Monday, October 04, 2010

Agroisleña is seized in Venezuela: the first real Communist measure of Chavez

With the announced take over of Agroisleña by the state, Hugo Chavez has made his first real communist "economic" move.  You might wince at this but bear with me a little bit longer.

The first thing to note is that all previous economic measures that the regime had taken were punctual, taking great care to pretend that private property was respected up to a point and pretending that expropriations were necessary, were designed for the betterment of the economic apparatus and, well, the owners would be duly compensated.  For example the attacks so far against the Polar group are to relieve it from some of its assets so housing can be built there.  Farms are taken over, we are told, because they were either too big or unproductive.  That the facts matched the tales was made in part irrelevant because, well, next door farm was left alone as if nothing.  Even PDVSA which is advertised as being "nationalized in 2003" by Chavez followers was not since it belonged to the state for already three decades and the only thing that happened there was a change in management to make plundering easier.

With the seizure of Agroisleña a new threshold has been crossed.  With this move Chavez has decided to take control of the agricultural sector by becoming its biggest player, by more than 50%.  To do bigger than Agroisleña you need to seize Polar altogether, which is of course the last step for Chavez, the end of the road in many ways.  The aim of Chavez is not anymore to control a portion of a given sector: his aim this time around is to control the whole agricultural apparatus.  If the Agrosileña take over is carried out, it will make it inevitable that within a year at most Chavez also takes over Polar, and other concerns depending on grain availability, like Proagro or Plumrose whose animal feed plants depend on grain supply.

There are two aspects of the Agroisleña business that interest the regime, regardless of the consequences of such a mad action.

Agroisleña controls about a third of the country grain storage capacity.  The state already controls directly or indirectly somewhat more than 40% of that capacity.  The rest is Polar and a few private ones.  By controlling now directly and decisively more than 50% of the grain storage capacity of the nation, maybe 2/3,  Chavez simply decides who can store the grain with him, what price to pay for it and when to pay his bills.  You can imagine immediately that a regime out of cash, drowning in incompetence and debt, cornered by inflation, rotten from the inside by corruption is not the best partner you may want to trust your harvest with.  The consequences are simple: production of grain will keep going down and to compensate for it the regime will have to take over private silo operators like Polar.  The economic logic is implacable on this matter.

But the damage to the agricultural apparatus will not stop there, even though this is enough to bring us to Cuban production levels and controlled starvation quality.  Agroisleña is also the main agricultural supply distributor of the country. As such it has a network of stores in all rural areas, franchise like but with less independence, were it provides a wide array of products from pesticides, to fertilizer, anti fungi, tools, machinery, etc...  That Agroisleña has reached maybe 70% of the market is not only due to its savvy: 11 years of chavismo, 7 of currency control exchange has allowed only the big ones to survive as slowly but surely the middle sized business closed one after the other, unable to face the costs imposed on production by Chavez mismanagement of the country.  Those in business today are specialty agricultural stores, in front of the more "generic" feel of Agroisleña which cannot be bothered with special requirements.

And yet over the last years I have observed that Agroisleña has been closing a few stores, a witness that the Chavez agricultural policies are also lowering the potential clients and thus diminish the sales of Agroisleña, and certainly its returns.  Still, not only it was the main one around and in addition as Veneconomia tells us today, it was an important source of small credit to farmers, finding it much easier to work out a payment plan with Agroisleña than going to the bank to process a credit.  All of these business relations, based on trust and experience over decades will simply come crashing down once the state takes charge.

The role of Agroisleña in the agricultural well being of the country is so crucial that today the banking community had an emergence meeting to analyze the consequences!  I mean, not even 24 hours after and the main banks of Venezuela gather in a huff!  The reason is simple: by law banks are required to lend a certain percentages of their funds to agribusiness.  With the decay of the agricultural sector banks have had a harder time at meeting those quotas and with Agroisleña gone, it will simply be impossible to offer mandatory loans as people like Polar already have their own self financing structure.  Banks need guarantees to offer you a loan and under Chavez the alleged beneficiaries of the seized lands are not the owners of those lands, cannot offer collateral for a loan and must depend on the state for their credits.  Hence the reason why agricultural production had been going down as the state is incapable of organizing its credit system toward productive goals.

But that of course has stopped being of concern for a regime who feels that in 2012 it can effectively be ousted through the ballot.  The need to control is urgent and the Agroisleña network of stores and small clients is priceless.  The regime failed at Mercal and PDVAL and thus did the next best thing: seize the EXITO and CADA food distribution chains trying to keep the French foreign management for as long as possible, or at least until 2012, to try to pretend that the government is able to run grocery stores, as we are reminded everyday in the ads "hecho en socialismo".  With Agroisleña it is the same story as attempts by the regime to create an agricultural supply distribution system have failed even faster than what Mercal did.  Those things only work when you have the expertise and the will to help, educate, counsel, serve your clients.  And ignoramus freshly graduated from the chavista "university" Universidad Bolivariana or Mision Sucre unfortunately has none of the above qualities even if the best good will might exist.  Through Agroisleña the regime has one more tool to distribute blackmail and rewards so as to retain its hold on the country.

But trust me on that one: the regime is absolutely unable to manage something of the complexity of Agroisleña.  By late 2011 at the latest we will feel the consequences.  The regime is past that.  As of September electoral defeat of two Sundays ago, the 2012 campaign has started and Chavez is going to control all the economic apparatus of the country to hold everyone in tenured bondage and create the image that without him chaos is in store.  Not to mention that without private enterprise the opposition cannot fund a presidential campaign.

Exactly what commie regimes created.

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PS: if you can read Spanish, Agroisleña has emitted a communique rejecting any expropriation.

Just as it happened for Polar, Agroisleña workers do not want to be part of the state labor force.

13 comments:

  1. Anonymous8:19 PM

    Interesting coincidence?

    Presidente Chávez plantea exportar el arte de la arepa y la harina de maíz criolla

    Luego de entrar en una cocina brasileña y ver como un grupo de mujeres confeccionaban arepas con la harina de maíz venezolana, el presidente de la República, Hugo Chávez, tuvo la idea que este sábado emitió en consejo de ministros. “Podemos convertirnos en exportadores de la harina precocida, y del arte culinario de la arepa y llenar de felicidad a este mundo, expresó, y de inmediato lanzó: !Bombardeo de arepa!, hasta a los yanquis los podemos bombardear con la arepa”. Destacó que este plato típico venezolano es totalmente desconocido en países cercanos como Trinidad y Tobago, Brasil, Dominica, Puerto Rico, República Dominicana.
    http://informe21.com/hugo-chavez-frias/presidente-chavez-plantea-exportar-arte-arepa-harina-maiz-criolla

    ReplyDelete
  2. Boludo Tejano8:19 PM

    But trust me on that one: the regime is absolutely unable to manage something of the complexity of Agroisleña.

    I don't think we need a suspension of disbelief to sign off on that. In the last 6 months or so there was a video of a Polar non-professional employee stating that all government takeovers had ruined companies. The message has gotten out. Even Joe Sixpack realizes it.

    I will trust you on that before I would trust my bet on the Pats game tonight.

    ReplyDelete
  3. Anonymous9:40 PM

    The dire consequences of this move can not be exaggerated. Thousands of farmers here are now in a limbo, not knowing what will happen next but expecting the worst. This will only accelerate shortages of foodstuffs, especially veggies especially towards the end of the year and quite noticeably next year. This is a huge disaster for the nation´s farming community and for all of us.

    ReplyDelete
  4. 1979 Boat People10:33 PM

    Chavez&commie regimes do not care whether they can manage a business or not.

    Their main job is not successfully running a business but stealing. Trust me, they are very good at it.

    ReplyDelete
  5. More commissions for importing rotten food is all I see from this. It would be nice to know where it all comes from. That's not communism that's corruption! Communism is what Chavez dreams of, hungry Venezuelans marching to the fields, like on some old Soviet propaganda poster. Not much chance of that. Meanwhile Brazil is building economic power by investing profits from agribusiness to fuel world class hi tech industry. Makes you wonder what are all the game plans and by what actors.

    ReplyDelete
  6. Thanks for the details, Daniel.

    Anonymous,
    I get my Harina Pan from Colombia's POLAR. China is not becoming a major power through export of Chinese noodles. Hugo is completely deranged.

    ReplyDelete
  7. Anonymous11:00 AM

    Kepler, I fully agree the plan to grow the Venezuelan economy by exporting corn flour is crazy. However, if this is what Hugo is planning, it partly explains the takeover of Agroisleña's silos and fortells the prompt takeover of Polar.

    ReplyDelete
  8. Anonymous11:56 AM

    Does Hugo want to import ALL the food into Venezuela? hasn't anyone seen what happens when the government controls all food production / distribution?

    Oh you've returned Kepler... where the hell were you election week? ;)

    marc in calgary

    ReplyDelete
  9. As a Ph.D. agricultural economist for 30 years with an emphasis on finance, I can say unequivocally that Chavez takeover of major farm supply companies will destroy what little is left of agricultural production in Venezuela. Short-term loans from farm supply businesses are critical for most small farms in the U.S. Chavez will never be able to replace these companies even if he steals their assets.
    Chavez military buddies that will be put in charge most likely have little knowledge of farm operation management. Chavez will not be a reliable supplier of seeds, equipment, feed, medicines, fertilizers, pesticides, fencing, etc. Farmers will not be able to choose what they believe is the best set of inputs. Will loans only go to Chavista farmers? From now on farmers will grow what Chavez tells them by the methods that Chavez tells them. Castro destroyed Cuban agriculture by dictating what crops will be grown. Venezuela is next.

    I pray that the people of Venezuela will not starve because Chavez calls profit-making companies greedy and is replacing them will highly-inefficient corrupt unresponsive government run companies. When needed, the imperialist American farmers are ready to supply food to Venezuela.

    ReplyDelete
  10. Impartial9:53 PM

    I guess Venezuela needs to get a copy of the infamous "Oil for food" program that Iraq ran for many years.

    ReplyDelete
  11. RWG

    And certainly what Brazilian and Argentina farmers are looking for....

    Unfortunately oil income is not going up any time soon to pay them....

    ReplyDelete
  12. Anonymous10:32 AM

    the arepa fad came and went in Santo Domingo, DR. Most of the arepa joints closed. Dominicans prefer hotdogs, hamburgers, shaved pork sandwiches for that type of quick bite/late night dining. Even wraps are more popular. The arepa has failed at crossing over in Miami... you can find the corn flour everywhere though.

    ReplyDelete
  13. I have my Harina Pan here and it comes from Colombia. Hugo Chávez is just a clueless military.

    ReplyDelete

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