Coffeenomics

Most of us wake ourselves up in the morning with a hot cup of coffee. This caffeinated craving powers the world’s workforce. Perhaps a less travelled path is exploring the correlation between a nation’s coffee price and consumption, and how it links to its monetary well-being. Comparing data across several worldwide Starbucks lattes to each nation’s economy might not be the most obvious way to analyse economies but is the easiest to visualise. So, can a country’s coffee cup cost be an indicator of its economic health?

EUROPE’S COFFEE CURRENCY

Using the price of a small (“tall” in Starbucks speak”) Starbucks latte, I compared the local cost of this drink to its US price to find the “coffee conversion rate (CCR)”. Then, I found the percentage difference between the CCR and the actual conversion rate to see how overvalued or undervalued a small latte at Starbucks is compared to the USA, across 26 European countries. This is, of course, a basic and linear way of measuring a country’s currency to the US dollar (USD).

The graph shows what we perhaps already knew. Northern Europe has the highest priced coffee (in USD), and therefore in comparison has an overvalued coffee currency against the USD. Eastern Europe stands on the other side of the fence, with their Starbucks latte price proving to be undervalued versus its US counterpart.

In short, if you were to buy a small latte in a Bulgarian Starbucks and sold it in New York City — all factors aside — you would make a $2.10 profit. If you and your coffee took a much shorter journey to Copenhagen, you would be $3.85 richer.

GDP VERSUS COFFEE PRICE (selected global countries)

It is reasonable to expect that coffee prices are lower in poorer countries and higher in wealthier ones since many factors influence the cost of goods and services. Any combination of taxes, tariffs, retailer pricing strategies, local raw material and labour costs, and so on will increase and decrease the overall price of coffee. This index looks at a country’s GDP per capita relative to its coffee cost in USD to show how far each country diverges from the average.

For example, Denmark’s expected coffee price based on its GDP per capita would be $4.20; the actual cost in Copenhagen is $6.05. This means that coffee is 44% more expensive than it should be, based on GDP. Looking at the Latte Line graph, we can see the correlation between a weaker GDP and a cheap latte in countries like Egypt, Turkey, and Argentina in the bottom left. Luxembourg in the top right has an expensive cup of coffee, but one which falls in line with its strong GDP per capita.

Within this trend, as always, there are a few outliers. Given Monaco’s high GDP, their latte price is lower than expected. Denmark, as previously mentioned, falls at the other end of the scale, with a very expensive latte relative to its middling GDP.

DOES COFFEE PRICE AFFECT CONSUMPTION?

Generally, we can see that the high cost of a small Starbucks latte does not harm consumption levels, with a healthy amount of the 33 countries shown scattered in the bottom right quadrant. Only Macau can legitimately claim their link between high price and low consumption is meaningful. A low price does not mean a high consumption either, with a large proportion of countries sitting in the top left. Only Canada and the Netherlands hit the sweet spot of a lower price with high consumption, located in the top right of the graph. Sweden, Italy, France, and Germany all come close, however. Of course, there are many factors behind each country’s position on this chart, from coffee pricing strategies to the number of coffee shops per capita. Nonetheless, I think we can safely say there is not much of a relationship between coffee price and consumption.

These statistical representations between coffee price and many different economic indicators have provided interesting reading. While a country’s coffee price may not highly correlate to its coffee consumption, it was generally linked fairly consistently to their GDP. It is important to note that the numbers behind each graph ignore many vital considerations, either measurable or non-measurable, that are unavoidable in real life. Even so, this short study has unearthed many interesting truths. Once you wake up and smell the coffee, it is hard to go back to sleep.