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The Economics of Agricultural Supply Chain Design: A Portfolio Selection Approach

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  • Du, Xiaoxue
  • Lu, Liang
  • Reardon, Thomas
  • Zilberman, David
Abstract
Agrifood firms in the modernizing/globalizing world, both in developing and developed countries, regularly need to undertake innovations. They develop supply chains to accommodate the nature of the innovations. In this paper we analyze an innovator’s supply chain design problem. The design of the supply chain may include allocating resources between production of feedstock (agricultural products) and processing and marketing, and determining the amount of feedstock to be obtained through contracts. We show that the innovator determines its overall level of production taking advantage of its monopoly power in the output market, and behaves as a monopsony in buying feedstock from contractors. These decisions are constrained by the marginal cost of capital and the properties of production and marketing technologies. When the innovator is risk averse, risk considerations in production processing and marketing and the correlation between risks will affect both overall production and share of input purchased through contracts.

Suggested Citation

  • Du, Xiaoxue & Lu, Liang & Reardon, Thomas & Zilberman, David, 2015. "The Economics of Agricultural Supply Chain Design: A Portfolio Selection Approach," 2016 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2016, San Francisco, California 212809, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:assa16:212809
    DOI: 10.22004/ag.econ.212809
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    2. Liang Lu & Ruby Nguyen & Md Mamunur Rahman & Jason Winfree, 2021. "Demand Shocks and Supply Chain Resilience: An Agent-Based Modeling Approach and Application to the Potato Supply Chain," NBER Chapters, in: Risks in Agricultural Supply Chains, pages 107-132, National Bureau of Economic Research, Inc.
    3. Thomas Reardon & Ben Belton & Lenis Saweda O. Liverpool‐Tasie & Liang Lu & Chandra S. R. Nuthalapati & Oyinkan Tasie & David Zilberman, 2021. "E‐commerce's fast‐tracking diffusion and adaptation in developing countries," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1243-1259, December.
    4. A. Ford Ramsey & Barry Goodwin & Mildred Haley, 2021. "Labor Dynamics and Supply Chain Disruption in Food Manufacturing," NBER Chapters, in: Risks in Agricultural Supply Chains, National Bureau of Economic Research, Inc.
    5. Bellemare, Marc F. & Bloem, Jeffrey R., 2018. "Does contract farming improve welfare? A review," World Development, Elsevier, vol. 112(C), pages 259-271.
    6. Umakanta Mishra & Abu Hashan Md Mashud & Ming-Lang Tseng & Jei-Zheng Wu, 2021. "Optimizing a Sustainable Supply Chain Inventory Model for Controllable Deterioration and Emission Rates in a Greenhouse Farm," Mathematics, MDPI, vol. 9(5), pages 1-23, February.
    7. Guang Tian & Xiaoxue Du & Fangbin Qiao & Andres Trujillo-Barrera, 2021. "Technology Adoption and Learning-by-Doing: The Case of Bt Cotton Adoption in China," JRFM, MDPI, vol. 14(11), pages 1-13, November.
    8. Zilberman, David & Lu, Liang & Reardon, Thomas, 2019. "Innovation-induced food supply chain design," Food Policy, Elsevier, vol. 83(C), pages 289-297.
    9. Shi, Daojin & Chen, Lunsong & Wang, Xiaoli & Xu, Xiuying & Yang, Lixia, 2022. "Rural venture investments with credits mortgaged on farmer's forests—A case study of Zhejiang, China," Forest Policy and Economics, Elsevier, vol. 143(C).
    10. Masoud Rahiminezhad Galankashi & Farimah Mokhatab Rafiei & Maryam Ghezelbash, 2020. "Portfolio selection: a fuzzy-ANP approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-34, December.
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