Sunday, April 06, 2008

Milking Venezuela, literally! Chavez buys Los Andes

As the chavista administration is slowly sinking, it is doing "patadas de ahogado", a semi-sweet Venezuelan expression about the desperate gestures that folks do when they are drowning. Thus for example, three weeks ago Chavez decided to nationalize the main private dairy company in Venezuela, Los Andes. After writing on the cement announced nationalization, I could not pass on this other take over. By the way, some of the pictures shown here are taken from my TV set last Thursday while Chavez commented on the Los Andes take over while announcing the cement industry take over.

The reason for such an extreme measure as taking over Los Andes might appear to be obvious to the casual observer: under a chronic shortage of milk and dairy products the government wants to ensure control of the main dairy producer to make sure that at least chavista voters get access to milk. This is the naked reason, if not officially stated. Inasmuch as the idea of dairy segregation is already repulsive, there is much more to this story than meet the eye. Readers will be glad to know that this blogger daily business activities have allowed him to get some inside information to this whole affair. Worry not, no names will given but I can assure that the few details next are either absolutely true or very close to the truth, as close as one can get to the truth in Venezuela these days where everything is thickly layered with obscure motives, and where people value anonymity above anything else.

Milk shortage

First, of course, we need to review the reasons for the milk shortage in Venezuela. Chavismo sycophancy tries to present this as an increase in purchasing power of the poor and huddled masses coupled to nasty capitalists speculating who in addition are incompetent at raising production fast enough to keep up with demand. The conjured image that comes from such a scenario should be of more and more happy cows dotting every corner of the Venezuelan landscape; but it fails to materialize when you travel around. Savvier chavistas prefer another argument for milk shortage. According to this school of thought the naughty Chinese increasing their consumption of dairy are creating a world shortage.

In a way both are right but quite wrong in that they do not go deep enough to really meet the true reason. What is going on is that years of farm demagogic seizures and failure to create stable cooperative or some other socialist mishmash is eventually taking a toll. True, purchasing power has increased and thus demand for dairy, but it is also true that production of milk still hovers around the 1998 level in spite of all the money thrown out at "socialist" producers. Not to mention that in ten years population also increased... If to this you add commodities prices all over the world increasing due to the large appetites of China and now India, well, no wonder there is a dairy shortage in Venezuela.

I do not know if you have ever worked in tropical farming conditions, but they are harder than in temperate countries, in particular if you want to hold cattle in stables to mechanize dairy production. Not to mention the needed investment in cooling devices whereas in Northern clime a good fan might do the job. In other words the required investment and the necessary work is not going to be undertaken by anyone who is not a guaranteed a fair return. If to this you add that at any time, for the flimsiest of excuses, the state can expropriate you without paying you the real value of your property, you can imagine that private investment in the sector has not been great over the past few years. Of course I will not discuss the public sector investment which has been considerable and seems to have evaporated into oblivion.

To this you can also add some inconveniencing situations, some not too big such as the locals stealing your prized dairy cows for some barbecue where half the animal is wasted anyway, to the kidnapping "industry" which has played true havoc with productivity as farm owners must spend as little time as possible at their farm in some areas of the country, areas which turn out to be the traditionally big milk producing areas. Dust it up with CADIVI controls and stupid price regulations and there you get it, the perfect milkless cocktail.

The real solution to alleviate milk shortage in Venezuela

There is a very simple way to bring back milk production in Venezuela to acceptable levels within perhaps half a decade (let's remember that you do not grow dairy cows in a few weeks by watering some seeds). The solution is to protect dairy farmers, their physical persona, their stables and the land they need to grow feedstuffs for the dry season period.


But that of course would mean challenging all the ideological economical polices of Chavez since 2000, something unacceptable, a potential Pandora Box for chavismo. No country has ever been able to create massive production of cattle, chicken, sheep, or other species under a state controlled system. It has never happened and it certainly will not happen in Venezuela were climate condition are rather unfavorable. I will point out that the hugely successful cooperatives in [Western] Europe were formed from peasants already owning their land and their cattle, never starting from zero as chavismo thinks it is possible to do with people coming from cities.

How not to solve the milk shortage problem

So chavismo took the very worst possible way: the nationalize the distribution circuit of milk, the only thing that still sort of worked for the bit of milk that was been produced.

The story of Los Andes

Los Andes was a rather small but growing dairy product concern in 2002. Then something happened: there was a national strike/lock out and the governor of Lara state, Luis Reyes, went to see the directors of growing Los Andes and convinced them (by conviction, force or bribery, does it matter?) not to follow the strike. They accepted and I remember clearly that in January 2003 only Los Andes products could be found on occasion. As I knew of this meeting a few days after it took place, I have been boycotting Los Andes ever since, unless of course, as it is often the case in Venezuela, there is nothing else to buy at a given store... boycotts are not easy things to do in Venezuela!

In all fairness their products are of good quality and contrary to Venezuelan taste they are not as sweet as their competition, which would please me, but I buy plain anyway as I love the tartness of yogurt. Thus, support from chavismo and good products allowed Los Andes to make a spectacular grow in the last 5 years. This has also been observed for those who sided by conviction or not with the regime, the "boliburguesia", the nouveau riche class of the revolution (you know, like the guys in jail in Miami, able to pass millions of dollars in bags here and there when in the 90ies they had a very modest life style).

But this is OK, I am not upset at Los Andes. Like many business they also owed it to their employees and they might have decided to go along, to protect their jobs, even if they did not like the ideas of Chavez; there is much more passivity than one might think... And contrary to other pro Chavez business, they did quality stuff at least, and it seems that at least they worked hard for their success, something questionable for some of boliburgueses close to power.

The Los Andes purchase

To many folks surprise Los Andes was speedily purchased to serve as propaganda fodder for an ailing revolution. That is right, to counter alleged speculation attacks Chavez bought the business that probably least speculated against the government during the last 5 years. But those subtleties are always lost on Chavez when he needs to put up a show: anything for a laugh. Along the way he risks ruining the image of Los Andes anyway, faster than what the quality will decrease now that it is state owned.

Because there is something that Chavez refuses to get: the lack of milk is not due to Los Andes speculation, or even to other dairy concerns such as Alpina or Parmalat. Price control makes very little milk available for fresh milk: cheese and other products which prices are not controlled get plenty of milk as under the table they are willing to pay higher price. Simply put, if you cannot sell your milk for a profit to the distributors of fresh milk, you will sell it to people who will give added value to your milk and share the profits with you. That is, you start making cheese or yogurt with your milk. And that is what most of the small farmers did and that is why the milk shortage eventually became so obvious while there was cheese everywhere to be found. Perhaps Los Andes was guilty of another crime according to chavismo: to buy milk at higher price than the fixed one and make it all into yogurt to compensate. Los Andes has long ago stopped producing milk in enough quantity but it never stopped producing yogurt. Though again in all fairness you were more likely to find Los Andes milk in San Felipe than Carabobo or Parmalat brands.

The information that I have obtained is that the sale of Los Andes was speedy. It seems to have taken less than two weeks from the time the owners were contacted by the government to the moment they received their first checks. Perceived as chavista sympathizers or at least neutral I was also told that they received part (or all?) of their payment in dollars, outside of Venezuela. And they received it at the official exchange rate from the local currency declared value, to sweeten the deal. The sum had three digits in millions and it might still be below the real value of the different processing pants and associated venues. However in the general decay of Venezuela productive tissue and increasing insecurity, even if they lost, say, 30% of the real value it was still a reasonable deal and they still have enough to retire outside of Venezuela.

Government lies

Of course, the indecent haste of the government was due to the pressing need that something be done to solve shortages problem. It is possible that the government will slowly but surely focus production toward fresh milk for the lower class areas, through PDVAL the latest invention to substitute a failing MERCAL. So poor areas might get, for a while at best, more milk. And the whole country will start experiencing a shortage of yogurts and other fresh dairy products as neither Alpina nor Carabobo will be able to increase their production fast enough as long as dairy farmers do not get better working conditions, better security, better revenues. The mid term consequences will be in the end an aggravation of shortages because as usual chavismo never attacks the root of the problem, preferring to settle for quick fixes that nicely allow for juicy commission. If you doubt that read Miguel post about somebody who made a cool 100 million dollars for a few weeks of work. Does any one doubt that in the financial transactions of Los Andes purchases someone did not get a "comisión" somewhere? And let's not start on all the governmental purchases without bidding that the new directors of Los Andes will be able to do... or what they can cash to supply to this Mercal instead of that Mercal.....

The propaganda blitz has of course started with this lovely add. But let me tell you about the different lies included in it and which have made any producer wince when reading.

Let's go line by line.

The first tow is a rather semi obscene word play to appeal to lower educated sections. And of course I pass on "A new socialist industry for the people". Whatever that means.

The only paragraph carries two lies, or at least outright manipulation. First Los Andes was not recuperated: it was working fine, thank you very much. Besides it had a track record of collaborating with the government. That the owners decided to take advantage of it for a best return is all OK, all very capitalistic if you ask me....

The next lie is the 37% of the market that Los Andes represent. According to FEDENAGA president, Los Andes can process at most between 10 and 15% of the total milk produced in Venezuela. Quite big already by the way.... This might be higher if we look only at milk processed for fresh milk production but it certainly does not represent 37% of the milk needed for Venezuela, probably not even half of that if you ask me. True, if you add failed Parmalat plants and what it claims it will get with the promised 12 Iranian dairy plants it might get close to that number. But where are the cows? Or is the government also going to force milk producers to sell to the government at a fixed price? In a few years form now, does 100% of nothing means anything?

And at the end, the silly slogan about winning against the "alimentary sabotage" is simply risible. After all, the real saboteur of milk production is the state which will not allow anyone to own a cow. Does any one care to search how much milk is produced by Cuban or North Korean farmers? Is the scarcity there due to world shortages? Last time I checked Colombia was busy exporting dairy to Venezuela, having surplus dairy products with a climate similar to Venezuela....

So there we go, another pathetic case of "if it ain't broke, don't fix it". I have already been suffering for the lack of milk (yes, suffering because milk has always been a major staple of my diet, as I do not eat red meat). Now, yogurt an even more essential staple of my diet will soon become scarce. And let's not start worrying about how much this adventure will cost the country, in addition to CANTV, EDC and now the cement industry.

-The end-

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