TABLE OF CONTENTS
Introduction
DOI: 10.7208/chicago/9780226829234.003.0001
[Food supply chains;Agriculture;Shocks;Demand shocks;Exchange rate volatility]
The COVID pandemic exposed the vulnerability of food supply chains to shocks. This project presents conceptual models and empirical analyses to measure risk resilience and vulnerability in supply chains. We explore the use of agent-based modeling and remote sensing data methodologies for assessing shock impacts. We emphasize research on the effects of recent shocks, particularly how agricultural labor, meat markets, and food retailing are affected by recent shocks, including the COVID pandemic and the African Swine fever in China. Finally, we have a general analysis of the transformation of agricultural supply chains and the volatility of food systems in response to microeconomic shocks. The study emphasizes the essential role of microeconomic incentives, macro policies, and technological change in enhancing agriculture resilience and provides a foundation for future research.
Chapter 1: Symbiotic, Resilient, and Rapidly Transforming Food Supply Chains in LMICs: Supermarket and E-commerce Revolutions Helped by Wholesale and Logistics Co-pivoting
DOI: 10.7208/chicago/9780226829234.003.0002
[Food supply chains;Retailer;Supermarket;e-commerce]
Food supply chains (FSCs) in developing countries are transforming rapidly (Reardon et al. 2019; Barrett et al. forthcoming). FSCs are transforming along three stages: from "traditional" to "transitional" to "modern" (Reardon et al. 2012b). The main changes are spatial lengthening, consolidation, technological intensification, and movement along the product cycle from niche to commodities to differentiated products (and thus introduction of innovations). While most attention is paid to food trade and global value chains, the domestic FSCs are also crucial. As supply chains grow, introduce innovations to the market, and transform in structure and conduct, they face two kinds of challenges in developing countries: (1) long-term issues like high transaction costs and risks; (2) short-term shocks like climate disasters and COVID-19. To confront these challenges, supply chains and their individual actors undertake two strategies, one related to the internal design of the supply chain and one to linkages between supply chains. FSC transformation and inter-supply chain symbiosis (and co-adaptation) are connected: (1) transformation of PSCs requires "pivoting" by the firms—new investments and innovations and to adapt to long- and short-term challenges; (2) the quest for transformation induces complementary supply chains (lateral, farm inputs, and R&D&E) to "co-pivot".
Chapter 2: Global Agricultural Value Chains and Structural Transformation
DOI: 10.7208/chicago/9780226829234.003.0003
[Global Value Chains;Structural Transformation;Agricultural Supply Chains;Global Agricultural Production]
Since the middle of the twentieth century, agricultural global value chains (AGVCs) have grown rapidly and have transformed the nature of agri-food production around the world. Little is known, however, about how participation in AGVCs changes the structure of the participating economies. Using a constructed panel dataset from 155 countries for the period 1991 to 2015, I find that, in response to high AGVC participation, both GDP and employment shares in the agricultural and services sectors increase, and that both factors decrease in the manufacturing sector. Counter to conventional wisdom about structural transformation, I uncover evidence that modern agrarian economies are leapfrogging the manufacturing sector to directly develop their agriculture and services sectors through their participation in AGVCs.
Chapter 3: Exchange Rate Volatility and Global Food Supply Chains
DOI: 10.7208/chicago/9780226829234.003.0004
[exchange rate volatility;global food supply chains;agricultural and food trade;sectoral gravity model]
This chapter analyzes the impact of exchange rate risk on global food supply chains. Although the theoretical literature suggests ambivalence regarding the sign and magnitude of this effect, most empirical studies indicate a negative association between exchange rate volatility and international trade flows. I investigate the relationship at the product level using a sectoral gravity model and detailed retrospective trade and exchange rate data for a balanced panel of 159 countries for 2001 to 2017. I study the relationship for 781 agricultural and food products and estimate the trade effects of short-run and long-run exchange rate volatility. My findings indicate significant heterogeneity in the trade effects of exchange rate risk. While the mean trade effects are positive for short-run and long-run volatility, these effects vary substantially according to product and industry characteristics. I find a positive association between exchange rate volatility and the trade effects for upstreamness and a negative association for downstreamness of the traded products. I show that the significant and adverse trade effects in earlier studies result from model misspecification and measurement errors. This research enhances the understanding of the implications of exchange rate volatility, a primary source of international risk exposure for global food supply chains.
Chapter 4: Fertilizer and Algal Blooms: A Satellite Approach to Assessing Water Quality
DOI: 10.7208/chicago/9780226829234.003.0005
[Nitrogen;Nutrient pollution;Agricultural supply chains]
Fertilizer is critical to agricultural supply chains, but its use results in downstream externalities in the form of aquatic hypoxic zones and algal blooms. Quantifying farm pollution is challenging due to its non-point nature and to the lack of a temporally consistent, administrative-level dataset on water quality. This chapter offers a novel satellite-derived measure of algal bloom intensity that spans more than 30 years and encompasses lakes, riparian, and coastal aquatic resources across counties in the United States. We show that fertilizer use is closely linked to our measure of water quality. Such farm pollution drives water quality impairment both locally and downstream from the fertilizer use, and impacts occur at an annual rate and over a longer-term timescale.
Chapter 5: Demand Shocks and Supply Chain Resilience: An Agent-Based Modelling Approach and Application to the Potato Supply Chain
DOI: 10.7208/chicago/9780226829234.003.0006
[consumer demand;supply chain;risk]
The food supply chain has experienced major disruptions from both demand and supply sides during the COVID-19 pandemic. While some consequences such as food waste are directly caused by the disruption due to supply chain inefficiency, others are indirectly caused by a change in consumer’s preferences. As a result, evaluating food supply chain resilience is a difficult task. With an attempt to understand impacts of demand on the food supply chain, we developed an agent-based model based on the case of Idaho’s potato supply chain. Results showed that not only the magnitude but also the timing of the demand shock will have different impacts on various stakeholders of the supply chain. Our contribution to the literature is twofold. First, the model helps explain why food waste and shortages may occur with dramatic shifts in consumer demand. Second, this paper provides a new angle on evaluating the various mitigation strategies and policy responses to disruptions beyond COVID-19.
Chapter 6: The Performance and Future of Ag Supply Chains
DOI: 10.7208/chicago/9780226829234.003.0007
[Food supply;Agricultural revolution;Innovation]
This may be a time of dynamic transformation in the agricultural sector. There have been significant leaps forward in artificial intelligence, robotics, and data-driven decision making. There are eye-opening systems and technologies already in use: comprehensive farm monitoring and control systems that irrigate, chemigate and feritgate autonomously; sound wave chamber pulverization of grains, volcanic rocks, waste by-products; mineral extraction from brackish water where commercial grade potassium and phosphorous leaves potable water as a by-product; atmospheric water extraction; temperature and humidity controlled clean rooms for nursery production that use 60% less energy; new plant breeding breakthroughs such as nitrogen fixing grains, vitamin fortified cultivars, drought, salinity, heat, disease tolerant and resistant plants. We are witnessing the development, production, and introduction to the consumer of new foods: novel protein products, seaweed, insects, earthworms, and grubs. How we eat, what we eat and how we procure our daily bread continues to evolve. These remarkable times are characterized by the unprecedented acceleration of invention, design, manufacturing, transport, and delivery. An Agricultural Renaissance can deliver multiple benefits to society, the environment, and the economies of rural towns and urban metropolises.
Chapter 7: Exploring Spatial Price Relationships: The Case of African Swine Fever in China
DOI: 10.7208/chicago/9780226829234.003.0008
[Information transparency;market integration;spatial models;spatial price relationships]
We use a temporary ban on inter-province shipping of live hogs induced by the 2018 outbreak of African Swine Fever (ASF) in China as a natural experiment to study spatial mechanisms behind the dynamics of market integration. With a unique dataset of weekly provincial hog prices, we employ a novel spatial network model to estimate the strength of price co-movement across provinces pre and post the ban. Results indicate that, in the highly integrated national market prior to the ban, longer geographical distances between two provinces did not weaken the strength of their price linkage. The ban broke down spatial integration. Longer distances became a significant obstacle to spatial price linkage in the post-ban periods, implying faster re-integration of hog prices between proximate provinces than remote ones. The negative effect of distance can be rationalized by the interplay between arbitrage opportunities and imperfect information. Our findings highlight information transparency as a key to market integration post shipping bans used to curb animal pandemics like ASF.
Chapter 8: Concentration and Resilience in the U.S. Meat Supply Chains
DOI: 10.7208/chicago/9780226829234.003.0009
[market concentration;risks;supply chain resiliency;U.S. beef market]
Supply chains for many agricultural products have an hourglass shape; between a sizable number of farmers and consumers is a smaller number of processors. The concentrated nature of the meat processing sectors in the US implies that disruption of the processing capacity of any one plant, from accident, weather, or worker illnesses from a pandemic can potentially lead to systemwide disruptions. We explore the extent to which a less concentrated meat processing sector would be less vulnerable to the risks of temporary plant shutdowns. We calibrate an economic model to match the actual horizontal structure of the US beef packing sector and conduct counterfactual simulations. With Cournot competition among heterogeneous packing plants, the model determines how industry output and producer and consumer welfare vary with the odds of exogenous plant shutdowns under different horizontal structures. We find that increasing odds of shutdown results in a widening of the farm-to-retail price spread even as packer profits fall, regardless of the structure. Results indicate the extent to which a more diffuse packing sector better ensures a given level of output, and thus food security, depends on the exogenous risk of shutdown and the level of output desired; no horizontal structure dominates.
Chapter 9: Labor Dynamics and Supply Chain Disruption in Food Manufacturing
DOI: 10.7208/chicago/9780226829234.003.0010
[Food manufacturing sector;Employment;Wages]
Food manufacturing and processing is an important link between agricultural producers and consumers in the agricultural supply chain. The US food manufacturing sector is both increasingly mechanized and concentrated. Consequently, labor risks in food manufacturing have changed over time with changes in industry structure. Labor risks were highlighted by the COVID-19 pandemic—particularly in the animal slaughtering and processing industry—where labor-driven disruptions resulted in temporary plant closures. We use county-level data on employment in food manufacturing and dynamic panel models estimated via generalized method of moments to examine employment and wage dynamics in the food manufacturing sector and animal processing industry. We compare forecasts from the estimated models with changes in food manufacturing and animal processing employment and wages during the onset of the COVID-19 pandemic. Our results shed light on the role of operational and disruption risks in food manufacturing. We find significant delays in adjustment to employment and quicker adjustment in wages. Despite an unanticipated drop in employment in food manufacturing and animal processing in April 2020, employment returned to predicted levels within two to three months. The response of wages and employment to the pandemic suggest a degree of resilience in food supply chains.
Chapter 10: Has Global Agricultural Trade Been Resilient under COVID-19? Findings from an Econometric Assessment of 2020
DOI: 10.7208/chicago/9780226829234.003.0011
[Agricultural trade;Pandemic;Covid-19;Gravity model;Global supply chains;Trade disruptions]
Global agricultural trade has been described as “resilient” to the COVID-19 pandemic’s effects; however, the size and channels of its quantitative impacts are unclear. Using a reduced-form, gravity-based econometric model for monthly trade, we estimate the effects of COVID-19 incidence rates, government-imposed restrictions to curb the outbreak, and the reduction in human mobility/lockdown effect on global agricultural trade through the end of 2020. While agricultural trade remained stable through the pandemic, the sector as a whole was not unscathed. We estimate COVID-19 reduced agricultural trade by approximately 5 to 10 percent at the aggregate sector level; a quantified impact two to three times smaller in magnitude than our estimated impact on trade in the nonagricultural sector. We find sharp differences across commodities. Non-food items (hides and skins, ethanol, cotton), meat products including seafood, and higher value agri-food products were most affected by the pandemic; however, the COVID-19 trade effect for the majority of food and bulk agricultural commodity sectors was insignificant, or in a few cases, positive. We also examine the effects across low- versus high-income countries, the changing dynamics of the pandemic’s effect on trade flows, and the effects along the extensive product margins of trade.
