Economics of Bacon and Natural Disasters

You may have noticed that the price of bacon is off the charts. I know I have. It appears to have basically doubled in the last months. Why?

It’s simple – supply and demand. Over the last few year demand for everything bacon has skyrocketed. It seems bacon is in everything. There is Maple Bacon ice cream for dogs. There are bacon cream Oreos, bacon flavored gumballs, bacon mayonnaise, bacon toothpaste and Amazon sells Lester’s bacon soda. I love bacon, but ick!

In February, Business Insider explained the effect the demand for bacon has had on the industry.

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The country’s supply of frozen pork belly — the meat used to make bacon — fell from 53.4 million pounds in December 2015 to 17.8 million pounds in December 2016. That’s the lowest level the nation’s pork reserve has been at since 1957, according to US Department of Agriculture data.

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“Today’s pig farmers are setting historic records by producing more pigs than ever,” Rich Deaton, the president of the Ohio Pork Council, said in a statement highlighting the data. “Yet, our reserves are still depleting.”

What we’re witnessing are naturally occurring market forces at work – basic economics – supply and demand, and why the cost of bacon has increased so much.

As demand outstrips supply, prices naturally increase.

If it didn’t, soon there would be no supply left.

The free market, left to its own devices, devoid of government meddling, will then re-balance itself, allowing supply to catch up with demand.

Bacon will then return to more reasonable prices.

Put it this way. You go to store to purchase something. For this scenario, it doesn’t matter what it is. Luckily, you happen upon a store offering the product at 50% off. Why?

It may be a few things.

Maybe the items marked down are approaching their “sell-by” date.

Maybe the items are seasonal and must be moved to make room for the coming season’s products.

Perhaps there is just a glut of product.

The store must move it out or be stuck with it.

Again, in econ-speak, supply, this time, has outstripped demand.

When abundance occurs, prices go down. When demand catches up with supply, prices will return to pre-discount levels.

When there is a logic-based reason for price increases, such as bacon demand vs. supply, we may complain, but we accept the natural ebb and flow of the economy.

It’s both logical and reasonable.

But then a hurricane or other natural disaster happens. Suddenly demand for essentials such as drinking water, plywood, gas and hotel rooms far outstrip supply.

Unfortunately, when natural disaster occurs, logic and reason go out the window. All decisions and reactions to normal market forces become wholly based on emotion.

We are appalled at the stories of “price gouging” at the expense of the suffering. So much so, that over the years, many States have made it illegal. But why? Why is selling bottled water at 3 times its normal cost any different than the astounding increase in the price of bacon?

Logically, it isn’t. When demand far outpaces supply, prices increase. And logically, these so-called pirates who sell the supplies are actually benefiting the devastated community.

This may sound heartless, but it isn’t. Quite the opposite.

Say a truck shows up with 100 cases of water to give away to victims of the hurricane. Naturally, the first hundred people to show get the 100 cases. After all, they’re free.

Next, another truck pulls up, again with another hundred cases.

They are selling them, but only at cost – the same as from any store.

Again, the first hundred people show up and purchase the entire lot, whether they need it all or not.

The problem is that 150 families arrived on the scene.

Fifty families go without water.

Finaly, the dirty pirates show up with another hundred cases of water. They are also selling, but at five times the going rate. Those dirty S.O.B.s. What happens?

Another 150 families arrive. This time the first hundred can’t afford a whole case, so they purchase only what they absolutely need – nothing extra. Like magic, or natural market forces of supply and demand, there is now enough drinking water for all 150 families to get at least some. By jacking up the price, the pirates better served the devastated community than did those who were giving it away or selling it at cost.

Emotionally, I don’t like the thought of price-gouging any more than anyone else. But logically and along side charity, when allowed to occur, it performs a service.

Given the opportunity, the free market, devoid of nanny-government interference, will always be a better solution. Even in times of disaster.

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