The Singapore Commentator

The Straits Times today reported that the price of coffee beans has fallen sharply since 1997 due to the increase in production from Vietnam. The country is now the second largest coffee exporter after Brazil.

It’s unusual to see a commodity price fall nowadays. Rising demand from China has been pushing up the prices of most commodities. Apparently, the rise in coffee-drinking in China has not made enough of an impact yet to offset the increase in coffee production.

Having said that, the graphics in The Straits Times shows that the price of a pound of coffee fell from 180.44 US cents a pound in May 1997 to a low of 41.17 US cents in September 2001, but has since climbed to 58.46 US cents in July 2004. That is an increase of 42 percent over less than three years.

The Straits Times also reported that the price of a cup of coffee in Singapore is not likely to fall soon.

Coffee shop owners and cafe chain operators interviewed say the fall in the prices of “green” or unprocessed bean, along with ground coffee, does not translate into lower retail prices for a cup of coffee. They say the cost of coffee beans makes up a very small proportion of the actual cost of the end-product... In fact, there is actually upward, rather than downward, pressure on retail prices.

Mr Hong Poh Hin, the president of the Foochow Coffee Restaurants and Bar Merchants Association,...said the price pressure came from other factors. “For coffee shop owners, a large part of our overheads comes from rental and labour costs, and these have been rising in recent years. So, despite cheaper ground coffee, our costs have been going up, and our members have been clamouring for a price increase for the past two years.”

However, according to Mr Hong, the consensus among members seems to be to keep the price of black coffee at 60 to 70 cents for now. He said: “Our customers are heartlanders, and to them, a 10-cent increase is a big deal, so for the sake of customers, we are absorbing the rise and coping with lower profit margins.”

How noble of him. The reality, of course, is that with overall inflation in Singapore still relatively low — overall consumer prices in August rose only 1.6 percent from a year ago, and this is inclusive of the increase in the goods and services tax of one percentage point — it would be difficult for coffee shops to get customers to tamely accept higher prices for their cups of coffee.

It is getting harder and harder for sellers to justify price increases by claiming inflation.