Why is lobster getting cheaper?

by on August 19, 2008 at 6:36 am in Food and Drink | Permalink

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?

Geoff H. August 19, 2008 at 7:35 am

Part of it could be that improved management has increased yield in recent years.

North August 19, 2008 at 8:38 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.

bernard Yomtov August 19, 2008 at 9:45 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.

frank August 19, 2008 at 1:09 pm

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.

Nick August 19, 2008 at 2:38 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.

Patrick Gillett August 20, 2008 at 1:43 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!

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