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The Great Lobster MysteryFood prices are soaring. So why are prices for the delicious crustacean falling?

By Daniel GrossPosted Monday, Aug. 18, 2008, at 3:54 PM ET

Thanks to rampant inflation, this has been a summer of discontent for foodies, who have been forced to swap precious imported cheeses for Monterey Jack and to downscale barbecues from sirloin to skirt steak. But as I discovered on a recent Maine vacation, there's at least one high-end food product whose price is falling this year: lobster.

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Based on my intensive investigations, it seems that prices for both the commodity (lobsters sold on the docks) and the finished product (steamed lobsters sold at dockside restaurants) are lower than they've been in past years. In a seafood store in downtown Portland, a pound of lobster ($5.49) went for pretty close to what I had paid for a gallon of gas in Connecticut the day before ($4.30). A few years ago, the pound-of-lobster-to-gallon-of-gas ratio would have more like 4-to-1. Our hosts welcomed us with two-pound lobsters that cost less than a pound of steak.

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Deciding that this economic anomaly needed more hands-on, butter-dipped research, I headed farther north to Mount Desert Island. And as the population density and temperature fell, so too did the price of lobster. At Thurston's Lobster Pound restaurant—OK, a shack with tubs of lobsters, a big steamer, and a rickety wooden deck—shedders (soft-shell lobsters) went for a mere $7 a pound while hard-shell lobsters were $9—a buck less than at restaurants nearer Portland. For the price of a Quarter Pounder, large fries, and a Coke at McDonald's, you could get a one-pound lobster, accompanied by a quarter-pound of butter.

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What explains this crustacean mystery? Food inflation derives from several sources. The price of food can be driven upward by consumer and commercial demand, by speculation in the futures markets, and by producers successfully passing on the higher costs they incur (for gas, fertilizer, labor, processing, packaging, distribution) to buyers. The longer and more complex the supply chain (i.e., olives that are picked in Tunisia, shipped to Italy to be turned into tapenade, and then shipped to Dean & DeLuca to be turned into hors d'oeuvres for yuppies), the greater the opportunities for marking up prices and passing along costs.

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. While you can find lobster on the menu at better restaurants in the Midwest, or, heaven help you, at Red Lobster, you're unlikely to find live lobster tanks in Meijer stores in Michigan or Wal-Marts in the Ozarks. In addition, lobster is a luxury, discretionary food product that requires special equipment and extra fortitude to cook at home. (I watched in sympathy as one of our hosts, a Maine resident for two decades, winced in horror as she plunged the living creatures into a boiling cauldron.)

With demand down, and with distributors facing higher costs, there has been significant pressure on lobster producers to keep costs low. Wayne Seavey, a lobsterman who tends 600 pots in the frigid waters around Mount Desert Island, told me that he's getting about $3.50 a pound for lobsters this year, down from about $4 a pound last year. The reason, he says: 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.

Finally, lobsters remain cheap in Maine because of their simplicity. Raising them isn't a particularly energy-intensive business. Lobstermen have to gas up their boats, but they don't have to pay for fertilizer or feed. On the coast of Maine, lobsters are simply removed from their traps and put into tanks at dockside restaurants or sold directly to home cooks, so there are precious few distribution, processing, or packaging costs to pass on. The only ancillary costs associated with getting lobsters from the dock to the table are 1) butter and 2) the statins that subsisting on a diet of rich lobster meat dipped in butter will require many consumers to take.

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.

Illustration by Mark Alan Stamaty.

COMMENTS

Remarks from the Fray:

One might postulate that as gas prices rise, Maine tourism will decline. A decline in tourism will lower the local demand for Maine lobster and therefore the price of lobster will decline.

--pwoxby

(To reply, click here.)

As someone who lived in New England the first 25 years of my life, I can tell you that there is no better way to practice "eat local" than on a rickety wooden boardwalk Down East. The lobster's right out of the ocean, the butter's probably from two states over at most (in a part of the country where "two states over" means a three-hour drive), and even the tourists are rarely from farther away than Boston or Providence.

All of the above in a place that was doing local before local was cool, that doesn't need the Whole Foods corporate-packaged kind of organic tomatoes (and other veggie-garden produce) when hobbyist gardening traces its heritage back to World War I, and the people...well, the people are what I miss most about home.

Lobster's cheap because it costs what it needs to cost for the Down Easters. No high-minded theories required.

--MonsterDog

(To reply, click here.)

I, too, was recently in Maine on a vacation, visiting family, though we seemed to have chosen the monsoon season there. And the TV newscastsbemoaned three factors driving down this year's lobster prices --

The catch is up. For whatever good environmental reasons the supply of lobsters is more plentiful. The demand is down. Traffic on the Maine Turnpike was off by nearly 3%. Fewer tourists mean fewer people eager to gobble down those lobsters. When you factor in living costs like winter heating, Maine turns out to be one of the poorest states in the union and tourism is crucila to the Maine economy. Soft-shell lobster doesn't transport well. Whatever's caught during the summer needs to be eaten close to the source and quickly.

As I recall from Econ 101 many years ago, farming and fishing and Christmas tree production often illustrate the failure of the market to bring supply and demand into harmony, leading to imploding or exploding price webs as would-be producers misguess demand and either under- or overproduce supply.

I suspect that the combination of drastically reduced income and the rising cost of diesel for the lobster boats are going to drive a lot of those DownEast lobstermen out of business.

--revrick

(To reply, click here.)

(8/19)

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