Sustainability certification and product substitutability: Evidence from the seafood market

Ecolabels address the asymmetry of information between producers and consumers regarding credence attributes. If consumers prefer a product with an ecolabel, the label will create product differentiation and a reduction in substitutability between ecolabeled and non-labeled products. Fisheries certification programs for sustainability have rapidly increased their significance within international seafood markets as a mechanism to create market-based incentives for improved global fisheries management and practices by differentiating seafood products with ecolabels. While there exists growing evidence of market benefits in the price dimension, this analysis investigates both price and quantity effects of fisheries certification by testing the hypothesis of structural changes in demand at the import (wholesale) level to determine if, in the period after sustainability certification, there were significant changes in market shares or substitutability between certified and uncertified frozen walleye (Alaska) pollock (Theragra chalcogranuna) imported by Germany. A linear, first-differenced, inverse almost ideal demand system (IAIDS), incorporating a dynamic transition function, is used to estimate German imports of certified pollock from the U.S. and uncertified pollock from Russia and China. Results indicate no statistically significant change in market shares, although there were significant effects on the price flexibilities. The price of certified US pollock became less sensitive not only to changes in own quantity of imports but also to changes in import volumes of non-certified Russian pollock. These market changes may provide insight into economic incentives that may have led the Russian government to strengthen its national fisheries management policies to gain certification.