Dwarkesh Patel: belief

Transcript context

…Yes. You actually see that in the egg sector in the US. Within eggs, there is clearer labeling. Cage-free actually means something, pasture-raised actually means something. You can't just put the all-natural label on. What we see is that the pasture-raised egg sector is growing rapidly. Even then, it is still handicapped by the fact that supermarkets use this as a price differentiation tool. They know that wealthier consumers prefer pasture-based eggs and are also less price-sensitive, so they mark them up heavily. The price you see is way inflated beyond the actual cost difference. Yet still, that is a rapidly growing sector. This is one thing I wanted to ask you about. One point you've often made is that you have to understand that meat and agriculture generally is a commodity business. In a commodity business, you'd expect all margins to be competed away. I think you said in one of your blog posts that it costs 19 cents more for a dozen eggs to be cage-free, but often chains will charge on the order of $1. 70 more for cage-free eggs. If it's a commodity business, why is it possible for supermarkets to extract this extra margin? This is the non-commodity part of the industry. The broader context on those retailers is that almost all the top US retailers have made pledges to stop selling eggs from caged hens. A lot of them were meant to do that by this year, and a lot of them have not done it. Walmart and Kroger have not followed through. What they say is, "Our consumers don't want cage-free eggs because they're way more expensive." And it's true, they're way more expensive. They're selling them for like a dollar to two dollars more per dozen. When you look at the underlying production costs, it's only 19 cents difference. What we see is these retailers are using this as an opportunity to get a big markup with less price-sensitive consumers and are in the process massively hampering their ability to fulfill their commitments. By contrast, Costco went 100% cage-free. They followed through on their promise. What we see is they are now selling cage-free eggs for the same price as Walmart sells its caged eggs. There is that competitive pressure. Once cage-free becomes the new baseline, it does become the commodity market and you do see those margins competed away. It’s the same thing in states where they've banned the sale of caged eggs. Cage-free eggs now cost the same thing as the caged eggs cost next door. You do see that competed away once it becomes a commodity. It's until it reaches that point that you're seeing these crazy margins.…

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