Venezuela Experiencing Shortages of Many Basic Food Products as Dropping Profit Margins Lead to Plant Closures
The Venezuela Food Drink Report provides independent forecasts and competitive intelligence on Venezuelas food and drink industry.
The idiosyncratic food policies of Venezuela’s president Hugo Chávez show no signs of abating; indeed developments in 2008 suggest that the government may actually be stepping up its policy of food nationalisation. These policies have moved from threatening private firms’ profits to threatening their very existence, with Chavéz making worrying statements about the possible appropriation of assets. With ongoing food shortages one of the main threats to Chávez’s popularity, Venezuela’s president is unlikely to be satisfied until a large percentage of food production is in the hands of the state.
In the oil driven economy, government and consumer spending is rising on the back of bumper oil receipts. However, a disparity between supply and demand has pushed inflation up to 22.5% in 2007 - the highest level in Latin America. This is a considerable problem for the low-earning majority, who have as yet not seen their incomes rise in line with the country’s rising GDP. To address this threat to his popularity Chávez created Mercal, a new nationalised food retailer, imposed a web of price controls and imposed export limits on many foods. Government-set prices have hardly risen since they were introduced in 2003, leading many producers, who are unable to operate at a profit, to close down plants and reduce production levels. This drop in production has led to shortages of many basic food products including milk, eggs, meat, chicken and wheat flour.
Empty shelves are a big threat to the government’s popularity and in 2008 Venezuela’s president has made several remarks that suggest he is now considering drastic moves to shore up supplies. In February, Chávez threatened to seize the assets of the country's milk producers, singling out Italian-based dairy giant Parmalat and Swiss-based Nestlé. Chávez suggested that these firms may pressurise or blackmail Venezuelan farmers to obtain their milk for export and claimed that state-owned dairy firms were having difficulty sourcing milk because the supplies had already been illegitimately secured by international companies. This was followed up by a warning to the country’s largest food producer Empresas Polar. Chávez claimed that the company was hoarding food and not abiding by price controls and called it a ‘clear example’ of a business that could be taken over. The firm responded to this attack by revealing that government price controls do not apply to most of its products, and those that do have fixed prices are sold wholesale to supermarkets, leaving the markets, not the company, responsible for any overcharging. However, with Chávez anxious to take his country further down the road towards socialism - and state owned food production part of that ideal - logical arguments may not be enough to counter the threat of nationalisation.
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Source: Business Monitor International