COVID-19 and Food Supply Chains

The COVID-19 pandemic exposed critical weaknesses in the US food supply chain. Faced with the near-complete loss of the food service distribution channel, stories of wasted food, failing suppliers, and food shortages were common. We argue that the pandemic revealed a fundamental lack of resilience in the food supply chain that, while causing short-term welfare losses, need not have happened, and resulted from a failure of vision rather than a market failure in the traditional sense. We present a model of supply chain flexibility, grounded in real options theory, that demonstrates how firms can increase shareholder value by maintaining flexibility across supply chains. We present an example from the US fresh produce industry (onions) to demonstrate our hypothesis.