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

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