Thomas Digiano

Around the World in 80 Hours #5: How much for a cup a' joe?

Blog Post created by Thomas Digiano Employee on Mar 5, 2016

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...

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