Biological lags and market dynamics in vertically coordinated food supply chains: HPAI impacts on U.S. egg prices

Abstract

It is well known that livestock 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 2022–2023 HPAI event to highlight the implications of misspecification of disease dynamics in agri-food systems. Specifically, we examine the impact of HPAI on U.S. egg prices in 2022–2023. 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 estimate that HPAI caused weekly retail egg prices to increase on average by 5.3 percent. We calculate changes in consumer surplus to provide economic context for the main econometric results. When we extend these results to consumer surplus, we find that models that ignore the cumulative nature of HPAI estimate gains in consumer surplus, and models that ignore the post-outbreak recovery of layer inventories overestimate the consumer surplus loss by a factor of 3 to 4. 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.