'Tis Only My Opinion!

March 1982 - Volume 1, Number 1

The Lowly Coffee Bean

In my travels around the world, I have been struck by the significant differences in the price of a lowly cup of coffee between countries. Despite inflation, the price of a good cup of coffee anywhere in the U.S.A. is only about $.50 to $1.00. But in Japan, that same cup of coffee will cost $3.00 to $5.00. If the costs of water and wages plus fringe benefits in the restaurant industry are comparable, what is the major determinant of the large variance in the overall cost of a cup of coffee between these two countries?

Japan and the U.S. purchase their coffee beans from the same growers on the open market in a relatively competitive situation. The cost of ocean freight is almost identical. Thus, the major determinant is either the difference in profit structures or distribution channels.

Studies of the food service industry in both countries indicate that the profit margins are not significantly different. Hence, the culprit must be the multi-layered distribution channels in Japan.

The U.S. has long believed in free trade and allowed almost any nation to compete in the U.S. on the same basis as U.S. companies. However, foreign countries are not accorded that same freedom by Japan. For example, the Japanese government requires many approvals for automobiles imported into Japan. These approvals plus import taxes and importation license fees raise the cost of imported automobiles to a level significantly higher than comparable Japanese-made vehicles.

It is ironic that U.S. automobiles which have far better crash/injury ratios than Japanese makes according to insurance studies and whose pollution-control devices far exceed Japanese requirements must undergo expensive recertification tests. The only possible reason is to delay the marketing process and to increase the imported manufacturer's cost.

So what does this have to do with the price of a cup of coffee? Just this: Distribution costs, however, inefficient and government-mandated, do affect retail product costs.

Japan has prospered greatly by playing a two-way game in international trade for three decades, In 1981, Japan's trade surplus with the U.S. exceeded $20 billion. The rest of the world may be about ready to change the ground rules for international free trade with Japan unless Japan begins to take a serious look at the rules and regulations that effectively hamper other nations from trading within Japan.

One high-placed U.S. administration official suggested recently that if the trade barriers don't come down quickly in Japan, he would introduce legislation that would allow Japan to export one automobile to the U.S. for every one the U.S. could sell in Japan. Think how that might affect employment and the balance of trade between the two countries.

At the recent national association of home builders' convention in Las Vegas, the Japanese homebuilders were bemoaning the recession in their country which had forced long-term mortgage rates to 8% per annum and housing starts down to only 1.2 million starts in a nation with 120 million people. Struggling with 16 1/2% prime interest rates and about 700,000 housing starts in a country with 230 million people, the U.S. homebuilders had little sympathy for the Japanese contention that things were really tough in Japan.

Sometimes, you have to get out of the trees to see the forest. Certainly that old adage applies to the matter of free trade. When something is only good for one at a party, the party is soon over.

But then -- 'Tis only my opinion!

Fred Richards
March 1982

This issue of 'Tis Only My Opinion was copyrighted by Adrich Corporation in March 1982.

It is intended to provoke thinking, then dialogue among its readers. Quotation with attribution is encouraged.`

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