Bye Bye, Birdie

With the holidays upon us, it is that time of year again when we give thanks for what we have, and indulge beyond our needs and our belts.  But according to a recent article in the Huffington Post, there might not be as much to indulge in.  Butterball, the largest Thanksgiving turkey provider, is struggling to produce enough big size fresh birds to accommodate our gluttonous day of gratitude.  Orders for fresh average size birds (around 16 pounds) were cut by 50%.  The company confirmed that there might be a nationwide shortage for the 88% of US households that celebrate Thanksgiving by carving into their favorite fresh poultry.  This shortage is apparently due to a decline in turkey weight gain, and it is possible it will create a shift in the supply curve and an increase in the price of Turkey.  However, while there may be a shortage of fresh turkeys, there are other substitutes goods available.  Butterball and other manufacturers have stated that the availability frozen turkeys has not been affected, just fresh large size birds.  So if you have a big family to feed this holiday season, be sure to prepare accordingly: either get your big bird while supplies last, buy frozen, or plan on getting a couple smaller birds instead.


Paulo said...

If Butterball does not have a sufficient quantity of fresh average size turkeys this year then that means they have an extra supply of smaller turkeys. Will they choose to supply additional smaller fresh or frozen turkeys this year, or will they wait until next year to supply the larger fresh birds? To help answer this question, looking at shifting the supply curves of the smaller turkeys versus the cost savings or increases of raising the additional turkeys another year would be advantageous to the company.

Dave Tufte said...

Aicha435: 88/100 (Turkey is the country, and "availability frozen turkeys").
Paulo: 50/50

Hmmm. This sounds like a marketing scheme to price discriminate. The shortage is only in the fresh birds. Presumably fresh and frozen birds are sold to different segments. And I would guess that the demand for fresh birds is more inelastic.

And then there's the fact that every frozen bird was once ... a fresh one! So let me get this straight. If they are short of large, fresh, birds now ... this could have been addressed by freezing less frozen birds earlier in the year (and letting them put on weight for a while). But that would mean they'd have too many smaller, frozen, birds. But they don't. Perhaps this is because they're counting on consumers to give more credence to the rumors they start about a shortage of fresh birds than to think through the economics and realize something is fishy here.

Paulo: I'm not sure your assertion that the lack of big birds means more small birds. Couldn't there be a problem facing turkeys generally?

Dawn said...

The problem with waiting to butcher the turkey at a later date is that they do not taste the same. Most turkeys are butchered at 6 to 8 months old. It does sound like a marketing scheme, because if the turkeys are younger and weigh less, then the companies that are raising the turkeys will end up with a lower cost for food, water and shelter for the turkeys. If there is no option to purchase a larger turkey people may end up buying two smaller turkeys, which could be more weight than one larger turkey. The companies would also benefit from this because they are selling more turkey in pounds than they would have if there were larger turkeys available. Because of the shortage the prices of the birds will also increase, because the prices of fresh birds are usually higher than frozen birds there would be another more profitable scheme for the companies. I would think that the people buying fresh turkey are not thinking about the price as much as the quality of the product, and would still end up purchasing the more expensive, smaller turkey.

Dave Tufte said...

Dawn 50/50.

This whole story disappeared after Thanksgiving last year. That supports my earlier view that this was a marketing scheme.

I'm pleased that you agree with my position, but I'm not sure I agree with your justifications.

First, you say "could be more weight than one large turkey". Yes, possibly. But it could be less too. Later in the course when we talk about price discrimination, we'll note that one of the things a seller will try to do is avoid putting consumers in a position where they could make a more flexible purchase (like two potentially smaller turkeys). Maybe they were pushing the shortage story because they know if consumers were pushed towards that choice it might benefit them instead of the firm.

Second, I don't think you can equate the higher price of fresh birds with higher probability. Maybe, but it could also be that they can spoil.