Thursday, September 16, 2010

Mangalitsa Sirloins - Shortage - Economics

There's a cut we sell that corresponds to a "striploin" on a beef.

We call it a boneless sirloin - although it is a lot smaller than the "sirloin" on a pig, because ours is just the meat of the pig's lower back, without any of the pelvic meat.

It's very popular with fine dining. The typical customer is Corton, 2 michelin stars, in New York City. We produce enough for them and a few other restaurants.

Why is it so popular? For instance, from the top of the pig, I'll eat the "Schopf" - aka Heath Putnam Farms Austrian Pig Neck every time. That's the cut most Mangalitsa farmers will eat, including my friends at the Herbfarm.

I think the boneless sirloin is popular because it doesn't have big veins of fat. It is a block of (hopefully) very marbled meat. Fat phobic people eat it without feeling guilty or nervous.

Anyway, there's not enough of that to go around right now - from coast to coast. Foods in Season is out until next week, and DeBragga is out. The next best substitute is from Spanish Iberico pigs (assuming they are labeled properly).

I just got a call today from a chef at a Michelin-starred restaurant. He knows that I know where all the sirloins are.

The guy is very busy. He isn't calling me to be friendly - although he was very polite and friendly. He's just exhaustively searching for what he wants.* The fact that he's calling me is a sure sign that there's a shortage!

What does this tell me? It tells me the price is too low. We need increase the price on that stuff. We also need to produce more - but in the short term, all we can do to allocate the parts to avoid a shortage is to increase the price.

Why won't I raise the price immediately? Because it will irritate my distributors and customers. I promised them we'd hold prices at certain levels for a while, to get demand increasing, in preparation for the bigger kills in the Fall.

If we set the price at the level where the market cleared, people - customers and distributors - would be maximally irritated. So long as I'm in this business, I need to have good relationships with my customers, because it is a small world. Also, if I set the prices too high, I'd have inventory building up, which is expensive and hurts cashflow - and it stops people from eating the stuff.

This illustrates something about economics that many economists don't understand - consumers (distributors & chefs) bear grudges, and they hate price volatility and especially price increases. As much as I love liquid markets, most markets aren't liquid and impersonal. It means you need to be very careful whenever you quote prices - if you quote too low and then have to raise them, people will scream.

* I've seen pigs do this - they'll go over to the feeder and look under the lids, to see if there's any feed.

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