WEBVTT - There's a Crisis Brewing in the Coffee Industry

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<v Speaker 1>There's something brewing in the world of coffee, and it's

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<v Speaker 1>not good. Indonesia, the country that includes the island of Java,

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<v Speaker 1>simply isn't making enough Java. It's being forced to import

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<v Speaker 1>the delicious and addictive beans from Vietnam and Brazil. What's

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<v Speaker 1>going on here? Chains like Starbucks are expanding in Asia

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<v Speaker 1>as the region becomes wealthier, and downtown Jakarta, the Indonesian capital,

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<v Speaker 1>has more than a few You might think this would

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<v Speaker 1>mean happy days on well Java, think again. Welcome to

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<v Speaker 1>Benchmark Show about the Global Economy. I'm Scott Landman, economics

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<v Speaker 1>editor with Bloomberg News and Washington. I'm joined by Daniel Moss,

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<v Speaker 1>economics writer and editor at Bloomberg View in New York.

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<v Speaker 1>Thanks Scott Noice to be with you, and just to

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<v Speaker 1>give listeners a sense of the historical significance of what's

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<v Speaker 1>happening here. The country now called Indonesia has deep historical

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<v Speaker 1>resonance in the coffee industry. The Dutch East India Company

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<v Speaker 1>was the first importer of coffee to Europe in any

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<v Speaker 1>meaningful way. Dutch colonists grew the crop in Java, and

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<v Speaker 1>production subsequently spread to Samatra and Sulawesi. Now. Undoing Java's

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<v Speaker 1>iconic status is a combination of climate change, plague, and

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<v Speaker 1>the evolving economic structure of coffee farms. All right, well,

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<v Speaker 1>Joining us now is Jamal Gawie, a climate change and

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<v Speaker 1>biodiversity consultant in Indonesia who recently authored an opinion article

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<v Speaker 1>in the Jakarta Post decrying the industry's demise. Jamal, welcome

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<v Speaker 1>to Benchmark. Thank you hi everybody. So let's just start off.

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<v Speaker 1>Tell us how serious is the challenge to coffee growing

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<v Speaker 1>in Indonesia. Of all places, as you already Masia e

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<v Speaker 1>Police in Asia is one of the country that produce

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<v Speaker 1>a lot of coffee, is the largest producer in the worlds. However,

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<v Speaker 1>recently a read the production of coffee Inuitia has been

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<v Speaker 1>declining in some areas, especially in Java for example, the

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<v Speaker 1>decline could reached twenty to and this is very serious.

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<v Speaker 1>So I tried to find out what is going on

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<v Speaker 1>with the coffee industry in Indonesia and also in other countries. Actually,

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<v Speaker 1>there are a number of vectors causing the production decline.

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<v Speaker 1>First and the most important things is climate change. Increased

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<v Speaker 1>temperatures and change of rainfall are responsible for reduction in

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<v Speaker 1>coffee production. The related phenomena including long drought months and

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<v Speaker 1>less web man accompanied by pass udbrey a common education

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<v Speaker 1>of the crisis and the arabic Ca caffee. This is

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<v Speaker 1>the premium caffee. The arabic Ca caffee plant response sessively

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<v Speaker 1>sensitively to increasing temperature, especially during the blashoming and factification.

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<v Speaker 1>Along the similar line, increased temperature will have false farmers

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<v Speaker 1>to go to higher attitude to start new caffee plantation.

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<v Speaker 1>The problem is at the higher altitude, most of the

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<v Speaker 1>land are at the steep slop and land availability is

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<v Speaker 1>limited because most of the land have been dedicated for

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<v Speaker 1>protection forests or protected area. So in appropriate plentying tennique

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<v Speaker 1>in the steep slope and clearing the forest for coffee

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<v Speaker 1>plantation we also cause serious incremental issues and if an tumal.

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<v Speaker 1>I'm struggling with how this can be happening. One of

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<v Speaker 1>the big economic narratives of the past hundred years has

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<v Speaker 1>been the rise of the Asian consumer. Pretty much the

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<v Speaker 1>last thing I saw when I left Jakater Airport a

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<v Speaker 1>few weeks ago, for example, was a Starbucks. So how

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<v Speaker 1>can you reconcile a crisis in coffee production. With a

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<v Speaker 1>lot of demand for coffee, surely it should be a

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<v Speaker 1>boom time for coffee. So this is happening not only

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<v Speaker 1>in Asia. The coffee production actually declaiming, what the demon

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<v Speaker 1>is increasing. So how can we supply the market with coffee?

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<v Speaker 1>The first thing with happening in Autia is by importing

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<v Speaker 1>coffee from Brazil. And yet now this is just to

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<v Speaker 1>feed the market. That seems like Saudi Arabia importing oil, Yes,

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<v Speaker 1>something like that. Yeah. The reason for this because the

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<v Speaker 1>production in Autia is declaiming while at the same time

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<v Speaker 1>the dem and is increasing. So how to to deal

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<v Speaker 1>with that is by importing the coffee being from other countries.

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<v Speaker 1>So Jamal, you mentioned climate change as a principal culprit

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<v Speaker 1>in this challenge to production of coffee Indonesia, But is

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<v Speaker 1>there anything else say about the economic structure of coffee

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<v Speaker 1>farms in Indonesia that's also part of this issue. Yeah.

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<v Speaker 1>Other factors that also causing the declining of coffee production

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<v Speaker 1>is the the management of the production itself in Indonesia

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<v Speaker 1>and some other Asian countries excluding Vietnam, because Vietnam has

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<v Speaker 1>a very efficient system. Right now, the production management is

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<v Speaker 1>still not very optimal. For example, many old non productive

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<v Speaker 1>coffee trees are still maintained by farmers, so this is

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<v Speaker 1>also posting the decline in production. So this is another

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<v Speaker 1>aspect of that. So there are a number of factors

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<v Speaker 1>actually hosting this decline of production. You mentioned about the

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<v Speaker 1>structure of the caffee farm. Yeah, when talking about the

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<v Speaker 1>the economic structure of the caffee farming, we should also

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<v Speaker 1>talk about all actors involved in the famuchines of caffee production.

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<v Speaker 1>The one who produced coffee being are mostly small holder

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<v Speaker 1>caffee farmers. Around n all coffee producers indoor is small

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<v Speaker 1>holder caffee fomers. So the first one affected by climate

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<v Speaker 1>change are these farmers. The problem is in many cases

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<v Speaker 1>they have been treated unfairly by the market because the

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<v Speaker 1>market prices that's not really account for the many reasons

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<v Speaker 1>that the farmers should take in producing coffee being in

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<v Speaker 1>the age of the climate change. These trees includes for example,

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<v Speaker 1>decreasing of coffee being quality, increased production costs due to

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<v Speaker 1>the need for higher input. This is some of the

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<v Speaker 1>the risk. Yeah. So in my opinion, in order to

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<v Speaker 1>reverse this treation and make it fair to the small

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<v Speaker 1>holder farmers, the markets and all actors involved in the market,

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<v Speaker 1>including big and small buyers and also consumers should also

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<v Speaker 1>account for the reason the farmer will have to make

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<v Speaker 1>to produce their coffee berries, Jamal, If we understand you correctly,

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<v Speaker 1>people are clearing forests to make more room to grow coffee,

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<v Speaker 1>but that deforestation is setting and trained dynamics which ultimately

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<v Speaker 1>destroy the crop. Yes, you can see that because what

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<v Speaker 1>is going on right now. When the farmer tried to

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<v Speaker 1>find a new land to plan their coffee plantations, they

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<v Speaker 1>will go to a higher ground, to higher altitude, and

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<v Speaker 1>these higher altitude places are mostly steeped through area or

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<v Speaker 1>montinis there. So when they clear the partiest there first,

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<v Speaker 1>they also break the law because it's protected area and

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<v Speaker 1>they cannot do that any second. It also costs another

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<v Speaker 1>serious impromental issues like in Rossia landslide and also will

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<v Speaker 1>cause flooding to the lower level and at the end

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<v Speaker 1>it will also destroy their their problems. So let's hope

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<v Speaker 1>to see displasia. Let's talk about the Asian consumer now here.

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<v Speaker 1>Coffee in Asia, especially at places like Starbucks or other

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<v Speaker 1>upscale chains, is not something that's a very cheap commodity.

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<v Speaker 1>Is there a price at which these kinds of issues continue,

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<v Speaker 1>you know, and the price of coffee may go up

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<v Speaker 1>over time. Is there a higher price at which the

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<v Speaker 1>consumer in Jakarta might not want to buy his or

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<v Speaker 1>her regular coffee the station right now? As we discussed before,

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<v Speaker 1>actually there are more and more people drinking coffee. They

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<v Speaker 1>love coffee, especially the younger, younger generation, especially in in

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<v Speaker 1>bi small cities in Asia. It seemed to me right now,

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<v Speaker 1>whatever the price, they will buy because you see, like

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<v Speaker 1>drinking coffee has become what you call it, it's trendy. Trendy. Yes,

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<v Speaker 1>when you're in your car type you go to start

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<v Speaker 1>back or at the brand coffee shop, you will see

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<v Speaker 1>many young people are walking there. So it's it's a trend.

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<v Speaker 1>So people start to love coffee. And I have seen

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<v Speaker 1>this I straight for a lot in Eusia, in small

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<v Speaker 1>and big cities. I'm surprised to see that there are

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<v Speaker 1>many coffee shop right now all of Idunsia. So this

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<v Speaker 1>is a trendy. So Tamal, even if the price doubled

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<v Speaker 1>or tripled, do you think people would still buy this

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<v Speaker 1>much coffee or do you think you know it would

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<v Speaker 1>be some declined in to man. Of course, you know,

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<v Speaker 1>if you followed the economic law, when the press increased

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<v Speaker 1>too much, that there will be a certain point where

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<v Speaker 1>people will not stop but reduced consuming a coffee. There

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<v Speaker 1>is a strong possibility for that, but it's difficult for

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<v Speaker 1>me to answer where there's double or triple the price,

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<v Speaker 1>you know, but what I can see right now is

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<v Speaker 1>even starbuck is quite expensive. But I'm surprised to see

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<v Speaker 1>that this. You know, millennium generation young people, they keep

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<v Speaker 1>coming back to start back. What happens if things continue

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<v Speaker 1>on their present course? What happens to the coffee industry

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<v Speaker 1>if we can't address these problems in Java, which as

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<v Speaker 1>I said earlier, sounds like the Saudi Arabia of coffee.

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<v Speaker 1>If we can't get it right there, what are the implications?

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<v Speaker 1>There are some implications, not one the first implication, of course,

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<v Speaker 1>with the decrease of production, the press will go up.

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<v Speaker 1>And then the second, if this climate change continue affecting

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<v Speaker 1>the coffee plantation, we will start losing the character of

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<v Speaker 1>the real coffee because the taste is changing already right now.

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<v Speaker 1>And this is serious because, for example, where the bios

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<v Speaker 1>would like to buy the the specialty coffee let's see

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<v Speaker 1>from the highlands of Gayo in they are asking questions

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<v Speaker 1>right now whether the farmlers in Gio are selling the

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<v Speaker 1>right coffee to them because the character of the coffee

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<v Speaker 1>are changing. And Jamal, just for our listeners, when you

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<v Speaker 1>say Arch, we are talking about a province at the

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<v Speaker 1>western tip of Sumatra, Yes, exactly. Yeah, this is uh

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<v Speaker 1>the home of one of the best coffee in the

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<v Speaker 1>worlds Gario Arabica Arabic a coffee. Yeah. So that is

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<v Speaker 1>what going on right now. So climate change is not

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<v Speaker 1>only affect the production, meaning decreasing the production, planning the production,

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<v Speaker 1>but it also affects the taste of the coffee. We

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<v Speaker 1>have to expect losing the good taste of Arabican coffee

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<v Speaker 1>from Vario because of climate change. Is it possible, if

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<v Speaker 1>we continue on this course that inside ten or fifteen years,

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<v Speaker 1>coffee could taste completely different from how coffee tastes now. Yes,

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<v Speaker 1>you can see that, and it is happening right now

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<v Speaker 1>because the way the buyers or people involved in this

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<v Speaker 1>coffee industry, they have a certain way to great coffee.

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<v Speaker 1>There are at least like what ten or more characters

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<v Speaker 1>they use. Yeah, and it is changing right now. That's

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<v Speaker 1>what I can see. Yeah, based on my estradio in

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<v Speaker 1>the field, Well, I can say that we will always

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<v Speaker 1>be looking back on the good old days of coffee,

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<v Speaker 1>I'm sure and a few years Jamal goee. Thank you

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<v Speaker 1>so much for taking the time to be with us today. So, Dan,

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<v Speaker 1>what's your big takeaway from all this? It's interesting the

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<v Speaker 1>way our conversation with Jamal developed. We began with an

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<v Speaker 1>overall macro idea that Indonesia, kind of the Saudi Arabia

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<v Speaker 1>of coffee, was having a problem, and we ended up

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<v Speaker 1>with how wait a minute, these forces could mean that

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<v Speaker 1>your coffee in a couple of years might not actually

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<v Speaker 1>taste like coffee. Climate change in economics are changing the

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<v Speaker 1>way a hot commodity actually tastes. And yet, like a

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<v Speaker 1>lot of things in economics, I think it's going to

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<v Speaker 1>be a little slower. I think it's going to be

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<v Speaker 1>one of those slow move being kind of things where

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<v Speaker 1>you don't really notice it. Maybe your coffee will change

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<v Speaker 1>slightly from year to year, and then you know, ten

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<v Speaker 1>or fifteen years from now, we're going to be sitting

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<v Speaker 1>around and talking about how poorly are coffee tastes and

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<v Speaker 1>thinking about, well, maybe it really was that good in

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<v Speaker 1>the good old days, and all those coffee stools that

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<v Speaker 1>have job are in their name might have to change

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<v Speaker 1>or it'll just be a taste of nostalgia. Benchmark will

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<v Speaker 1>be back next week. Until then, you can find us

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<v Speaker 1>on the Bloomberg terminal, Bloomberg dot com, or Bloomberg App,

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<v Speaker 1>as well as wherever you listen to podcasts, including Apple Podcast,

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<v Speaker 1>Overcast and Stitcher. While you're there, please take the time

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<v Speaker 1>to rate and review the show, and you can also

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<v Speaker 1>find us on Twitter. You can follow me at at

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<v Speaker 1>scott Landman Dan you are at moss Underscore Echo. Benchmark

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<v Speaker 1>is produced by Tofur Foreheads ahead of Bloomberg. Podcast is

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<v Speaker 1>Francesca Levy. Thanks for listening, See you next time. I

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<v Speaker 1>Stay the Mahanta, the sunder Barker and my fingers Apoll