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The Taxing Problem of Global Tech Giants · Stephanomics

0:00
Speaker 1: Wrong, wrong thing to do. They should not have done it.
0:02
Speaker 1: I told him, I said, don't do it, because if
0:04
Speaker 1: you do what, I'm going to tax your wine. Hello
0:15
Speaker 1: and welcome to Stephanomics, the podcast that brings the global
0:18
Speaker 1: economy to you. In his four years as president, I've
0:22
Speaker 1: found I haven't agreed with Donald Trump on everything, but
0:25
Speaker 1: when he laid into the French tax on the revenues
0:27
Speaker 1: of digital companies a while back, he had a point.
0:31
Speaker 1: The international tax system wasn't built for a world of
0:34
Speaker 1: online shopping and complex global supply chains. But one country
0:38
Speaker 1: acting alone isn't going to fix it. Everyone, including the French,
0:42
Speaker 1: agrees we really need a global solution. But for that,
0:46
Speaker 1: you need the US and the rest of the world
0:48
Speaker 1: to agree on the best way to divide up the
0:50
Speaker 1: profits of those big tech giants, and that is proving
0:54
Speaker 1: very difficult. Indeed, in a minute, I'll be talking to
0:58
Speaker 1: the frenchman stuck in the middle of this, the official
1:00
Speaker 1: who has to find a way through or risk another
1:03
Speaker 1: round of nasty US europe trade wars. Will also be
1:07
Speaker 1: going to Abidjan in the Ivory Coast to hear about
1:11
Speaker 1: the global chocolate war what it means for the price
1:14
Speaker 1: of Hershey's kisses this Christmas. But first, a short introduction
1:19
Speaker 1: to the battle over the future of tax from our
1:22
Speaker 1: French economy reporter William Horrobin Mercy m. It's one a
1:39
Speaker 1: M in the French Senate on Tuesday May two, in
1:45
Speaker 1: the nine century Chamber, the President of the Session, Tanni Mohammed,
1:50
Speaker 1: is submitting to a vote the world's first tax and
1:53
Speaker 1: the digital revenues of multinational tech giants. Something to do
2:00
Speaker 1: on some detexts, continue doing some delgation depends Senator. The
2:08
Speaker 1: calm passing of the bill with only four votes against,
2:11
Speaker 1: reflected an unquestioning support in France making tech giants pay
2:16
Speaker 1: more tax. Then this happened. France put on a U
2:23
Speaker 1: attacks on our companies, you know that, and wrong, wrong
2:29
Speaker 1: thing to do. They should not have done it. They
2:31
Speaker 1: didn't do the right thing when they start taxing our companies.
2:36
Speaker 1: We tax our companies. They don't tax our companies. So
2:39
Speaker 1: France did that. I told him, I said, don't do it,
2:41
Speaker 1: because if you do it, I'm going to tax your wine.
2:43
Speaker 1: Weing tariff or tax or whatever you want. So yeah,
2:47
Speaker 1: we're working on that right now. Transcend anti clash is
2:51
Speaker 1: in fact just the tip of an iceberg. Both surface,
2:56
Speaker 1: there is a far broader battle over the future of taxation, trade,
3:00
Speaker 1: and the authority of nations. As the global economy turns digital,
3:07
Speaker 1: governments see sovereignty slipping away as they struggled to tax
3:10
Speaker 1: globe trotting firms with market capitalizations that dwarf the GDP
3:14
Speaker 1: of most nations. Traditional firms that face the costs and
3:18
Speaker 1: tax bills of having a physical presence are crying foul
3:21
Speaker 1: as their custom goes elsewhere, and even the global tech
3:26
Speaker 1: giants are voicing concern about navigating a growing thicket of
3:29
Speaker 1: unilateral measures and punitive levees. The US has started investigations
3:34
Speaker 1: into taxes like frances in at least ten other countries,
3:38
Speaker 1: from the UK to Italy, India and Indonesia. The COVID
3:42
Speaker 1: crisis has done nothing to unwind the tension. On the contrary,
3:47
Speaker 1: locked down in their homes, consumers have moved online like
3:50
Speaker 1: never before to work, shop, eat and entertain themselves. Meanwhile,
3:55
Speaker 1: governments are clocking up vast debts as they bail out
3:57
Speaker 1: bricks and mortar firms on the verge of collap Any
4:01
Speaker 1: hope for a solution to taxation in the digital age
4:04
Speaker 1: rides on negotiations at the o e c D, the
4:07
Speaker 1: Organization for Economic Cooperation and Development. But there's a problem.
4:13
Speaker 1: The talks on the rules of tax involved nearly one
4:15
Speaker 1: hundred and forty countries and have been tracking on for years.
4:19
Speaker 1: Among the many issues still to resolve, the most divisive
4:22
Speaker 1: is the scope of new tax rules, with the Europeans
4:26
Speaker 1: wanting to single out digital companies and the US demanding
4:29
Speaker 1: no such ring fencing of firms that are in the
4:32
Speaker 1: most part American. With no swift deal in sight, a
4:35
Speaker 1: truce in the battle between France and the Trump administration
4:38
Speaker 1: is about to break. The French government is resuming the
4:43
Speaker 1: collection of its tax on digital revenues this month, and
4:46
Speaker 1: the US is set to retaliate in early January with
4:48
Speaker 1: taxes on one point three billion dollars of emblematic French goods,
4:52
Speaker 1: including handbags and cosmetics. If that happens, France says the
4:56
Speaker 1: EU must immediately retaliate all. Let's put digital tax at
5:01
Speaker 1: the top of Joe Biden's list of problems when he
5:03
Speaker 1: takes office to solve it and lead the bridge a
5:07
Speaker 1: Transatlantic divide. Here's the French finance minister Bruno Lamaire, the UK, Spain,
5:13
Speaker 1: Italy Austria have accepted to launch their own digital taxation
5:18
Speaker 1: because we are all aware that this is a question
5:21
Speaker 1: of fairness. You cannot have the digital giants being less
5:26
Speaker 1: taxes than SAMESE and than the smallest private companies euro
5:32
Speaker 1: I really hope that this new Biden's administration will mean
5:37
Speaker 1: a new start in the relationship between job and the
5:42
Speaker 1: United States. Well, if we're going to get nearly a
5:50
Speaker 1: hundred and forty countries to agree something in the next
5:53
Speaker 1: twelve months, it's only going to be after herculean efforts
5:56
Speaker 1: by the individual we're going to talk to now. Pascal
5:59
Speaker 1: Saint them are, director of the Center of Attack Policy
6:01
Speaker 1: at the a e c D in Paris. Pascal, thank
6:05
Speaker 1: you so much for coming on Stephanomics. We had a
6:08
Speaker 1: little we had a little bit from William Horrobin there,
6:11
Speaker 1: But as far as your concerned, what's at stake in
6:13
Speaker 1: these negotiations, Well, what is at stake is some form
6:18
Speaker 1: of economic peace, in particular between the US and Europe.
6:23
Speaker 1: The dispute is about how countries could better share the
6:29
Speaker 1: taxation of digital companies. That's where the Europeans and not
6:33
Speaker 1: only the Europeans the rest of the world have been
6:35
Speaker 1: very frustrated for the past ten years, seeing these companies
6:39
Speaker 1: are deriving a lot of profits from our markets and
6:42
Speaker 1: we cannot tax them. And we cannot tax them because
6:45
Speaker 1: we're stuck with rules which were designed one century ago
6:49
Speaker 1: which prevent us from taxing companies because they are not
6:53
Speaker 1: physically present on our market. Therefore we cannot collect anything.
6:56
Speaker 1: These companies are making billions, and these billions were untacked
7:00
Speaker 1: until recently. Now they may be taxed in the US,
7:03
Speaker 1: but we want our fair share and the US in
7:07
Speaker 1: response to that set but this profit belongs to me.
7:09
Speaker 1: It's it's profit by American companies, and there is no
7:13
Speaker 1: reason for me to let you tax them. And by
7:15
Speaker 1: the way, if we find a solution, it shouldn't be
7:18
Speaker 1: ring fans to digital companies because the problem we're facing
7:22
Speaker 1: is a global problem for all companies. So we've been
7:25
Speaker 1: struggling with that for the past three years. And we
7:28
Speaker 1: have an extension, unfortunately not until the end of twenty one,
7:32
Speaker 1: but the end of the first semester of twenty one.
7:35
Speaker 1: So the challenge is even bigger because we need to
7:37
Speaker 1: find consensus in the next six months basically, it just
7:41
Speaker 1: seems like it's gonna be really difficult. Um. I mean,
7:45
Speaker 1: I guess one question is we we've we've started to
7:47
Speaker 1: think that tech giants, these enormous companies are sort of
7:51
Speaker 1: bigger than any one government. I mean, can governments actually
7:55
Speaker 1: prevail against these companies. Well, that's a good question, and
7:59
Speaker 1: indeed there is a challenge that. Maybe The first thing
8:03
Speaker 1: to say is that until we did a big G
8:06
Speaker 1: twenty O city initiative known under the Depth acronym. That
8:11
Speaker 1: was a big effort by the G twenty to try
8:14
Speaker 1: to bring some form of tax regulation to globalization and
8:17
Speaker 1: say multinational companies can locate their profits serious link tax
8:21
Speaker 1: s events in a complete legal manner. And we did
8:25
Speaker 1: change that in two thousand and fifteen. We came up
8:28
Speaker 1: with the new set of rules, and these rules have
8:31
Speaker 1: translated in the US tax reform and due to thousands
8:34
Speaker 1: sixteen seventeen, the tech companies, among others it's not omitted
8:39
Speaker 1: to tech could have an effective tax rate on their
8:43
Speaker 1: foreign source income plus to zero. Now they are taxed
8:47
Speaker 1: in the US at least at ten percent. So you
8:49
Speaker 1: can see that governments can act when they want to act.
8:53
Speaker 1: But the question which is left is how do you
8:55
Speaker 1: share these profits? Is it taxable only in the US
8:59
Speaker 1: or elsewhere? How you share profits of multinational companies depend
9:03
Speaker 1: on what we call tax treaties, which are international tax instruments.
9:07
Speaker 1: There are three thousand, five hundred instruments, and today these
9:11
Speaker 1: instruments provide for a country to tax the foreign company
9:14
Speaker 1: when this foreign company has a physical presence in the country.
9:18
Speaker 1: This dates back to ninety eight brick and mortar economy.
9:23
Speaker 1: That's what we need to change. But again, if we
9:26
Speaker 1: change it, it shouldn't be only on tech companies. But
9:30
Speaker 1: you may raise the same question for uton the French,
9:34
Speaker 1: you know, luxury company, the manufacture bag, the design, the
9:38
Speaker 1: good French taste, right, so French good taste, So they
9:41
Speaker 1: say it belongs to us. But the Chinese who buy
9:44
Speaker 1: the bags may say, well, sorry, part of the value
9:47
Speaker 1: creation belongs to us. So the question of how you
9:50
Speaker 1: share the profit is not omitted to tech companies and governments.
9:55
Speaker 1: I think if they act together, can change the rules.
9:59
Speaker 1: So companies are not in a position to block but
10:03
Speaker 1: it's more for governments to make the effort to try
10:06
Speaker 1: to reach consensus, and that's not easy, especially as you
10:10
Speaker 1: said it. We have one hundred and forty countries around
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Speaker 1: the table. If we don't get these countries agreeing on something,
10:16
Speaker 1: the risk we face is trade tensions, trade wars, and
10:21
Speaker 1: then you know, the French are trying to move on
10:24
Speaker 1: their own and the US is retaliating, and Europe may
10:27
Speaker 1: retaliate to the retaliation, and that's where you end up
10:30
Speaker 1: with the trade war, which would harm growth further. And
10:34
Speaker 1: after COVID, we we don't need any other hurdle on
10:37
Speaker 1: on growth. So you know, the counter factual is the
10:41
Speaker 1: best reason to try to find an agreement. We've been
10:44
Speaker 1: talking on this podcast about the new players and the
10:47
Speaker 1: Biden administration. How do you think the Biden administration can
10:50
Speaker 1: change this or even break the log jam. It's a
10:54
Speaker 1: very good question, and like very good questions, there is
10:57
Speaker 1: no answer yet. We do not know. What has happened is, however,
11:01
Speaker 1: quite interesting and much more complex than people think. First,
11:06
Speaker 1: when we did the Best Project back in two thousand, thirteen,
11:10
Speaker 1: fourteen and fifteen, the Obama administration at that time said
11:14
Speaker 1: there is no problem with digital, let's not talk about that.
11:17
Speaker 1: We revisit that in twenty after all these measures are implemented,
11:21
Speaker 1: So the US was very negative Obama administration. Very Paradoxically,
11:26
Speaker 1: the Trump administration, which was not known for being multilateralists,
11:30
Speaker 1: right said well, let's have a conversation. The US changed
11:35
Speaker 1: its approach and kind of told the French, you want
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Speaker 1: to tax Google. You're right, you're the market, but we
11:41
Speaker 1: want to tax your companies because we are their market.
11:45
Speaker 1: And that's where the conversation started in two thousand and seventeen. Paradoxically,
11:49
Speaker 1: the door being opened by the Trump administration. Now it
11:52
Speaker 1: is true that in two thousand twenty this year, the
11:57
Speaker 1: Trump administration has got cold feeds because the election was approaching,
12:02
Speaker 1: because companies were not sure whether they wanted to change
12:06
Speaker 1: or not. And at the end of the day, I
12:08
Speaker 1: mean progress like behind and and we didn't deliver the
12:12
Speaker 1: solution by here and as planned. So what will the
12:15
Speaker 1: Biden administration do. We hope that they will continue the negotiation,
12:20
Speaker 1: that they will say we want a solution, and that
12:23
Speaker 1: they will take some leadership to indicate what is the
12:27
Speaker 1: solution they want. I think all the other countries are
12:30
Speaker 1: ready to take what the US would tell them if
12:32
Speaker 1: it's fair enough, and that's will But that's what we
12:36
Speaker 1: will see. We shall see I hope soon, and we
12:40
Speaker 1: must see it soon because we have only six months,
12:44
Speaker 1: and after six months, countries will move unilaterally. Because it's
12:47
Speaker 1: been yes, they've been waiting, So the Biden administration will
12:51
Speaker 1: probably have to disclose quite soon what their position is.
13:03
Speaker 1: This negotiation has actually got bigger and bigger, in part
13:05
Speaker 1: because of the Trump administration's approach. Um, is it the
13:11
Speaker 1: case that you have to agree this whole new system
13:14
Speaker 1: for taxing companies globally in order to resolve the digital question?
13:18
Speaker 1: Or are you hopeful that maybe there's a halfway house.
13:22
Speaker 1: There is a menu of options. One option would be
13:26
Speaker 1: to say, what is the dispute. The dispute is on
13:29
Speaker 1: a few highly digitalized companies, and one could say, let's
13:35
Speaker 1: sort this out first and then take more time to
13:39
Speaker 1: sort out the more fundamental problems of the international tax framework.
13:43
Speaker 1: But these crosses the red line fixed by the US
13:47
Speaker 1: so far in a bipartisan manner, which is not ring fencing.
13:51
Speaker 1: So you have here a contradition. You could do an
13:54
Speaker 1: easy fix, a quick fix, but these crosses redline, because
13:58
Speaker 1: that would be just too much one way try effect
14:00
Speaker 1: for the US. It's a one way traffic. The US
14:03
Speaker 1: pays a check to the rest of the world. Right,
14:05
Speaker 1: I mean you you have a free lunch on American
14:07
Speaker 1: companies and we give a tax credit, which means that
14:10
Speaker 1: we transfer taxing rights to you. So you can understand
14:13
Speaker 1: why they would say that. Well, absolutely, and the US
14:15
Speaker 1: as a fair point to say, one, why would we
14:18
Speaker 1: be interested in paying the check to the rest of
14:20
Speaker 1: the world when they unfairly attacked American business Because that's
14:24
Speaker 1: the US perception. And too, we cannot really bring fens
14:28
Speaker 1: so that's a way to do a quick fix. May
14:31
Speaker 1: not work. Then what we could do and it wouldn't
14:35
Speaker 1: take years, is to have a broader scope. But that's
14:38
Speaker 1: for the US to say what they want in that scope.
14:41
Speaker 1: Digital companies, consumer facing businesses, which was the latest position
14:46
Speaker 1: of the US administration, whether it's the sustained engagement of
14:49
Speaker 1: a company with the customers, with the consumers, the final
14:53
Speaker 1: consumers on the market. That that that that would be
14:56
Speaker 1: the area where you would you would create the new
14:59
Speaker 1: taxing right where you would gives to the markets a
15:02
Speaker 1: new taxing right. And that we can do, and that
15:04
Speaker 1: we can do in the next six months because we're ready. Technically,
15:08
Speaker 1: we're ready almost we are very well advanced and just
15:12
Speaker 1: waiting for political equipment to press the button and get
15:15
Speaker 1: it at and ready. We should probably we should pause
15:20
Speaker 1: for a second to paint the scene a little bit
15:22
Speaker 1: because people listeners who are not so familiar with the
15:24
Speaker 1: with the O E c D. When you talk about
15:26
Speaker 1: technical work, that is what the O E c D
15:29
Speaker 1: is famous for. And you sit in the wonderful office.
15:32
Speaker 1: Wonderful office is in a in a very nice part
15:34
Speaker 1: of Paris, UH, and have tended to be very good
15:38
Speaker 1: at technical work, not always so good at reaching fast
15:40
Speaker 1: agreements UH and having dynamic progress on. I think you
15:48
Speaker 1: keep the recent years it was twenty years ago. I
15:51
Speaker 1: hope we get the the expertise and the technical point
15:56
Speaker 1: and you've kept the nice buildings that should be said
15:57
Speaker 1: and we get the nice building as well. Your point all, yeah,
16:01
Speaker 1: that's so good at providing political breakthrough, it's no longer true.
16:06
Speaker 1: Let me give you two examples. Two thousand eight, Global
16:09
Speaker 1: French Ship Crisis two thousand eight. For the first time
16:13
Speaker 1: the G twenty meets at the leaders level when they
16:16
Speaker 1: say we need to put an end to bank secrecy.
16:19
Speaker 1: The obesity delivered the end of bank secrecy in two
16:23
Speaker 1: years time. We listed countries, we provided a standard, we
16:27
Speaker 1: provided a multilateral convention to implement that standard. Ten years later,
16:32
Speaker 1: where we are not a single country in the world
16:35
Speaker 1: has bank secrecy left. Last September, eighty four million bank
16:39
Speaker 1: accounts were exchanged Switzerland, I mean the temple of bank
16:45
Speaker 1: secrecy exchanged more than three million bank accounts with the
16:49
Speaker 1: countries where the people live having bank accounts in Switzerland
16:53
Speaker 1: for a total value of ten trillion US dollars ten trillion.
16:59
Speaker 1: That a concrete example. Second one and due to thousand twelve,
17:04
Speaker 1: multinational companies could locate their profits wherever they wanted tax avoidance.
17:10
Speaker 1: It was an easy game to play. We came up
17:12
Speaker 1: with an action plan and we told the g twenty
17:15
Speaker 1: we're going to change international tax woos. It's used to
17:18
Speaker 1: take twenty years to change COMMA and DOT in ob
17:22
Speaker 1: City guidelines. We did all these changes fifteen changes in
17:27
Speaker 1: two years time. And as a result, you have hundreds
17:30
Speaker 1: of billions of taxes which are being collected on multinational
17:34
Speaker 1: companies which were not in the past. It is true
17:37
Speaker 1: that on the digital project it takes more time because
17:41
Speaker 1: it's more complex because big countries are modivided, but we're there.
17:45
Speaker 1: We have all these people coming together, exchanging information, sharing
17:49
Speaker 1: the same goal, which is to strengthen the attacks sovereignty
17:53
Speaker 1: by corporation. But we'll also have I think a high
17:56
Speaker 1: level of gorenment. The question is more of the timing.
17:59
Speaker 1: So I think we've we've been more than just happy
18:03
Speaker 1: technocrats in Paris. So there you have it. For for years,
18:07
Speaker 1: I think people some people would have said, what's the
18:09
Speaker 1: O E c D for? But but quite seriously, it
18:12
Speaker 1: turns out this is what it can be for trying
18:14
Speaker 1: to fix these really incredibly difficult problems that we face
18:17
Speaker 1: with a move to a to a digital economy. So Pascal,
18:22
Speaker 1: where does this go from here? You've talked about the
18:25
Speaker 1: Biden administration, You've talked about the timing. I can't help
18:30
Speaker 1: noticing that there's been some talk about the middle of
18:33
Speaker 1: next year and then maybe the end of next year. Realistically,
18:38
Speaker 1: how likely is it that this is going to get
18:40
Speaker 1: resolved in the next six or twelve months. I don't know.
18:46
Speaker 1: There is a real level of unset and you which
18:48
Speaker 1: makes it exciting right for observers, a bit stressing when
18:52
Speaker 1: you're an insider. Um we we need to wait for
18:57
Speaker 1: Biden administration to give indications, and I think they are
19:01
Speaker 1: reflecting on that they need to make up their minds
19:03
Speaker 1: and send a message to the rest of the world.
19:06
Speaker 1: And it will largely depend on on their message whether
19:10
Speaker 1: they want to play ball or not what they will
19:14
Speaker 1: do on the on the trade front. Given that before leaving,
19:18
Speaker 1: the Trump administration will inflict sanctions on the French. Because
19:23
Speaker 1: the French are moving unilaterally with their digital service tax um,
19:28
Speaker 1: we we we have a fair chance of reaching an agreement.
19:31
Speaker 1: And at the leaders level there is the sense that
19:34
Speaker 1: not only it is possible, but it is wishable that
19:37
Speaker 1: we reach an agreement. And against that background we can
19:40
Speaker 1: be optimistic that that something positive will happen, even though
19:44
Speaker 1: we don't know yet. And and it's up for the
19:46
Speaker 1: Biden administration to decide which direction they will they will
19:50
Speaker 1: want to go. Countries would rather avoid the trade attensions,
19:56
Speaker 1: especially in the post COVID environment. I mean this is
20:00
Speaker 1: if you take some distance, this is a tiny issue
20:02
Speaker 1: in the grand schemes of things, so we should not
20:05
Speaker 1: have we should not harm growth for these and the
20:10
Speaker 1: tax technicalities can be fixed, even though it's politically sensitive,
20:16
Speaker 1: they must be fixed. So we are confident that we'll
20:19
Speaker 1: move ahead and that will will have a path towards
20:23
Speaker 1: further corporation, some form of tax regulation of globalization, which
20:28
Speaker 1: I think is what we need. Meanwhile, it could be
20:33
Speaker 1: handbags at dawn. I mean, we are literally having a
20:35
Speaker 1: bare neck or fight between the US and France on
20:39
Speaker 1: this with with the US imposing the tariffs on on handbags.
20:43
Speaker 1: So we come we come full circle from the heights
20:47
Speaker 1: of the digital economy to sort of basic taxes on
20:50
Speaker 1: key products like handbags and lipsticks cosmetics, which is the
20:55
Speaker 1: US vision of the French right bags and dipsticks. Past
21:00
Speaker 1: canaandam Or, director of the Center for Text Policy at
21:03
Speaker 1: oc D, thank you very much. Thank you. In a
21:13
Speaker 1: global chocolate war, it's Hers against West Africa. That was
21:17
Speaker 1: a headline on bloom Bog but jumped out at me
21:19
Speaker 1: this week. We can't have a global chocolate war two
21:22
Speaker 1: weeks before Christmas. Then I read the story and found
21:26
Speaker 1: out there was a lot more resting on this than
21:28
Speaker 1: your holiday bowl of hers. She's kisses or chocolate orange.
21:32
Speaker 1: Leander Basson Pierre is our Ivory Coast reporter and she's
21:36
Speaker 1: been covering this story and she's joining me now from
21:39
Speaker 1: Abidjan in the Ivory Coast leanne It is quite complicated
21:43
Speaker 1: this story. We should just start with the basics. Where
21:46
Speaker 1: you're sitting. Ivory Coast in West Africa is where a
21:50
Speaker 1: lot of the world's coco is produced and the gharner
21:54
Speaker 1: produces most of the rest. Tell me first how these
21:57
Speaker 1: two countries have tried to use the hour they have
22:00
Speaker 1: in this particular crucial bit of the global economy. And
22:04
Speaker 1: while we've ended up talking about war, well, they've tried
22:08
Speaker 1: many times before to try to keep the price in
22:13
Speaker 1: their favor, but it hasn't really worked until last year
22:17
Speaker 1: when they decided to add a four hundred dollar premium
22:22
Speaker 1: on top of the price of the on on top
22:24
Speaker 1: of the futures price, that is, and that came into
22:27
Speaker 1: effect from the first of October, which was the start
22:31
Speaker 1: of the main crop harvest in both these two countries.
22:34
Speaker 1: And as you rightly said, these two countries supply nearly
22:38
Speaker 1: seventy percent of the world's cocoast. So they saying, while
22:42
Speaker 1: all these multinationals are benefiting from this one hundred billion
22:46
Speaker 1: dollar industry, poor farmers in Ivory Coast and Ghana are
22:51
Speaker 1: barely seeing or barely able to make ends meet, and
22:55
Speaker 1: they're not seeing the fruits of their labor. They don't
22:58
Speaker 1: even know what the in product actually tastes like. I
23:02
Speaker 1: guess it's it's fair to say that the Hersheys and
23:04
Speaker 1: all these big chocolate producers didn't didn't like this very much.
23:07
Speaker 1: But what's actually happened, Why is it why are we
23:09
Speaker 1: now talking about war? Well, what happened was that when
23:13
Speaker 1: they initially announced this, which was in the middle of
23:16
Speaker 1: the last year UM, there was obviously some some discussions
23:21
Speaker 1: that took place with chocolate companies, with big exporters as well.
23:25
Speaker 1: All of them actually came and board saying yes they
23:28
Speaker 1: World by Coco at that price when it comes in
23:32
Speaker 1: from the first of October to Everyone was on board.
23:35
Speaker 1: They were on board with the fact that that needs
23:37
Speaker 1: to happen. But nobody really thought that COVID nineteen was
23:41
Speaker 1: going to happen and that they would be people where
23:44
Speaker 1: people would be eating less chocolates and sales would would slump,
23:48
Speaker 1: and so nobody really took that into the equation. And
23:52
Speaker 1: then what happened was that they needed to I guess,
23:54
Speaker 1: try to find a way to UM to basically keep
23:59
Speaker 1: their price is in check. Given that they had lost
24:02
Speaker 1: quite a lot in sales, and that happened. And so
24:06
Speaker 1: what happened is that they revisited this premium that they
24:10
Speaker 1: had promised to pay from the start of the season,
24:13
Speaker 1: which was on the first of October, and tried to
24:15
Speaker 1: inverge his case. They went and actually brought some some
24:20
Speaker 1: beings directly from the exchange in New York and not
24:25
Speaker 1: in the physical market. And many companies were surprised by
24:29
Speaker 1: this move. The governments of Ivory Coast and Gharner, they said,
24:33
Speaker 1: you know, what they did means that they against the
24:36
Speaker 1: four hundred dollar premium, which is called the Living Income
24:39
Speaker 1: differential or l I d UM. They said it was
24:42
Speaker 1: a sign in the in the wrong direction that they
24:45
Speaker 1: had agreed to it, that they had spoken about it significantly.
24:49
Speaker 1: So Ivory Coast and Ghana have suspended the sustainability programs,
24:54
Speaker 1: which obviously is going to hurt the farmers that are
24:56
Speaker 1: involved in those and the workers who are involved in
24:59
Speaker 1: those pro graund So is that someone say that's a
25:02
Speaker 1: bit counterproductive, that you're hurting hurting people on the ground
25:05
Speaker 1: to to punish her. She's while things have been moving
25:09
Speaker 1: quite swiftly, the story is very dynamic, and so we
25:12
Speaker 1: had on the November we had the governments of Ivory
25:17
Speaker 1: Coast and Gharner saying that they have suspended her she
25:21
Speaker 1: sustainability programs in any other company that's involved with any
25:26
Speaker 1: sustainability programs that her she is involved in as well.
25:30
Speaker 1: So that implicated quite a number of different companies, and
25:34
Speaker 1: by the end of that week on December four, they've
25:37
Speaker 1: been came to an agreement her she been recommitted to
25:42
Speaker 1: paying the premium FO premium for the season. There is
25:47
Speaker 1: obviously a bit of history here, and it's the sustainability
25:51
Speaker 1: programs I guess are important for her she and I
25:55
Speaker 1: should say there's some other big companies who are involved
25:59
Speaker 1: in this because there's been this tradition where they've been
26:01
Speaker 1: accused of being involved with child labor and deforestation everything.
26:06
Speaker 1: So there's there's quite a lot on the line for
26:08
Speaker 1: these companies in terms of their reputation. Absolutely, and so
26:12
Speaker 1: I think that many of them have been very quick
26:15
Speaker 1: to to respond to UH in the statement that the
26:18
Speaker 1: Iborian regulator had put out on December fourth saying they
26:22
Speaker 1: had old for the suspension or suspended their sustainability programs.
26:27
Speaker 1: So they reacted very quickly, as you said earlier, is
26:30
Speaker 1: a couple of weeks before Christmas will have other holidays
26:34
Speaker 1: were chocolate is essential coming up next year, and so
26:39
Speaker 1: it is something that they want to try to find
26:42
Speaker 1: a solution too, very quickly. And you know it's they
26:46
Speaker 1: need each other ivre coasts, they need buy Ivery Coast
26:48
Speaker 1: and Gardner, they need buias for their coco beans, and
26:51
Speaker 1: these chocolate companies need coco. It's not that they could
26:54
Speaker 1: suddenly go and source all their coco needs from elsewhere
26:57
Speaker 1: in the world. These two governments, or these two countries
27:00
Speaker 1: at least do make up in the least of global
27:03
Speaker 1: coco production. And chocolate is not just for Christmas, I
27:06
Speaker 1: would argue it's essential most of the time, not just
27:08
Speaker 1: on holidays. I guess if you think of the end
27:12
Speaker 1: results of this in trying to put a premium on
27:15
Speaker 1: the price trying to sustain the incomes of farmers, if
27:18
Speaker 1: we end up with less cocoa being bought and god forbid,
27:24
Speaker 1: people actually eating less chocolate, aren't the farmers going to
27:27
Speaker 1: end up poorer as a result of this. That is
27:31
Speaker 1: a fine balance that's both countries and the chocolate companies
27:35
Speaker 1: need to try to strike and in fact, there was
27:39
Speaker 1: a there was a huge concern that with this increase
27:42
Speaker 1: in the price that it would incentivize more farmers to
27:45
Speaker 1: go out and plant cocoa, that they would go out
27:49
Speaker 1: and do that in protected forest areas um And so
27:53
Speaker 1: that is an essential element of the story that they
27:56
Speaker 1: these two countries managed to keep their production in check,
28:00
Speaker 1: that they let their farmers know that, you know, it's
28:03
Speaker 1: not going to benefit anybody if there's going to be
28:06
Speaker 1: too much coco in the markets, that they need to
28:10
Speaker 1: cap it at a certain amount so that they can
28:12
Speaker 1: keep the prices where they need them to be. So
28:15
Speaker 1: it is a fine balance that they need to strike.
28:17
Speaker 1: And at all starts worth actually the farmer and educating
28:21
Speaker 1: them on what needs to be done. Getting down to
28:24
Speaker 1: that small farmer that has you know, half a hectary,
28:27
Speaker 1: one or two hectares, to explain to him you cannot
28:30
Speaker 1: go into predicted bus because the price is high, that
28:33
Speaker 1: if there is the surplus of cocoa, it could indeed
28:36
Speaker 1: bring the price down. Well, Leanne, thank you so much.
28:40
Speaker 1: Where do you think this is going? I mean, do
28:42
Speaker 1: we actually have to worry about chocolate shortages this Christmas?
28:45
Speaker 1: Next Christmas? Anytime soon. Um, I've just been out into
28:50
Speaker 1: the field and there is a lot of cocoa beans.
28:53
Speaker 1: At least it doesn't seem like there's going to be
28:55
Speaker 1: much of a shortage in Ivory coast at least. Whether
28:59
Speaker 1: they will be able to maintain the price and good
29:01
Speaker 1: relations with these chocolate tears and and keep the momentum
29:06
Speaker 1: going with this project with with Ghana, we just had
29:09
Speaker 1: an elections this week, so they will continue the conversation
29:13
Speaker 1: around getting the best prices for their farmers and you know,
29:17
Speaker 1: keeping this joint effort up. I think that they standard
29:20
Speaker 1: a bit of chance of getting the best value for
29:22
Speaker 1: their products for their farmers. When we talk about grassroots
29:26
Speaker 1: reporting on this program, we are not kidding. We are
29:28
Speaker 1: actually going out looking at the roots of the coco
29:32
Speaker 1: and it looks okay at least from Ivory case right now.
29:36
Speaker 1: Leander Bassam Pierre sitting in ather Jam, thank you so much, pleasure,
29:44
Speaker 1: Thanks for listening to Stephonomics. We'll be back next week
29:47
Speaker 1: with more on all things economic. And remember you can
29:50
Speaker 1: always find us on the Bloomberg Terminal website, app or
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Speaker 1: wherever you get your podcasts, and you can get a
29:56
Speaker 1: lot more news and analysis from Bloomberg Economics by follow
30:00
Speaker 1: at Economics on Twitter. This episode was produced by Magnus Hendrickson,
30:05
Speaker 1: with special thanks to William Horrabin, Bascal Saint dement leand
30:09
Speaker 1: de Basson. Pierre and her colleagues Isis Almeida and Baudela Mieux,
30:14
Speaker 1: Lucy Meekin as the executive producer of Stephanomics and the
30:17
Speaker 1: head of Bloomberg Podcast is Francesco Levi.