Revenue Impacts of the 2015 Avian Influenza Virus Outbreak on the United States Table Egg Wholesalers

Abstract

From December 2014 to June 2015, the U.S. poultry industry experienced an outbreak of highly pathogenic avian influenza (AI), resulting in considerable bird depopulations. Both turkey and egg producers were impacted and farms affected faced losses from costs of bird disposal and farm repopulation. This study isolates the table egg subsector of the poultry industry and looks at the revenue impact of the AI outbreak at the wholesale level. To determine this revenue impact, a vector error correction model (VECM) was defined and used to generate the counterfactual revenue during the time period the outbreak occurred. This counterfactual revenue was compared to the actual revenue observed during that time period and the difference is the revenue impact due to the outbreak, ceteris paribus. Additionally, machine learning algorithms, using innovations from the VECM, allowed determining causal relationships in contemporaneous time among the variables considered within the industry.

The model was developed using eight variables, the number of table egg layers on farm during a month and eggs, egg price, feed input prices, retail pork and beef prices, and real disposable personal income. When the counterfactual revenue was compared to the actual revenue from December 2014 to June 2015, a gain of about $676 million to wholesalers was determined to be attributed to the outbreak. Additionally, analysis of contemporaneous relationships of innovations, as shown by directed acyclic graphs, indicated that innovations in egg price are independent of innovations in direct production quantities, number of layers on farm and eggs, but are affected by production costs such as feed input costs. These results can be accounted for by various factors including the inelasticity of egg price and the imperfectly competitive behavior of the wholesalers and time delays in layer production. Future studies can use price transmission principles to expand this study and identify AI outbreak impacts at the consumer and producer levels.

Keywords: Highly Pathogenic Avian Influenza, Bird Flu, Vector Error Correction Model, Causality Modeling, Directed Acyclic Graphs, Wholesale Level Revenue Impacts, U.S. Egg Industry

JEL Classification: D40, C45, C52, C53