Market Concentration and Resilience in Agricultural Supply Chains

Abstract

Problem Definition: U.S. agricultural supply chains are arguably among the most efficient in the world, yet recent disruptions have exposed a fundamental lack of resilience. Some point to market concentration as one reason for this lack of resilience, but there is little empirical evidence to support this claim. In this paper, we develop a model to test the effect of market concentration, both in the supplier and retail markets, on agricultural supply chain resilience. 

Methodology / Results: We measure resilience using the time it takes price spreads the difference between retail and wholesale prices-to return to their previous levels after a major disruptive event. We test our model using data from the US beef supply chain following the 2019 Tyson beef packing plant fire in Holcomb, KS, which temporarily removed 6% of the beef supply from the market. Using an event-study approach, we find that supplier and retail concentration improve recovery times by about 1.45%. 

Managerial Implications: Our results demonstrate that market concentration may not necessarily reduce resilience in agricultural supply chains. Therefore, managerial strategies that promote closer supply chain relationships between supply chain partners may promote broader supply chain resilience than previously thought. Moreover, government policies targeting market concentration, specifically to achieve resilience goals, may be misguided.

Keywords: concentration, supply chain resilience, prices, food systems

JEL Classification: D43, L13, M31