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.

Southeast Asia: My effort at scraping some social science out of a backpacking trip [SE Asia 1]

Introduction

I just recently wrapped up a multi-year stint teaching EFL in South Korea–an up and down experience I honestly wouldn’t trade for anything smoother. My time abroad has already been an exercise in mind-expansion, and that will hopefully continue as I visit (roughly in this order): Indonesia, Singapore, Thailand, Laos, Cambodia, and Vietnam.

This is a famous backpacker area of course, and there’s no shortage of blogs on the region from that perspective. Rather than narrative travel or “tips,” I will focus on digging a little beyond the vacation lens and provide some insight into economic, social, and political realities as they seem to play out on the ground. Where possible, I will pursue conversations and experiences that give me a personal sense of some aspect of life in these countries, which I will then augment with data (not the plural of anecdote, but a very helpful companion).

In reality what will probably happen is: I see something that provokes a question, I research it, and a few paragraphs result. For instance, I have a particular fascination with what Tyler Cowen calls “GDP tourism.” Directly encountering the fuel that drives the country forward is an exhilarating experience. One question I ask when I’m in a new place is generally “Where is the money made here, and what does that look like?”

 

GDP tourism: South Korea

In the city of Ulsan, where I lived in Korea, the GDP was more obvious than most; you can ride your bike right past the biggest car plant in the world (Hyundai), or take a peek at the world’s biggest shipyard (also Hyundai, I believe). You could go and see the fields upon fields of cars being driven one by one onto massive ships, ready to be shipped along the veins of worldwide trade until they reach their ultimate owner, in some small town you’ve never heard of but where someone produces enough value that they can, through a spiderweb of transactions and networks, trade their skills as a plumber to Hyundai for a car that came from a country they had never been to, yet which built and shipped a car halfway around the world in the anticipation that someone like that plumber would choose to buy a Hyundai.

 

Grocery store tourism: South Korea

I also have a hobby of checking out grocery stores wherever I go. Preferably a supermarket chain, multinational or no, but traditional markets, convenience stores, or local marts are also objects of interest. You can learn a lot about a culture by looking at what the supermarket carries, and how much it costs. Korea, for example, has a love affair with Spam dating back to the Korean War. Today, if you walk through a typical store you’ll find more varieties of the canned meat than you ever wanted, and around the holidays you shouldn’t be surprised if you receive a few cans of delightful mystery meat and some cooking oil wrapped up in an attractive gift box which, in America, might contain some sort of holiday sweets.

In Korea, brand-name Spam is “fancy” because in the aftermath of the Korean War, when it was the poorest country on Earth, American soldiers had it in their rations, and due to its portability and preservation, it was easily used as a trading good and included in aid packages. Korea’s current love affair with meat (it’s in everything) comes from this period where meat was an occasional luxury, which usually arrived in the form of Spam.

You can also ponder the mysteries of why watermelons cost $20.00 USD, while bananas barely register on your receipt at $0.15-$0.25 USD per banana.

Given that I am spending 1-2 weeks in most of these countries, I will develop at best a tenuous grasp on the realities that shape them–but it should always be interesting, and hopefully factual!