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Venezuela Food and Drink Report Q4 2009
Business Monitor International, Sep 2009, Pages: 73
The Venezuela Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Venezuela's food and drink industry.
In late July, relations between Colombia and Venezuela deteriorated after Colombian officials announced that members of the Colombian guerrilla group FARC were found with Swedish-made rocket launchers that had previously been sold to Venezuela. Venezuela's president, Hugo Chávez, responded by freezing diplomatic relations and threatening to sever commercial ties. Chávez has threatened to block trade between the two countries and has warned that Venezuela may expropriate the assets of Colombian companies operating in the country.
We believe that it would be very difficult to block trade, given the two countries' interdependence. Trade between Venezuela and Colombia reached around US$7bn in 2008 and goods imported from Colombia include milk and other food items that have often been in short supply due to government-imposed price controls. With food shortages one of the biggest threats to Chávez's popularity, it seems fairly unlikely that he would act to cut off this supply line, at least in the short term. However, the threat to appropriate Colombian assets may be more real and could affect several Colombian food and drink firms.
Firms which have interests in Venezuela include dairy producer Alpina and food producer Grupo Nacional de Chocolates, which owns Venezuelan meat firm Industrias Alimenticias Hermo Venezuela. In addition, Colombia's largest retailer, Exito, owns a minority stake in Venezuelan supermarket chain Cativen. With Chávez already driven to nationalise large parts of the country's food production industry in an effort to cut inflation and counter shortages, all of these firms could find themselves in the firing line. Even more significant would be a long-term decline in trading relations between the two countries. For example, Grupo Nacional de Chocolates currently generates around 10% of its sales in Venezuela and an official or unofficial boycott of Colombian products would significantly affect revenues. Any action is likely to be met with retaliation in Colombia, with the Venezuelan food processor Empresas Polar one firm that could be damaged by such action as a boycott.
The other major development during the quarter was the August 2009 government seizure of country's two largest coffee processors, Fama de America and Marcelo y Rivero (Café Madrid). The move comes shortly after the coffee director of Venezuela's national agricultural federation (Fedeagro) revealed that the country may have to import coffee for the first time ever this year or face shortages. Family owned Fama de America and Café Madrid have been operating in Venezuela for 100 and 50 years respectively and, according to Fedeagro, control around 70% of the coffee market between them. However, coffee has recently been in short supply due to government imposed price controls and Commerce Minister Eduardo Saman said on state television that the businesses were being investigated to see if they had smuggled coffee out of the country or adopted monopolistic practices. The lack of shareholders or foreign ownership could put Fama de America and Café Madrid in a weak position to counter the claims of the Venezuelan administration and BMI thinks there is little chance of the companies remaining independent, particularly given the importance of coffee to Venezuelan consumers and the likely backlash if severe shortages were to persist for a sustained period.
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