Imperfect food markets in times of crisis: economic consequences of supply chain disruptions and fragmentation for local market power and urban vulnerability.

ABSTRACT

As these lines were written, the Covid-19 pandemic crisis was continuing to threaten countries around the globe. The worldwide consensus that physical distancing is an effective instrument for mitigating the spread of the virus has led policymakers to temporarily limit the freedom of movement of people between and within countries, cities, and even neighborhoods. These public health-related restrictions on human mobility yielded an unprecedented fragmentation of international and national food distribution systems. Focusing on food retailing - usually being modestly oligopolistic - we take a micro-economic perspective as we analyze the potential consequences this disruption has for the physical as well as for the economic access of households to food at the local level. As the mobility constraints implemented substantially reduced competition, we argue that food retailers might have been tempted to take advantage of the implied fragmentation of economic activity by exploiting their temporarily raised market power at the expense of consumers and farmers. We illustrate our point by providing empirical evidences of rising wholesale-retail as well as farm-retail price margins observed during the Covid-19 crisis. Subsequently, we review existing empirical approaches that can be used to quantify and decompose the micro-economic effects of crises on food demand and supply as well as the size and structure of the market, costs of trade, and economic welfare. The employment of such approaches facilitates policymakers' understanding of micro-economic effects of public health-induced mobility restrictions on economic activity.