Canadian fruit and vegetable markets were significantly impacted by the spread of the novel coronavirus SARS‐CoV‐2 (and COVID‐19 disease), beginning in March 2020. Due to the closure of restaurants, bars, and schools, produce growers and distributors were forced to shift supplies almost entirely from the foodservice to the retail channel. Shippers reported labor and logistical constraints in making the change, but the fresh produce supply chain remained robust. In the long term, we expect lasting changes in consumers’ online food‐purchasing habits, heightened constraints on immigrant labor markets, and tighter concentration in fresh produce distribution and perhaps retailing.

Agri-food supply chains in North America have become remarkably efficient, supplying an unprecedented variety of items at the lowest possible cost. However, the initial stages of the COVID-19 pandemic and the near-total temporary loss of the foodservice distribution channel, exposed a vulnerability that many found surprising. Instead of continued shortages, however, the agri-food sector has since moved back to near normal conditions with prices and production levels similar to those typically observed in years prior to the pandemic. Ironically, the specialization in most food supply chains designed for “just-in-time” delivery to specific customers with no reserve capacity, which led to the initial disruptions, may have also been responsible for its rapid rebound. A common theme in assessing the impacts across the six commodities examined is the growing importance of understanding the whole supply chain. Over the longer term, a continuation of the pandemic could push the supply chain toward greater consolidation of firms and diversification of products given the increasing option value of maintaining flexibility. Other structural changes will be felt through input markets, most notably labour, as the trend toward greater automation will continue to accelerate as a response to meeting concerns about a consistent supply of healthy and productive workers. The economic fall out from the pandemic may lead to greater concentration in the sector as some firms are not able to survive the downturn and changes in consumer food buying behaviour, including movement toward online shopping and enhanced demand for attributes associated with resiliency, such as local. On the other hand, online shopping may provide opportunities for small producers and processors to shorten supply chains and reach customers directly. In the long term, COVID-19 impacts on global commerce and developing country production are more uncertain and could influence poverty reduction. While COVID-19's impacts on North American agriculture should have minimal effect on the Sustainable Development Goals (SDGs) through food prices, the ongoing global trends in trade and agribusiness accelerated by the pandemic are relevant for achievement of the SDGs.

This paper presents a general method for pricing weather derivatives. Specification tests find that a temperature series for Fresno, California follows a mean-reverting Brownian motion process with discrete jumps and ARCH errors. Based on this process, we define an equilibrium pricing model for cooling degree day weather options. Comparing option prices estimated with three methods: a traditional burn-rate approach, a Black-ScholesMerton approximation, and an equilibrium Monte Carlo simulation reveals significant differences. Equilibrium prices are preferred on theoretical grounds, so are used to demonstrate the usefulness of weather derivatives as risk management tools for California specialty crop growers. -1- Pricing Weather DerivativesWeather derivatives are contingent securities that promise payment to the holder based on the difference between an underlying weather index -accumulated snowfall, rainfall, or "degree days" over a specified period -and an agreed strike value. Because weather 1 represents a common source of volume risk for agribusinesses of all types, weather derivatives are a potentially valuable tool for risk management. Compared to insurance contracts, there are many benefits to using weather derivatives to manage risk. First, in order to claim a loss under an insurance contract, a grower must prove that a loss occurred on his or her own farm, or county in the case of area-based insurance products.Adjusting crop losses is expensive to administer and contains an element of subjectivity that growers seldom appreciate. Second, insurance in general is intended to cover the damage caused by infrequent, high-loss events rather than relatively high-probability, limited-loss events. Third, crop insurance products that are based on individual-firm losses are subject to moral hazard problems, so an alternative tool that pays out based on some objective measure of the weather itself may be a preferable alternative (Yoo; Turvey; Cao and Wei). In spite of these advantages, and the increasing interest in weather risk management more generally (Weather Risk Management Association), the volume of trade in weather derivatives has been growing relatively slowly (Dischel). Several factors contribute to this lack of liquidity, including (1) the absence of a forward market in a relevant weather index, (2) potential basis risk, (3) problems defining meaningful weather data, and (4) the lack of agreement over a common pricing model (Dischel; Nelken; -2-Turvey). Although the Chicago Mercantile Exchange (CME) began trading degree-day futures and options for a number of major U.S. cities in the fall of 1999, the fact that weather is a local phenomenon and micro-climates often differ radically within small geographic areas means that the CME products are of little use to most agricultural producers, or of limited use to many. Second, basis risk is likely to be a significant problem for firms that wish to hedge using derivatives based on weather indices. Basis risk, in this case, refers to the difference between a weat...

No abstract

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.