The Economics of Everyday Things - Truffles (Replay)

Episode Date: September 2, 2024

It takes fungi-sniffing dogs, back-room deals, and a guy named “The Kingpin” for the world’s most coveted morsel to end up on your plate. Zachary Crockett picks up the scent. SOURCES:Jason McKinney, co-founder and C.E.O. of Truffle Shuffle.Besart Morina, truffle dealer. RESOURCES:"Dogs Pay the Price in Italian Truffle War," by Margherita Stancati (The Wall Street Journal, 2022)."How Truffles Took Root Around the World," by Federico Kukso (Smithsonian Magazine, 2022)."Has the American-Grown Truffle Finally Broken Through?" by Rowan Jacobsen (Smithsonian Magazine, 2021)."Sonoma County Farm Strikes Black Truffle Gold After 9 Years of Waiting," by Jenn Harris (Los Angeles Times, 2021)."In Nicolas Cage’s ‘Pig,’ How Much Is the Truffle Hog Worth Anyway?" by Victoria Petersen (The New York Times, 2021)."Predicted Climate Change Will Increase the Truffle Cultivation Potential in Central Europe," by Tomáš Čejka, Miroslav Trnka, Paul J. Krusic, Ulrich Stobbe, Daniel Oliach, Tomáš Václavík, Willy Tegel, and Ulf Büntgen (Nature Scientific Reports, 2020)."Inside the Exceptionally Shady World of Truffle Fraud," by Ryan Jacobs (Eater, 2019)."Truffle Thieves Face Paramilitary Threat," by Kim Willsher (The Guardian, 2012)."The Hidden Life of Truffles," by James M. Trappe and Andrew W. Claridge (Scientific American, 2010)."Cultivation of Black Truffle to Promote Reforestation and Land-Usestability," by José Antonio Bonet, Christine R. Fischer, and Carlos Colinas (Agronomy for Sustainable Development, 2006).

When Basart Marina was 18 years old, his whole world was crashing down. It was the spring of 1999, and Yugoslavia was violently breaking apart. Like millions of others, Marina fled. He came to America with little to his name and found work at a restaurant. And there, under the fluorescent lights of the prep station, he encountered a pungent little delicacy that would change his life. In this restaurant we started serving truffles. So I'm like, why would people pay each slice $20?

This makes no sense. You can buy three sandwiches with that money. Marina decided that he wanted to learn everything he could about truffles. And eventually, through a friend of a friend, he got hold of a supplier in Croatia. After a week, he called me and says, I sent you four kilos of truffles.

I'm like, whoa, no, no, no. I was very stressed because I didn't have the money to pay. At the time that four kilos or about nine pounds of truffles was worth $16,000. They were also a ticking time bomb. With each passing day, the truffles lost weight and decreased in value. If Marina didn't sell them fast, he was in big trouble. So he drove from Tucson, Arizona to Los Angeles, a land of fancy restaurants, and took destiny into his own hands. I got one of those burgundy Zagat magazines, and in there you have all the restaurants.

So I started calling from the hotel room I'm like my name is Besart do you want to see the best truffles in the world the first chef that I went to I bring like a big styrofoam box inside and the chef looks at it then it was like the longest 30 seconds of my life I mean he grabbed one in his hand. He was looking at me, looking at the truffle, looking at me, but no smile. And finally, he looks back, he says, these truffles are beautiful. With a day and a half of work, Marina paid back the truffle supplier and pocketed a few thousand bucks for himself. It was the start of a strange and lucrative new career.

For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crockett. Today, truffles. Nothing about the physical appearance of truffles screams luxury. They are, by definition, the fruiting bodies of underground fungus. Their spores are transmitted via animal feces. And they kind of look like

weird lumpy golf balls. Technically, they're actually tubers, which means they're closer to potatoes than mushrooms. But the easiest way to explain it is it's a fancy mushroom. That's Jason McKinney. He's a high volume truffle buyer and the founder of an online cooking class company called Truffle Shuffle. McKinney says that while there are well over a hundred species of truffles out there, two of them make up most of the market.

So in a nice restaurant, the two most common truffles you'll see is white truffles, which is tuber magnatum, and black truffles, which is tuber melanosporum. According to data from the US Department of Agriculture, around $36 million worth of truffles were imported over the past year. But that figure doesn't tell the full story. A lot of truffle commerce isn't easily tracked, and the value of shipments is often underreported. Basart Marina says those truffles come from all over the world. Spain has the biggest supply of black winter truffles. In the last 10, 15 years,

15 years, Spain produces so many tons per year that it became a very consistent, predictable commodity. We don't have the volatile ups and downs. Then Bulgaria produces the majority of the black summer truffles. Climate change and shifting weather patterns are causing truffles to pop up in new parts of the world. There are growing markets in places like Australia and Romania, and even some smaller pockets of production in America. But the most coveted truffles come from Italy and France. Most black truffles today are cultivated, meaning they're grown underground near the roots of trees and organized orchards. It can take 10 years or more

to set up an operation like this. And even then, there's no guarantee it will work. White truffles are notoriously resistant to any form of farming and have to be found in the wild. In both cases, the journey to your plate begins with the people who make a living digging them up. Truffle hunters. This is like a miner's job.

You dig in the ground and you...it's not as sexy as it sounds. The hunters wake up in the morning and they pick as many truffles as they can. They select them in categories and they know at the end of the day that anything that they pick, we will buy from them. For many years truffle hunters used pigs to discover their underground fortunes. But the pigs, they were a little too fond of truffles. They'd often eat them before hunters could wrestle them away. Today truffle hunting pigs are banned in Italy. Dogs have taken their place. The most prized truffle dogs, typically of the legoto Romagnolo breed, sell for up to

$10,000. Marina says they have to be rigorously trained. It's a similar procedure that they use with the dogs that find drugs at the airport, you put first the truffle inside the tennis ball, and then you start playing with the dog as a puppy, and the dog always finds it now based on the smell. A truffle hunter can earn a pretty good living, and that makes it a brutally competitive and sometimes violent pursuit. Truffle hunters have been known to blow up competitors' pickup trucks, contaminate water

wells, and shoot people who intrude on their territory. In Italy, dozens of truffle dogs are poisoned and killed each year. In truffle-producing regions of France, paramilitary officers conduct traffic stops searching for stolen tubers. Every year somebody steals, somebody loses, somebody tries to smuggle. Every year there's something. When all goes well, truffles are rounded up into batches and exported all over the world to people like Marina. 20 years into his career, he's now one of the largest truffle merchants in the U.S. He says his company,

Euro Mushrooms, imports around 40,000 pounds of truffles into the U.S. every year. In underground truffle circles, he is known as the kingpin. So, day one, the hunter finds a truffle, they bring it to a collection point, the collection point sends it to our facility. Day two we clean it, preserve it. Day three it ships. Then it arrives in US in 14 hours, we immediately distribute, we never have any truffle inventory. So when the truffles come, they go.

As Jason McKinney knows, in the truffle world, every minute counts. The prime shelf life of a truffle out of the ground is five days. They get really soft and you can't shave them. The black truffles you can preserve and then turn it into things like butter, soup, items like that. Black truffles you can preserve and then turn it into things like butter, soup, items like that. The white truffles are a little bit harder to be able to preserve and really capture that essence that they deliver.

And that's very important because that smell is almost like old socks mixed with garlic. I mean it's a very different aroma. When I send the drivers to pick up the truffles from the hunters and they put them in the car, they say, Basart, are you sure this is what you want to pay money for? But after you get used to the aroma, it's almost a tear comes out of your eye. It's a beautiful smell, you know? It's almost kind of basic human, like when you smell some cheese and it connects you

with something in your past. That's how the white truffles are. Once truffles are out of the ground, they have to get to the market very quickly. Sometimes customs officials will hold a shipment worth well over six figures, and all Marina can do is wait in agony. It's very stressful. Once the truffles are in Marina's hands, he sells them in bulk to a network of distributors in major cities all over the country.

He says he gets about a 5.5% markup after expenses. We send to Chicago 10 kilos to New York 20. And then they go around the restaurants and they get to build relationships with the chefs. So why do restaurants shell out thousands of dollars for these fungal treats to begin with that's coming up Chef Jason McKinney still remembers the parking lot in Northern, California Where he first met Basart Marina? aka the kingpin he was in sweatpants, right thick accent and I was like is this guy legit or not legit?

What am I doing? And I was like, do you have any do you have any truffles? He's like, sure. So how much do you need, Jason? We go out to his brand new Range Rover. And I swear to God, he pulled out a quarter million dollars worth of truffles. I was just in disbelief. And he looks at them.

He looks at me. He looks at them. He goes, oh, you have truffles. This kind of back alley secretive deal making is pretty standard in the truffle business. It can be pretty intense, you know, and the industry is very similar to the narcotics industry where most sales are done by text messages late at night. You show up with a gram scale to weigh everything out on. McKinney had his own unique journey into the truffle space. He grew up in a broken home in Georgia, became a chef, and eventually scrapped his

way into one of the most prestigious restaurants in the world, the three Michelin-starred French Laundry in California. He spent four years there. So the French Laundry probably uses the largest amount of truffles out of any restaurant in the U.S. It really is just an incredible ingredient. You know, when it was white truffle season, you would smell it through the whole restaurant. Eventually, McKinney started a side hustle with a friend selling truffles to restaurants. And it very quickly became a gainful enterprise.

In the first 90 days, we made 100 grand, which, you know, to put it in perspective, I mean, I made $12 an hour as a chef. And then the next year, I made $12 an hour as a chef, and then the next year we made a half million dollars. Let's say it's the black truffles, we're buying them for $300 a pound, the going rate in the restaurants is $700 a pound, and so the first thing you do is you go in and you tell the hostess or the host

that you have a meeting with the chef, which you don't. And then the chef comes out and he's mad, but then you say, chef, I have some truffles you would like to see. And then he's less mad, but still mad. The chef always wants to see them, right? We would show up to restaurants in the middle of service, midnight, you name it, we were there.

Last year, the going rate for winter black truffles was 700 to $1,200 a pound. White truffles went for 2,000 to $4,000 a pound. And the most exceptional specimens can fetch much, much more. A 3.3 pound white truffle from Tuscany once commanded $330,000 at auction. The value depends on the aroma, the density, and the aesthetics. When you go into these nice restaurants and they come and they shave the truffles

over a dish, you want them to be nice and round. For high end restaurants, spending a few thousand dollars on truffles is worth the investment. Restaurants will often use truffles as an upsell, an additional topping to a meal. They might offer to shave a few slices over a dish for an additional cost of $10 to $20 per gram. And many establishments will recommend 5 to 7 grams per dish. Marina says that truffles are a way to justify Michelin star prices.

You know, if you're going to charge a person $600 for the menu, you better put something in that menu that's special and that's worth the price. For chefs, the most coveted truffles are the Italian whites and the French blacks. But Marina says there's a truffle sham quietly being perpetrated in the shadows. 70% of the black winter truffles France itself is buying from Spain. A lot of the restaurants know they don't come from France. And those white truffles that are marketed as Italian.

Italy is the kind of major hub for these truffles. So anybody in Hungary, Romania, Serbia, Croatia, all these countries finds a truffle. Their main goal is how to get it to Italy. So a large portion of those so-called Italian truffles actually come from Eastern European countries? More than 90%. But Italians have done a great job at its marketing. The Italian truffle purveyors we reached out to did not respond to our request for an interview.

To be clear, Italy does source truffles locally, and there are many truffle hunters that make a living there. But the country often isn't transparent about the origins of the truffles that it exports. That lack of clarity carries over to other parts of the truffle industry too. In the US, the laws around product labeling are pretty flimsy. Many foods that claim to contain expensive truffles like olive oils and artisanal salts actually don't have any truffles in them at all. And in recent years, another issue has plagued the truffle industry. Less scrupulous black truffle harvesters have started to water down their batches with inferior truffles. There's another truffle called tuber indicum.

It looks like your black truffle. And they grow in China, and you can rake them up. And what happens when you rake them up is they don't have the aroma, they don't have the flavor, they don't have the taste. And so, you know, beautiful black truffles out of Europe, Milanisporum, a few hundred dollars a pound. These things are a few dollars a pound. And so basically people would cut and mix them and put metal pins in the truffles to increase the weight.

These inferior truffles make their way into major high volume hotel markets like Las Vegas and Macauau and are served to unwitting customers who invariably end up wondering what all the truffle fuss is about. But true truffle diehards like Basart Marina know exactly what the fuss is about. In the truffle, the kingpin found his kindred spirit. He too rose from the soils of Europe, traveled across the globe, and created a fortune. When I have a white truffle that I hold it in my hands, it's love. I don't have the same feeling for meat. I don't have the same feeling for caviar,

you know, but I have that feeling for truffle. So it's almost like an infection in my veins that I must do this. It's something that I started doing 24 years ago and something that I continue doing. And when the profit comes from it, also it's a welcome side effect. And when the profit comes from it, also it's a welcome side effect. and Daniel Moritz Rapson. This business, Zachary, is not good for people with heart problems. The Freakonomics Radio Network. The hidden side of everything.