Impact of Extreme Weather Events on the U.S. Domestic Supply Chain of Food Manufacturing

In the United States, like in other countries, the agrifood supply chain faces challenges from a growing population and less predictable weather conditions. Extreme weather events decrease agricultural yield, which leads to changes in the domestic trade of agricultural products and, in turn, in the manufacturing of food products. This paper investigates the extent to which food manufacturing in any single state is dependent on drought events affecting locally sourced inputs and/or imported inputs. For this purpose, we estimate the food manufacturing production function in a two-stage process. In the first stage, we assess the role of drought on trade in animals and fish (SCTG 01), cereal grains (SCTG 02), and all other crop products (SCTG 03). In the second stage, we estimate a nested production function for processed food at the state level. Our findings indicate that the agrifood supply chain always adapt to a weather-induced shock on inputs but, depending on the location of the latter, it leads to either an increase or a decrease in a state’s food manufacturing production. We end with simulations showing how drought events affect food manufacturing production in California and Texas, the largest players in the national agrifood network.