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Venezuela Food and Drink Report Q4 2011
Business Monitor International, Sep 2011, Pages: 83
Business Monitor International's 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.
The ongoing threat of socialist reforms, combined with the recent currency devaluation and price caps on certain goods, continues to weigh heavily on the Venezuelan investment climate. A frail institutional framework is also a key weakness of the country's business environment, which is reflected in the country's low ranking in BMI's proprietary Risk/Reward ratings. President Hugo Chávez has signalled his intent to further his government's nationalisation drive, which will continue to undermine private-sector business activity.
This vulnerability is particularly salient for the food and drink industry due to sectors position as a pawn in the government's attempts to improve its popularity. Food shortages coupled with the rising cost of living are one of the most serious threats to President Hugo Chávez's popularity and in response the government has nationalised large parts of the food industry. With prices still under upwards pressure, we see no chance of this process abating and, indeed, expect the pace of nationalisation to increase as food inflation ticks higher and resentment among Chávez's core support of lower-income consumers increases.
Headline Industry Data
- 2011 per capita food consumption (US$) = +6.7%; forecast to 2015 = -29.7%
- 2011 alcoholic drink sales (US$) = -0.3%; forecast to 2015 = -45.2% ?? 2011 soft drink sales (US$) = +0.5%; forecast to 2015 = -43.4%
- 2011 mass grocery retail sales (US$) = +6.5%; forecast to 2015 = -29.2%
Key Company Trends And Developments
Empresas Polar Takes Stake In Mexican Firm:
In July 2011, Mexican soft drink bottler Grupo Embotelladoras Unidas (Geupec) struck a deal with PepsiCo that will see the two firms merge their Mexican bottling and distribution facilities. Geupec will retain a 51% stake in the new company, while PepsiCo will hold 20%. Venezuelan Pepsi bottler Empresas Polar is also involved in the deal and will own 29% of the new company.
Mercal Expanding:
With local production flailing, the government is taking a greater role in food distribution to ensure demand is met. This is being largely orchestrated by state-owned retail chain Mission Mercal. Huge subsidies mean that Mission Mercal is able to offer food to the country's poorer regions at substantial discounts on the market price. In autumn 2010, Venezuelan President Hugo Chávez announced that the domestic population had saved roughly VEB21bn since 2003 due to the prices provided by Mercal. The number of Mercal outlets nationwide has reached 16,000, with the network distributing 10mn tonnes of food on an annual basis.
Key Risks To Outlook
Shift In Oil Prices:
In the light of upcoming presidential elections in 2012, the economy's growth path will depend significantly on the trajectory of oil prices. The government will no doubt want to spend more to stimulate the economy and import more to meet private consumers' demand in search for votes. Therefore, as long as oil prices remain high, the government's fiscal outlook should remain adequate. On the other hand, a reversal in prices, although not in BMI's core scenario, would be a cause for concern.
Moreover, unless the government is capable of fomenting the private investment and increasing domestic production, over the next few years the country will continue to depend on oil prices and the goodwill of fixed income investors.
Inflationary Unrest:
With one of the highest rates of inflation in the world, worker strikes within the private sector are expected to be a persistent feature of Venezuela's landscape in the medium term. The recent strikes at both Coca-Cola FEMSA and Heinz plants highlight this negative aspect of the country's risk profile. While BMI is forecasting improvement in the rate of inflation, it believes the rapid pace of price rises will still be enough to fuel a considerable amount of worker discontent over the coming year
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