Vegetarians and Profits

Like most people, vegetarians have some weird opinions. Let’s assume that they have the ultimate goal of fewer live-stock deaths and less chattel cattle. Ask a vegetarian what they are achieving by choosing not to eat meat and you’ll hear the explanations let loose. By abstaining from meat they’re “reducing factory farm profits” or “helping to keep the price of beef low and unprofitable”. While being a vegetarian may save more cows from the butcher’s blade, it’s not at all clear that vegetarians have a good understanding of their sometimes perpetual boycotts.

What do vegetarians even do?

The decision to consume meat or not falls nicely into the supply-and-demand framework. Fewer people willing to eat meat means fewer purchases of meat products – no matter the price. A decline in meat demand lowers both the number of cows that ranchers will raise a slaughter and the price that they receive. There you have it. By lowering demand for meat, vegetarians reduce both the quantity and price of meat, reducing profits for those evil, animal-carving businessmen.

Not so fast.

Mere supply-and-demand, while an awesome model, is not exactly the right model to use here. Most livestock is, as far as most consumers are concerned, a uniform product that is similarly produced in a large market. As it turns out, competitive markets behave differently in the short run than they do in the long run. And many vegetarians plan on being vegetarian permanently. What is the effect of permanent meat abstinence on meat producers in the long run? The answer is ‘nil’.

Now, some might mis-interpret what I mean be ‘nil’. I don’t mean that vegetarians have a very small, imperceptible, effect on ranchers’ and butchers’ profits. I mean that the effect is zilch, nada, and nothing.

In the long run, a cut of meat gets its price from the average cost of production. As ranchers compete for sales, the price reaches the minimum average cost of production. If the revenue is equal to the cost, then economic profits earned by meat-producers is zero. Note that nothing in this description depends on the amount of meat demanded.

The next question that one should ask is “And then what?”.  If demand for meat is permanently higher, say due to higher wages, then, of course the price will rise. But the rise in price is only transitory. As time passes, new ranchers are attracted to the live-stock industry by tantalizing profits. But, with those new ranchers come an expanded supply and competition – driving the price of meat down again to the minimum average cost.

As it turns out, the act of abstaining from meat has no bearing on rancher, butcher, or retailer long-run profits.  While it is true that vegetarianism results in fewer dead cows, fewer people trying their hand in the meat processing business, and fewer slaughterhouses, meat-abstainers are also having no impact on the long-run profitability of the meat industry. In fact, any boycott of a product that’s bought and sold in a competitive market has the same long-run effect on company profits: nil.

So, it’s not that vegetarians have no impact on the industry, it’s just that they often don’t understand the full economic implications of their actions – for good or for naught.

Addendum

The market for meat-like products is not yet so well-developed. The variety of meat replacements is growing along with their popularity. And there are still plenty of new companies throwing their vegetarian-sympathetic hat into the ring. In the short-term, meat-less producers are going to enjoy some very nice profits. However, if meatless products become increasingly comparable and ubiquitous, then the profits will become lean. Ultimately, greater vegetarian demand will have helped those companies to have zero economic profits as well. Interestingly, to me any anyway, innovative meat-less products that are currently experiencing an increase in popularity are likely to reduce demand for meat further as people increasingly switch from meat to meat-less (wittingly or not).

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