What Factors Goes Into The Pricing Of Expensive Durians?
Durian prices have exploded in the last decade or so.
If you have been on a durian hiatus for 20 years, you’d be absolutely shocked at how expensive the king of fruits have become these days.
But then again, what used to be common durians in the past are still available in very affordable prices today.
What is different in the durian market today is that there is a very clear and substantial premium market that exist above the mass market.
And in places like Singapore where consumers have considerably strong buying power, this mass market and premium market have slowly overlapped and intertwined with each other.
So much so that it’s not far fetched at all to suggest that the premium market is larger than the mass market in Singapore.
Don’t get me wrong.
You can still buy cheap durians at $2 a pop at various stalls. But once you have tasted premiums like mao shan wang and black thorn, the seduction to pay high prices for high quality can be quite persuasive.
People are not stupid. And people are willing to consistently pay good prices for good durians because they find value in their purchases.
The thing is that those who can afford to pay $50 a durian would expect the fruit to be worth $50. If high-end buyers end up getting durians which they perceive as valued at $10, then this premium market would have crashed a long time ago.
There is obviously a strong demand for top cultivars that enable them to consistently command such high prices.
But the biggest question is why are premium durians such as musang king so expensive?
Does the costs of production and the added value of the whole supply chain justify it’s retail prices?
The costs of the durian value chain
As with any type of business, especially those as conventional as consumer crops, there is a supply chain between the first planting of the seed and the fruit eventually landing in the hands of consumers.
For the purpose of this discussion, we are discussing it only in the context of musang king and currency in Singapore dollars unless specifically stated otherwise.
Here are the key players.
If you ask any farmer about how high the costs of growing, cultivating and harvesting their crops on their plantations, the odds are that every one of them would try to paint a gloomy picture of high production costs.
They would talk about how much have been invested in machinery and equipment, and how much labour costs needs to be spent to produce great durians… then finish off with how difficult it is to make money…
… but many of the farm owners are multi-millionaires…
There’s nothing wrong with getting rich from producing a product in high demand. Many see this as a service to the market which fully justifies it’s profits.
Consider that farmers take on quite a huge risk when they first started to plant their durian trees.
There is no guarantee of success, and that it would take years or even decades before saplings become mature trees that bear fruits that qualify as consumable or premium grade.
This means that farmers invest quite a bit of capital with very little revenue for years before hitting the big time.
Don’t forget that durian trees are not the easiest of plants to care for and require a lot of extra manpower for those extra man-hours to produce healthy fruits that taste great. All these eat into the gross profit of plantation owners.
So the financial rewards they reap for the successful harvests is definitely justified from a capitalist point of view.
But there’s also a segment of consumers questioning whether farmers really need to make such a high margin from durians.
After all, leasing land for farming in Malaysia is actually really cheap from the point of view of businessmen with venture funds to burn. And labour is also very affordable too.
So why are are fresh durians so expensive?
Well, before you delve deeper into that thought that the farmers are fleecing consumers, consider that the average price plantations sell to wholesalers, large volume buyers, and durian sellers are around $10/kg to $20/kg (SGD).
Yes these are musang kings we are talking about. Top premium grade from super old trees can go up to $40/kg.
Taking into account of how much these things eventually sell for to end users, the profits that plantations collect actually don’t seem that outrageous when we consider how much effort, time and resources they committed to produce top grade durians.
However, the bulk of plantation costs is at the startup. After which the maintenance costs is rather low and steady. And with each year, the trees produce more durians with improved quality. The bottom line is that sales and profit margin increases year after year.
So this leads us to the next player in the supply chain.
In any trading business, there are always going to be agents and brokers who help to link up the source of products and the merchant who wants to buy them.
The durian business is no different.
They basically make money in four ways. Either:
- The plantation pays them and factor in the commissions into the selling price; or
- The merchant pays a service fee that can either be a fixed price or a percentage of the volume ordered or a price per basket of durians; or
- They buy the durians themselves from the plantation and resell to the merchant at a markup
- All of the above
All these add into the costs of goods that durian sellers have to account for before determining their selling price to customers.
Because the volume we are talking about in these transactions can be quite huge, they can easily make money from low markups but high volume.
In recent years, more and more plantations are going direct to the stalls of durian sellers.
Some even start their own durian shops under their own brand so as to clear their own inventory from the plantation itself.
While this can sound desirable and “authentic” to some consumers, take note that it could very well be that these plantations seldom produce high grade durians and is avoided by seasoned durian sellers. Thus, they need to open their own shops to sell their fruits… as no one else would!
In any case, such direct operations are supposedly meant to reduce the costs paid to middlemen and passes on the savings to consumers. At least that’s how they are commonly marketed.
However, seldom do I see these types of operations selling at lower prices compared to the competition. Which implies that rather than passing on savings to consumers, they are really passing the savings into their own bank accounts.
So maybe next time you get durians from a store that claims to procure from their own plantations, ask them why they are not cheaper than other stores since they have cut off the middlemen.
Again, there’s nothing wrong with these business practices. Just that misleading advertising can leave a bitter taste in your mouth… and that unlike musang kings where the bitterness is heavenly, this actually borders on despicable.
While there will always be middlemen lurking in the background, there are also more and more durian sellers who have direct contact with plantations and put in their orders themselves.
Like what was mentioned about farmers at the beginning of this discussions, if you jokingly applaud the amount of money a durian seller is making in his face, he would immediately talk about how he is losing money or “not making much”.
Is this true or just a matter of speech?
How can it be possible that durians purchased at $18/kg and sold for $35/kg be a loss making business? Where does the margin go?
Firstly, it must be stated that the retail price of MSW can go from anywhere between $20 and $40 per kilogram with husk. The most expensive I have personally paid for is $35.
So we can roughly say that the markup from wholesale to retail is approximately 100% give or take.
So a $5,000 investment into inventory means a $10,000 collection, booking a $5,000 profit correct?
Let’s say a temporary selling location is rented for $100 per day and the $5,000 worth of durians are soldout within 2 days, many would assume from simple calculation that the gross profit would be $4,800.
Not too shabby for two days of work.
But that’s really what consumers are seeing on the surface. There’s really a lot going on under the water where the real monstrous iceberg is revealed.
Most people would be able to identify the basic costs of rental and manpower outside that of inventory costs. There’s also the cost of transport from (for example) Pahang to Singapore at about $100 per basket of durians.
There are many other hidden costs that are not so obvious.
For example, just because 300kg of durians are delivered to the seller does not mean that all 300kg are grade A mao shan wang. This means that not all of them would be able to fetch the retail price near the upper threshold of the market price at that point in time.
You see, when the farmers pick out durians to be sent to sellers or exported to Singapore, they basically focus on two factors:
- Physical damage
It is no exaggeration to say that if a durian is not too small and is not physically damaged like having worm holes or being cracked open, then it would be thrown into the basket for sending to the purchaser.
On arrival at the durian stall, sellers would then sort out the durians and grade them accordingly which would determine the ultimate selling price to their patrons.
It is totally possible that only 20% of the arrivals end up qualifying as Grade A. And it is totally possible that 20% or more of the durians get categorized as wastage.
This wastage could be due to them not meeting the sellers’ standards or the durians might have cracked open from being knocked about during transit or being dropped when transferred.
An honorable seller might sell these “wastage” at a low price and be upfront with customers about them being inadvertently cracked open. These can go as low as below $10/kg.
Yes, I’m talking about MSW. I have personally purchased these durians at $8/kg before.
Then there are the shrewd sellers who would dehusk these durians and package them in a vacuum box and continue to sell them at top prices…
This is why buying from a box really a gamble. Especially when you are paying top dollar.
Then consider that when a fresh batch of durians arrive at the stall, the seller has at most 3 days to sell them in tip top condition. Otherwise, the fruits start degrading in quality or go bad which would lead to a loss or a personal durian feast at home.
It’s a risky business.
Either way, the longer the durians stay unsold, the lower the price sellers would sell them for.
Imagine a small operation importing $4,000 of musang king and being left with $1,000 worth of stock… and they would devalue with every minute they remain unsold… and go to zero tomorrow…
It’s makes more sense to recoup any amount of money possible, maybe by selling through a FB live sale, rather than suffer maximum losses.
Assuming that the $1,000 leftover is all condemned, and the other $3,000 of inventory was sold at double the costs of goods, resulting in $6,000 in gross sales, and therefore $2,000 in gross profit. There’s not a lot of margin left to pay the workers, utilities, logistics, etc.
And at this point, any profits made from their operations is not exactly money in the bank because sellers need to use those funds from sales to buy more durians… and repeat the process all over again. Every purchase is a risk as durians have a short shelf life.
It’s a cash flow business.
So really. While I feel somewhat disgusted that consumers have to pay about twice the cost that sellers pay to bring in the durians, when you look at the business side of things, we can conclude that high prices for premium musang kings are justified to a certain degree.
If anything, landlords with the money signs on their pupils carry as much criticism as the sellers for these high durian prices we see in recent years.
The silver lining is that when there is a huge supply glut, prices do go down as we saw with our own eyes in 2018.
And if you are still not happy at paying exuberant prices for premium durians, you can still wait for the peak seasons when prices are at their lowest points in the year.
Above all else, remember that if you are paying top prices, there’s absolutely nothing wrong with demanding top quality and service.