Mark-ups

Fishermen who manage to find one of the few remaining beluga sturgeon in the river Ural are paid $3 for the caviar from a single fish. By the time this reaches Paris, New York or Dubai the price has gone up to $6000-7000 per kilo, a mark-up of well over 100,000%.

Now I'm not one of those economically-naive types who habitually scratches his head every time someone comments on the difference between the cost of a Venti latte at Starbucks and the price paid to the grower. I know that the cost of the materials, whether coffee beans or cow's milk, is really the least of it.

And in the case of caviar I understand that the near extinction of the sturgeon coupled with the fact that the trade in beluga around the Caspian is a mob-controlled business, does much to explain the size of the rake-off between the river and the restaurant. As Misha Glenny put it in McMafia: "From the fisherman right up to the Parisian restaurant buyer: everyone is on the take except the wretched sturgeon."

But a couple of days ago I went to buy a medium-sized cup of iced coffee in the shop within this nicely rennovated bandstand in Tapachula, and was asked to pay 27 pesos for it ($2). It would have cost roughly the same in London, capital of soi disant 'Rip-off Britain'. But this was Chiapas, which in many other respects still seems to offer the most sensible prices in Central America.

Still, I've kind of grown used to rip-off prices in Guatemala, even if I don't quite understand them. A cup of capuccino or a pizza from Domino's costs approximately 20% less than it would in London, but I can't think of any overheads affecting the restauranteur which could mount up to anything like 80% of their UK equivalents.

The killer in London is the cost of renting a retail unit suitable for a coffee shop. Any building in the centre which doesn't cut it as a locus for shopping can relatively easily be switched to alternative, more rentable uses such as office space or car parking. The owner of the building will generally go for the most profitable usage. Wages are also considerably higher in the UK, with the national minimum set at roughly $9 an hour.

So why is a lot of restaurant food (especially the faster sort) so expensive in Antigua? Can't be the ingredients (mostly local), the property rent or the labour costs. Maybe red tape is a major overhead here, but then Guatemalan businesses aren't paying anything like the same sort of corporation tax.

And bear in mind that the average middle class consumer is also earning a lot less (though arguably also paying less to the banks and the government), and so if the pizza seems pricey to me...

Maybe it's because there's scarcity, but on the demand side: the number of people able to pay X for a Domino's pizza in Antigua is as small as the number of affluent tourists in Tapachula and so the price of X has to go up to cover reduced volume. Hmmm, maybe I am economically naive after all.