Venezuela Faces Food Shortages
Summary
Analysis
According to the Venezuelan
Central Bank, the overall scarcity index in Venezuela -- which relies on
regular checks of store shelves to document when stores run out of basic goods,
such as corn flour and cooking oil -- was reportedly 16.3 percent in December
2012. The actual scarcity index in December 2012 may have been as high as 20
percent, according to statements by the chief of Datanalysis, a reputable but
opposition-oriented economic analysis firm. The average rate of scarcity
between 2007 and 2014 was 14.2 percent. The worst scarcities were recorded in
January 2008, when the scarcity index registered 24.7 percent. For comparison,
during the period before Chavez's rule, from 1994 to 1999 the scarcity index
averaged 4.34 percent.
Traffic disruptions may be
responsible for some of the recent shortages. According to transportation
groups, potholes in roads and other infrastructure deterioration have
lengthened the amount of time it takes to transport goods to the degree that
what had previously been one-day trips now take two or three. These traffic
problems have been exacerbated by a decree in October that barred heavy
trucking on holidays (including around the elections) and on weekends. The
decree has been lifted, so this aspect may begin to improve. Public holidays
may also have led to decreased production at state companies responsible for
food products.
However, these logistical
challenges are not likely to provide a full explanation for the shortages. For
one thing, shortages have primarily affected the products that have the
strongest price controls, like chicken, milk, sugar, flour and cooking oils. A
few factors contribute to these shortages. First, stores may not be able to
afford to sell at regulated prices if input costs experience inflationary
pressure, which would increase
costs for the store. Indeed, according to Venezuela's Central Bank, the price
of agricultural products in Venezuela rose 35 percent in 2012, and farmers
report that transportation and fertilizer costs have increased and can be
difficult to secure. Rising input costs for price-controlled goods reduce
profit margins, which could force producers to go out of business. Shortages
caused by this process will prod the government to raise fixed prices once
again, but continued inflationary pressure will shrink profit margins on goods
even with the new price.
The second factor
contributing to shortages is that people likely are moving goods out of the
government-regulated market into black-market
sales to get a better price.
Though it is difficult to verify the degree to which this is occurring, the
government has accused people of hoarding food to manipulate the market. Two
such incidents have occurred in the past several days, including the seizure of
900 metric tons of powdered milk, announced by Venezuela's Bolivarian National
Guard on Jan. 11. In an earlier case, Venezuelan officials arrested four
employees of transportation/logistics firm TBC in the El Soco Industrial Zone
in La Victoria, Aragua state, on charges of hoarding about 8,900 metric tons of
refined sugar. TBC and PepsiCo Inc. protested the move, claiming that the sugar
was legally imported in accordance with the processes of the Central Bank for
the purpose of making soda. In total, the government claims to have confiscated
46 metric tons of foodstuffs in recent weeks that were stored for more than a
week.
Scarcities are exacerbated
by an active black market, particularly on Venezuela's border. The controlled
prices in Venezuela are as low as one-third of the price of basic staples in
Colombia. As a result, Colombians living along the border with Venezuela travel
frequently over the border to buy cheaper -- and in many cases subsidized --
goods. This has long been true for gasoline, which is sold at far below the
cost of production throughout Venezuela. It is also true for basic foodstuffs,
and the additional demand cannot help but place additional strain on supplies.
To the extent that Venezuelan producers are government-subsidized, this is also
a drain on public resources. Nevertheless, cross-border purchases have a
limited impact. The border of Venezuela and Colombia is lightly populated, and
the bulk of the populations in both countries live farther into the interior.
This physical distance and the difficulties associated with traveling in the
Colombian countryside naturally limit the black- and grey-market exchanges
between Colombia and Venezuela.
Perhaps the biggest
challenges, and those most likely to affect Venezuela's economic stability in
the long term, are issues associated with the country's import-export systems
and the availability of hard currencies to the private sector. The application
process for importing anything into Venezuela is inefficient, and companies
frequently report delays in processing that disrupt commerce. In the final
quarter of 2012, delays in licensing caused three bulk maritime shipments of
wheat to sit at the dock in Puerto Cabello, resulting in wheat shortages,
according to a report from Venezuelan newspaper El Universal. This is a case
where, like in the hoarding instances mentioned above, the long-term storage of
foodstuffs can flood the market once released. In some cases, food spoils
because of these delays.
Imports are also limited by
dollar availability, which is strictly controlled by the branch of the
Venezuelan Central Bank that controls currency exchange. The Central Bank must
be careful about its allocation of dollar reserves, since the bank is also
responsible for financing a range of government activities, from transferring
bulk funds to government slush funds like Fonden, or directly financing
struggling state-owned industries.
Because the unofficial
value of Venezuela's currency, the bolivar, has fallen to near 20 bolivares per
U.S. dollar over the past two months and the Central Bank needs to hold the
official exchange rate around 4-to-1, there is huge pressure on the Central
Bank to devalue the official rate of the bolivar. Doing so would also relieve
pressure on Venezuela's $29 billion in foreign exchange reserves, which would
immediately cause inflation, forcing the Venezuelan population to accept a
lower purchasing power for imports of consumable goods. This would surely have
negative political consequences, but it would not be the first time Venezuela has
had to devalue its currency. The government can be expected to react in other
ways as well. Seizures of productive facilities cannot be ruled out, and the
government may attempt to exert greater control over imports, as it has
attempted to do previously.
Ultimately, as long as oil prices are high, Venezuela's macroeconomic
picture will remain relatively stable. The political
management of oil flows
and the management of an increasingly state-dominated economy will be the test
for a post-Chavez government. Changes such as exchange rate shifts that were
made under Chavez's leadership may be more difficult without him present. From
Vice President Nicolas Maduro's perspective, these difficult economic choices
add to concerns about an erosion of support from the Venezuelan armed forces,
government and populace. Chavez commanded the loyalty of all these groups, but
a new government not led by the ailing Venezuelan president may lose public
confidence if the economy continues to deteriorate.
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