[Viewpoint] A cupful of socioeconomics

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[Viewpoint] A cupful of socioeconomics

The record-breaking rise in gold prices gets a lot of attention these days, but there is another commodity that would have cost you hundreds of times less and doubled your money since last year: coffee beans. In April, coffee bean prices rose to $3.18 per pound, coming close to the 1977 historic high of $3.40. In the past, such meteoric hikes were due to supply disruptions in coffee-growing nations, the weak U.S. dollar, higher costs of inputs like fertilizer and market speculators. But the recent surges are due to rising demand in emerging economies such as Brazil, China and India.

Case in point is the increased demand for high-grade arabica beans in Brazil, the biggest producer of coffee. Traditionally, Brazil exported most of its coffee, but its bulging middle class has an increasing taste for better coffee, meaning more arabica beans are staying home. Even in countries with a tea culture like China and India, coffee consumption is growing rapidly.

Korea is no exception to the coffee craze. According to the Korea Customs Service, the nation’s coffee imports reached an all-time high in 2010, totaling 117,000 tons. This amounts to 11.7 billion cups of coffee, which equals an annual average of 312 cups per person. To boot, as in emerging economies, the consumption patterns of Korean coffee drinkers have also become more refined. While imports of the cheaper robusta coffee, mainly used to make instant coffee, are on the decline, imports of both Brazilian and Colombian arabica coffee have increased 47 percent year-on-year.

As of now, Korea’s coffee market totals 2.7 trillion won ($2.5 billion). Coffee-mix packets take up the lion’s share at 1.2 trillion won followed by coffee shops at 830 billion won and canned and bottled coffee at 680 billion won. Although it is a distant second, the coffee shop market is growing the fastest and wields the most influence.

Notably, the number of cafes has grown rapidly despite the global financial crisis, including a tepid job market and galloping inflation. This is in stark contrast to the U.S., where the crisis has put the brakes on coffee shops. In Korea, the number of cafes has skyrocketed sixfold from 2006 to more than 9,000 in 2010. And, much of the growth has occurred since 2008, when the financial crisis unfolded.

The start-up cost and entry barriers for coffee shops are low, and because of coffee’s refined image, the business has a high start-up preference. Those who lost their jobs in the recession and investors fleeing the markets flocked to the coffee business, fueling an explosion of coffee shop franchises. Their moves were justified because there were no drastic changes in coffee drinking despite the economic turbulence.

While reducing spending in an economic downturn is common, drinking coffee has a strong habitual tendency and is considered a “comfort purchase” in which consumers increase purchases of “the little things” to compensate for not being able to spend as they please.

Another distinctive feature of Korea’s coffee scene is changes in consumer sentiment. According a survey conducted by Kim Rando of Seoul National University in 2010, 86 percent of coffee drinkers felt that coffee prices were too high. It is not surprising since prices of lattes and cappuccinos come close to those of a simple lunch. Yet, high prices have not reversed coffee guzzling because it is being driven by factors apart from the cost.

For many Koreans, their java is not merely a beverage but a medium for new experiences that outweigh the price. Being in a nice cafe is seen as a means to satisfy exhibitionist tendencies, bringing to mind images of spoiled, extravagant consumers sipping overpriced coffee when brewed coffee truly was a luxury in Korea, or effet de panoplie, the need to consume in order to fit into a certain group. Thus, if you add the emotional and pragmatic experiences coffee offers, the right price for a cup becomes relative.

The extra fulfillment that caffeine carries in Korea is exemplified by newly coined words such as “coffice” (coffee shops used as offices), “cafemom” (moms who share information about their children’s education at cafes) and “cafebrary” (cafes used like libraries). In other words, cafes provide the “third place,” neither home nor work, and offer a relaxed atmosphere as well as the need to maintain a certain level of decorum.

With coffee now part of the national diet, it is moving to the next stage where taste and quality are being more discerned, leading to niche cafes that roast their own beans as well as more home brewing.

Coffee is not merely a beverage but a barometer that reflects changes in both society and the economy. So, the next time you are at a coffee shop, look around and consider the changes in social and economic behavior that brought everyone there.

*The writer is a research fellow at Samsung Economic Research Institute.

By Kim Keun-young
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