| Since its introduction to the western
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| | remained high as the East India Company
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| world, tea has grown in popularity and is
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| | (granted a monopoly on tea imports by the
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| now the second most popular beverage in
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| | English Government) artificially
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| the world after water. Throughout its
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| | manipulated supplies to maintain prices.
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| history tea demand has grown as a result
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| | High Taxes and Manipulated Supply Lead to
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| of its good taste, health and medicinal
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| | Smuggling as a Growth Industry
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| properties and increasingly efficient
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| | A pattern developed in English commerce
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| channels of production and distribution.
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| | in tea. As taxes were raised on tea
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| Perhaps the most important benefit of tea
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| | imports, smuggling increased in a
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| for tea drinker is that aura of good
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| | successful attempt to meet the underlying
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| feeling and stress reduction for those
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| | growth in demand for tea. But smuggling
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| who regularly consume the beverage.
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| | and high taxes had a direct relationship
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| Tea growing and distribution became big
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| | and smuggling produced a negative effect
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| business throughout the world as
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| | on the English economy and population at
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| enterprising individuals and companies
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| | large.
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| invested in tea plantations and
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| | Although taxation is important for
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| distribution assets to meet the growing
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| | raising revenue, most economists know
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| demand for tea. As the business grew,
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| | that high taxation encouraged smuggling,
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| national governments saw tea as a
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| | and the quantity of tea being smuggled
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| valuable source of revenue. Government
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| | was directly linked to the level of duty
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| regulation and taxation often had a
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| | levied on legal tea imports. In England,
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| detrimental effect on free commerce and
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| | at the beginning of the eighteenth
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| customer satisfaction however.
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| | century, the government's need to finance
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| The growth in popularity of tea in a
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| | a war in Spain led to an increase in
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| country like England, a country whose tea
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| | taxation on tea, and the price of leaves
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| culture is well established, is a good
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| | rose dramatically.
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| case study on the social and fiscal
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| | The tax was outrageous and fueled the
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| influences on the consumption of tea.
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| | activities of the tea smugglers. Duty was
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| During the sixteenth century in England,
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| | later slashed by Henry Pelham in 1745.
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| tea became a popular beverage mainly for
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| | This meant that more tea was brought in
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| the upper classes. Based upon a unique
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| | legally - the quantity passing through
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| taste and realization of tea health
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| | customs more than doubled - and the
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| benefits, more efficient channels of
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| | increase of tea imports on which duty was
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| distribution and a growing understanding
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| | paid actually led to the government's
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| of the life style benefits of tea,
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| | revenues from tea being increased.
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| imports grew slowly at first.
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| | But in the 1750s the need to finance
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| Nevertheless, this growth accelerated
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| | another war led to the duty on tea being
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| into the 18th century.
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| | raised again. This in turn led to a surge
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| During this time taxation, smuggling and
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| | in the business of the smugglers, which
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| adulteration of tea became significant
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| | continued to flourish throughout the
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| factors in the English tea culture.
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| | third quarter of the eighteenth century.
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| Considering tea a tropical luxury, the
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| | Though illegal, the smugglers had the
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| English government saw revenue raising
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| | support of millions of people who could
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| opportunities in tea to fund a military
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| | not otherwise afford to buy tea.
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| buildup that supported expansion of the
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| | Much tea was smuggled in from continental
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| British Empire.
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| | Europe, shipped into Britain via the
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| By the eighteenth century, tea was a
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| | Channel Islands and the Isle of Man.
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| hugely popular drink in Britain, but, to
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| | Although smuggling was widespread, in the
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| the ordinary consumer, it was also
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| | first decades of the eighteenth century
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| prohibitively expensive. Smuggling of tea
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| | many of the smugglers themselves operated
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| became a growth industry in England as
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| | on a very small scale. Many smugglers
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| smugglers profited as they met the demand
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| | used their own small boats and the
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| for lower cost tea by ignoring oppressive
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| | contraband tea was then sold on to
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| customs duties.
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| | personal contacts and local shopkeepers.
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| This created a demand among the British
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| | It was by now widely acknowledged that
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| population for cheaper tea, and when that
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| | the only way to tackle the smuggling
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| demand could not be met by legal means, a
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| | problem was to make tea cheaper - in
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| great opportunity was presented to those
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| | effect, to reduce the duty paid on it. So
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| people who were less than concerned about
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| | the East India Company, who had powerful
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| breaking the law. From the beginning of
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| | allies in the British Parliament, lobbied
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| the eighteenth century, the trade in
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| | for the duty to be lowered. The power of
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| smuggled tea began to flourish.
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| | the corporate world was thus added to
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| This was tea that was brought in
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| | popular demand for permanent change in
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| illegally - it was not imported by the
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| | the tea tax.
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| East India Company, and it did not pass
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| | It was when William Pitt the Younger
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| through customs. Being light and easy to
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| | became Prime Minister in 1783 that the
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| transport, tea was a very profitable
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| | work of the anti-tea duty forces finally
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| smuggling commodity - even more so than
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| | achieved their goal. As a former
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| alcohol in which there was also a healthy
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| | Chancellor of the Exchequer, Pitt was
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| smuggling trade.
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| | familiar with tax policy and the impact
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| The State Needs Money
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| | of high taxes on tax revenue. He
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| Like any state, 18th Century England was
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| | understood that raising the tax rate
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| no exception to the need to raise
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| | often resulted in decreased tax revenue.
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| revenue. Mercantilism was the English
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| | Pitt slashed the tax on tea, and made up
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| policy and a military presence was
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| | for the revenue lost by hugely increasing
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| required to support the English role in
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| | the window tax. This was a property tax
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| overseas colonies and possessions.
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| | which was much easier to enforce. The
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| Expansion of world interests requires two
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| | Commutation Act of 1784 reduced the tax
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| things: a strong military and funds to
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| | on tea from 119 per cent to 12.5 per
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| support military activities.
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| | cent. The smuggling of tea ceased to be
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| The state looked to import duties and
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| | profitable, and the smuggling trade
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| excise taxes as a way to raise the
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| | vanished virtually overnight. More
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| necessary funds and these taxes soon
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| | importantly tea was treated as a
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| became excessive. The Government had to
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| | necessity rather than a luxury with long
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| legitimize the tax and did so by treating
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| | term implications for lower tea taxes.
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| tea initially as a "luxury" that could
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| | The consumption of lower taxed tea
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| support high duties in the eyes of the
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| | rocketed, so much so that even with the
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| public. Later, tea was correctly
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| | reduced rate of tax, the amount of
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| classified as a "necessity" that would
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| | revenue collected from tea was soon
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| only support lower levels of taxation.
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| | restored and eventually exceeded
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| Before the Tax Reform Act of 1784 for
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| | pre-reduction revenue. Equally
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| example, the price of tea was burdened
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| | important, tea became the standard
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| with taxes and duties of over 100% of the
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| | beverage for most of the entire English
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| pretax price.
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| | population.
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| In addition, although the supply of tea
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| | Tea drinkers had the window tax to thank
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| continued to increase as tea plantations
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| | in part for the boost in popularity of
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| became more productive, the price
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| | their favorite beverage!
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