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All Places > The Economics Community > Blog > 2016 > March > 05

Ok, let's talk economics. More specifically, let's talk coffee and drugs.


You may have noticed in my last post that Eric Chiang was holding a cup of "Juan Valdez Cafe" coffee and yet, leading up to this trip I mentioned that they ironically don't really have coffee shops in Colombia. Well they don't, really. At least not independent ones. Since Bogota is rather cosmopolitan compared to the rest of the country, what they have is several international coffee chains. You can get Starbucks, the aforementioned Juan Valdez, or even Dunkin Donuts here. So why aren't there cute independent coffee shops in the capital city of the country whose main export is...(drum roll) coffee?


One reason is that coffee is a tough crop to grow. Colombia has an excellent climate to do so, but their coffee crop is still highly effected by storms, drought, pests, etc. Consequently, that makes the price of coffee pretty volatile and puts Colombia in a tough spot with their chief export. How do they deal with this problem? They export as much of their crop as possible to wealthy countries that don't have climates suitable for coffee growing.


So why the chains? Most of their retail is based in the aforementioned wealthy countries that pay top dollar for coffee imports and they can afford to purchase large quantities of the Colombian coffee crop at high prices just due to their scale. Thus, the little independent shop is edged out. Some clues we've seen as to the economics behind it:


coffee 3.JPG



Ok, the photo's hard to see but this is the menu at a Bogota Starbucks. A tall (12 oz) caramel macchiato is 8,600 Colombian pesos. That's about $2.73 versus the $4.91 gouging that I suffer in NYC. Pretty cheap, right? Well, sort of. You need to take exchange rates into account and particularly that the US dollar has recently become very strong against the peso (Y = pesos to US dollar):


colombian exchange.JPG


Whereas $1 equals 3,155 pesos now, just a little over a year ago $1 equaled 1,848 pesos. That caramel macchiato would have been $4.65! Since Starbucks is a US company, they don't alter their prices much to account for the exchange rate, and given the purchase power of the average Colombian is still lower than the average New Yorker, that makes Colombian coffee [typically] super expensive for Colombians! How's a little guy to compete?


Next up, a [former] major export of Colombia...

As much fun as it is to globe trot at the pace we are, you may ask yourself, "why are they doing this?"


Aside from being the Worth author with the most tendered McDonald's receipts, one of the most unique things about Eric Chiang is his philosophy on travel. Essentially, get in, get out, and try to gain as many impressions of world locales as you can. Why? People around the world are faced with many of the same economic problems and yet they solve them in surprisingly different ways.


The goal of this trip is to explore just how Colombia, Brazil, South Africa, and Dubai solve their economic problems differently. It's essential to try to comprehend these things in order to begin to understand economics in our rapidly changing world. The general experiences, videos, and photos we take on this trip are going to comprise a new and key feature, "Around the World,"  in the upcoming edition of Eric's book, Economics: Principles for a Changing World.


Up next, I'll get in to our exploration of Colombia's economic issues. First though, some photos of Eric indulging his McDonald's craving and sampling some of the local coffee.




Eric Coffee.JPG

Not really a full blown post, but I have to remark that I managed to find a craft beer bar in Bogota within an hour of arriving. What can I say? It's a gift.image.jpeg

So here we are. Myself and Eric Chiang landed in Bogota at 11:30 this morning (EST). We arrived at the hotel at 12:30, which is only 5 miles away. Goes to show you what traffic can be like when a city doesn't have a mass transit system. It will be interesting to compare with Sao Paulo which has a subway system similar to London's.


Initial impressions: the country has gone a long way to rehabilitate its image. Customs was actually faster than those in Toronto after coming in from NYC. The city is fairly clean, and although we did see a half dozen military police (some with automatic carbines), it seems like any other bustling South American city. One interesting thing re: mosquitos and Zika virus, the current weather is actually similar to Massachusetts in June. Cool (mid 60's and hazy). This is because Bogota is at 8300' feet altitude: higher than Denver! It's a mountain city and it's most likely too cool and too high to have much of an insect problem.


We're now on a quest to learn about Colombia's famed coffee industry and its fictional spokesperson, Juan Valdez. First, here's a shot of the interior of our cab. Big South Park fans down here...image.jpeg

Zero hour. Eric Chiang and I are now on board our Jet Blue flight from Fort Lauderdale to Bogota, Colombia. Incredibly, although the rest of the flight is full, there's an entire row across from us in extra legroom. Jet Blue competes against Spirit airlines for this route (duopoly). As Spirit's business model is based on carriers in largely less developed countries, Jet Blue has to drop their prices extremely low to compete against their single rival. Base fare for this flight was less than the cost to take a shuttle from NYC to Boston. Only $47...