Commodity prices fluctuate tremendously. The reason is because demand can shoot up fast but supply cannot suddenly increase.
Coffee trees for example take five years to mature and each can only produce one pound of roasted coffee that year. Thus, when prices are up, you will see more and more coffee plantations sprouting.
Often, supply will exceed demand once all the supply floods the market. This has happened often. We love coffee and new cafes are mushrooming everywhere but demand has not been enough to exhaust all supply.
This has resulted in a slump in coffee prices in the international market. An article about the coffee slump can be found in nasdaq.com, entitled: “Coffee prices on the New York market have hovered at or below $1 (RM4.10) per pound (450gm) so far in 2019.”
Therefore, 1kg of coffee will be approximately RM10. To produce a 220ml cup of coffee, approximately 10gm of coffee powder is needed. This means one can produce 100 cups for just RM10.
Before you begin to question why you still pay RM10 for one cup, keep in mind such variables as logistics, wastage during transportation, and insurance costs among others.
The coffee served to you in a cafe also includes the cost of rental, the salary of the barista, electricity and… you get the idea!
However, due to this slump in global coffee prices, many farmers may be forced to turn to other crops to earn a decent living.
What is certain is this. There are ever more new brands of coffee on the shelves of supermarkets and many are priced cheaper too. By the way, many belong to the same parent company as they try to cover as big a portion of the market as they can from those who buy premium brands to those who are price sensitive.
Will this really help the property market? The answer is no. Starbucks, Coffee Bean, San Francisco Coffee and even McCafe remain a staple for most, but if you could save RM6-RM8 per cup per day, that’s still RM2,200–RM3,000 per year.
Over just 10 years, you’ll have more than enough for a downpayment on an affordable home.
So, while it is proven that coffee prices (commodities) may fluctuate, the prospects for the property market still depends on a drinker’s habits.
This article first appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.