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Venezuela Agribusiness Report Q4 2010
Business Monitor International, Oct 2010, Pages: 75
Business Monitor International's Venezuela Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Venezuela's agribusiness service.
BMI View: Following a 5.8% year-on-year (y-o-y) contraction in Q110, the Venezuelan economy grew by 10.4% quarter-on-quarter (q-o-q) in Q2, representing growth of -1.9% y-o-y. Although it appears that the worst of the recession could be over, Venezuela's fragile economy remains in the grip of runaway inflation, with BMI holding to our forecast that inflation will reach 40.0% by the end of 2010. Indeed, food prices have increased by 41% in the past 12 months, despite the fact that the government has rolled out a popular chain of supermarkets selling food at discounted prices. The Chávez administration has also been rocked by further criticism of its poor and corrupt management of food supply, as reports in the local and international press in June 2010 claimed that 80,000 tonnes of rotting food - including meat and powdered milk - had been found in warehouses belonging to the government. The scandal came just weeks before crucial legislative elections held on September 26, which weakened Chávez's domination of the national assembly.
However, the thawing of diplomatic tensions with Colombia may help to ease concerns of Venezuela's food supply problems. Cross-border trade had been suspended since July 2009, when Chávez broke off diplomatic relations with former Colombian President Álvaro Uribe, in retaliation against accusations that Venezuela was aiding guerrillas belonging to the Fuerzas Armadas Revolucionarias de Colombia (FARC). However, following the election of new Colombian President Juan Manuel Santos, it was announced in August 2010 that the two countries had resumed diplomatic relations and made a commitment to improve security along their shared border to prevent drug traffickers and guerrillas taking shelter or launching attacks from the area. The agreement opens up the prospect of resuming trade, which should help improve supply of meat and dairy products in Venezuelan shops.
Key Views
Corn production is forecast to fall by 23.3% year-on-year (y-o-y) in 2009/10, due to severe droughts and the constraints placed on producers by the government's restrictive farmgate prices. 2009/10 coffee production is forecast to sink to 744,000 tonnes, down by 12.0% y-o-y due to dry weather conditions and poor management of the sector. Production is forecast to fall again to 689,000 tonnes in 2010/11 and for the second year in succession, domestic demand is expected to outstrip supply. Venezuela has therefore been forced to turn to imports, primarily from Brazil, in order to guarantee supply.
Venezuela is also being forced to increase its sugar imports as domestic production plummets. We see production falling by 9.9% y-o-y in 2009/10 to 599,100 tonnes. This has led to severe supply shortages; however, the arrival of around 700,000 tonnes of imports, primarily from Brazil, has eased restrictions and in 2009/10, we see sugar consumption increasing by 13.2% y-o-y to 1.19mn tonnes.
On September 1, the Venezuelan government announced that it would authorise increases in the price of corn, rice and sunflower seeds at the production stage, in order to encourage planting of these crops for the 2010/11 harvest. The move came following sustained complaints from Venezuelan agricultural producers that the regulated farmgate prices had not been adjusted in line with rising costs. The price for a kilogram of yellow corn increased by 27.5% from VEF0.80 to VEF1.02, while a kilo of white corn rose by 27.8% from VEF0.90 to VEF1.15.
Venezuelan imports of dairy products and poultry from Argentina have increased dramatically through 2010. Cheese imports shot up by 235% y-o-y in volume terms during the first seven months of 2010 to reach 1,924 tonnes. The influx of imported produce is expected to impact negatively on domestic producers who have long complained to the government about the excess of cheap imported goods.
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