i d i 2 = 0 | x i ) = Pr ( t 1 ≤ x i ′ β + ε i < t 2 ) = ∅ ( x ′ i β σ − t 1 σ ) − ∅ ( x ′ i β σ − t 2 σ )$
(2)

Where $B i d i 1$ and $B i d i 2$ are the responses to the first and second questions in the DBDC, respectively; $Pr ( B i d i 1 = 1 , B i d i 2 = 0 | x i )$ is the conditional probability that an individual answers “yes” to the first question and “no” to the second question; t1 and t2 are the first and second bid amounts, respectively. In this case, it is inferred that t1 ≤ WTP < t2.

$B i d i 1 = 1 ( y e s ) and B i d i 2 = 1 ( y e s ) Pr ( B i d i 1 = 1 , B i d i 2 = 1 | x i ) = Pr ( x i ′ β + ε i > t 1 , x i ′ β + ε i ≥ t 2 ) = ∅ ( x ′ i β σ − t 2 σ )$
(3)

where $Pr ( B i d i 1 = 1 , B i d i 2 = 1 | x i )$ is the conditional probability that an individual answers “yes” to both the first and second questions and t2 ≤ WTP < ∞.

$B i d i 1 = 0 ( n o ) and B i d i 2 = 1 ( y e s ) Pr ( B i d i 1 = 0 , B i d i 2 = 0 | x i ) = P r ( t 2 ≤ x ′ i β + ε i < t 1 ) = ∅ ( x ′ i β σ − t 2 σ ) − ∅ ( x ′ i β σ − t 1 σ )$
(4)

where $Pr ( B i d i 1 = 0 , B i d i 2 = 0 | x i )$ is the conditional probability that an individual answers “no” to the first question and “yes” to the second question and t2 ≤ WTP < t1.

$B i d i 1 = 0 ( n o ) and B i d i 2 = 0 ( n o ) Pr ( B i d i 1 = 1 , B i d i 2 = 0 | x i ) = Pr ( β + ε i < t 1 ⋅ x ′ i β + ε i < t 1 ) = 1 − ∅ ( x ′ i β σ − t 2 σ )$
(5)

where $Pr ( B i d i 1 = 1 , B i d i 2 = 0 | x i )$ is the conditional probability that an individual answers “no” to both the first and second questions and 0 ≤ WTP < t2. A likelihood function to obtain parameter estimates’ using maximum likelihood estimation was constructed both on the probability of each of the four response cases. The log-likelihood function that needs to be maximized is then:

$∑ n = 1 N π i v n ln ( ∅ ( x ′ i β σ − t 1 σ ) − ∅ ( x ′ i β σ − t 2 σ ) ) + π i y y ln ( ∅ ( x ′ i β σ − t 2 σ ) ) + π i n y ln ( ∅ ( x ′ i β σ − t 2 σ ) − ∅ ( x ′ i β σ − t 1 σ ) ) + π i n n ln ( 1 − ∅ ( x ′ i β σ − t 2 σ ) )$
(6)

where $π i ( y e s , n o ) , π i ( y e s , y e ) ,π i ( n o , y e s ) ,π i ( n o , n o )$ are indicator variables that take the value of one or zero depending on individuals’ responses, which means that a given individual contributes to the logarithm of the likelihood function in only one of its four parts (Lopez-Fieldman, 2010).

DBDC responses were analyzed using parametric ML estimation methods. This method finds the values of a vector of parameters that maximizes the joint probability density function of the data taken as a function of the parameters. This estimation technique allows the inclusion of covariates in the modeling process, thus marginal effects are usually easy to estimate. However, this parametric ML method relies on a priori assumptions about the underlying distribution function of respondents’ WTP.

## RESULTS

### Descriptive Analysis

Summary statistics for the socioeconomic characteristics of the samples are presented in Table 1. The average age of respondents is approximately 33 years and most of them are female (55.33%) and single (65.67%). According to the income categories, 31.67% of the respondents have an average monthly income between PHP 11,000 (226 USD) and PHP 20,000 (411 USD) and 14.67% of the respondents have an income level of more than PHP40,000 (822 USD). Almost all participants hold a bachelor's degree (66.33%) and employed/self-employed (84%). On average, respondents drink an average of 2.25 cups of coffee per day. Moreover, the average current purchasing price level of respondents for a cup of coffee is PHP 85.17. The majority of the respondents have prior knowledge about specialty coffee and most of them are planning to buy specialty coffee in the future. In addition, 82.67% of the respondents have been drinking coffee for more than five years and the coffee drinkers for less than a year is quite small (only 1.33%).

In the Philippines, coffee is mostly available for purchase in the form of coffee beans, roasted (whole) coffee beans, ground or powdered coffee, instant mixes or soluble coffee, and coffee drink like brewed coffee, therefore, the respondents were asked which type of coffee they usually purchase and consume (Figure 2). The result of the study shows that instant mixes or soluble coffee, ground or powdered coffee, and coffee drink (brewed coffee, etc.) are the most predominant types of coffee purchased and consume in the region. The types of coffee purchased are also highly correlated with the age and gender of the consumer. The consumption of ground or powdered coffee and instant mixes or soluble coffee was declared by 33% and 32 % of the respondents, respectively.

Furthermore, ground/powdered coffee is consumed by 33% of the respondents; most often by people aged 41 to 55 years old (33%). On the other hand, instant mixes or soluble coffee is consumed by 31% of the respondents; most purchased by people aged 26 to 40 years old. Female consumers prefer to purchase instant mixes or soluble coffee (36%) than ground or powdered coffee (34%) while male consumers prefer to purchase ground or powdered coffee (32%) than instant mixes/soluble coffee (28%). It is also noted that people aged 56-64 only purchased coffee beverages (80%) and instant mixes or soluble coffee (20%).

Table 2 presents the coffee consumption behaviour of the respondents. The respondents consume coffee every day (64.33%) most frequently every morning (80.33%). Most of them frequently consume coffee in their homes (73.33%), and in a coffee shop (14%). The respondents drink coffee as part of their drinking habit (31.67%) and to keep them awake (24%). The taste or flavors of coffee most preferred by the respondents are sweet (53.33%) and bitter (44.33%). The aroma of coffee most preferred by the respondents is medium roast (56.67%) to dark roast (31.33%). The types of coffee beverage usually consumed by respondents are brewed coffee (49.33%), espresso (45%), and latte or café latte (15%). The majority of the respondents have visited a coffee shop (94%) and most of them spend between PHP 101.00 to PHP 200.00 (54.83%). The result also shows that the majority of the respondents drink brewed coffee (49.33%) and café latte (15%). The result of the coffee consumption behavior of respondents will guide the coffee enterprises in developing their marketing strategies.

### Consumer’s Valuation of Local Specialty Coffee

As mentioned above, a CV study was conducted using a DBDC format to estimate consumers’ valuation of local specialty coffee. The mean bid values summary provided in the CV questions and respondents’ answers to each of the questions is shown in Table 3. The DBDC mean bid value provided to respondents in the first question and follow- up question (i.e., the second question) is PHP 70 and PHP 118, respectively, given our use of the DBDC design. The “yes” response rate in the first question is quite high (80%) compared to the “no” response rate (25%).

Table 4 presents the regression results of respondents’ WTP for local specialty coffee. Prior to asking each valuation question, an information about a possible price increase if the product will be qualified as specialty coffee was provided to the respondents. The results show that younger consumers are more willing to pay for local specialty coffee than elderly consumers. It also shows that highly educated and high-income consumers have a higher willingness to pay (WTP) for the local specialty coffee. The respondents who consume coffee more often and who have been drinking coffee for a long time are more like to avoid a possible price increase.

Moreover, respondents who have prior awareness about specialty coffee and have future plans to purchase specialty coffee are more likely to pay a high price for local specialty coffee. It also shows that respondents who have a high current purchasing price for coffee are willing to pay a premium for local specialty coffee and this factor is highly significant.

The mean WTP for local specialty coffee was estimated based on the regression results using the framework explained in the Material and Method section. The mean WTP is approximately PHP 156 (USD 3.2) and this value is statistically different from zero. Results indicate that coffee consumers in Philippines are willing to pay an approximate 271% premium above the price per cup of a normal/conventional coffee (PHP 42), which means that coffee consumers have a positive preference for the local specialty coffee. Likewise, the mean WTP is a reasonable value for local specialty coffee because the prevailing mar- ket price of imported specialty coffees in the region ranges from PHP 150 to PHP 180 and the result of the study signifies that the consumers are willing to support locally produced products.

Furthermore, an additional analysis on consumer welfare effects of promoting local specialty coffee was done to calculate the benefit of what consumers are willing to pay for a service or product versus its market price. The economic theory of marginal utility is the basis of the consumer surplus formula. The change in consumer surplus was estimated by adapting the framework used by (Lusk et al., 2005;Choi et al., 2018). It is assumed that individuals consume a cup of coffee within a given period. With the normal/ conventional coffee, consumer i derives utility, Ui − PNCC − ci, where Ui is consumer i’s maximum WTP for a cup of conventional coffee, PNCC is the price of normal/ conventional coffee, and ci is individual i’s awareness cost for coffee that is graded as specialty coffee. A consumer also derives utility, Ui − PIC − δi, by consuming imported coffee as a substitute for local coffee, where PIC is the price of imported coffee and δi is individual i’s aversion to imported coffee. Based on the result of this study, coffee consumers in the region have a strong preference for local coffee (72%) compared to imported coffee (9%). Therefore, we assumed that Ui − PNCC − ci is greater than Ui − PIC − δi. Thus, consumer surplus of normal/conventional coffee is given by the following equation:

$CS i N C C = max { U i − P N C C − c i , U i − P I C − δ i } = U i − P N C C − c i$
(7)

If local specialty coffee is promoted in the region, consumer i derives utility, Ui − PLSC, where PLSC is the price of locally produced specialty coffee. It is also assumed that the utility of consuming locally produced coffee is greater than that of consuming imported coffee. Thus, consumer surplus of locally produced specialty coffee is defined as

$CS i L S C = max { U i − P L S C , U i − P I C − δ i } = U i − P L S C$
(8)

Further, the change in consumer surplus from promoting locally produced specialty coffee is specified

$Δ CS i L S C − N C C = CS i L S C − CS i N C C$
(9)

The value for PLSC, PNCC, and ci was determined to assess the change in consumer surplus relative to the changes in the price of locally produced specialty coffee. Consumers would decide on their WTP for the locally produced specialty coffee, such that Ui − PNCC = Ui − CSiLSC – ci because this is their dominant strategy in the valuation question. Based on this equality, individuals’ WTP is equal to ci. The current average price of normal/conventional coffee was used for PNCC. The price of locally produced specialty coffee (PLSC) was then increased from 10% to 50%, with a gap of 10% relative to the current coffee price (PNCC). Upgrading the grade of coffee into a specialty coffee will raise prices of locally produced coffee because of an additional cost on processing, roasting, conducting the grading test on the coffee bean, and cupping score.

Table 5 presents the changes in average consumer surplus from applying the specialty coffee grading system. Generally, welfare changes were calculated by summing up all the individual welfare changes. The results show that consumers gain welfare when they consume local specialty coffee even when the price increase is limited to 40% relative to the current prevailing market price of conventional coffee. The positive consumer surplus is an indication that consumers that derive a large benefit from buying local specialty coffee are the prospect consumers of the product in the future. However, if the coffee price graded as specialty coffee increases by more than 50%, consumers suffer average welfare losses.

## CONCLUSIONS AND POLICY IMPLICATIONS

Coffee is becoming popular and important agricultural product in Philippines. Despite efforts of local government, the market for local specialty coffee is relatively small. To develop marketing strategies that could increase the demand and expand for local specialty coffee, price premiums that consumers are willing to pay for local specialty coffee relative to the conventional coffee product are required. However, no other study has examined this important issue in Philippines. Expansion of the market for local specialty coffee could support the local farmers and the communities that produce the coffee. This study examined consumer valuation for locally produced specialty coffee using the double bounded dichotomous choice contingent valuation method.

Our results indicate that coffee consumers have a positive perception of the local specialty coffee and they value locally produced quality products. Specifically, consumers are willing to pay an average of PHP 156 (USD 3.2) for local specialty coffee which is approximately 271% premium above the price per cup of a normal or conventional coffee (PHP 42). It also shows that consumers increase their utility when they consume local specialty coffee even when the price increase is limited to 40% relative to the current prevailing market price of coffee.

The results of the study reveal that consumers with prior awareness about the product being valued and have future plans to purchase specialty coffee are more likely to pay a high price for local specialty coffee. It also shows that consumers with a high current purchasing price for coffee are willing to pay a premium for local specialty coffee. However, consumers who have been drinking for more than five years are most likely to avoid paying the premium for the local specialty coffee. This indicates that consumers who regularly drink a coffee may not want to pay more for specialty coffee. Given our results that increasing awareness of specialty coffee is positively related to consumer preference for specialty coffee, increasing the awareness and understanding of consumers about the real meaning of specialty coffee is important since it can help them appreciate the quality of specialty coffee.

Understanding how consumers value the local specialty coffee is relevant for farmers and entrepreneurs entering as new players in the specialty coffee market since it will guide them to carry out various business decisions like marketing strategy, pricing strategy, market penetration, and identification of potential customers. It will also help existing industry players especially the coffee retailers in the development of strategies for retaining customers with improving the quality of coffee products and services offered.

Furthermore, the study on consumers’ valuation of local specialty coffee in Western Visayas, Philippines is timely and relevant to achieve the sustainable developmental goal of the Department of Agriculture (DA) in creating a market- driven agribusiness sector in the region. The findings derived from the study are relevant for the Department of Agriculture (DA) and partner Local Government Units (LGUs) as the basis for selecting and designing future developmental interventions for coffee producers, processors, retailers, and possible investors. This study will also contribute to attaining the goal of the Philippine Coffee Roadmap which is to make the Philippines self-sustaining by 2022. Educating the consumers in Western Visayas about specialty coffee by linking local opportunities with global facts will lead to the sustainable development of the specialty coffee industry in the region. Moreover, the result of this study can be advantageous to the coffee business industry. Business proprietors and those intending to invest in coffee enterprises can use the result of this study to comprehend the behavior of the customers and create a good marketing strategy for the business.

Generally, the findings of the research suggest that consumers would value a local product that is of good quality, sustainable and traceable. In terms of policy, this general finding is a clear indication that the government of the Philippines should promote local products and support the massive promotion of local specialty coffee to achieve self-sufficiency in terms of coffee. Specialty coffee shops should put more attention to establishing and educating the correct information about the product to the buyer to boost the specialty coffee appreciation, awareness, and market demand. Further research should be conducted to examine the influence of other important factors that may have some effect on the Philippine coffee industry, and how these factors affect consumer consumption behavior.

## 적 요

본 논문은 필리핀 로컬 스페셜티 커피에 대한 소비자의 선호 도를 밝히고 일반커피 대비 스페셜티 커피에 대해 소비자들이 부여하는 가치를 추정하는 것에 목적이 있다. 특히 소비자 잉 여를 극대화하는 스페셜티 커피의 최적 가격을 분석하여 커피 농가를 포함한 생산자, 투자자들의 이해를 높이고자 하였다. 주 요 연구 결과는 다음과 같다.

• 1. 응답자들의 연령 및 성별에 따라 소비하는 커피의 형태 가 다르게 나타남. 그러나 공통적으로 주로 아침에, 집에서, 습 관적으로 커피를 섭취함. 가장 선호하는 커피의 맛은 단맛과 쓴맛임. 대부분의 소비자들은 양조 커피, 압착 커피를 소비함.

• 2. 고품질의 원두를 엄선하여 만들어지는 스페셜티 등급의 커피 한 잔에 대한 소비자의 평균 지불의사가격은 일반 커피 (42페소) 대비 271% 높은 156페소(약 3.2달러)로 분석됨. 연 령이 어릴수록, 학력과 소득이 높을수록, 스페셜티 커피에 대 한 사전적 인지도가 높을수록, 향후 스페셜티 커피에 대한 구 매 의사가 강할수록 스페셜티 커피에 보다 높은 지불의사가격 을 표현함.

• 3. 로컬 스페셜티 커피는 원두 구매, 가공 및 로스팅, 등급 평가 비용이 발생하여 적절한 가격 인상이 요구됨. 기존 일반 커피 가격대비 40% 인상까지 소비자 후생이 증가하는 것으로 나타나는 반면, 스페셜티 커피 가격이 일반커피 가격대비 50% 이상 인상되는 경우에는 소비자들의 후생이 감소하는 것으로 나타남.

• 4. 필리핀 소비자들이 지역에서 생산된 스페셜티 커피에 대 한 높은 선호를 갖고 있다는 점을 고려하면 현지 스페셜티 커 피에 대한 대대적인 홍보가 로컬 스페셜티 커피에 대한 인지 도를 높이고 시장 확대로 이어질 수 있음. 이는 필리핀 커피 로드맵, 필리핀 농무부의 지속 가능한 발전 계획 목표 달성에 기여할 것임.

## APPENDIX

### Cheap Talk Script

“Before you make a decision, please pay attention that the cost per cup of coffee is the amount you will have to pay if the chosen alternative was to be implemented. Previous willingness to pay studies has demonstrated that people seem to overrate how much they are willing to pay. Therefore, consider thoroughly how the costs will affect your budget, so that you are completely certain that you actually are willing to pay the costs associated with the alternative that you choose”.

## Figure

Example of a double-bounded dichotomous-choice question.

Types of coffee most frequently purchased and consumed by respondents according to their demographic characteristics (N=300 in %).

## Table

Participants’ socioeconomic characteristics (N=300).

Coffee consumption behavior of respondents (N=300)

Average bid values provided and participants’ responses in CV (N=300)

Regression results of consumer valuation of local specialty coffee

Changes in consumer surplus relative to changes in the price of locally produced specialty coffee (N = 300, PHP/cup)

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