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The voodoo of lobster economics
- rayiner 12y agoMy dad grew up in rural Bangladesh. He once told me that when he was young, lobster was a common food in villages. Overseas demand hadn't yet picked up, so the plentiful catch was food for the locals. Today of course, all that lobster gets shipped overseas, and the locals can't afford to eat it. At least they can take solace in the fact that the market is allocating scarce lobsters to those who value them the most.
- presidentender 12y agoThey can also profit from either the sale of the lobsters or the sale of services to fishermen.
- rayiner 12y agoAs broken down above, most of the money from that lobster ultimately goes somewhere else. But that's the reality of the market. Bengali villagers don't have the capital to get lobsters from water to the table where someone will pay $60 for it. The companies that do have all the leverage, and extract most of the value. Are they better off in some sense? Sure. But unless you're an economist, you have to posit that the enjoyment from a lobster dinner is the same whether you're a Bengali villager or a yuppie in San Francisco. In a sense they're giving up $60 of enjoyment to get a couple of dollars of cash.
- jrells 12y agoIf the lobster were so valuable to the locals, they probably wouldn't be selling them far below $60.
- harlanlewis 12y agoIf you're being paid for labor to extract a resource, your wage is much more closely tied to difficulty and volume than sale value.
- rayiner 12y agoThe value of that lobster dinner is $60 to someone in SF. If the locals choose to sell them for the few dollars they get for them, either: 1) the locals are irrational; 2) or the value of the dinner to them is less than a few dollars. In neoclassical economics, we assume rational actors. So it must be 2. But why would a Bengali villager get much less utility out of a lobster dinner than a San Francisco yuppie? Sesfood is a staple in Bangladesh, and lobster is a delicacy. [1] The answer is because they're poor: measured by the market, they, ostensibly, ascribe less value to everything than the San Francisco yuppie. That's an interesting result. The San Francisco yuppie derives far more utility from that lobster than the Bengali villager does. Why? Because he's richer. By the measure of the market, the rich derive far more utility from everything, and the market allocates scarce resources to those who value them the most. [1] This is not an example out of an economics textbook, where country A sells something it doesn't value to country B who does value it.
- briandh 12y agoYou're forgetting that $60 buys much more in Bengal than it does in SF.
- _dps 12y agoThere's an important part of utility theory that answers this question: utility is not comparable between people, only between options available to a single person. So Yolanda-Yuppie gets more Yolanda-utility out of a lobster than she would out of keeping her $60. Vikram Villager gets more Vikram-utility out of a few more dollars of income than he would out of keeping his lobster. No mainstream utility theorist would claim to quantitively compare Yolanda-utility to Vikram-utility. Edit/Clarification: the essence of social welfare economics is in trying to do interpersonal utility comparisons that yield a social utility function that behaves as much as possible like a personal utility function. Arrow's theorem tells us that this is not possible to do perfectly; any attempt to do so will result in one of several significant deviations from what we consider "utility" for a single person.
- rayiner 12y agoYou're correct, but that's the boring way of saying it. The Bengali villager doesn't sell the lobster because he gets less pleasure out of eating the lobster than the San Francisco yuppie. Obviously, he forgoes the delicacy, one with a rich culinary tradition in his country, because he has to. Because he has limited choices while the San Francisco yuppie has many choices. The market works to allocate him a couple of dollars worth of necessities at the cost of forgoing a pleasure for which the San Francisco yuppie is willing to pay $60. I think this situation is a great illustration of the human implication of the economics you just recited.
- nickff 12y ago>"In a sense they're giving up $60 of enjoyment to get a couple of dollars of cash." You could also make the argument that the villagers have the opportunity to have $60 of enjoyment at a bargain price, whereas the San Francisco yuppies must pay a high price.
- QuantumChaos 12y ago>As broken down above, most of the money from that lobster ultimately goes somewhere else. You can't have it both ways. The only affect that the market has on the local market for lobsters in Bangladesh, is via the price in Bangladesh, i.e. the price the fishermen pay. So to the extent that they are affecting the market in Bangladesh, they must be paying higher prices, and therefore the parent comment applies. >But unless you're an economist, you have to posit that the enjoyment from a lobster dinner is the same whether you're a Bengali villager or a yuppie in San Francisco. In a sense they're giving up $60 of enjoyment to get a couple of dollars of cash. The economists are in fact correct. You cannot measure enjoyment in dollars, because $60 will buy a lot more additional enjoyment for a Bengali villager than a San Francisco yuppie. So the villager would be willing to give up the enjoyment of a lobster dinner for much less than $60, which is precisely what they are doing.
- thaumasiotes 12y ago> But unless you're an economist, you have to posit that the enjoyment from a lobster dinner is the same whether you're a Bengali villager or a yuppie in San Francisco. Huh? I could take a friend to a restaurant and order two of the same dish. Odds are sky-high that enjoyment from eating the same dish, prepared in the same restaurant, against the same cultural background, would be rather different.
- deleted 12y ago[deleted]
- sliverstorm 12y agoThe same thing is happening with quinoa today.
- PeterWhittaker 12y agoFriends who grew up in rural Nova Scotia remember the same thing: Lobster were bugs of the sea, poor man's food. Well, to me they are still bugs of the sea. Vile, really.
- zwegner 12y agoRelevant xkcd: https://xkcd.com/1268/ https://xkcd.com/1268/
- delinka 12y agoI think lobster is more like cockroach. And even after that, I still enjoy dipping cooked lobster into melted butter ... mmmmm ...
- pcrh 12y agoPinchy!
- koliber 12y agoHaha. When I visited Cambodia, I ate spider in a restaurant in Phnom Penh. I cannot say it was tasty or delicious, but made for an interesting evening. Just adding that here as proof that we live in a universe where people occasionally eat spiders.
- oftenwrong 12y agoThis video discusses how Lobster made their transition to a luxury item in a "storytelling" format: https://www.youtube.com/watch?v=lR5yWTf2ajE&t=4m33s https://www.youtube.com/watch?v=lR5yWTf2ajE&t=4m33s tl;dw westward expansion in North America meant people were increasingly living in areas without plentiful lobster -> refrigeration and canning made shipping lobster west possible -> lobster was fished heavily to meet demand -> lobster populations declined -> rare lobster means expensive lobster
- pravda 12y agoI think lobster qualifies as a Veblen good. When lobster was plentiful, it was fed to prisoners. The only reason people pay a lot for a lobster dinner is because -- lobster is expensive!
- habosa 12y agoOur cooking techniques have improved a lot. I read somewhere that when lobster was fed to prisoners it wasn't boiled live and served like we do today, it was old and salted. I would bet that today's fresh-cooked lobster with drawn butter tastes a lot better than what the prisoners were eating. It's not only expensive, it's delicious.
- deleted 12y ago[deleted]
- icelancer 12y agoIt was also ground up, shells and all. They didn't care.
- phaus 12y ago>I would bet that today's fresh-cooked lobster with drawn butter tastes a lot better than what the prisoners were eating. There is still bad lobster in existence today. I grew up in Maine and at once point worked in the lobster-fishing industry. Later on, to my dismay, the Army used to feed us lobster that had been boiled until it was water flavored meat. Such a waste.
- brianbreslin 12y agoI was visiting an eco-resort in the early 90s in panama in the san blas islands, and the locals were told the americans would only eat lobster (caught there fresh) if it was boiled, vs their own grilling/fire cooking it. So these natives proceeded to boil the life out of the poor lobsters and served the most rubbery tasteless lobster I've ever had. All because that's what they thought we liked.
- 12y ago
- Bootvis 12y agoDuring the middle ages the salmon was so plentiful in the Dutch rivers that maids stipulated in their contracts they would be served salmon only so many times a week.
- alphakappa 12y agoLobster seems to have a similar history "Lobsters were so abundant in the early days—residents in the Massachusetts Bay Colony found they washed up on the beach in two-foot-high piles—that people thought of them as trash food. It was fit only for the poor and served to servants or prisoners. In 1622, the governor of Plymouth Plantation, William Bradford, was embarrassed to admit to newly arrived colonists that the only food they “could presente their friends with was a lobster … without bread or anyhting else but a cupp of fair water” (original spelling preserved). Later, rumor has it, some in Massachusetts revolted and the colony was forced to sign contracts promising that indentured servants wouldn’t be fed lobster more than three times a week." From http://www.psmag.com/navigation/business-economics/how-lobster-got-fancy-59440/ http://www.psmag.com/navigation/business-economics/how-lobst...
- zheshishei 12y agoBased on these examples, I believe the proper way to draw up the contract would be to write "exactly" instead of "no more than". "I will be fed lobster exactly 3 times a week". It safeguards against those farfetched price increases but also limits the number to a tolerable level.
- gaius 12y agoAlso see http://www.theguardian.com/commentisfree/2013/jan/16/vegans-stomach-unpalatable-truth-quinoa http://www.theguardian.com/commentisfree/2013/jan/16/vegans-...
- SilasX 12y agoAccording to this post [1], a "low-class" meal in the Philippines would be "grilled tilapia, homemade chicken soup, rice, salad with homemade dressing, sticky rice cooked in coconut, and a homemade sauce", while a high class meal would be pizza from Domino's. Boggles the mind. [1] http://gene-callahan.blogspot.com/2014/05/rich-and-poor.html http://gene-callahan.blogspot.com/2014/05/rich-and-poor.html
- angersock 12y agoCrabbing is much the same--some friends of mine down in the Gulf used to make a living that way. Some of the hardest-working most resourceful people you'll ever meet. The amount of effort put into these industries boggles the mind.
- rayiner 12y agoBerries are similar. Costco charges several dollars a pint. My wife refuses to buy any. Where she's from (Oregon), they're an invasive weed, and you can pick so much off the branches you can't give them away.
- steveax 12y agoSpecifically, the Himalayan Blackberry [1] which was imported in the 1800's and escaped. They are a scourge [2] up here in the PNW. [1] http://en.wikipedia.org/wiki/Rubus_armeniacus http://en.wikipedia.org/wiki/Rubus_armeniacus [2] http://pnw-ipc.org/docs/ManagingHimalayanBlackberry.pdf http://pnw-ipc.org/docs/ManagingHimalayanBlackberry.pdf
- judk 12y agoSo does she go to Oregon whenever she wants a berry?
- krisgee 12y agoPrinciple of the thing. I don't buy scallops unless I'm down home because the markup on it seem ridiculous (especially since they're usually less fresh and of lesser quality).
- _delirium 12y agoThat's how I feel about figs. I like them, and will eat lots of them when I'm in Greece or California, but I'm not paying €1 ea. to buy them in Denmark. (Apparently they don't ship well, so are very expensive outside of the areas where they're cultivated.)
- TheBiv 12y ago>"But everyone knows the most important reason: The disappearance of codfish means lobsters have no natural predators." Wait. What happened to the codfish? Overfishing?
- krisgee 12y agohttp://en.wikipedia.org/wiki/Collapse_of_the_Atlantic_northwest_cod_fishery http://en.wikipedia.org/wiki/Collapse_of_the_Atlantic_northw... Yep. If you were wondering why so many east coasters are in Alberta digging for oil this is why.
- TheBiv 12y agoWow. Thank you very much for sharing!
- krisgee 12y agoI was honestly sort of surprised people didn't know. The collapse of the fishery was so completely devastating to the east coast (where I was born) economy that it's just sort of a given back home that lobster prices are awful, your potatoes are going to rot and your kids are going to move (like I did).
- mturmon 12y agoYes. It is probably one of he most salient examples of overfishing: http://en.wikipedia.org/wiki/Collapse_of_the_Atlantic_northwest_cod_fishery http://en.wikipedia.org/wiki/Collapse_of_the_Atlantic_northw... It's a fascinating story. The collapse happened suddenly, in the early 1990s, and the stock of Atlantic cod has yet to recover.
- TheBiv 12y agoTaking a look at the value of Larry along his journey (as the author does): Larry's value out of the water: $8.00 Value after staying at LobsterWorld: $9.30 Value after staying at Tangier (aka lobster spa): $11.60 Value after flying FedEx: $14.40 Value after passing through wholesaler: $17.40 Value on plate: $52.20 It looks as though the 'voodoo' (if there is any) of lobster economics is mainly set by the restaurant who marks up the product.
- lisper 12y agoExcept even then there is no voodoo: the restaurant has costs far and away above the cost of good sold: labor, rent, furniture, dishwashing, etc. etc. etc. The actual profit margin even at retail is razor thin.
- TheBiv 12y agoIs a 3x markup on a main entre normal in restaurants? Meaning, would a $30 steak cost $10 to acquire?
- krisgee 12y agoYes. 1/3 of your plating price as the wholesale cost of the ingredients is pretty standard.
- jonchang 12y agoFrom the article: An excellent lobster dinner for $30 is good value. I now knew, however, that the actual cost of Larry was barely $10 a pound. But that’s the formula in the restaurant business. “On the industry standard theory,” Chris said, “a third of what you sell it for is food cost.”
- TheBiv 12y agoAh, I guess I read too fast!! Thanks for the note!
- rm445 12y ago
- hristov 12y agoI guess the moral of the story is that if we want affordable food, we should eat local. It seems like half of the costs to the restaurant are associated with shipping the lobster alive.
- munificent 12y ago> we should eat local. What I found interesting was that the economics are affected by both spatial and temporal locality. The part about holding tanks that could keep lobsters alive for months to sell them out of season when prices were higher is a good reminder that eating seasonally can be as import for affordability as eating locally.
- rdtsc 12y agoExactly. My relatives have a business where they basically keep food in storage until it is out of season then sell it. It can be locally grown or imported. It depends on the client. Some buy in bulk from local farmers, keep it (paying storage costs) then sell later.
- avighnay 12y agoI am not sure about other places but here in India, this is termed as 'hoarding' and is illegal, however not that it has made that model non existant
- anon4 12y agoWould there then be a market for canned/frozen/otherwise preserved lobster? So one could set up a factory right on the shore, buy lobster at 2-4$/pound, then immediately cook it and have it ready to ship in inexpensive ways?
- jakejake 12y ago(Edit my math was a little off since the article was talking about expenses per pound for the middle men, but total cost at the restaurant) Anyway, I think the markup at the restaurant is the highest. Maybe on the coast you can get a 2 lb lobster for $30, but that would be a ridiculously low price elsewhere. A steakhouse I went to last week in Nashville was charging $160 for a one pound lobster! I actually found the middle-men involved to have a reasonable markup on the product. The price really gets jacked up at the restaurant where they have all of the overhead to cover. So the moral to me is to cook your own food!
- pault 12y agoI live in Belize and you can literally pick them up off the reef with a mask and a snorkel (as long as they're in season!). Anyone who has ever tried will know that's easier said than done, however.
- mcdowall 12y agoI was in Belize a few years ago and think I had Lobster for breakfast, lunch and dinner every day, so cheap!
- jrells 12y agoI didn't get it, the pricing was pretty much what I would have guessed. The markup isn't that high, especially considering they're hard to store and ship. Other things have much higher markup (drinks, fashion, any goods manufactured in china). Where is the voodoo economics?
- crazygringo 12y agoAgreed. There is no voodoo economics, just regular economics. I was disappointed that the article's title promised something really interesting or counterintuitive -- instead, it's just a pretty normal cost breakdown.
- deleted 12y ago[deleted]
- ChuckMcM 12y agoI think that was the point. I don't know what the author's motivations were for writing this piece but I would speculate that someone, sitting in their comfy chair reading a story about how Maine lobsterman are complaining about getting only $4/lb for lobster, and seeing it as the $60/plate special at the restaurant complained "Gee someone is making bank here at our expense!" And the author deconstructs that notion by putting names and faces on all the people in the path of harvest to production. But given the title, he will get people who think they are being ripped off to read it, and then they will perhaps find they aren't really being ripped off, there are just a lot of hands between them and the lobster's origin.
- Turing_Machine 12y agoRemoving those hands is what Bezos does best. Amazon Seafood, anyone?
- brazzy 12y agoI think an interesting and nontrivial thing explained by the article is why raw lobster prices are going down but restaurant prices aren't: the largest percentage markup is added by the restaurant, but most of the price the restaurant pays is added by the middlemen and does not vary with the price of the raw product.
- mrfusion 12y agoHas anyone ever tried raising lobsters in captivity? Wouldn't that be cheaper than boats and traps?
- guiomie 12y agohttp://articles.orlandosentinel.com/2012-04-08/business/os-darden-lobster-farming-20120408_1_bill-herzig-spiny-red-lobster http://articles.orlandosentinel.com/2012-04-08/business/os-d...
- sk5t 12y agoAlthough not particularly economic, it'd be a shame not to recommend a reading of David Foster Wallace's "Consider the Lobster": http://www.gourmet.com/magazine/2000s/2004/08/consider_the_lobster http://www.gourmet.com/magazine/2000s/2004/08/consider_the_l...
- wcarss 12y agoI really initially thought this would have to do with the novel Accelerando.
- scjody 12y agoHey, since this is HN, I should point out how nice it was to page through that article and NOT have to deal with any fancy CSS / JavaScript scrolling tricks. Very nice, Globe and Mail.
- driverdan 12y agoPlus it was all on one page! A well written, well laid out article.
- chrisbennet 12y agoMy Dad was a first mate on a lobster boat in his retirement. He told me that they had to sell their lobsters to the same guy they bought their bait from. Also,"The Secret Life of Lobsters" is a great book. It was a best seller so it must have had wider appeal than youd think.