Wednesday, May 08, 2013

Maduro is looking for food.... A primer on food crisis in Venezuela

I am not making this up: Maduro, the pseudo-president of Venezuela has justified his trip to Uruguay with this excuse among others:
Parte clave de la gira que yo arranco mañana (...) es para garantizar fortalecer nuevamente la reserva alimentaria de productos básicos de nuestro país a tres meses"
A key part of the tour I am starting tomorrow (...) is to guarantee to strengthen [sic] again the food reserve of basic products of our country for three months. (I am sorry, I cannot translate it any better, the guy cannot speak properly).
So many things wrong already there, not to mention that he also accused the private agricultural sector of hoarding and sabotaging the transition to socialism. Thus I suppose that I need to write a primer on food shortages in Venezuela as the one I did a few days ago for media.

Is the food crisis real? Yes, we do not produce enough to feed half of the population and there is no sign of the crisis being resolved.

Why can't Venezuela produce enough food when its neighbors, Colombia, Brazil and Guyana, with similar climates and soils produce enough to export to Venezuela? The dependence on oil has induced ALL governments of Venezuela, since at least 1958, to consider agriculture as a secondary issue, only used for political purposes. Price controls, subsidies and quotas have been all invented BEFORE 1999. Chavismo merely exacerbated the situation through excessive use of these control tools combined with its chronic incompetence and its insatiable corruption. Without forgetting that chavismo got more money than all previous governments since 1958 combined to spend on food imports.

Why are chavismo controls on agriculture excessive? I will give you a simple example. Any person producing supplies that are directly included in any form of food, from livestock feed to a jar of margarine in your refrigerator needs to declare its production and where that one is sent. I know that because I have to fill such forms weekly. It works this way: through Internet I must declare everything, from the nature of the load to the specific ID of the driver and truck. Not forgetting the date at which the transport HAS to take place. Then the government will decide whether to approve that shipment. When it is raw materials it is usually approved without a hitch but when it is food for human consumption sometimes you are refused to serve a given district because for some unexplained reason the government considers it as already served in full and demands you to send it elsewhere. Like this complex procedure, prone to errors, I can list a score more of such regulations that do not exist in free market countries where store shelves cringe under the weight of goods.

Is hoarding a reality in Venezuela? Hoarding is a reality in ANY economy of the world, but it only happens with items of high value, small volumes, and usually under special economic circumstances. Hoarding almost never happens with commodities because not only the margin of profit there is not worth the trouble,  but also their sheer volume makes its difficult to accomplish (except, note, for cartels like OPEC which hoards its oil under ground as it pleases). And hoarding never happens with perishables unless your war economy market ensures that customers will eat rotten food. Simply said, in a global economy hoarding is difficult, does not bring high dividends and can result in you losing your market share. Venezuela does not escape from these general considerations. Even if people were trying to hoard stuff you can realize yourself that with the controls I described above, hoarding can only be successful if the people in charge of the controls are cooperating with you for kickbacks. For all practical purpose, hoarding can take place in Venezuela only at the level of local groceries, not at the level of production facilities as the regime would like you to believe.

Why the regime uses the hoarding card again and again? In an exacerbated populist regime that goes from one economic error to another one, accusing the private sector is a good way to use the ignorance of the masses to focus the blame elsewhere. The fact of the matter is that it has been years since anyone got a solid sentence for any case of hoarding even if the regime was prompt in sending them to jail for a few days based on a superficial inspection of production and storage facilities.  When details come clear, once the regime journalists shut up and the producer can finally speak, we discover that any "hoarder" that was inspected never had much in store, at most a week of inventories which is below what any serious business has in serious countries under normal conditions. But certainly, the picture of a week inventory of a depot in Valencia makes for a nice political picture for people who think the shelves content in local bodega is "a lot".

Surely the renewed accusation of Maduro about hoarding cannot be the whole story as to him looking for food in tiny Uruguay? Certainly not. Maduro is paying for 14 years of agricultural mismanagement that started as soon as Chavez assumed office. By 2000-2001 expropriations of productive lands started with the expected consequences. The regime, for all its efforts, cannot show an expropriated property that produces MORE than what it produced before expropriation. When Agroisleña, the main agricultural supplier, was expropriated in 2010, it created a void that has not been filled and that has hit productivity hard. And to lower confidence of the agricultural sector, Ivan Gil, who has failed at the head of Agroisleña/Agropatria is now the new sector minister.

Can we blame expropriation alone? No, even if in my opinion expropriation are the main cause of the agricultural failure of the regime, at least psychologically, there are other reasons that weigh heavily.  Currency exchange controls have been a major problem because the deficit in currency to import supplies has created havoc with production plans. As a consequence, import deficiencies and minimum investment by the private producers still at work has created an agricultural sector at least a technological decade behind other agricultural giants like Brazil in Mercosur. One pathetic example is how Venezuela was still producing enough coffee in 1999 for its consumption and now has to import half of what it needs while coffee plantations are increasingly abandoned. Even Yvan Gil has been forced into recognizing the critical state of that sector! A sector unable to compete today with international standards of quality and yields.... while the regime happily props Nicaragua by buying all of its low quality coffee.

Surely, with such scarcity those who are still working must be minting coins? Of course not. The most pernicious governmental action is the preservation over a decade now of price controls which are not adjusted according to inflation to preserve at least a balance. Subsidies also are not enough when inflation goes faster than any subsidy adjustment. Apparently the chavista bureaucrats in Caracas, from their AC offices, since they know better what the price of the crops should be than the guys in the field, fighting back insects, sun and heat. The political necessity of slowing down inflation (which has failed miserably) has made the government to force producer to sell below cost certain goods. How can the regime expect people to work hard, to invest in technology to increase productivity when they cannot be rewarded, or pay for technology and supplies?

So, in the end, what is the truth about production?  Impossible to say. Ivan Gil has the gumption to state that Venezuela produces more than in 1999 when Fedeagro says we are 30% down in recent years. The truth is that it is impossible to know exactly what is truly produced in Venezuela. The regime statistics cannot be audited (like the electoral numbers!). In addition, there are numerous reports of the regime importing stuff and labeling it Hecho en Venezuela. I personally know about imported raw sugar, finished to white here and thus claimed to be fully produced in Venezuela. Also, live cattle arriving at Puerto Cabello to be slaughtered in Venezuela leaves as carcasses Hecho en Venezuela. On the other hand Fedeagro has only access to what private producers tell them so they may be more negative than necessary. In short, for the last half decade it is impossible to know how bad the agricultural sector numbers are.

The crude reality. Agricultural production in Venezuela cannot properly grow for a variety of reasons that the regime is unwilling to tackle for political reasons and for corruption. In addition to adverse conditions (deficient road infrastructure, difficultly to find supplies, unruly workers no matter how much you pay them, if you can find them, problems with electricity supply, questioned property rights) the courageous producer has to face costs that do not exist in other countries (personal insecurity, unyielding bureaucracy, inflation now three years in a row above 20%) without the means to counter these costs and conditions (price control, interdiction to export any food item out of Venezuela). The only thing that has allowed some agricultural production to remain alive is that banks are forced to loan at preferential interests a portion of their portfolio to agribusiness  Those loans whose interest rates are below inflation are the last life line left for the country side. And they benefit much more the larger concerns than the small producers which are squeezed out of the field inexorably.


  1. Excellent analysis Daniel. Thanks

  2. Milonga12:26 AM

    How are you going to exchange oil for food and buy sympathies if you produce the food yourself?

  3. Boludo Tejano12:29 AM

    Another good primer on Venezuela for the furriner- or for the paisan,for that matter.Bullet points with brief explanation. Concise and to the point; doesn't get bogged down in trivia.

    Factoid: Googling Stalin hoarding got 7.94 million hits. Which is not to call Chavismo Stalinist, but to point out the hoarding meme has a long and disgraceful history.

  4. Nebelwald1:40 AM

    Ivan Gil was head of Venezuela´s state agricultural research institute, INIA before looting Agroisleña. The totally destroyed it as a research institute. Many researchers were forced to resign as they were assigned unrelated tasks to their expertise, or put under the supervision of admin - maintenance staff. Forced attendance to political rallies, forced community labor such as digging ditches. Party diehards could make you lose your work just by being denounced for anything not in line. Poor management, party politics, and corruption wasted untold resources, not just material but human. The Maracay INIA is so razed that they do not have a working tractor at present. Reference collections of pest insects and insect pathogens lost, and off limits for UCV researchers. Ivan Gil, according to local gossip has material wealth surprising to those that knew him before he embarked on his adventures with the government. He used to be a professor at the UCV where I work.

    1. Thank you for this comment.

      This is one the real purposes of a blog like the one I write: to give a chance to people like you to report on what no one reports elsewhere.

      I personally know that what you wrote is true but it is better that someone else writes it.

    2. Thank you both for this account and confirmation with an obvious "truthiness" between the lines.

    3. As a retired scientist from a government funded research insitute in a country with an agricultural based economy (New Zealand) I was utterly appalled by this account. If we were follow a similar path, the country would be bankrupt within a couple of years.
      The research that supports our agri industry is the only thing that gives our products a competitive edge overseas and maintains quality internally.

      Your government have a nation to feed and they allow a key function in the food chain to be destroyed. How many Venezuelans know the scenario Nobelwald describes?
      Are there NO checks s there no one in Venezuela who can get these mad men under control?

    4. Anonymous3:36 PM

      Ross, Vzla is like a twilight zone episode where absurd controls reality. The crazy thing is that is is supossed to be a democracy but the parameters have been set in a way that the few people in control manage the riches of the country as their own checkbook. Vzla is governed today by a group of thugs whose sole purpose is to steal as much money as possible, their goals are not to govern the country for the benefit of every citizen but to govern the country for their own personal benefit. I think its hard for people from civilized countries to believe that there could be so much corruption and lack of competency in other parts of the world but I am here to tell you is true. Sadly.....

    5. Anonymous4:12 AM

      Perfecto analisis, buena herramienta para describir a gente otros paises, el terror que vive nuestra Venezuela.

  5. Anonymous6:52 AM

    Muy buen analisis. Seguro hay crisis alimentaria, no hay nada de harina de maiz, (pan de los venezolanos)se debe hacer dos o tres mercados para conseguir pollo, la leche es de mala calidad no se sabe de donde viene, no hay leche entera, no hay mantequilla y paro de contar que la lista es demasiado larga. La Maga Lee

  6. A great piece in the New York Review of Books by Alma Guillermoprieto.

  7. Anonymous2:51 PM

    Excellent post, just like the one to educate the media.
    Do you believe a REAL shortage when nothing is on Supermarket shelfs (a la Cuba) could happen and lead to rationing cards?
    How about people who can afford it "hoarding" food at home, say 3 months or more supply of non-perishable foods? Or perishable in freezers, having back-up generators to avoid spoilage in case of a black-out? Does it contribute in a significant manner to shortages? I would think it does, at least sporadically...

  8. "unruly workers no matter how much you pay them, if you can find them"

    This sounds like the most difficult problem to be solved to me.I wonder why this is so?


    1. Anonymous3:58 PM

      Because so many are on the government's payroll, making more than in private industry and basically have to do nothing but hailing Chavismo. And many of those employed work when and as much as they want. They know they can't get fired.

    2. Thanks Mike for the explanation.This could prove very hard to tackle in a future opposition government I think.


    3. Anonymous4:24 PM

      It might resolve itself as the government runs out of money to pay these parasites.

    4. Michel Garcia1:12 AM

      Also, it's really hard to fire people; by law, people can only be fired under very strict circumstances (inamovilidad laboral), but most people (employers and employees alike) think people can't be fired under ANY circumstance.

  9. Ronaldo3:55 PM

    Daniel, Thanks for the very precise and thorough economic analysis. Government intervention in Venezuela has destroyed production. El Pueblo is more dependent than ever on government handouts.

    Top level Chavistas have no concerns about finding food. Malnourishment is not their problem. Cabello, Maduro, and even Chavez do have excess weight issues.

  10. "The Pseudo President" is a fair but soft term, I would like a term that reflects a litle more caustically the fact that he robed the elections and has taken over the country. Anything that has "president" in it when referring to maduro, turns my stomach.

    After you have described the conditions under which business people like you have to operate. including todays post, but also about the devaluation, how they charge to exchange, the crime level, the price controls, etc, etc.

    I got to wonder how long can you (or will be worth for you) to stay in business and not just you but the other businees people. As they say here "what's in it for you?"

    I believe at one poing the meager profit (if any) can not justify staying. How long can honest business operate at a loss before giving up?

    how can anybody make a profit in this environment?

    How much breathing room do you have? have you reached your breakeven point? what is keeping you there?


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