Towards a theory of coffee pricing in Southeast Asia

Country Average price of 1 hot Americano
Indonesia (Bali) 1.60 USD
Singapore 2.25 USD
Thailand 1.60 USD
Laos 1.75 USD

 

Country Average price of a budget restaurant meal
Indonesia (Bali) 2.50 USD
Singapore 4.50 USD
Thailand 2.00 USD
Laos 2.50 USD
A cup of coffee in Cambodia, part of Southeast Asia I ironically did not include in this article

DISCLAIMER: These tables are based on my own experiences travelling on a budget through SE Asia; they are not actually representative of a random sample of coffee shops and are very subjective. But if you are travelling on a budget in SE Asia around late 2017, feel free to use this as a rough guide of what you’ll pay for coffee and food.

I lived in America for most of my life, and Korea after that, so something about the tables above is strange to me. I’ll give you a chance to guess what I think is odd.

 

 

 

 

 

Did you guess price ratios? Because if you did, you’re right, and I’m not apparently alone in thinking it’s odd.

In Indonesia you can buy a cup of coffee for about 65% of what you would pay for a meal. Singapore offers a more reasonable 45% (these numbers are skewed by my very driven efforts towards budget eating, though). In Thailand, a coffee will run you about 65% of your meal. Laos is about 65%. (Disclaimer again, these are fairly subjective numbers, but I have about 95% confidence that a cup in Thailand will cost you between 1.00 and 2.15, given that you aren’t above buying coffee from a street vendor and are avoiding anyplace that looks “too fancy.”)

In most of my experience, coffee rarely costs anything close to what the meal does, even if you are eating on a budget in America. I should point out that none of those average coffee prices above include visits to Starbucks or similar chains, because then all bets are off and you may as well stop eating altogether the way some of South Korea’s doenjang-hyoja (bean-paste girls: girls who eat very cheap food in order to afford fancy clothes and Starbucks) do.

So this made me curious–why are coffee and food such similar prices in Southeast Asia, and why is most coffee priced not that much lower than what you’d pay in the US?

 

Coffee beans are an imported input

In a way, the second question answers the first. Coffee prices worldwide don’t vary as much as food prices because coffee is difficult to produce domestically. The price of a coffee bean bought from a plantation in Brazil or Indonesia is about the same for a U.S importer as for a Thai one.

This means that the cost of coffee-making inputs remains fairly standard between countries, with some variability based on distance and perhaps grade of coffee purchased.

 

Making coffee isn’t very labor-intensive

But then you have the variable cost–people have to work to get that coffee bean to the store, keep the lights to the cafe on, grind the coffee, brew it, and serve it, and wages in America should definitely affect the cost of the coffee. It does, but the price of coffee in America definitely doesn’t rise proportional to the cost of labor/utilities/infrastructure in America versus Thailand.

I’m sure better people than I could do more than speculate, but my general theory is that for your average budget price of coffee, variable cost stays fairly low worldwide–it’s not too labor-intensive to make, so as long as you can pay the price of the coffee bean, you don’t have to invest too much in skilled workers to painstakingly prepare the perfect coffee. In Thailand, you pay a little less because the labor and operating overhead are cheaper. But you’re paying a lot for the coffee bean itself in both countries.

 

Food is domestically produced and labor-intensive

Food is, relative to coffee, a high-labor product. A single barista could churn out quite a few coffees in an hour, whereas a single chef probably couldn’t approach the same number of meals. So when you get a dish of pad see ew in Thailand, you can be sure it took more time to make than a coffee, and you’d expect the price to reflect the higher labor cost.

But you’d also expect the greater quantity and complexity of materials to be part of that price. A noodle dish needs meats, vegetables, sauces, seasonings, and all sorts of other things that require individual preparation and combination.

The big difference is that almost all of these materials can be produced close by, especially since the local cuisine tends to use cheap and available ingredients. There’s no single country exporting rice noodles or kale–the restaurant has access to a much more competitive, local market to source its materials from, and as such the cost of materials doesn’t include higher labor costs in the exporting country or the exporting costs themselves, or import duties, or supplier monopolies, or any of that.

And once you have those cheaper materials, you can use the cheap domestic labor to prepare them. The price is always higher than a cup of coffee for the reasons stated above (food requires more materials and labor), but the profit margin may be fairly similar–it took more labor to make your fried rice, and more ingredients, but both of those were cheap, whereas in the coffee equation only one of those was cheap.

So my basic, and almost definitely flawed, theory of coffee:meal relative pricing in Southeast Asia is this: With coffee you’re buying a little labor and a little of something expensive; with meals you’re buying a lot of labor and a lot of something cheap.

Stay tuned for my New York Times bestseller on the topic.

Bali, Indonesia: developed tourist sector; developing economy

The island of Bali, Indonesia, is well-known for being the “love” section of the book/movie Eat, Pray, Love. As a tourist destination, though, it has a history that goes way back past the 2010 movie. Actually, in 1932 there was another film, The Virgins of Bali, popular for its numerous images of bare-breasted Balinese women (courteously allowed to remain so by the Dutch, who, in the spirit of colonialist cultural sensitivity, legalized nudity by uncivilized women, but not civilized women; draw your own conclusions). This film sparked a purely academic interest in visiting the island, and Bali’s tropical climate, striking natural beauty, and laid-back culture has kept the tourist industry going strong since. Even a volcanic eruption, violent political unrest, two terrorist bombings, and “Bali Belly” have been unsuccessful in discouraging visitors.

Here are a few stats:

Population (2014) 4,255, 341
Nominal Gross Regional Product (GRP) 12.84 billion USD (PPP adjusted: 49.59 billion)
Nominal GRP Per Capita 3,210 USD (PPP adjusted: 10,804 USD)
Major economic sectors Tourism (70-80%), Agriculture/Fishing (~20%)

All statistics from Wikipedia, which draws on Indonesian publications; as far as I can ascertain much of this data is not readily available in English, or I would have cited more rigorously.

As it was my first time in Indonesia–and only five days–I didn’t have a lot of time to get out of the heavily commercialized Kuta and Ubud areas, except taking an excursion to the even more commercialized Gili Islands. That said, the entire island of Bali is tourist-oriented to some extent, making the popular areas not-unhelpful in understanding the way its economy and culture operates.

While I may go more in-depth on some specifics in future posts, for now I’m going to stick with some of the highlights of my time on Bali.

The Airport
First, the airport is nice. Not just, “not a bad airport for a developing country” nice, but “the airport actually feels like you’ve arrived in a tropical resort” nice. The interior architecture, lighting, and general ambience are above standard, and the plant-covered, softly-lit exterior makes it even better from the outside. You can tell they put money into making a good first impression on the arriving tourists. I’ve been in South Korea’s Incheon a few times and Singapore’s Changi twice, two of the “best airports in the world,” and Bali’s has a vibe that easily competes, though perhaps not the endless list of amenities that the other two offer. Given that tourism is the dominant sector of the Balinese economy, and that Bali’s GRP has grown faster than the Indonesian regional average pretty consistently (6.24% in 2016, as opposed to Indonesia’s 5.0%), this makes sense as a capital investment.

The English
Second, the level of English spoken there is a little eerie. The first day, we got SIM cards at a local shop–the attendants were completely conversational. Our taxi driver, whose son had just left for a cruise ship job in America, was also quite a talker. During the conversation, he revealed that his highest education level was elementary school, and he had spent most of his career in construction. These were not exceptions–they were certainly the rule.

So let’s put that in context: I just spent three years in South Korea, one of the world’s most developed nations with a high level of interest in learning English and an effective (almost too effective) education system. There, the average person speaks a few words and is familiar with the loanwords that make up 20-30% of the South Korean language. Still, making yourself understood or finding your way around without some command of Korean is fairly difficult. In Bali, where the average education is somewhere between elementary and middle school, almost everyone we met spoke very decent English.

The disparity has its roots in basic economics. I would lay money that if you were to go to one of Indonesia’s similarly well-developed, but less-touristy regions, you would find a lot less English. Australians and Americans are two of the main nationalities travelling to Bali, and English is essentially a universal tourism language for most other countries as well. The Balinese probably learn very little English in schools, but they learn it even more effectively than the Koreans because they have frequent occasions to use it. The agricultural sector in Bali, which still employs many, though it contributes disproportionately less to GDP, probably has lower levels of English as well. But essentially anyone in a city or popular town in Bali will have English communication skills, from the hawkers to the convenience store clerks to the tour guides. Most of their jobs, and thus a large part of their economy, depends on them being able to communicate with tourists; their incentive to be good at English is high, and they respond accordingly.

Work and Savings
Third, they are absolutely still a developing economy. Like the rest of Indonesia, Bali enjoys a fairly high standard of living relative to many places, but is still plagued by governance problems, economic instability, infrastructure shortfalls, and any number of other things.

Out of the fairly small sample size of Balinese people I had conversations with, two of them (our AirBnB host and our taxi driver) had relatives working abroad on cruise ships. Our host described her husband’s work as long days, leading into long months away from home, with visits back to his family few and far between. He had spent time on European, Asian, and American cruises, but hoped to retire soon–it’s not so much of a vacation for the workers. Despite their distaste for this job, however, it remains such an attractive position monetarily that our taxi driver’s son, with his own wife and child in Bali, had just flown to America for the third time to get a cruise ship job (having done so twice before but having had his job cancelled when he arrived, which seems like a very low move on that company’s part).

Employment opportunities on Bali are certainly a bit limited, and wages fairly low. The living standard is still in line with what you would expect in a developing nation, and overall Bali, while undoubtedly a pleasant place to live due to the climate and atmosphere, is susceptible to the same money worries that much of the world deals with.

Further impeding savings on Bali, apparently, is the plethora of expensive rituals that families must regularly perform. Our AirBnB host described to us the regularly occurring religions festivals, as well as multiple celebrations held each year for occasions such as birth, death, and marriage. These are not uncommon in most countries, to be sure, but from her description, it came out that many things on Bali merit not just one celebration, but several, each one marking a different stage in, say, a baby’s life. Religious/cultural ceremonies are also common and also require fairly significant donations.

These are just a few of the things I gleaned from Bali; time allowing, I will be writing more soon.

 

Sources

Wikipedia

CIA World Factbook

OECD Structural Policy Country Notes Indonesia

Article on Bali’s agricultural sector

Asian Development Bank: Indonesia