Friday, March 30, 2012

Reblog, "Coming to Visit? Bring an Extra Suitcase."

I know everyone in the Brazil blogger circuit knows prices are crazy here but for my family and friends back home I just want to remind you every day how lucky you are to have inexpensive goods at your disposal. I love living in Brazil and feel very lucky for the experience but I am afraid sometimes we worry about being priced-out. My friends in more expat friendly neighborhoods are enduring the pain of landlords asking for double if they would like to stay and sign another lease. Renting an apartment that isn't falling apart or off in some area way outside the city for under $US1600/month is impossible. For the lucky ones that found deals early on and signed 30 month leases, we are literally scared waiting for the renewal ticking clock. Our good friends Suzanna and Jeff over at "Rooted Journeys," just wrote a great post after having lunch at a little sandwich spot in Jardins. No fru fru just a sandwich and a coke = us$26.00 Our neighborhood padaria (bakery) made new menus and you know what that means. Charging us$12.00 for a chicken sandwich with cheese and tomato (no free sides EVER) was way too cheap. Now its $18.

Rooted Journey's "Coming to Visit? Bring an Extra Suitcase."

I’ve officially been demoted from Rooted Journeys co-author to guest contributor. Not because Suzanna said so (she never did), but because it turns out I’m just not very good at motivating myself to actually sit down and write something. But here I am, so vamos-lá.
Generally speaking, it seems that many Americans view Brazil as a chaotic tropical wonderland – think Carnaval, string bikinis, palm trees, samba dancing, bossa nova, favelas, drug lords…you know, all the fun stuff.  In reality, one of the most defining features of Brazil as an expat in São Paulo is simply how ridiculously expensive it is. No matter how much you try to stop talking about it, and even more importantly, try to stop converting prices into dollars, it just won’t fade into the background as a simple fact of life. For those of us living it, it’s like a permanent fat lip – the moment you think it’s healing, you bite it again and want to take out your aggression on the old lady walking too slow on the street in front of you. That’s right, it makes you want to push an old lady. It’s that ridiculous.  Although, just for the record, I would never actually push an old lady.  And the prices here are worse than a fat lip.  Maybe that wasn’t quite the right metaphor, but there’s no turning back now.  Let’s keep moving.
A couple of recent articles have highlighted some of the effects of this charming Brazilian reality.  The cover story a few weeks ago for Veja (a popular weekly magazine in Brazil) was titled Pague Um, Leve Dois, Tres, Quatro…. English translation: Pay for One, Get Two, Three, Four.  The lead-off explains further (translated): “The favorable exchange rate alone does not explain the low prices that mesmerize Brazilians who shop in the United States.”  To drive home the title, the article cites the happy fact that the cost of an iPhone in Brazil is the highest in the world, leaving shelves for $1,650 (USD equivalent) in Brazil.  In the US, the same unlocked iPhone 4S (32GB) goes for $815.  That puts it at just over double the price for us lucky brasileiros.  But why stop there, it gets better!  Asics sneakers that go for around $200 in the US? A cool $457 in the equivalent Brazilian play money.  That’s 2.3 times the price.  A PlayStation 3 goes for 2.8 times the price.  Calvin Klein jeans are 3 times the price and a Guess handbag tops it off at 3.8 times the price.  Go Brazil!
These are just random examples, but they do give an indication of general price levels.  Not everything comes in at double the price, but it’s fair to say that São Paulo has justly earned its ranking as the 10thmost expensive city in the world for expats and the most expensive in the Americas (Mercer Survey).  So, you may ask “why”, which we ask ourselves constantly. Of course there is no simple explanation, though the Veja article presents a pretty reasonable set of factors.  Here’s a summary:
  • Exchange Rate – the Brazilian Real (currency) is about 25% stronger against the dollar than its long-term average making goods more expensive accordingly, especially imports.
  • Demand – quite simply, growing demand is outstripping the country’s productive supply capacity. High demand + low supply = high prices.
  • Tax Burden – the Brazilian tax burden is 36% on average versus around 25% in the US.  The difference is even greater when considering additional taxes on goods Brazil classifies as “superfluous.”  Plus, Brazilian import taxes are triple what they are in the US.
  • Inflation – while the days of hyper-inflation have passed (hopefully for good), inflation is still significant and widens the price gap over time (6.5% inflation in Brazil last year versus 2% in the US)
  • Competition – as a matter of policy, the US government prioritizes competition over protectionism and Brazil vice-versa.  For example, whereas the US government made cheap credit available to US auto-makers to help them become more competitive with cheaper Asian imports, Brazil has chosen to simply elevate import taxes to artificially raise prices of the foreign competition.
  • Economies of Scale – US companies generally focus on selling more at a lower margin whereas Brazilian companies tend to focus on a small market at a high margin
  • Productivity – it’s just not rising fast enough relative to labor costs (due to low unemployment, a lack of qualified labor, insufficient investment, etc.)
The result?  Prices that make your eyes pop and a growing class of Brazilian consumers that have become America’s big-spenders.  It’s no wonder so many Brazilians take annual shopping trips to Miami and New York – they easily recoup the cost of the trip in savings on their purchases.  Brazilians now spend more in the US than visitors from any other country – on average, $5,400 per person per trip in 2010 (article).  Japanese tourists came in far behind at number two with $4,300 in spending per person.  So next time you see people filling up suitcases with stuff in the mall, try a warm bem-vindo.  Good chance they’re our neighbors.
So, please have some patience when you hear us (constantly) complaining about the prices here and be generous with your suitcase space when you come to visit – we’ll be filling it up.
PS – I  had a coke and a nice sandwich for lunch today (filet, brie, arugula).  No fries or chips or any extras.  The tab was R$45.  That’s about $26.  For a sandwich.


Anonymous said...

What no one can seem to figure out is where all that tax goes? The services sck. So I don't understand how dumb the government thinks everyone is. You charge first world prices in a country with 3rd world services. Someone is banking the money because its not going back to the people to increase their quality of life that is for sure.

As of 2011 Brazil is 85 on the Human Development Index. Which measures which countries have the best quality of life. Uruguay is 48. And the US is 4. I mention Uruguay because it next to Brazil.

That is why no one can understand where all that tax money is going.

Bittersweet said...

I think that there's one more thing for you to add to your list. Status. A lot of things are overpriced here because some people just don't want that some goods that they buy could be bought by "ordinary, plain people". Take Lancôme as an example: Le Absolu Nu, in US is US$ 29.00 and in Brazil is R$ 99.00 (you can check it on Macys and lancome brasil sites). The same go with a lot of things.

I don't know where you live in SP, probably in an upscale area, because the bakery prices are ridiculous. Maybe you could try adventuring yourself in some other areas that are not that far from where you live and you'll see how the price changes. One of the things that I really love in downtown area (centro velho)are those fresh juice stores. You can usually take a 500 mL bottle of fresh juice for a really low price.

Jennifer Souza said...

Oh, lord-y that is a high cost of living! I agree with what Bittersweet said- Coca-Cola is double or triple the price of the local soda-pop Frisky- because it's 'high class' (whatever! we're talking about coke!!!) But that is how my Brazilian friends here see it.

Jana said...

@ Anon - I agree its hard to see where all the money goes, social services are mais ou menos and corruption is a joke that no one seems to get. :/
@Bittersweet I also completely agree it can be very neighborhood dependent but I live in Vila Madalena and while it isn't a "posh" area it certainly is a nice one but I don't feel that I should have to go all the way to another neighborhood just to grab a bite to eat at the bakery. That is why there are so many and they are supposed to be the affordable option. While I don't mind walking other places its ridiculous I would have to right?! I do love the juice bars and for R4 I can get a pretty amazing concoction.
@JS - You are right everything is so brand orientated and coke and doritos are symbolic, strange eh!

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