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Is the ball python indsutry a pyramid scheme?

Posted by: Editor on 4/17/2011

Someone asked us over the weekend if the ball python breeding “cottage” industry was just another example of a pyramid scheme.  We took his question into consideration and responded with a prompt reply – yes, absolutely, but probably not in the way that you think!  The fact is that all animal breeding industries have a pyramidal structure, though that doesn’t mean they are actual “pyramid schemes.” If you’re interested in exploring the issue in greater detail, then please read on.

Many participants in what some have called the “investment snake” market (if you’re new to the hobby/industry, trust us, we understand that this sounds insane) have long expressed their frustration with what is viewed as chronic price deflation in the industry.  The story goes something like this.  John Doe bought a pair of piebald ball pythons in 2008 for $4,500.  As he’s growing his female up to size over two years, he watches in dismay as prices for that same pair drop to $3,000 in 2009, and then $2,000 in 2010.  John is hysterical. 

Finally in 2011 John’s pair of piebalds produces a beautiful clutch of 6 eggs and he ends up with three pairs.  Only now, in 2011, he is only able to sell those three pairs for $1,200, or a total of $3,600.  John is frustrated because he was only able to get 80% out of his original investment over three years, and that’s not counting other costs associated with raising his pair to maturity over that period (he forgets, of course, that he still has his original pair, and that that pair can produce for him many years into the future, but that’s for another post). 

You see at the time John bought his pair, he couldn’t help but think to himself how nice it would be to sell those future 2011 babies at the same price he paid in 2008.  Just think - a $4,500 investment that three years later could turn into $13,500 if he could sell three pairs at his original cost.  Not a bad investment.  But of course, that was not to be.  John threw his hands in the air in exasperation, exclaiming the entire ball python breeding game to be a scam.  Whoever sold him his original pair, in John’s view, had sold him a bill of goods, a non-sustainable business model, even worse – a false promise, a pyramid scheme!

Aha!  Now, dear reader, we arrive to the subject at hand – is the ball python breeding industry a pyramid scheme or is it not?  To satisfactorily answer this question we must first define what a true pyramid scheme is.  Only then can we begin to answer our question.  For a very simple definition we went to the website of our fearless financial industry regulator, the United States Securities and Exchange Commission.  According to the SEC, in “the classic pyramid scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.” 

Further digging on Wikipedia revealed yet another revealing tidbit – pyramid schemes seldom involve the sale of real products or services.  Wikipedia goes on to say that “the flaw (in a pyramid scheme) is that there is no end benefit.  The money simply travels up the chain.  Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money.  The amounts dwindle steeply down the pyramid slopes.  Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.” 

Now that we have a framework for thinking about what a Pyramid scheme actually is it’s time to analyze the organizational structure of the ball python industry.  To start with, the structure of the ball python industry is most certainly a pyramid.  In fact, all animal breeding industries are pyramidal in nature, whether you’re talking about sheep, cattle, pigs, or pythons.  Here’s the simple way to think about it.  The pyramid itself represents the flow of genes from the top down to the bottom.  Those at the top of the pyramid have elite genes that then flow down the pyramid to producers who multiply these genes and ultimately deliver them to end users. 

The elite breeders at the top have the best germ plasm (gene pool), and each year they continually improve that germ plasm by selectively breeding their stock, in this way maintaining their position at the top of the pyramid.  The breeders in the middle of the pyramid are always a step behind – because they source their germ plasm from the elite breeders, they are always producing this year what the elite breeders produced last year.  Ultimately these multiplier breeders deliver their germ plasm to an end consumer, who “consumes” the end product, benefitting from the improvements in genetics generated in the higher levels of the pyramid.  Ultimately it is this demand at the bottom of the pyramid that sustains the overall structure and makes the industry possible.

Taking the swine industry as an example, the demand at the lowest level of the pyramid is the desire by people to consume pork-based products.  After all, bacon makes everything better!  The real end user that pig breeders are focused on, however, is the commercial pork producer.  The commercial pork producer buys pigs, feeds them to get them up to size, and then butchers, processes, and distributes the pork based products to the final end markets.  What this pork producer wants is pigs that help him run his business more efficiently, for example a pig that has been bred to put on more weight for a given unit of feed, thereby lowering the commercial producer’s costs.  The pyramid structure of the swine industry delivers these types of innovations over time through selective breeding of elite germ plasm at the top of the pyramid and then the multiplication of this germ plasm by the breeders in the middle levels of the pyramid.

The ball python breeding industry is very similar.  In the case of ball pythons, of course, the true underlying demand on which the base of the pyramid is built is not based on actual consumption.  Rather, the fundamental demand driver of the ball python breeding industry is the interest and enthusiasm for reptiles that many people have, and their desire to keep these reptiles as pets.  At the highest levels of the pyramid are breeders with elite germ plasm that year in and year out produce products (i.e., snakes) that are both beautiful and scarce, and because of this highly desirable.  They sell these genes to breeders a step lower on the pyramid that in turn replicate the product and pass it on down the pyramid. 

The various levels of the pyramid keep producing and multiplying the genes to the point that the end product is no longer purchased for breeding purposes, but rather consumption by the end user.  Today the actual “consumption” at the base of the ball python breeding pyramid is a 12 year old boy walking out of Petsmart with a $50 normal ball python, heat lamp, and glass aquarium under his arm.  Eventually today’s elite genes will become tomorrow’s normal ball python at the pet store, and there will be “new” elite genes at the top of the pyramid, perpetuating the cycle.

So, where are we?  We have established that the ball python industry is in fact a pyramid.  We’ve also broadly defined the nature of an actual pyramid scheme.  It is now time to return to our original question of whether or not the ball python industry should be officially slandered with the moniker “pyramid scheme!”  As we’ve already learned, a pyramid scheme typically involves handing your money over to someone with the promise of sky-high returns at some point in the future with very little work or effort, and actual products or services rarely change hands.  Immediately we note the obvious – when you buy a ball python from an elite breeder you are exchanging your cold hard cash for a living, breathing, physical object.  That object’s value stems from the fact that it is desired by others (at least by you, anyway) and can reproduce itself with proper care and effort on the part of its breeder.  This is not the norm in a true pyramid scheme, where there is truly no end benefit, or product, if you will.  The ball python industry, in contrast, has a very real product and thus in our opinion cannot be called a true pyramid scheme.    

Yes, it’s true that some breeders in the middle of the pyramid purchase elite germ plasm with unrealistic expectations for future potential financial returns, setting themselves up for frustration and disappointment.  We would argue, however, that this is often the result of an inadequate understanding of the economics of animal husbandry.  The world is a competitive place.  To make and produce anything profitably requires a lot of work, preparation, and increasingly, innovation.  There are very few free lunches.  Those who expect to get a free lunch from breeding ball pythons are bound to be disappointed, but not because the industry is a pyramid scheme.  It isn’t.

For those that still have a hard time getting comfortable with price deflation in the ball python industry, we advise you to remember that in many ways the ball python industry is a technology industry.  If you want to sell the same volume of product at the same price point, you have to innovate.  We’ll return to this subject in a future blog post, because we think it’s pretty interesting.

So once more, is the ball python breeding industry a pyramid scheme?  Yes, absolutely!  And no, it isn’t!

HVH

Categories: Business | Husbandry |
Tags: Breeding |
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