Venezuela agribusiness report q2 2014

Q2 2014
www.businessmonitor.com

VENEZUELA
AGRIBUSINESS REPORT
INCLUDES 5-YEAR FORECASTS TO 2018

ISSN 2040-0497
Published by:Business Monitor International


Venezuela Agribusiness Report Q2
2014
INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: March 2014

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Venezuela Agribusiness Report Q2 2014

CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................. 10
Agribusiness ........................................................................................................................................... 10
Business Environment .............................................................................................................................. 12

Industry Forecast .............................................................................................................. 13

Livestock Outlook .................................................................................................................................... 13
Table: Venezuela Beef & Veal Production & Consumption, 2013-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table: Venezuela Pork Production & Consumption, 2013-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table: Venezuela Poultry Production & Consumption, 2013-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table: Venezuela Beef & Veal Production & Consumption, 2008-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Venezuela Pork Production & Consumption, 2008-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Venezuela Poultry Production & Consumption, 2008-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Grains Outlook ....................................................................................................................................... 19
Table: Venezuela Corn Production & Consumption, 2013-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table: Venezuela Wheat Consumption, 2013-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table: Venezuela Corn Production & Consumption, 2008-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table: Venezuela Wheat Production & Consumption, 2008-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Coffee Outlook ........................................................................................................................................ 28
Table: Venezuela Coffee Production & Consumption, 2013-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table: Venezuela Coffee Production & Consumption, 2008-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Commodity Strategy ......................................................................................................... 35
Monthly Grains Update ............................................................................................................................ 35
Table: Select Commodities - Performance & Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Table: BMI Commodities Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Monthly Softs Update ............................................................................................................................... 45
Table: Select Commodities - Performance & BMI Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Table: BMI Commodities Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Upstream Analysis ............................................................................................................ 54
Americas Machinery Outlook ..................................................................................................................... 54
Americas GM Outlook .............................................................................................................................. 60

Americas Fertiliser Outlook ....................................................................................................................... 65

Downstream Analysis ....................................................................................................... 71
Food ..................................................................................................................................................... 71
Food Consumption ................................................................................................................................. 71
Table: Food Consumption Indicators - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Canned and Prepared Food ..................................................................................................................... 72
Table: Canned Food Volume/Value Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Fish ..................................................................................................................................................... 73

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Table: Fish Volume Sales, Production & Trade - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Oils & Fats ........................................................................................................................................... 74
Table: Oils & Fats Volume Sales, Production & Trade - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Confectionery ........................................................................................................................................ 76
Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Mass Grocery Retail ................................................................................................................................ 78
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Table: Sales Breakdown By Retail Format Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Drink .................................................................................................................................................... 80
Alcoholic Drinks .................................................................................................................................... 80
Table: Alcoholic Drinks Volume/Value Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Soft Drinks ............................................................................................................................................ 81
Table: Soft Drinks Value Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Hot Drinks ............................................................................................................................................ 82
Table: Hot Drinks Value Sales - Historical Data & Forecasts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Regional Overview ............................................................................................................ 84
Competitive Landscape .................................................................................................... 90
Table: Venezuela Agribusiness Competitive Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Demographic Forecast ..................................................................................................... 91
Table: Venezuela's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Table: Venezuela's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Table: Venezuela's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Table: Venezuela's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Methodology ...................................................................................................................... 95
Industry Forecast Methodology ................................................................................................................ 95
Sector-Specific Methodology .................................................................................................................... 96

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Venezuela Agribusiness Report Q2 2014

BMI Industry View
BMI View: The victory of Nicolás Maduro of the ruling Partido Socialista Unido de Venezuela in April will
most probably ensure the continuity of many of the interventionist policies of Chávez's era. Price fixing in
particular continues to be a source of woe for producers unable to meet input costs, which are soaring in
line with some of the highest rates of inflation in the world. Some respite has arrived in the form of a 20%
rise in the government-fixed price of food items including beef, chicken and dairy products, but even this
will fall short of the rate of inflation, which is expected to increase 30% year-on-year in 2013. Inflation is
also contributing to the diminishing purchasing power of Venezuelan households, while foreign currency
shortages after a pre-election spending boom are causing shortages of some imported goods.

Tough Years Ahead
Venezuela - BMI Agribusiness Market Value By Commodity (As % of total)

Source: BMI

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Venezuela Agribusiness Report Q2 2014

Key Forecasts
■

Corn consumption growth to 2018: 17.4% to 4.28mn tonnes. Consumers hit by economic turmoil will
turn to the cheapest staple food, more than compensating for reduced demand from the livestock sector.

■

Coffee production growth to 2017/18: 35.6% to 990,000 60kg bags. The hike in government prices and
increased investment in small farms will see some recovery in supply.

■

Beef production growth to 2017/18: 3.5% to 367,500 tonnes. High input costs, cheaper Mercosur
competitors and reduced domestic demand will stymie growth.

■

BMI universe agribusiness market value: US$3.70bn in 2014 (up 0.3% from US$3.69bn in 2013; forecast
to grow annually by 5.8% on average from 2014 to 2018).

■

2014 real GDP growth: 1.2% (up from 0.8% in 2013; forecast to grow annually by 2.6% on average
between 2014 and 2018).

■

2014 consumer price index: 50.0% year-on-year (y-o-y) (up from 44.8% in 2013; forecast to grow
annually by 31.3% on average between 2014 and 2018).

Industry Developments

While public unrest in Venezuela is on the rise, we do not believe that the recent large-scale protests staged
by student and political opposition groups present an existential threat to the administration of President
Nicolás Maduro. The protests are unlikely to do damage to the PSUV government in the near term, given

that the party's supporters, not to mention the military, have not lost faith in the Maduro administration.
However, over the longer term this is not guaranteed to remain the case, and we could see the political
situation deteriorate if the government does not do enough to address soaring inflation and worsening
shortages which affect all segments of society.

Growth in Venezuela will continue to be constrained in 2014, as soaring inflation impacts household
purchasing power, oil production stagnates, and private sector investment remains wary of a hostile
operating environment. We are forecasting real GDP growth of 1.5% in 2014, down from 2.0% estimated
for 2013.

Venezuela is experiencing declining export revenues, accelerating inflation and widespread shortages of
basic consumer goods. Empresas Polar, Venezuela's largest privately held company, said in January
2014 that food production is at risk from record delays in the release of foreign currency by the government,
fuelling shortages of goods such as rice and milk. The government stopped publishing scarcity statistics in
November 2013, after the previous month's data showed about one in five basic goods was out of stock at
any given time. The agriculture sector is also being hit, as low availability of inputs and decreasing

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Venezuela Agribusiness Report Q2 2014

investment hurt crop production. As a result, Venezuela is recording declining agricultural exports and is
steadily increasing its imports.

Venezuela is likely to record another disappointing year for corn production in 2013/14. Low
availability of foreign currency and therefore limited possibility to import agricultural inputs has
impeded corn production growth. As a result of stagnant production and steady food and feed

demand, grains imports are likely to come in strong this year. Corn and wheat imports continue to
face severe delays and problems, mainly due to the long waiting time for the approval of foreign
currency and import permits. However, imports of grains should continue to receive preferential
treatment to expedite the import of basic consumer goods and to maintain the livestock industry.

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Venezuela Agribusiness Report Q2 2014

SWOT
Agribusiness
SWOT Analysis

Strengths

■

Venezuela's tropical climate enables production of a diverse range of agricultural
products.

■

Venezuelan cocoa and coffee are known for their high quality. Cocoa especially is
sought after by producers of premium chocolate.

Weaknesses

■

Despite having large areas of fertile arable land, lack of investment in agriculture has
left Venezuela a major food importer.

■

High food price inflation and frequent supply shortages have dampened growth in
food consumption.

■

Price controls in place since 2003 squeeze the profits of producers and are a
disincentive to investing in increasing production.

Opportunities

■

The government has shown interest in revitalising coffee and cocoa production after
years of decline.

■

The government has introduced a number of programmes, including financing and
subsidies, to help smallholders increase production.

■

Falling oil revenue is bringing more attention to increasing agricultural production to

reduce the cost of food imports.

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Venezuela Agribusiness Report Q2 2014

SWOT Analysis - Continued

Threats

■

The threat of land seizures and nationalisation inhibits investment in agriculture in
Venezuela.

■

Falls in oil prices will severely limit the amount of money the government will be able
to spend.

■

Uncertainty over the country's political and economic landscape has increased
following the death of President Hugo Chávez.

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Venezuela Agribusiness Report Q2 2014

Business Environment
SWOT Analysis

Strengths

■

Venezuela is an important supplier of oil to the US and is a member of OPEC.

■

Home to some of the largest oil reserves in the world, the Orinoco region will provide
opportunities for large-scale investment.

Weaknesses

■

A lack of domestic and international investment, largely as a result of the uncertain
political environment, could undermine the long-term growth outlook.

■

Privatisation came to a halt under the administration of former President Hugo
Chávez, with the government instead preferring production-sharing agreements to

encourage foreign direct investment.

Opportunities

■

Government support for businesses, through a range of low interest rate loans, is
available. The government fund for industrial credit provides large sums of money for
small- and medium-sized businesses.

Threats

■

The implementation of stringent foreign currency controls has hit the business
community hard. This has restricted import growth, as businesses lack the currency
to purchase raw materials.

■

State expropriation of 'idle' plants and proposals for land reform will act as a
disincentive for prospective investment (domestic and foreign).

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Venezuela Agribusiness Report Q2 2014

Industry Forecast
Livestock Outlook
BMI Supply View: After strong growth in the 1990s and the early 2000s, Venezuelan beef production has
gone into reverse in the past few years. Venezuela was self-sufficient in beef in 2003, but in recent years the
country has become increasingly reliant on imports to meet domestic demand. A complex system of price
controls imposed by the government in 2003 has restricted the profitability of livestock production in the
country. The government has aimed to boost production by turning over land judged as unproductive to
landless farmers. The project, however, has had mixed results: some formerly productive ranches have seen
production evaporate under the direction of inexperienced new managers.

The sector is held back by a lack of profitability due to high input costs, inflation and government price
controls, along with increased competition from imports from Brazil, Colombia and Nicaragua. Including
live animal imports for slaughtering, Venezuela depends on imports for more than half of beef consumed,
according to Instituto Nacional de Estadística. The lack of profitability is leading producers to leave the
sector, and the national cattle herd is estimated to have shrunk by 4.7% year-on-year (y-o-y) in 2012 to
12.1mn head. As a result, we believe beef production has decreased by 1.4% in 2012/13 and that it will
broadly stagnate in 2013/14 at 356,000 tonnes. The recent increase by 20% of the state-controlled price for
key items of food including livestock products such as beef and chicken should help to stall any further
declines. Indeed, towards the end of our forecast period, we expect production to increase as the
government makes efforts to lessen the reliance on imports. However, the recovery will be slow, and we
forecast production to reach just 368,000 tonnes in 2017/18, up by a mild 3.5% on the 2012/13 level.

Poultry production has weathered the storm of the government's reforms better than the cattle-rearing
sector. It accounts for an estimated 30% of total agricultural GDP and almost 50% of animal production.
Poultry is the most significant component of Venezuela's agricultural output, accounting for 24% in value
terms. The poultry industry is organised, vertically integrated and efficient, and producers are constantly
working to modernise and improve their production methods. Despite these strengths, the sector has been
hit by the poor economic climate, high input costs and increasing competition from imports from Brazil and
Argentina. Producers continue to be affected by the state-controlled price regime, which is squeezing
profitability. The state-regulated price for a whole chicken was increased in 2011 to VEF15.61/kg. This

provided some relief for producers. However, we believe that high input costs and squeezed profitability
limited production growth in the past season. Output should grow slightly faster in 2013/14, by 2.3% y-o-y,
reaching 675,000 tonnes that year. Through to 2017/188, we see production expanding by 7.7% on the
2012/13 level to 710,800 tonnes.

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Venezuela Agribusiness Report Q2 2014

Venezuela produces only small quantities of pork. Output has remained stable at around 125,000 tonnes in
recent years. We see production growing slowly in 2013/14. Over our forecast period, we see production
increasing by 7.5% on the 2012/13 level to reach 129,000 tonnes in 2017/18.

BMI Demand View: Meat consumption soared in Venezuela's boom years from 2004 to 2008. The rise in
demand was driven by a combination of strong, oil-fuelled economic growth and government price controls
making staple foodstuffs more affordable. After falling sharply in 2003, poultry consumption grew by more
than 50% by 2008. Beef consumption grew by almost 40% between 2004 and 2008. Consumption growth
was slower since 2008, due to constraints on production (lower availability of grains). In 2013, annual per
capita consumption stood at an estimated 32kg for poultry, 19kg for beef and 4kg for pork. While price
controls have increased demand, they have worked against investment in production and led to an
increasing reliance on imports. In 2013, imports reached an estimated 300,000 tonnes for poultry and
225,000 tonnes for beef.

High import prices, rising inflation and a drop in domestic production are likely to constrain beef
consumption through our forecast period. We see demand stagnating in 2014 at 582,000 tonnes. Out to
2018, we forecast that demand for beef will grow by 8.4% on the 2013 level to 628,500 tonnes.

We see poultry consumption rising slightly by 1.6% in 2014 (owing to higher costs and reduced supply). By
2018, we forecast demand for poultry will grow by 9.0% on the 2013 level to 1.0mn tonnes. Although
moderate, the pace of consumption growth for poultry is still faster than for pork or beef owing to the
comparatively lower cost.

Pork consumption is much lower than that of poultry and beef. Consumption broadly stagnated over
2007-2013 to 133,000 tonnes. We believe consumption fell by 5.7% y-o-y in 2013 owing to a dip in
domestic production and high input costs, and that it will recover in 2014 with the small increase in
production. Out to 2018, we see consumption increasing by 3.8% on the 2013 level to 138,000 tonnes,
fuelled primarily by population increases.

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Venezuela Agribusiness Report Q2 2014

Table: Venezuela Beef & Veal Production & Consumption, 2013-2018

2013

2014f

2015f

2016f

2017f

2018f

Beef & Veal Production, '000 tonnes

355.0

356.0

359.2

361.7

365.0

367.5

Beef & Veal Consumption, '000 tonnes

580.0

582.9

594.0

605.3

616.8

628.5

f = BMI forecasts. Sources: USDA.

Table: Venezuela Pork Production & Consumption, 2013-2018

2013

2014f

2015f

2016f

2017f

2018f

Pork Production, '000 tonnes

120.0

121.0

123.0

125.0

127.0

129.0

Pork Consumption, '000 tonnes

133.0

133.7

134.7

135.8

136.9

138.0

f = BMI forecasts. Sources: USDA.

Table: Venezuela Poultry Production & Consumption, 2013-2018

2013

2014f

2015f

2016f

2017f

2018f

Poultry Production, '000 tonnes

660.0

675.0

683.8

692.7

701.7

710.8

Poultry Consumption, '000 tonnes

960.0

975.4

991.9

1,009.8

1,028.0

1,046.5

f = BMI forecasts. Sources: USDA.

Beef Cattle From Nicaragua To Aid Production

Shipments of heifers have been arriving to Venezuela from Nicaragua in a bilateral agreement between the
two countries as part of the national policy AgroVenezuela.

It is hoped that this will help to reinvigorate beef production after recent declines in the national herd. In
total, 781 high-quality, dual-purpose heifers arrived in the sea port of Puerto Cabello in May 2013, building
upon previous deliveries. A further 1,000 head are expected in the coming months to reach the agreement
target of 6,000. The cattle were picked out through a four-month selection process.

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Venezuela Agribusiness Report Q2 2014

This new impetus to the industry in the Unare river basin has been made with a view to meeting rising food
demand from the Orinoco Oil Belt.

Price Rises Bring Some Relief For Producers, None For Consumers

The Venezuelan livestock sector continues to be held back by the government-controlled price regime,
which is squeezing profitability and holding back production. However, the recent announcement of a 20%
rise in the government-fixed price of important foodstuffs including beef and chicken by the new
government of President Maduro may give some encouragement to producers. The shift in policy came in
the wake of a meeting with business leaders, which may signal a thaw in relations with the private sector.

The move may also serve to push inflation higher: a 6.4% jump in food prices not government-controlled
pushed Venezuela's inflation up 4.3% last month, the largest rise in three years, bringing the annual rate to

nearly 30%. The bolívar has also been devalued, further weakening the purchasing power of consumers. As
a result, we expect declines in consumer demand across the board for livestock products in 2013.

Improved Relations With Colombia Ease Beef Supply Restrictions

The long-running trade dispute between Chávez and the previous Colombian president, Álvaro Uribe, posed
difficulties for Venezuela's beef supply for much of 2009/10. In 2008, Venezuela imported about 200,000
tonnes of beef from Colombia, in addition to live cattle. However, at the end of July 2009, Chávez froze
diplomatic relations with Colombia in response to the country allowing US troops to operate out of its bases
in their fight against drug production. While we do not believe exports completely ground to a halt (even if
official trade is completely stopped, a lucrative smuggling industry remains) the fall in trade placed strain
on Venezuela's meat supply. The value of imports of meat and offal from Colombia fell by a massive 97.6%
y-o-y in October 2009, according to Colombia's statistics agency DANE, with total imports from Colombia
for the month falling by 70.4%. Venezuela was forced to seek imports from other countries in the region,
including Brazil, Argentina, Paraguay and Nicaragua.

However, in August 2010, Colombian President Juan Manuel Santos met with Chávez and agreed to restore
diplomatic relations between the two countries. The two presidents agreed to reinforce security along their
shared border to clamp down on terrorist groups and drug trafficking. Venezuela also agreed to pay debts
amounting to some US$800mn to Colombian exporters. The agreement paves the way for the restoration of
trade relations between the two countries, which promises to ease supply shortages of beef on Venezuelan
shelves.

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In April 2011, the two governments reached an agreement to restore trade relations following a meeting in
Cartagena. The deal opens the way for Colombia to export 6,500 head of cattle in addition to 3,000 live
cattle and 3,500 pregnant cows to increase Venezuela's breeding stock. The deal also included the offer to
export 60,000 day-old chicks and 100,000 hatching eggs.

Then in April 2012, the Venezuelan Minister of Foreign Affairs Nicolás Maduro and his Colombian
counterpart María Holguín signed a partial bilateral trade agreement, at the sixth Summit of the Americas in
Cartagena, Colombia. The agreement establishes a new model for trade relations between the nations,
covering preferential trade agreements, sanitary norms, technical norms, rules of origin, trade protection and
the mechanism for the settlement of disputes. The agreement also includes plans to increase joint
infrastructure and agricultural production. The pact, which came into force in October 2012, signals the
continued improvement of diplomatic relations between the two countries. The pact is expected to provide
much-needed relief for the food shortages and spiralling prices that have gripped Venezuela.

In February 2013, data from Colombia's National Administrative Department of Statistics and Office of
Taxes and Customs demonstrated that trade between Colombia and Venezuela increased by 40% y-o-y to
US$3.28bn.

Table: Venezuela Beef & Veal Production & Consumption, 2008-2013

2008

2009

2010

2011

2012

2013

Beef & Veal Production, '000 tonnes

305.0

290.0

348.0

345.0

360.0

355.0

Beef & Veal Consumption, '000 tonnes

615.0

508.0

523.0

560.0

580.0

580.0

Sources: USDA.

Table: Venezuela Pork Production & Consumption, 2008-2013

2008

2009

2010

2011

2012

2013

Pork Production, '000 tonnes

125.0

125.0

125.0

125.0

125.0

120.0

Pork Consumption, '000 tonnes

133.0

129.0

134.0

141.0

141.0

133.0

Sources: USDA.

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Table: Venezuela Poultry Production & Consumption, 2008-2013

Poultry Production, '000 tonnes
Poultry Consumption, '000 tonnes

2008

2009

2010

2011

2012

2013

695.0

680.0

650.0

625.0

655.0

660.0

1,047.0

861.0

887.0

859.0

853.0

960.0

Sources: USDA.

Risks To Outlook

The death of former Venezuelan president Hugo Chávez creates an uncertain political and economic
landscape regardless of the victory of his chosen successor, Nicolas Maduro, in the snap elections. Our
current forecast is that the government's interventionist stance towards food production and supply will
continue; thus, meat production will be highly dependent on government policy. If prices are subject to
further controls as Venezuela's economy contracts, production could fall further as more operators leave the
sector. Another factor that will have a great influence over demand for livestock is the price of oil. With
Venezuela so reliant on its hydrocarbons exports, funds for government schemes to increase production and
provide affordable meat to the masses will be dependent on oil revenues being sufficient. If the price of oil
falls again, demand for meat would likely be hit.

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Venezuela Agribusiness Report Q2 2014

Grains Outlook
BMI Supply View: Venezuela is a major net importer of grain. Though production rose rapidly through the
first decade of the 21st century, consumption has also risen, fuelled by oil-driven economic growth. Corn is
Venezuela's major grain crop, with the vast majority grown in the central states of Barinas, Portuguesa and
Guárico. While the area planted to corn has risen by around 50% since the end of the 1990s, Venezuela's

agricultural sector remains relatively undeveloped, and there is still plenty of room for further expansion.
About 65% of the area planted is white corn for human consumption; the remainder is yellow corn for both
human consumption and for feed. In 2012/13, we forecast that corn output will fall slightly by 1.9% y-o-y to
1.28mn tonnes. Output will be hit by the poor macroeconomic climate and shortage of foreign currency,
with farmers unable to invest in the fertilisers and machinery that would allow them to recover lost
production.

Corn production has been on a downtrend in the past seven years, due to the poor macroeconomic climate
and shortage of foreign currency, with farmers unable to invest in the fertilisers and machinery that would
allow them to recover lost production. In the 2013/14 season that started in October 2013, we estimate
production broadly stagnating, at 1.3mn tonnes. This will be due to stagnant area harvested, estimated at
400,000ha by the USDA, and a general lack of foreign currency, leading to shortages of all types of inputs.
Yields will also be stable, at 3.25tonne/ha.

Out to the end of our forecast period, the level of production will be highly reliant on the government's
ability to support the agricultural sector. In 2012, the government set ambitious targets to boost domestic
grain production by 70% by 2018. However, without continued support, improved production techniques
and improved profitability, much of the newly opened farmland will very likely return to fallow. In the
current climate of economic and political uncertainty, we are sceptical of the government's ability to invest
scarce foreign currency in the sector to prevent further falls in output. Production will be held back by the
lack of fertiliser, low profitability hitting output, shortages of technical staff and equipment, delays in
financing to farmers, inefficient production techniques and unreliable supplies of materials and
agrochemicals. We therefore forecast corn production to fall 5.8% on the low 2012/13 level to reach 1.21mn
tonnes in 2017/18.

Wheat production in Venezuela is negligible, as the country does not have a suitable climate for growing
wheat. Venezuela is therefore reliant on imports to meet domestic demand, with the majority coming from
the US (42%) and Canada (52%). In 2011, wheat was added to the list of goods classified by the
government as essential or staple, which helps to expedite import procedures. However, importers have

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faced problems related to rising international prices, limitations on accessing foreign currency and delays in
obtaining import approval.

BMI Demand View: Demand for feed corn has risen rapidly since the economic recovery began in 2004,
mainly driven by the expansion of the poultry sector. However, as purchasing power is expected to be low
in 2014, human consumption will increase faster than that of the animal feed industry as Venezuelans turn
to their cheaper staple food. Corn is a staple food in Venezuela, and corn flour is used to make arepa, a flat,
unleavened bread. Total corn consumption rose by an estimated 109% from 2005 to 2013, outstripping
growth in production and leading to a surge in imports from the US. Import controls for feed corn have been
relaxed, and imports grew from just 152,000 tonnes in 2006 to an estimated 2.1mn tonnes in 2013.

We see consumption growing by 4.3% y-o-y to 3.8mn tonnes in 2014, as demand for feed will recover after
the decline in 2013. In the medium term, we believe consumption will increase, as corn is one of the
cheapest foods available and the price is kept down by government price controls. Growth will, however, be
more moderate than during the previous five-year period; out to 2018 we forecast demand rising by 17.4%
on the 2013 level to take consumption to 4.3mn tonnes.

Wheat has gained in popularity since the beginning of the 2000s, as Venezuelan consumers have had more
money to spend on food. Consumption of both baked goods and pasta has been rising. Price controls mean
pasta has become far more affordable and per capita consumption has now risen to around 14kg. The
majority of pasta produced is lower grade and must be sold at a government-set price. Some high-grade
pasta is also produced that can be sold at market prices. Pasta imports increased to an estimated 8,600
tonnes in 2011, up from an average of 3,490 tonnes in 2007-2010. The expansion in production of two

major millers and pasta manufacturers is likely to lead to increased availability and higher consumption. We
see demand growing by 2.1% to 1.58mn tonnes in 2014; out to 2018, we believe consumption will grow by
14.5% on in 2013 level to 1.8mn tonnes.

Table: Venezuela Corn Production & Consumption, 2013-2018

2013

2014f

2015f

2016f

2017f

2018f

Corn Production, '000 tonnes

1,285.0

1,282.4

1,279.9

1,277.3

1,210.0

1,210.0

Corn Consumption, '000 tonnes

3,649.8

3,806.7

3,920.9

4,042.5

4,163.8

4,284.5

f = BMI forecasts. Sources: USDA.

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Table: Venezuela Wheat Consumption, 2013-2018

Wheat Consumption, '000 tonnes

2013

2014f

2015f

2016f

2017f

2018f

1,545.0

1,577.4

1,621.6

1,667.0

1,717.0

1,768.5

f = BMI forecasts. Sources: USDA.

Another Year Of Production Stagnation

Venezuela is likely to record another disappointing year for corn production in 2013/14.

The country's corn output has not grown y-o-y for since the 2006/07 season, when it recorded a 25%

increase over the previous season. Since then, low availability of foreign currency and therefore
limited possibility to import agricultural inputs has impeded corn production to grow. We estimate
output at 1.3mn tonnes, down 0.2% y-o-y and compared with 2.0mn tonnes in 2006/07.

In an attempt to encourage corn, rice and sugar cane producers to plant more, in August 2013 the
government increased commodity subsidies to farmers, which will be paid at harvest based on
quantity (not quality) in the coming months. Producers are skeptical, however, since no payments to
date have been made. Failure to pay the promised subsidies will further reduce production in the
coming years.

As a result of stagnant production, steady food and feed demand, grains imports are likely to come in
strong this year. Venezuelan corn imports are estimated at 2.6mn tonnes in 2013/14, compared with
2.2mn tonnes in 2012/13. Yellow corn imports usually come from the US, but Venezuela has been
increasing its imports from Argentina and Brazil. Wheat imports could reach 1.7mn tonnes in
2013/14, up 6.2% y-o-y.

Corn and wheat imports continue to face severe delays and problems mainly to the long waiting
time for the approval of foreign currency and import permits. However, imports of grains should
continue to receive preferential treatment to expedite the import of basic consumer goods and to
maintain the livestock industry.

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Viability Of Corn Sector Dependent On Policy

The viability of corn production in Venezuela is heavily dependent on government policy. In the 1980s, the
country's agricultural sector was heavily regulated, and high tariffs were imposed on grain imports. This
saw corn production more than double in the second half of the 1980s. With little competition from imports,
however, productivity remained low. When the market was opened up in the 1990s, domestic farmers found
it hard to compete with imports, and production fell. Since then, the introduction of regulated farmgate
prices and retail prices has hit profitability and seen output decrease further. Poor weather conditions, land
expropriations and the seizure in October 2010 of Agroisleña - the main private sector distributor of
agricultural inputs, agricultural services and financing - have added to the difficulties facing producers.

Corn production has been hurt by low farmgate prices set by the government, and lack of incentives to plant
larger area. The Federation of Asociations of Farmers (Confederación de Asociaciones de Productores
Agropecuarios), Fedeagro, is asking for a 100% increase in farmgate prices in order to make production
more profitable. The government already granted in August 2012 a 42-46% increase to VEF1.90-2.20/kg of
corn prices, but Antonio Pestana, the vice president of Fedeagro, argues that the cost of producing a kilo of
white corn stands at VEF2.40, VEF0.20 higher than the new government mandated price. Subsequently, in
November 2012, the Venezuela Agriculture Ministry announced a 46% increase in the price of pre-cooked
corn flour from VEF4.06/kg to VEF5.93 (US$1.38)/kg. However, the Venezuelan corn processing industry
had argued that an increase of 66% would be necessary to cover production costs and ensure a small profit.
In addition to the 47% increase in farmgate corn prices, freight rates have also risen by 20%. Industry
representatives argued that the lack of profitability could undermine companies' viability and potentially
threaten food production. Nonetheless, we expect the increase in the farmgate prices and the consumer price
gaps to go some way towards encouraging an increase in the area planted to grains in the coming year.

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Venezuela Agribusiness Report Q2 2014

Increasing Dependence
Venezuela - Corn, Wheat & Rice Imports ('000 tonnes)

Source: BMI, USDA

Nationalisation Threats

The three-year long dispute between Mexican firm Gruma - the world's largest producer of corn flour for
tortillas - and Venezuela's government and the constant threat of the latter to nationalise the assets of Gruma
in the country highlights the very low business environment standards and high policy risks for foreign
companies in Venezuela. In June 2013, Gruma filed a complaint with the World Bank's International Centre
for Settlement of Investment Disputes. The company wants the World Bank to arbitrate in its negotiations
with Venezuela, at it said it was stripped of control of its Venezuelan subsidiaries in January 2013 by
Venezuela's government. The turbulent relationship between the Venezuelan government and Gruma started
in 2010, when Hugo Chávez announced that his government would temporarily take control of Gruma's
unit, following the arrest of one its major shareholders under charges of financial irregularities.

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Business Environment Below Standard
Selected Countries - BMI Long Term Political Rating & Business Environment Ratings

Note: Score is % of 100. 100 being best, 0 worst. Source: BMI

Mixed Results For Government's Production Drive

Agricultural production in Venezuela increased during Hugo Chávez's time as president. After rising
gradually in the first half of last decade, production rose rapidly from 2005 as the oil wealth pouring into the
country allowed more investment in agriculture. From 2004 to 2008, corn production grew 56.5% to
2.00mn tonnes. This was driven by a large increase in the area planted under the government's National
Sowing Plan. Chávez's stated aim was to not only end Venezuela's reliance on imported corn, but to build
up a surplus for export. Since coming to office, Chávez redistributed millions of hectares of land to the poor
and invested billions of dollars in agriculture. While the rise in production shows that the policy has enjoyed
some success for grains, there are still problems. Many of the people granted rights to farmland have little
experience in agriculture. There have also been complaints that promised training and inputs such as seed
and equipment has been slow to materialise, leaving land fallow.

Another brake on the expansion of grain production is controlled farmgate prices, which have been in force
since 2003 on around 100 products considered to be basic necessities. Producers are also given direct

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subsidy payments and access to cheap fertiliser. Despite this, farmers have long complained that the
farmgate price is too low, threatening future production.

However, production constraints have been growing in recent years. The low availability of foreign
currency to import crop input such as fertilisers and machinery led to a decrease in yields. On paper,
Venezuela produces at least twice as much fertiliser it needs, with the government subsidising its use to the
tune of US$100mn per year. But importing the rest has proved difficult in recent years. While yields grew
steadily during the 2000s (by 4% on average annually), they dropped in 2010/11 and have been boradoly

stagnating since, around 3.0-3.3tonne/ha, compared with 3.4tonne/ha on average between 2005/06 and
2009/10.

As a result, the government's aim of achieving self-sufficiency is a long way from being realised, and
Venezuela is still heavily reliant on grain imports to fuel domestic demand, both for human consumption
and for the livestock industry. Indeed, in 2010 the government relaxed import permit procedures in order to
reinforce its 'food security' policy and avoid domestic food shortages. In 2012/13, corn imports are forecast
to reach 2.0mn tonnes, compared to 1.16mn tonnes in 1997/98. In addition, Venezuela is expected to import
around 1.7mn tonnes of wheat.

Gran Misión Agro Venezuela Fails To Deliver

Following its intention to boost grains production and reach self-sufficiency in corn, the government
launched in 2011 Gran Misión Agro Venezuela, a new programme designed to support the country's
agricultural production as part of a two-year plan for the sector. Misión Agro Venezuela was designed to
provide low-interest loans, machinery and technical assistance to the country's agricultural producers, from
small to large-scale landowners, with VEF9.9bn (US$2.3bn) committed to the programme. However, the
Gran Misión has failed to reach its objectives since the first years. Yellow and white corn reached only
around 50% of its fixed target.

Nicolás Maduro relaunched Gran Misión AgroVenezuela in January 2013 for 2013-2019. In total,
VEF7.81bn will be available for 2013, of which VEF3.0bn will be dedicated to improving farm roads.
However, we believe this renewed programme will also be a failure and forecast corn production to actually
decline by 5.8% between 2012/13 and 2017/18 to 1.2mn tonnes.

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