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Viewing report
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Venezuela Agribusiness Report Q4 2011
Business Monitor International, Oct 2011, Pages: 70
BMI View:
Venezuela's inflation rate accelerated even faster than expected during Q311, reaching 28.9% in July, and averaging 26.7% for the period from January to July. The inflation rate was further fuelled after the move in June by the government of President Hugo Chávez to increase price caps on regulated food products - including beef, bread, corn meal, milk and sugar - in order to ease concerns over shortages. Despite increasing the mandated price for certain produce, the government remains committed to the price control regime.
In a bid to combat inflation, on July 14 2011, President Chávez signed into law a new price control mechanism aimed to combat speculation and hoarding. The Law for the Protection and Defence of Economic Rights for People to Access Goods and Services (or Law for Just Prices and Costs) permits the government to impose upper limits on the price charged for a range of goods and services, including prepared food stuffs such as the ubiquitous arpeas. The government frequently holds the private sector responsible for the country's spiralling inflation by artificially inflating prices. Chávez argues that the new law will stabilise prices by preventing hoarding and excess profiteering.
Key Forecasts:
Real GDP is expected to grow by 1.9% year-on-year (y-o-y) in 2011. However, inflation is forecast to reach 29.0%.
In 2010/11 BMI anticipated that sugar production will increase by only 1.5% y-o-y to 492,300 tonnes on the low 2009/10 level as land expropriations and price controls continue to take their toll. BMI sees only minimal growth of 0.3% y-o-y in 2011/12. Over BMI's forecast period to 2014/15, sugar production is expected to increase by 11.8% on the 2009/10 level to reach 542,100 tonnes.
Coffee production is expected to decline by 4.1% y-o-y to 695,000 bags in 2010/11, with domestic demand expected to outstrip supply for the third successive year. In 2011/12, BMI currently forecasts a y-o-y increase of 15.4% to take output to 802,000 bags.
In 2011, the reliance on imports is expected to continue to shore up demand for poultry and see consumption increasing by 2.0% y-o-y at 904,000 tonnes. High import prices and a drop in domestic production are likely to impact on beef consumption and BMI currently forecasts demand to dip by 1.6% y-o-y to 492,200 tonnes. Out to 2015, poultry demand is forecast to grow by 9.0% on the 2010 level to 967,000 tonnes, while beef consumption is projected to rise by 9.3% to reach 546,300 tonnes.
Cheese production grew strongly from 2004/05-2009/10, increasing by 32.7% to 78,720 tonnes. Out to 2014/15, BMI forecasts cheese production to grow 12.8% on the 2009/10 level to reach 88,820 tonnes. Butter production is expected to remained flat between 2004/05 and 2009/10, at 1,900 tonnes. The sector is underdeveloped and in need of modernisation. BMI sees production increasing only marginally over BMI's forecast period and have pencilled in an increase of 0.7% on the 2009/10 level to take output to 1,910 tonnes in 2014/15.
Key Trends And Developments:
The Venezuelan livestock sector continues to be held back by the government-controlled price regime which is squeezing profitability and holding back production. The mandated price for beef was last reviewed in 2008 and with input costs rising, producers have long been pressing for the maximum sale and retail prices to be increased.
In June 2011, the government announced an increase of 29.2% in the cost of a kilo of prime beef, from VEF17.60 to VEF22.74. The maximum prices of second and third class beef, live cattle and carcass meat were all raised. The news will be welcomed by producers; however, some producers' representatives have argued that the price adjustments do not go far enough to compensate for the increases in production costs.
In July 2011, the Cuban agriculture ministry announced that more than 900 Cuban agricultural specialists are currently advising Venezuelan farmers as part of the Bolivarian Alliance for the Americas (ALBA) regional cooperation organisation. The Cuban experts have a range of specialisms, including plant health experts, veterinarians and irrigation technicians and are training Venezuelan producers in areas such as organic farming and environmental sustainability.
In August 2011, the Colombian Trade Minister Sergio Diaz-Granados announced that the Venezuelan government had repaid debt worth US$820mn owed to Colombian exporters. This leaves US$450mn in debt still outstanding. The Venezuelan government has launched an investigation into the claims after accusing importers of inflating the debt to obtain foreign currency, which is restricted by the Venezuelan government.
Some of these debts related to the agricultural sector, with Venezuela importing significant quantities of livestock and other produce from across the border. The resolution of the trade dispute with Colombia will help to ease concerns about food shortages in Venezuela.
Venezuela's trade deficit for coffee continues to widen. As a result of falling domestic output, the government has had to resort to increased imports to guarantee supply, with imports rocketing to 205,000 60kg bags in 2009/10 and a forecast 335,000 bags in 2010/11. Much of this has come from Brazil and Nicaragua.
As recently as 2005, Venezuela was a net exporter of coffee. This has further exacerbated tensions in the sector, with producers claiming that the government is effectively subsidising foreign coffee producers, as the price paid for imported coffee can be more than 50% more than the fixed price for domestic producers.
In September 2011, Empresas Polar - Venezuela's largest food and drinks company - struck back at government accusations that its Harina Pan pre-cooked corn flour is no longer a Venezuelan brand. José Villalba, the president of the Autonomous Service for Intellectual Property (SAPI), a government office which registers trademarks and invention patents, had previously stated that the Harina Pan brand, which is emblematic of the production of the traditional arepa dish, is no longer Venezuelan, as the company had sold the rights to the Canadian firm Deutsche Tran Trustee Inc (DTTI).
In response, Empresas Polar published a press release countering the claim and stating that, 'Harina Pan has always been and always will be a Venezuelan product.' The company claimed that the government was seeking to create confusion among the product's customers in order to detract attention from the problems facing the producers of white corn who are struggling to source domestic raw materials, as well as the difficult situation facing manufacturers of pre-cooked corn flour, who are incurring losses as a result of the government's price controls.
The dispute highlights the widespread discord surrounding the lack of profitability resulting from the fixed price regime, as well as the politics of nationalism that continue to exert a strong force over the agro-industrial sector.
Expropriations continue to hit the agroindustrial sector. In July 2011, Chávez's government expropriated rice producer Llano Arroz and put the firm under the control of state-owned Arroz del Alba, calling for the company to be transformed into a 'socialist unit of production', with workers taking on far more decision-making power.
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