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Lobster Economics

by Elaine Schwartz    •    Jul 24, 2012    •    377 Views

The year is 2008. Icelandic banks crash. Canadian lobster processors lose their financing.

The result? Demand from Canadian processors for Maine’s lobster harvest decreases.

Meanwhile, on the supply side, the lobster population is soaring. Conservation rules that established maximum and minimum weights meant fewer lobsters were harvested. In addition, lobster predators like cod and striped bass were being overfished and South American warm-water lobster tails and a bumper Canadian lobster crop entered the market.

You can see that this is a classic demand and supply story. On a graph, decreasing demand shifts the downward sloping demand curve to the left while more supply means the upward sloping supply curve moves to the right. The result? Price plummets.

Specifically, during 2012, the price of lobster in Maine at the dock more than halved from $5 a pound to close to $2.00. And, like the 1930s when Iowa farmers burned their corn crop because the price was too low (and the countryside smelled like popcorn, really, from this source), daily fishing trips diminished. The cost of fuel and bait would exceed the price of the catch.

Still one more financial term: Arbitrage. Seeing how cheap the Maine lobsters were, NYC lobster roll purveyors are driving them down, charging $9 a pound for the lobster and $14 for the lobster roll according to NY Magazine.

For an article about the Maine lobster glut and its impact on NY lobster rolls, this NY Magazine article is wonderful. More serious, these Herald Business and Washington Post articles also describe the plight of Maine’s lobster fishermen.

 

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