Revenue Diversification as a Safety Net: Evidence from the 2012 U.S. Drought

Agricultural cooperatives operate in increasingly uncertain environments characterized by production risk, market volatility, and recurring external shocks. In this context, revenue diversification is often viewed as a strategy for reducing financial vulnerability and strengthening resilience. This study examines whether cooperatives with more diversified revenue portfolios were better able to withstand and recover from the 2012 U.S. drought, a major shock to agricultural production and markets. Using proprietary financial and operating data from CoBank, we construct a measure of revenue diversification based on a Herfindahl–Hirschman Index (HHI) calculated from businesssegment gross profit margins. We then implement an event-study difference-in-differences framework to estimate the effect of diversification on cooperative profitability following the 2012 drought. The results indicate that revenue diversification was associated with an increase in return on assets (ROA) of approximately 1.78 percentage points in 2012 relative to more concentrated cooperatives. However, the estimated benefits were concentrated in the immediate post-shock period and did not persist as statistically significant long-run advantages. These findings contribute to the limited literature on diversification and resilience in agricultural cooperatives and suggest that diversified revenue structures can enhance short-run resilience following major external shocks.