In light of the recently experienced systemic shocks (the COVID-19 pandemic and the war in Ukraine), we investigate supply chain robustness. We aim to understand the potential…
Abstract
Purpose
In light of the recently experienced systemic shocks (the COVID-19 pandemic and the war in Ukraine), we investigate supply chain robustness. We aim to understand the potential consequences of uncertain events or adversary’s action on critical supplies in the Alliance.
Design/methodology/approach
We leverage a parsimonious supply chain model and investigate the relationship between upstream supplier concentration/diversification and the supply chain’s robustness (survival probability) in the presence of uncertain systemic shocks. In several scenarios of shock events, we simulate alternative input sourcing strategies in the presence of uncertainty.
Findings
A firm-level cost-focused optimisation may lead all upstream suppliers to concentrate in one location, which – when subsequently hit by a shock – would result in a disruption of the entire supply chain. A chain-level forward-looking optimisation diversifies the upstream supplier location and sourcing decisions. As a result, the supply chain’s survival probability is maximised, and critical supplies will continue even under the most demanding circumstances.
Research limitations/implications
Our findings encourage political and military decision makers to enhance upstream supply chain robustness in critical and strategic sectors, such as the diversification of nitrocellulose supplies currently sourced almost exclusively from China by European gunpowder manufacturers.
Practical implications
Our findings have direct recommendations to supply chain downstream decision makers and to the government’s policy choices. Since global supply chain (GSC) disruptions in critical sectors may have catastrophic impacts on social welfare and the probability of shocks such as COVID-19 and Russia’s war may not be known even approximately, robust decision rules seem to be the appropriate tools for policymaking in critical and strategic sectors such as energy supplies, food and water, communication and defence. A robust supply chain is one in which the survival probability is maximised, which we show in a central planner strategy’s simulations.
Originality/value
The paper shows formally why a market-based global input sourcing strategy may be efficient from an individual firm’s perspective but may be suboptimal from a societal resilience perspective.
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Pavel Ciaian, Jan Fałkowski and d'Artis Kancs
The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and…
Abstract
Purpose
The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and Eastern Europe (CEE) transition countries.
Design/methodology/approach
Drawing on a unique farm level panel data set with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the CEE transition countries. The large size of the FADN data set has an additional advantage. It allows the authors to employ a semi‐parametric estimator based on the propensity score matching. Using more than 37,409 observations assures that the loss in efficiency of semi‐parametric estimates, as compared to parametric ones, is not a problem. This is important for at least two reasons. First, applying a semi‐parametric propensity score matching (PSM) estimator allows to control for any heterogeneity in the relationship between farm performance and their observable characteristics (in particular access to credit). Second, matching estimators are robust in situations where farms having access to credit systematically differ from those that do not.
Findings
It is found that farms are asymmetrically credit constrained between inputs. The use of variable inputs and capital investment increases up to 2.3 percent and 29 percent, respectively, per 1,000 EUR of additional credit. The authors' estimates suggest also that farm access to credit increases the total factor productivity up to 1.9 percent per 1,000 EUR of additional credit, indicating that an improved access to credit results in adjusting the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land.
Originality/value
To the best of the authors' knowledge, the present paper is the first to investigate the importance of access to credit for farm performance in the CEE region as a whole.
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Leslie J. Verteramo Chiu, Sivalai V. Khantachavana and Calum G. Turvey
– The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China.
Abstract
Purpose
The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China.
Design/methodology/approach
Using primary survey data from 730 farm households in the Shaanxi province of China and from 372 farmers in northeastern Mexico, the authors investigate factors associated with risk rationed, price rationed and quantity rationed farmers. The survey was instrumented to self-identify borrower typologies. In addition the authors created within the survey a discrete-choice credit demand build to determine borrower credit demand elasticities. The analysis applies a linear probability which the authors found to be consistent with multinomial and binary logit models.
Findings
The authors find in China the incidence of risk rationing in farmers to be 6.5, 14 percent for quantity rationed and 80 percent for price rationed. In Mexico, 35 percent of the sample is risk rationed, 10 percent quantity rationed and 55 percent price rationed. The results from China support the hypothesis that the financially poor are more likely to be quantity rationed; in Mexico, however, the level of education is found to be important in determining quantity rationed. In both countries, asset wealthy farmers are less likely to be risk rationed; however, income does not appear to have an impact. The paper provides evidence that the elasticity of demand for credit is different among the three credit rationed groups: risk rationed, price rationed and quantity rationed. Risk aversion and prudence are significantly correlated with risk rationing in China, while only risk aversion is significant in Mexico. The results suggest that efforts to enhance credit access must also deal with risk and risk perceptions.
Practical implications
Risk rationing is an important concept in the understanding of rural credit markets. The findings that only 6.5 and 35 percent of Chinese and Mexican farmers are in stark contrast to each other. For agricultural economies such as Mexico with a significant number of farmers being risk rationing, more effort should be put into financial education and financial practices, including perhaps the use of risk-contingent credit to remove collateral risk. As property rights in China evolve, and new laws are promulgated to permit borrowing against land use rights, the collateralization issue will become much more important in rural credit markets.
Originality/value
This paper is the first to investigate risk rationing in China and Mexico and one of the few research studies empirically investigating risk rationing. A comparative analysis of Mexico and China is enlightening because of the structural differences in the respective agricultural economies. The use of a credit demand build and the enumeration of individual credit demand elasticities is an original contribution to this literature.