Anomalous Weather and Supply Chains.

Abstract

We explore the potential resilience of supply chains that are characterised by imperfect competition at successive stages in the face of anomalous weather shocks. Using a simple theoretical model of successive oligopoly, we show how the price spread at each stage of the supply chain adjusts to potentially ameliorate or accentuate the impact of anomalous weather shocks, contrasting with the perfectly competitive case in which price spreads remain constant. In this theoretical set-up, the direction and extent of the change in the price spreads varies depending on how the vertical chain is characterised. Focussing on banana supply chains in three importing countries (the UK, US and France) and employing bespoke temperature and precipitation data in exporting countries we find that price spreads typically fall in response to anomalous weather shocks though this varies by stage and by country, potentially reflecting differences in national supply chains. For example, in the UK, in response to typical (one standard error) temperature shocks, retail-wholesale spreads fall by as much as 7 per cent; in the US, by around 5 per cent; but in France, these spreads are constant. Overall, the retail stage plays a key role in all countries. We also explore whether the change in spreads varies during crises periods: focussing on the period between the commodity crises of 2007-2011, the behaviour of spreads in face of shocks does vary compared with the data period as a whole, most notably over shorter time horizons though, again, this varies across countries.