There's a Crisis Brewing in the Coffee Industry

Benchmark Show about the Global Economy. I'm Scott Landman, economics editor with Bloomberg News and Washington. I'm joined by Daniel Moss, economics writer and editor at Bloomberg View in New York. Thanks Scott Noice to be with you, and just to give listeners a sense of the historical significance of what's happening here. The country now called Indonesia has deep historical resonance in the coffee industry. The Dutch East India Company was the first importer of coffee to Europe in any

meaningful way. Dutch colonists grew the crop in Java, and production subsequently spread to Samatra and Sulawesi. Now. Undoing Java's iconic status is a combination of climate change, plague, and the evolving economic structure of coffee farms. All right, well, Joining us now is Jamal Gawie, a climate change and biodiversity consultant in Indonesia who recently authored an opinion article in the Jakarta Post decrying the industry's demise. Jamal, welcome

to Benchmark. Thank you hi everybody. So let's just start off. Tell us how serious is the challenge to coffee growing in Indonesia. Of all places, as you already Masia e Police in Asia is one of the country that produce a lot of coffee, is the largest producer in the worlds. However, recently a read the production of coffee Inuitia has been declining in some areas, especially in Java for example, the decline could reached twenty to and this is very serious.

So I tried to find out what is going on with the coffee industry in Indonesia and also in other countries. Actually, there are a number of vectors causing the production decline. First and the most important things is climate change. Increased temperatures and change of rainfall are responsible for reduction in coffee production. The related phenomena including long drought months and less web man accompanied by pass udbrey a common education of the crisis and the arabic Ca caffee. This is

the premium caffee. The arabic Ca caffee plant response sessively sensitively to increasing temperature, especially during the blashoming and factification. Along the similar line, increased temperature will have false farmers to go to higher attitude to start new caffee plantation. The problem is at the higher altitude, most of the land are at the steep slop and land availability is limited because most of the land have been dedicated for

protection forests or protected area. So in appropriate plentying tennique in the steep slope and clearing the forest for coffee plantation we also cause serious incremental issues and if an tumal. I'm struggling with how this can be happening. One of the big economic narratives of the past hundred years has been the rise of the Asian consumer. Pretty much the last thing I saw when I left Jakater Airport a few weeks ago, for example, was a Starbucks. So how

can you reconcile a crisis in coffee production. With a lot of demand for coffee, surely it should be a boom time for coffee. So this is happening not only in Asia. The coffee production actually declaiming, what the demon is increasing. So how can we supply the market with coffee? The first thing with happening in Autia is by importing coffee from Brazil. And yet now this is just to feed the market. That seems like Saudi Arabia importing oil, Yes,

something like that. Yeah. The reason for this because the production in Autia is declaiming while at the same time the dem and is increasing. So how to to deal with that is by importing the coffee being from other countries. So Jamal, you mentioned climate change as a principal culprit in this challenge to production of coffee Indonesia, But is there anything else say about the economic structure of coffee farms in Indonesia that's also part of this issue. Yeah.

Other factors that also causing the declining of coffee production is the the management of the production itself in Indonesia and some other Asian countries excluding Vietnam, because Vietnam has a very efficient system. Right now, the production management is still not very optimal. For example, many old non productive coffee trees are still maintained by farmers, so this is also posting the decline in production. So this is another aspect of that. So there are a number of factors

actually hosting this decline of production. You mentioned about the structure of the caffee farm. Yeah, when talking about the the economic structure of the caffee farming, we should also talk about all actors involved in the famuchines of caffee production. The one who produced coffee being are mostly small holder caffee farmers. Around n all coffee producers indoor is small holder caffee fomers. So the first one affected by climate

change are these farmers. The problem is in many cases they have been treated unfairly by the market because the market prices that's not really account for the many reasons that the farmers should take in producing coffee being in the age of the climate change. These trees includes for example, decreasing of coffee being quality, increased production costs due to the need for higher input. This is some of the

the risk. Yeah. So in my opinion, in order to reverse this treation and make it fair to the small holder farmers, the markets and all actors involved in the market, including big and small buyers and also consumers should also account for the reason the farmer will have to make to produce their coffee berries, Jamal, If we understand you correctly, people are clearing forests to make more room to grow coffee, but that deforestation is setting and trained dynamics which ultimately

destroy the crop. Yes, you can see that because what is going on right now. When the farmer tried to find a new land to plan their coffee plantations, they will go to a higher ground, to higher altitude, and these higher altitude places are mostly steeped through area or montinis there. So when they clear the partiest there first, they also break the law because it's protected area and

they cannot do that any second. It also costs another serious impromental issues like in Rossia landslide and also will cause flooding to the lower level and at the end it will also destroy their their problems. So let's hope to see displasia. Let's talk about the Asian consumer now here. Coffee in Asia, especially at places like Starbucks or other upscale chains, is not something that's a very cheap commodity.

Is there a price at which these kinds of issues continue, you know, and the price of coffee may go up over time. Is there a higher price at which the consumer in Jakarta might not want to buy his or her regular coffee the station right now? As we discussed before, actually there are more and more people drinking coffee. They love coffee, especially the younger, younger generation, especially in in

bi small cities in Asia. It seemed to me right now, whatever the price, they will buy because you see, like drinking coffee has become what you call it, it's trendy. Trendy. Yes, when you're in your car type you go to start back or at the brand coffee shop, you will see many young people are walking there. So it's it's a trend. So people start to love coffee. And I have seen this I straight for a lot in Eusia, in small and big cities. I'm surprised to see that there are

many coffee shop right now all of Idunsia. So this is a trendy. So Tamal, even if the price doubled or tripled, do you think people would still buy this much coffee or do you think you know it would be some declined in to man. Of course, you know, if you followed the economic law, when the press increased too much, that there will be a certain point where

people will not stop but reduced consuming a coffee. There is a strong possibility for that, but it's difficult for me to answer where there's double or triple the price, you know, but what I can see right now is even starbuck is quite expensive. But I'm surprised to see that this. You know, millennium generation young people, they keep coming back to start back. What happens if things continue

on their present course? What happens to the coffee industry if we can't address these problems in Java, which as I said earlier, sounds like the Saudi Arabia of coffee. If we can't get it right there, what are the implications? There are some implications, not one the first implication, of course, with the decrease of production, the press will go up.

And then the second, if this climate change continue affecting the coffee plantation, we will start losing the character of the real coffee because the taste is changing already right now. And this is serious because, for example, where the bios would like to buy the the specialty coffee let's see from the highlands of Gayo in they are asking questions right now whether the farmlers in Gio are selling the right coffee to them because the character of the coffee

are changing. And Jamal, just for our listeners, when you say Arch, we are talking about a province at the western tip of Sumatra, Yes, exactly. Yeah, this is uh the home of one of the best coffee in the worlds Gario Arabica Arabic a coffee. Yeah. So that is what going on right now. So climate change is not only affect the production, meaning decreasing the production, planning the production, but it also affects the taste of the coffee. We have to expect losing the good taste of Arabican coffee

from Vario because of climate change. Is it possible, if we continue on this course that inside ten or fifteen years, coffee could taste completely different from how coffee tastes now. Yes, you can see that, and it is happening right now because the way the buyers or people involved in this coffee industry, they have a certain way to great coffee. There are at least like what ten or more characters they use. Yeah, and it is changing right now. That's

what I can see. Yeah, based on my estradio in the field, Well, I can say that we will always be looking back on the good old days of coffee, I'm sure and a few years Jamal goee. Thank you so much for taking the time to be with us today. So, Dan, what's your big takeaway from all this? It's interesting the

way our conversation with Jamal developed. We began with an overall macro idea that Indonesia, kind of the Saudi Arabia of coffee, was having a problem, and we ended up with how wait a minute, these forces could mean that your coffee in a couple of years might not actually taste like coffee. Climate change in economics are changing the way a hot commodity actually tastes. And yet, like a lot of things in economics, I think it's going to

be a little slower. I think it's going to be one of those slow move being kind of things where you don't really notice it. Maybe your coffee will change slightly from year to year, and then you know, ten or fifteen years from now, we're going to be sitting around and talking about how poorly are coffee tastes and thinking about, well, maybe it really was that good in the good old days, and all those coffee stools that have job are in their name might have to change

or it'll just be a taste of nostalgia. Benchmark will be back next week. Until then, you can find us on the Bloomberg terminal, Bloomberg dot com, or Bloomberg App, as well as wherever you listen to podcasts, including Apple Podcast, Overcast and Stitcher. While you're there, please take the time to rate and review the show, and you can also find us on Twitter. You can follow me at at scott Landman Dan you are at moss Underscore Echo. Benchmark

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