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Wednesday, January 11, 2006

The Economics of Sustainability

A few months ago, I had been to the local supermarket to purchase a dish washing liquid. As the store had a newly established "organic products" section, I was checking out the more environment-friendly brands they had available. Surprise, surprise -- to purchase most of those products you actually had to pay a larger price than for the 'regular', more popular products. Well, in many ways it is no suprise that current market economics work against most of these products -- the biggest USP that they have is their 'eco-friendliness' -- which, frankly, caters to only a niche market. (Indeed, most people that I know hardly take this aspect into consideration during purchase). I am no expert in economics, but all the pricing aspect seems to do is narrow down the consumer base even more. Is the presence of a smaller market actually drive the pricing aspect for these products? I am not sure. Of course, pricing isnt the only factor that consumers (always) take into consideration (efficacy is also important), but some of the prices were set ridiculously high, making them the highest priced products in their category. How can more people be expected to buy them in this case? This example demonstrates that environment friendly products are not mainstream -- as yet. To acheive this, stores need to sell these products alongside the 'regular' ones, with competitive pricing. This approach seems to make more sense in the long run....

Switch tracks to an article from the NY Times on sturgeon fishing, published sometime ago. As most of you know, the eggs of the sturgeon fish - caviar - are a coveted delicacy, and are very highly priced. Here's a quote...
".....After he and his crewmates cut the fish open, he (the fisherman) said, they pulled out 100 kilograms of eggs. At today's prices, that could draw $50,000 for a day's work. It would ultimately sell for as much as $650,000 in the West. With such prices, the short-term market logic militates against conservation. As sturgeon become more scarce, they become more coveted, pushing prices higher and creating greater incentive to fish. The dynamic is perfectly counterproductive: the best money is in the eggs, the part of the fish needed to replenish stocks."
Rather than leading people to acknowledge the fact that the demand for caviar is rapidly depleting the sturgeon stocks, their increasing rarity is driving prices for the eggs even higher, making them more coveted than ever. Obviously, there is no let up in the demand side, and no alternative means of harvesting the caviar. This is a vicious cycle that will only contribute to decreasing the sturgeon stocks, and possibly extinction of the fish in its natural habitats. To be fair, there are some bans in place on sale of certain caviar; and also restrictions on fishing -- but is it any surprise that most of the demand is also from the west?



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