Where’s the Beef (Going to Be)? How Changing Risk Perceptions Could Affect the Number and Location of Beef Processing Plants

This paper provides a framework to examine the potential impact of enhanced managerial focus upon the risk of plant shutdowns (and general production interruptions) on firms’ spatial capital investment decisions, illustrated with an empirical application to beef production plants. We consider both the geographic location of each plant and its size, thus also choosing the optimal number of production plants to operate. In both risk neutral and risk averse settings, we examine the robustness of these plant capital investment decisions to shifts in the perceived risk of plant shutdowns. Both national (absolute) and location-specific (relative) shifts in risk perceptions are tested. We find that the optimal plant configurations for beef producers of diverse sizes are all quite robust to shifts in shutdown risk perceptions within individual model specifications. However the comparisons of the risk neutral to risk averse models or absolute to relative shift models do show differences in optimal plant configuration. These results lead us to conclude that the spotlight which Covid-19 shone on plant shutdown risk is unlikely to lead to substantial changes in the spatial configuration of animal production in the U.S, but that climate change may.