Diversification and Resilience of Firms in the Agri-Food Supply Chain
AAEA members release new research in the AJAE
In response to the COVID-19 pandemic, the USDA and other federal agencies are enacting policies to increase the resilience of the agrifood supply chain. For example, new programs announced in April, 2023 seek to expand small- and medium-sized meat and poultry processing projects across the country.
In the new article “Diversification and Resilience of Firms in the Agri-Food Supply Chain” published in the American Journal of Agricultural Economics, Andrew Stevens and Jim Teal from the University of Wisconsin–Madison dig into how a firm’s level of diversification affects its resilience to market shocks.
The authors say, “We find that vertical diversification—where firms are active in multiple segments of the agrifood supply chain—lowers firm resilience, but that horizontal diversification—where firms are producing a larger variety of goods or services within a segment of the supply chain—increases firm resilience.”
They continue, “More specifically, we find that a vertically diversified firm is over four times more likely to have closed at some point during the first year of the COVID-19 pandemic than a vertically specialized firm. However, a typical horizontally diversified firm is roughly half as likely to have closed than a horizontally specialized firm.”
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ABOUT AAEA: Established in 1910, the Agricultural & Applied Economics Association (AAEA) is the leading professional association for agricultural and applied economists, with 2,500 members in more than 60 countries. Members of the AAEA work in academic or government institutions as well as in industry and not-for-profit organizations, and engage in a variety of research, teaching, and outreach activities in the areas of agriculture, the environment, food, health, and international development. The AAEA publishes three journals, the Journal of the Agricultural and Applied Economics Association (an open access journal), the American Journal of Agricultural Economics and Applied Economic Perspectives & Policy, as well as the online magazine Choices and the online open access publication series Applied Economics Teaching Resources. To learn more, visit www.aaea.org.
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