Biological Lags and Market Dynamics in Vertically Coordinated Food Supply Chains: HPAI Impacts on U.S. Egg Prices

31 Pages Posted: 12 Oct 2023

See all articles by James Mitchell

James Mitchell

University of Arkansas - Department of Agricultural Economics & Agribusiness

Jada Thompson

University of Arkansas - Department of Agricultural Economics & Agribusiness

Trey Malone

College of Agriculture, Department of Agricultural Economics, Purdue University

Date Written: October 10, 2023

Abstract

It is well known that agricultural production involves long biological lags. Failure to account for these biological lags can result in the misspecification of supply chain relationships and adjustments to market shocks, which can have significant implications for policy decisions. An example is the 2022 Highly Pathogenic Avian Influenza (HPAI) event that caused high mortality rates in domestic poultry supply chains and reduced egg production. We use the 2022 HPAI event to highlight the implications of misspecification in agri-food systems. Specifically, we examine the impact of HPAI on U.S. egg prices in 2022. To do this, we estimate a hedonic model of retail egg prices that controls for quality, regional, and temporal factors. The model allows for the effect of HPAI on egg prices to accumulate over time, reflecting the biological adjustment to replace commercial flocks that were depopulated because of HPAI. The preferred model specifications predict that HPAI caused a 7.2 percent to 9.2 percent increase in retail egg prices. We calculate changes in consumer surplus to provide economic context for the main econometric results. The preferred model specifications indicate a loss in consumer surplus ranging from $930 million to $1.195 billion. Models that ignore biological production lags underestimate consumer surplus changes by a factor ranging from 1.4 to 24.7. Our findings have important policy implications, particularly concerning disease outbreaks that can significantly impact agricultural production. This analysis emphasizes the importance of understanding context-specific outcomes for agri-food supply chain research.

Keywords: supply chain dynamics, retail egg prices, biological lags, Highly Pathogenic Avian Influenza

JEL Classification: Q11, Q13, Q18

Suggested Citation

Mitchell, James L. and Thompson, Jada M. and Malone, Trey, Biological Lags and Market Dynamics in Vertically Coordinated Food Supply Chains: HPAI Impacts on U.S. Egg Prices (October 10, 2023). Available at SSRN: https://ssrn.com/abstract=4598153 or http://dx.doi.org/10.2139/ssrn.4598153

James L. Mitchell (Contact Author)

University of Arkansas - Department of Agricultural Economics & Agribusiness ( email )

Fayetteville, AR 72701
United States

Jada M. Thompson

University of Arkansas - Department of Agricultural Economics & Agribusiness ( email )

Fayetteville, AR 72701
United States

Trey Malone

College of Agriculture, Department of Agricultural Economics, Purdue University ( email )

United States

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