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Venezuela Food and Drink Report Q1 2010
Business Monitor International, Dec 2009, Pages: 69
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.
According to our latest Business Environment Ratings (BER) update for the Americas, Venezuela remains - decidedly - placed last in the Q110 matrix of the seven major regional markets. While Venezuela’s food and beverages consumption mostly recovered from the 2002 and 2003 economic crisis, a forecast 3.0% and 4.2% GDP contraction in 2009 and 2010, respectively, will conspire to further worsen the already challenging operating environment for both foreign and domestic producers. Food shortages as a result of price controls and runaway inflation in the food and drink sector in particular have meant that consumption choices are increasingly limited by availability and affordability, while values in US dollars will be severely dented by the expected depreciation of the bolivar.
In addition, the government’s series of land and plant seizures has led to increased insecurity among food and drink companies, with Venezuela thus highly unlikely to move up the BER matrix in the coming months. In fact, with the president's popularity among poorer Venezuelans directly tied to the price of food, Chávez's new power to expropriate food firms is likely to be a key plank of the government's efforts to reduce inflation. On the other hand, the president remains committed to the development of the social retail network Mercado de Alimentos (Mercal), with some VEB4.8mn (US$2.2mn) to be invested in the purchase of stable foods and the improvement of distribution links. The purchase, financed by the national Social Development Bank (BANDES), will be made against the background of rising inflation, which averaged 2.5% in September, although the prices of food products rose by a higher 3.3%. In US dollar terms, per capita food consumption (food and drink, excluding alcoholic drinks) is now expected to fall over the forecast 2009-2014 period (by over 14%, although it will increase by a staggering 250% in local currency), due to a loss of purchasing power and the weakening of the local currency against the US dollar. Per capita consumption of food (as expressed in US dollars) is expected to contract by 5% this year, by 18.3% in 2010, by 9.1% in 2011 and by 0.1% in 2012, before starting to grow again in 2013, to reach US$502 in 2014 – a level seen back in 2005/6.
Overall, the operating environment for food and drinks companies in Venezuela will remain difficult, not least because of the government’s measures. For example, workers at a San Joaquín facility owned by Alimentos Heinz, a Venezuelan subsidiary of US-based global food company HJ Heinz, recently staged a strike, after claiming the facility's management did not agree to respect employee social rights. Worker unrest remains a frequent occurrence in the country, in which companies are also contending with difficult access to foreign currency necessary for the purchase of raw materials from abroad. While some corporations have suggested the creation of a dual exchange mechanism, no progress has been made to date. In the meantime, the ongoing threat of socialist reforms, a looming currency devaluation, and price caps on certain goods continue to weigh heavily on the Venezuelan investment climate.
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