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Why is lobster getting cheaper?
David Gross writes:
At root, the global forces that are driving up the price of food don't significantly affect the vacation lobster business in Maine. Commercial and consumer demand doesn't vary much for off-the-boat lobster. Sure, many lobsters are sold to processing plants. But unlike other seafood products—think of canned tuna, or clam sauce, or frozen fish fillets—lobster is not produced or marketed on a mass global scale, which also means there are no speculators trying to make a killing on lobster futures. The fact that people are eating more and better in China and India isn't much boosting the demand for lobsters from Maine. Even in the United States, lobster remains to a large degree a regional product.
Consistent with Gross's hypothesis, lobster is phenomenally expensive in Chile right now, in either absolute terms or especially in relative terms (compare for instance to Chilean sea bass, which is half the U.S. price or less but Chilean lobster is at least twice the U.S. prices from a sample of n = 2; Chilean sea urchin is cheap too and delicious).
But why is lobster cheaper? Gross samples prices in Maine and higher gas prices may mean lower demand from tourists. But I am a little confused by Gross's additional explanation:
Distributors seeking to maintain their margins are cramming down the fishermen. And with limited local outlets (even swelled by summer visitors, the population of coastal Maine is relatively small), lobstermen can't hold out for higher prices.
Imagine a multi-product firm which applies mark-ups on different commodities. (If everything is perfectly competitive there won't be cross-product effects.) If the marginal cost of buying salmon goes up, can the mark-up on lobster then go down? Is it that the retailer, now faced with higher salmon costs, "threatens bankruptcy" to get a better result from the bargaining game with the lobster supplier?
Posted by Tyler Cowen on August 19, 2008 at 06:36 AM in Food and Drink | Permalink
Comments
Part of it could be that improved management has increased yield in recent years.
Posted by: Geoff H. at Aug 19, 2008 7:35:39 AM
Perhaps the fall in lobster prices is because of decreased demand from tourists. And the decreased tourists traffic may lower employment in other tourist related enterprises. So the lobstermen, with few short term options, may continue to harvest even as prices fall because it is still the best source for family income in the area.
Distributors may have costs that are rising more rapidly then the lobstermen. And they may have more ability to reallocate resources away from selling lobster, either because they are more geographically dispersed or, because they have fewer fixed costs, they are quicker to reach their shutdown point. In either case, their desire to be in the lobster business is more elastic.
Lobstermen may stay in business at lower margins for a longer period then the distributors either because of their relative cost structures and how easily they can reallocate resources.
Posted by: DanC at Aug 19, 2008 7:56:25 AM
My impression from Bottomfeeder, which I'm about halfway through, is that the collapse of the cod fishery in Newfoundland, combined with the depletion of other predator fish stocks worldwide, has generally favored bottomfeeders like lobster which suddenly have access to a new niche in the food chain; so part of the explanation for lobster's cheapness is that the supply is strong.
Posted by: North at Aug 19, 2008 8:38:37 AM
Can we consider lobster a luxury good? (even in Maine?) In a strained economy, people are substituting for lobster with inferior goods like imitation crab meat and catfish, and lobster demand is being choked off.
Posted by: your mom at Aug 19, 2008 9:38:57 AM
North may well be right that it is a simple matter of increased supply.
I seem to recall reading that the lobster catch has been exceptionally good in recent years.
Sometimes simple theories are correct.
Posted by: bernard Yomtov at Aug 19, 2008 9:45:34 AM
While lobster prices are down at the grocery store they are up at the seafood restaurants I go to around Boston.
I have not had lobster at a restaurant for two years because they are too expensive while I continue to have them at home.
So maybe the problem around here is in the restaurant part of the industry.
Posted by: spencer at Aug 19, 2008 11:29:00 AM
Increase in supply/price inelastic demand + income elastic demand(and US economy troubles).
One supply data point: The spring lobster catch in P.E.I. (Canada)is up by more than 10 per cent over 2007.
Preliminary numbers show total landings of 18.7 million pounds. The most dramatic increase was in the central and eastern part of the Northumberland Strait where the catch increased by one million pounds or 24.5 per cent over last year.
Posted by: frank at Aug 19, 2008 1:09:24 PM
Perhaps rock lobster (a different, clawless species from Maine lobster, and a substitute good) in other places (say, Indonesia or Australia) is being produced or caught more, and providing competition at, say, Las Vegas restaurants that would otherwise buy Maine lobster.
Posted by: secretivek at Aug 19, 2008 2:20:19 PM
High storage, transport, and transaction costs make lobster prices far stickier and more locally unique than for cheaply stored, transported, and transacted food commodities, just as in energy coal is stickier and more locally unique than oil and plant construction is stickier than coal. When inflation expectations rise the lowest friction (precious metals and oil) commodities rise first, and the stickiest (wages) rise last, and the stickier prices similarly lag when inflation expectations decrease. Similarly, changes in inflation expectations effect globally traded and transported foods long before local ones.
This is the main reason why monetary policy that focuses on "core inflation" makes for such poor policy: it focuses on the stickiest, i.e. most lagging, prices rather than the low-friction leading prices, and as a result it ends up reacting to the monetary news from several years ago (often to the results of its own policy from several years ago) rather than to the news today.
Posted by: Nick at Aug 19, 2008 2:38:31 PM
P.S. to answer Tyler's question based on this analysis, lobster is currently cheaper than cheaply traded and transported food for the same reason oil prices have risen faster than stickier energy alternatives, because over the last several years and especially in the last year inflation expectations have risen substantially. Unless inflation expectations again rise substantially, I expect over the next several years the ratio of average prices of lobsters to commodity foods to converge back to the historically normal ratio, just as I expect such convergence for oil and almost all of the alternatives to oil we currently see being loudly touted.
Posted by: Nick at Aug 19, 2008 2:50:06 PM
"My impression from Bottomfeeder, which I'm about halfway through, is that the collapse of the cod fishery in Newfoundland, combined with the depletion of other predator fish stocks worldwide, has generally favored bottomfeeders like lobster which suddenly have access to a new niche in the food chain; so part of the explanation for lobster's cheapness is that the supply is strong."
That's is definitely the argument in Bottomfeeder (and there's a similar abundance of crabs in the UK) - Tyler, don't tell us you don't actually read all the books which you recommend to us!
Posted by: Patrick Gillett at Aug 20, 2008 1:43:32 PM
"lobster is not produced or marketed on a mass global scale ... "
Que? Here in Australia, our lobster (caught mainly in the remote northwest, thousands of miles from our population centres) goes straight to the Tokyo fish market. It makes the stuff damned expensive for most Aussies.
And I'll bet Chilean lobster mostly goes to California (any Chilean lurkers here that can verify that?).
Posted by: derrida derider at Aug 21, 2008 1:30:12 AM
