Butter sighted at Olve's house

This is a photo of a pack of butter belonging to my good friend Olve Maudal. Olve has exactly 157 packs of butter in his house right now. All safely housed in his new super-sized fridge. Many of his 157 packs have been flown in specially by relatives visiting from abroad. Olve would only allow one pack out of the fridge for the photo. Even then he insisted it be taken out under the watchful eyes of the two security guards he's specially hired to guard the fridge - Lars by day and the other Lars by night. Well, you can't be too careful right now. Butter is selling for crazy money on the black (or should that be yellow) market.

Yes, it's just one small example of the butter shortage here in Norway at the moment. Apparently the cause is a new fat-rich fad-diet sweeping the population combined with the seasonal tradition of making butter-rich Xmas cookies.

Shortages like this are, as Stephen Fry might put it, quite interesting. At one point there was probably a very mild shortage. Word of the mild shortage started to spread (sorry) and anyone buying butter bought a few extra packets just to be safe. The shortage got a bit worse. Word of the worsening shortage spread further and faster. People bought even more. A self-fulfilling dynamic was thus set in place. Soon the shelves were stripped of all butter.

The shortage the customers are experiencing is, no doubt, fractally mirrored by the shops selling (or rather not selling) butter. Butter wholesalers just don't have enough butter to meet the orders from shops. Shops that get any butter get less than they ordered. Any butter the shops do get is bought in a flash (but only by relatively few people because of the bulk butter buying behaviour) and they're out of stock again. You can imagine the shop keepers pulling their hair out in exasperation. If only they could get more butter they could make a small fortune. But right when there's the most demand they have none on their shelves! They increase the size of their wholesale reorder hoping to cash in.

What will happen in a few weeks time? One possible (perhaps even likely) outcome, is that the wholesalers will finally get enough butter to meet their over-inflated orders. The shop keepers pile the butter onto their shelves and wait for the Krona to roll in... Some of the butter is sold. But not very much. After all, Xmas is now over. The fat-rich fad-diet has gone the way of all fads and the glossy magazines are now preaching a low-fat diet. And lets not forget that a fair percentage of the population has, like Olve, over 100 packets of butter in their new fridges. They're certainly not going to be buying butter any time soon.

The shop keepers then face the daunting prospect of vast butter-walls sitting unsold on their shelves, fast approaching its sell-by date. Lowering the price doesn't help. It all has to be thrown away. Again the same thing will be fractally mirrored at the smaller scale. Lots of people, such as Olve, will have more butter than they can possibly use in time. They too will have to throw out loads of butter as it goes past its use-by date.

The same lurching from one extreme to another can happen when the number of people trying to make phone calls starts to approach network capacity. People can't get through. So they try again. And when they do get through the line gets dropped. So when they do get through they stay on a bit longer. It happens on roads too.

It's dangerous to run systems at full capacity. They reach a tipping point and topple into a death spiral. Busy work and inventory pile up. That causes even more busy work and even more inventory. But almost no butter is being bought or sold. There is no flow.

1 comment:

  1. More on this issue here, Jon: http://www.slate.com/articles/business/moneybox/2011/12/norwegian_butter_battle_an_absurd_dairy_shortage_and_its_very_valuable_economic_lessons_.html