Tuesday, September 10, 2019

econlife - The Downside of Vegan Leather by Elaine Schwartz

Your Tesla will soon be fully vegan.

For awhile now, the seats have been vegan. But Elon Musk recently announced that a non-heated vegan steering wheel will replace the leather version. As for a durable heated vegan steering wheel, they are still trying to design one.

Where are we going? To cowhide industry problems.

Leather Demand

We are eating more meat and the National Chicken Council projects that the trend will continue. From a per capita total of 57.2 pounds in 2018, they forecast an increase to 57.7 pounds this year:

More meat means more cows (and steer).

However, we are demanding less of the remaining parts. Except for the highest quality hides used for pricey handbags and couches, cowhide demand is way down. The hides that have been branded or blemished from average older animals had been used for less expensive clothing. Now though synthetics are replacing them. Then, making it even worse for the producers, methane emissions from cows (as burps) has made consumers avoid leather while 25% tariffs have cut cowhide exports to China.

Responding, the cowhide industry is shrinking. While smaller leather processors have left the business, the larger enterprises have seen hide prices plummet during the past five years from $81 to $4 for a branded cow. With less valuable byproducts, the entire value of the animal is sinking.

Our Bottom Line: Supply and Demand

You can see that the cowhide industry is suffering from a classic supply and demand squeeze. Elevated meat consumption has brought the number of hides up while demand is down from companies like Tesla and consumers whose tastes are shifting to synthetic “leathers” made from fruit peels or even ground coffee.

The result? When you have more supply and less demand, the equilibrium price falls:

Meanwhile Starbucks is engaging in its own product differentiation:

Returning to where we began, Tesla is helping to pull that cowhide demand curve downward.

My sources and more: This Bloomberg article is a perfect start for all you need to know about the market for cowhides. Next, the Washington Post provides the bigger vegan leather picture. Finally, if you want to read more about Tesla’s vegan future, electrek.co has the details.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.