Venezuela agribusiness report q3 2011
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Q3 2011
www.businessmonitor.com
VeneZueLa
agribusiness Report
INCLUDES BMI'S FORECASTS
ISSN 2040-0489
Published by Business Monitor International Ltd.
VeneZueLa AGRIBUSINESS
REPORT Q3 2011
INCLUDES 5-YEAR FORECASTS TO 2015
Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: July 2011
Business Monitor International
85 Queen Victoria Street
London
EC4V 4AB
UK
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:
© 2011 Business Monitor International.
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor
International, and as such no part of this publication
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DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.
VeneZueLa AGRIBUSINESS
REPORT Q3 2011
INCLUDES 5-YEAR FORECASTS TO 2015
Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: July 2011
Business Monitor International
85 Queen Victoria Street
London
EC4V 4AB
UK
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:
© 2011 Business Monitor International.
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor
International, and as such no part of this publication
may be reproduced, repackaged, redistributed, resold in
whole or in any part, or used in any form or by any
means graphic, electronic or mechanical, including
photocopying, recording, taping, or by information
storage or retrieval, or by any other means, without the
express written consent of the publisher.
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.
Venezuela Agribusiness Report Q3 2011
© Business Monitor International Ltd
Page 2
Venezuela Agribusiness Report Q3 2011
CONTENTS
Executive Summary ......................................................................................................................................... 5
Key Forecasts ........................................................................................................................................................................................................ 5
Key Trends and Developments............................................................................................................................................................................... 6
SWOT Analysis ................................................................................................................................................. 8
Venezuela agriculture SWOT ................................................................................................................................................................................. 8
Venezuela Political SWOT .................................................................................................................................................................................... 9
Venezuela Economic SWOT ............................................................................................................................................................................... 10
Venezuela Business Environment SWOT............................................................................................................................................................. 11
Industry Forecast Scenario ........................................................................................................................... 12
Venezuela Grain Outlook .......................................................................................................................................................................................... 12
Venezuela Wheat Consumption & Trade ............................................................................................................................................................ 13
Venezuela Corn Production, Consumption & Trade ........................................................................................................................................... 14
Venezuela Wheat Consumption & Trade ............................................................................................................................................................ 17
Venezuela Corn Production, Consumption & Trade ........................................................................................................................................... 17
Venezuela Sugar Outlook .......................................................................................................................................................................................... 18
Venezuela Sugar Production, Consumption & Trade ......................................................................................................................................... 19
Venezuela Sugar Production, Consumption & Trade ......................................................................................................................................... 21
Venezuela Coffee Outlook ......................................................................................................................................................................................... 23
Venezuela Coffee Production & Consumption .................................................................................................................................................... 24
Venezuela Coffee Production & Consumption .................................................................................................................................................... 27
Venezuela Cocoa Outlook ......................................................................................................................................................................................... 29
Venezuela Cocoa Production, Consumption & Trade......................................................................................................................................... 29
Venezuela Cocoa Production, Consumption & Trade......................................................................................................................................... 31
Venezuela Livestock Outlook .................................................................................................................................................................................... 33
Venezuela Livestock Outlook .................................................................................................................................................................................... 33
Venezuela Poultry Production, Consumption & Trade ....................................................................................................................................... 34
Venezuela Pork Production, Consumption & Trade ........................................................................................................................................... 35
Venezuela Beef & Veal Production, Consumption & Trade................................................................................................................................ 35
Venezuela Poultry Production, Consumption & Trade ....................................................................................................................................... 38
Venezuela Pork Production, Consumption & Trade ........................................................................................................................................... 38
Venezuela Beef & Veal Production, Consumption & Trade................................................................................................................................ 38
Venezuela Dairy Outlook .......................................................................................................................................................................................... 40
Venezuela Milk Production & Consumption ....................................................................................................................................................... 41
Venezuela Butter Production, Consumption & Trade ......................................................................................................................................... 41
Venezuela Cheese Production, Consumption & Trade ....................................................................................................................................... 42
Venezuela Whole Milk Powder Production, Consumption & Trade ................................................................................................................... 42
Venezuela Milk Production & Consumption ....................................................................................................................................................... 45
Venezuela Butter Production, Consumption & Trade ......................................................................................................................................... 45
Venezuela Cheese Production, Consumption & Trade ....................................................................................................................................... 46
Venezuela Whole Milk Powder Production, Consumption & Trade ................................................................................................................... 46
Commodity Price Analysis ............................................................................................................................ 47
Monthly Softs Update................................................................................................................................................................................................ 47
Cocoa................................................................................................................................................................................................................... 47
COCOA ............................................................................................................................................................................................................... 48
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Venezuela Agribusiness Report Q3 2011
Coffee................................................................................................................................................................................................................... 49
COFFEE .............................................................................................................................................................................................................. 50
Milk...................................................................................................................................................................................................................... 51
MILK ................................................................................................................................................................................................................... 52
Sugar ................................................................................................................................................................................................................... 52
SUGAR ................................................................................................................................................................................................................ 53
Monthly Grains Update ............................................................................................................................................................................................ 54
Corn ..................................................................................................................................................................................................................... 54
CORN .................................................................................................................................................................................................................. 55
Rice ...................................................................................................................................................................................................................... 55
RICE .................................................................................................................................................................................................................... 56
Soybean ............................................................................................................................................................................................................... 57
SOYBEAN ............................................................................................................................................................................................................ 58
Wheat ................................................................................................................................................................................................................... 58
WHEAT................................................................................................................................................................................................................ 59
Downstream Supply Chain Analysis ............................................................................................................ 60
Consumer Outlook ............................................................................................................................................................................................... 60
Food.......................................................................................................................................................................................................................... 62
Table: Venezuela Food Consumption Indicators - Historical Data & Forecasts................................................................................................. 62
Canned Food ............................................................................................................................................................................................................ 63
Table: Canned Food Value/Volume Sales -- Historical Data & Forecasts .......................................................................................................... 63
Confectionery............................................................................................................................................................................................................ 64
Table: Confectionery Value/Volume Sales - Historical Data & Forecasts .......................................................................................................... 65
Mass Grocery Retail ................................................................................................................................................................................................. 66
Table: Venezuela Mass Grocery Retail - Value Sales by Format - Historical Data & Forecasts ........................................................................ 67
Table: Sales Breakdown by Retail Format Type .................................................................................................................................................. 67
Trade ........................................................................................................................................................................................................................ 68
Table: Food & Drink Trade Balance -- Historical Data & Forecasts ................................................................................................................. 69
Economic Analysis ........................................................................................................................................ 70
Macroeconomic Forecast .................................................................................................................................................................................... 74
Venezuela - Economic Activity ............................................................................................................................................................................ 76
Global Food & Drink View ............................................................................................................................. 77
Food & Drink Roundup Q111: Core Views .............................................................................................................................................................. 77
BMI FOOD & DRINK CORE VIEWS.................................................................................................................................................................. 82
BMI Forecast Modelling ................................................................................................................................. 83
How We Generate Our Industry Forecasts ............................................................................................................................................................... 83
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Venezuela Agribusiness Report Q3 2011
Executive Summary
BMI View: On April 21 2011, Venezuela departed from the Community of Andean Nations (CAN). The
decision to withdraw was taken in 2006, in opposition to Peru and Colombia signing free trade
agreements (FTA) with the United States. However, in the weeks leading up to the end of Venezuela's
subscription to CAN, President Hugo Chávez travelled extensively throughout the Andean region to
strengthen bilateral relations, leading to the signing of trade agreements with Bolivia, Colombia and
Ecuador and ongoing trade negotiations with Peru. The exit from CAN should not, therefore, impact too
strongly on the country's agricultural sector.
Also through Q211, Venezuela's agricultural sector has been hit by further heavy rains and landslides,
that killed at least 21 people and caused extensive damage to infrastructure. Almost 300,000 acres of
agricultural land in the northwestern state of Zulia were flooded, badly damaging milk and livestock
production.
Key Forecasts
We anticipate that demand for butter and cheese will remain strong over our forecast period, as
government price controls make them affordable for lower income consumers. After growing by
13.0% from 2005-2010, we forecast growth in cheese consumption to increase by 14.2% from
2010-2015 to reach 126,530 tonnes. We see growth in butter consumption increasing from
12.8% from 2005-2010 to 22.7% from 2010-2015 to reach 3,038 tonnes at the end of our
forecast period.
We now see coffee production increasing by 3.1% y-o-y in 2010/11 to reach 748,000 bags. The
2011/12 harvest should benefit from the renewal of fertilisation programmes as part of the
government's Agricultural Plan. We currently forecast a y-o-y increase of 12.3% to take output
to 840,000 bags.
The heavy rains in December 2010 hit the 2010/11 corn harvest and we forecast production
rising by just 4.3% y-o-y to 1.71mn tonnes. Out to the end of our forecast period to 2014/15, we
expect output to continue to rise and are forecasting production to grow by 27.1% on the
2009/10 level to reach 2.08mn tonnes.
We see beef production falling by 1.7% y-o-y to 342,200 tonnes in 2010/11 due to high energy
and feed costs and consequent lack of profitability for producers. Furthermore, heavy rains and
mudslides from February-May 2011 flooded pasture lands in northwestern Venezuela, impacting
livestock production.
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Venezuela Agribusiness Report Q3 2011
We estimate that sugar production fell by 27.1% y-o-y in 2009/10 to 485,000 tonnes. The lack of
profitability has deterred investment and many mills now stand idle. We see production
increasing by only 4.3% y-o-y in 2010/11 to 505,800 tonnes as land expropriations and price
controls continue to take their toll. Over our forecast period to 2014/15, we expect sugar
production to increase by 17.7% on the low 2009/10 level to reach 571,000 tonnes.
Key Trends and Developments
In April 2011, the Venezuelan government declared cocoa to be a primary need, or basic staple
product, and unveiled plans to form the Corporación Socialista del Cacao Venezolano (Socialist
Corporation of Venezuelan Cocoa) to administer all aspects of the cocoa supply chain. The
corporation will bring together public and private sector companies and other organisations and
associations involved in cocoa production and distribution. The government has previously
criticised the cocoa sector for focusing primarily on the export market and serving the interests
of elite classes.
The costs of milk production in Venezuela have shot up by almost 30% over the past 14 months,
according to a study by the Venezuelan Cattle Federation, Fedenaga. The study, carried out in
the highland dairy-producing region of Merida State, showed that rising prices of vaccines,
medicines, antibiotics, oil and other inputs had pushed up production costs by 29.8%. This is
making dairy production increasingly unsustainable: farmgate prices remain at VEF2.20/litre,
while producers claim that the real cost of production is VEF3.26. According to Fedenaga, in
order to make ends meet, small and medium-sized producers are reducing feed supplies and
cutting back on investment, which will further damage output. The federation called for the
government to review the remit of the National Fund for Dairy Production, which currently does
not grant any additional support to smaller producers.
In April 2011, the governments of Colombia and Venezuela reached an agreement to restore
trade relations following a meeting in Cartagena on April 9. At the end of July 2009, Chávez
froze diplomatic relations with Colombia in response to Colombia allowing US troops to operate
out of Colombian bases in their fight against drug production. The agreement will ensure that
cross-border trade is not damaged by Venezuela's exit from the Community of Andean Nations
trade pact as from April 22 - the departure was prompted by Venezuela's opposition to free trade
agreements signed between Colombia and Peru with the US. The new Colombia-Venezuela
agreement included the offer to export 100,000 tonnes of Colombian dairy products across the
border, including liquid, evaporated and powdered milk, cheese, butter, whey and milk-based
drinks. The deal also opens the way for the sale of 6,500 heads of Colombian cattle, in addition
to 3,000 live cattle, 3,500 pregnant cows, 60,000 day-old chicks and 100,000 hatching eggs.
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Venezuela Agribusiness Report Q3 2011
In January 2011, the government launched Mission Agro Venezuela, a new programme designed
to support the country's agricultural production. The programme aims to boost domestic
production and lessen reliance on imports, thus improving Venezuela's food security. Mission
Agro Venezuela will provide low-interest loans, machinery and technical assistance to the
country's agricultural producers - from small to large-scale landowners. VEF9.9bn (US$2.3bn)
has been committed to the programme. As part of the programme, a census is also being carried
out of Venezuela's agricultural sector. By mid-April, 586,000 growers had registered for the
programme, according to government data. In April 2011, over 20,000 producers received
government assistance of VEF554mn (US$129mn) through the Mission Agro Venezuela
programme at an event at Municipio Ture, in Portuguesa State. According to Juan Carlos Loyo,
the Minister for Agriculture and Lands, the funds will support the development of an additional
150,000 hectares of farmland for the cultivation of rice and white and yellow corn.
In May 2011, the government approved a 30% increase in the farmgate prices of corn, rice and
soybeans, which will come into effect on August 15. Producers' associations had been
petitioning the government to raise the controlled prices since the beginning of 2011, to counter
the rise in input costs that have hit farmers. The price of white corn will rise from VEF1.15 to
VEF1.50 per kilo, while yellow corn will increase from VEF1.02 to VEF1.33 per kilo.
On June 2 2011, the government announced an increase in the controlled price of sugar from
VEF3.73 per kilo to VEF4.89. This should bring some relief to beleaguered producers who have
seen profitability eroded in recent years. However, the move may prove insufficient to reverse
the sector's decline: producers had requested for the regulated price to rise to VEF6.40 per kilo.
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Venezuela Agribusiness Report Q3 2011
SWOT Analysis
Venezuela agriculture SWOT
Strengths
Weaknesses
Opportunities
Threats
Venezuela's tropical climate allows for production of a diversified range of
agricultural products.
Venezuelan cocoa and coffee are known for their high-quality and cocoa
especially is sought after by producers of premium chocolate.
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 invest in increasing production.
The government has shown interest in revitalising coffee and cocoa production
after years of decline.
The government has introduced a number of programmes to help small holders
increase production including finance and subsidies.
Falling oil revenues are bringing more attention to increasing agricultural
production to reduce the cost of food imports.
The threat of land seizures and nationalisation inhibits investment in agriculture in
Venezuela.
Falls in the oil price will severely limit the amount of money the government will be
able to spend on agriculture.
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Venezuela Agribusiness Report Q3 2011
Venezuela Political SWOT
Setting Venezuela apart from its neighbours, the country has enjoyed a long
tradition of democracy, with elections held regularly since 1959.
A consistently high electoral turnout points to a strong level of public
participation in politics.
The military has traditionally played a dominant role in politics and possible
future intervention by disgruntled officers - especially following the attempted
coup in 2002 - is not beyond the realms of possibility.
The meltdown of the traditional party structure has left a political vacuum where
the opposition should be.
Relations between President Hugo Chávez and the US remain strained, as
Chávez has accused Washington of interfering in Venezuela's domestic affairs
and threatened to cut off oil supplies to the US.
Opportunities
Given prudent investment, areas such as infrastructure and education could
flourish thanks to the fiscal windfalls brought by devaluation of the bolivar and
elevated oil prices, bringing longer-term stability to the economy and diminishing
the risks of civil turbulence.
Threats
President Chávez's ability to rule by decree continues to undermine the
country's democratic institutions.
The national assembly has pushed through several laws that were previously
overturned in the constitutional referendum in 2007. The weakening of
democracy in the country threatens to raise political risk and poses a threat to
private business activity.
Tensions between Venezuela and Colombia remain heightened owing to the
former's belligerent rhetoric. However, we continue to view the possibility of
outright military conflict as improbable given underlying economic
interdependencies.
Strengths
Weaknesses
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Venezuela Agribusiness Report Q3 2011
Venezuela Economic SWOT
Venezuela is rich in natural resources. In particular, it has huge oil and gas
reserves (it is the world's fifth largest crude producer) and is one of the main
suppliers to the US.
The oil boom has allowed the government to accumulate international reserves.
Although oil is one of the country's strengths, a high level of dependence on the
energy sector makes the economy increasingly vulnerable to economic shocks
in the long term.
The lack of transparency in the government's fiscal accounts is a source of
concern.
Opportunities
Following the devaluation of the bolivar in January 2010, the non-oil sector has
an opportunity to benefit from increased competitiveness.
Threats
Inflation remains dangerously high despite the extensive price control system
and successive interest rate hikes. Further erosion of domestic productive
capacity is likely to raise inflationary pressures in the economy, possibly
bringing on hyperinflation.
The sustainability of economic growth will depend on boosting private
investment, rather than relying on oil and public investment (both of which are
dependent on high oil prices).
Strengths
Weaknesses
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Venezuela Agribusiness Report Q3 2011
Venezuela Business Environment SWOT
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.
A lack of domestic and international investment, largely as a result of the
uncertain political environment, could undermine the long-term growth outlook.
Privatisation has ground to a halt since President Hugo Chávez took office, with
the administration 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).
Strengths
Weaknesses
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Venezuela Agribusiness Report Q3 2011
Industry Forecast Scenario
Venezuela Grain 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. The vast majority of Venezuela's corn is grown in the central states
of Barinas, Portuguesa and Guárico. While the area planted to corn has risen by around 50% from the end
of the 1990s, with Venezuela's agricultural sector relatively undeveloped there is still plenty of room for
further expansion. Around 65% is white corn for human consumption and the remainder yellow corn for
both human consumption and for feed. 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.
The most severe droughts seen in 37 years hit the 2009/10 harvest and production is estimated to have
dropped by 9.2% year-on-year (y-o-y) to 1.63mn tonnes. In addition to the extreme weather conditions,
production was also affected by regulated farmgate prices and retail prices (see below for further
comment). Land expropriations and the seizure in October 2010 of Agroisleña, the main private sector
distributor of agricultural inputs, agricultural services and financing, will add to the difficulties facing
producers. The heavy rains in December 2010 hit the 2010/11 harvest, and we forecast corn production
rising by just 4.3% y-o-y to 1.71mn tonnes. Production is, however, aided by increased government
investment through the Comprehensive Agricultural Development Plan 2010-2011, which has set
ambitious targets to boost white and yellow corn by 61% and 110% respectively, over the course of two
years.
Out to the end of our forecast period to 2014/15, the level of production will be highly reliant on the
ability of President Hugo Chávez's government to support the agricultural sector. Without continued
support, much of the newly opened farmland would return to fallow. Despite this risk, we do expect
output to continue to rise and are forecasting production to grow by 27.1% on the 2009/10 level to reach
2.08mn tonnes.
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 and Canada. Venezuelan wheat imports totalled an estimated 1.60mn tonnes in 2010. In
March 2011, wheat was added to the list of goods classified by the government as essential or staple,
which will expedite import procedures.
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Venezuela Agribusiness Report Q3 2011
BMI Demand View: Demand for feed corn has risen rapidly since the economic recovery began in 2004.
Through the end of the 1990s and the first couple of years of the 21st century, demand for corn shot up,
driven by the expansion of the poultry sector. As the economy went into meltdown in 2002, however,
demand for corn collapsed as poultry output fell almost 25% in the space of a year. Since then, feed
consumption has climbed back up. Demand for corn for food has also risen strongly in the past few years
as Venezuela's economy has grown. Corn is a staple food in Venezuela and corn flour is used to make
arpea, a flat unleavened bread. Total corn consumption rose by an estimated 94.3% from 2005 to 2010,
outstripping growth in production and leading to a surge in imports from the US.
In 2011, we now forecast that corn consumption will register a small increase, expanding by 1.7% y-o-y
to 3.46mn tonnes, owing to stronger demand from the livestock sector than we had previously anticipated.
We forecast that demand will continue to grow over our forecast period, 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 and out to 2015 we see demand rising by 12.0% on
the 2010 level to take consumption to 3.81mn tonnes.
Wheat consumption has gained in popularity since the beginning of the 21st century, as Venezuelan
consumers have had more money to spend on food. Consumption of both bakery 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 which can be sold at market prices. As a
result of rising wheat prices on the international market, we estimate that consumption remained static in
2010 at 1.55mn tonnes. We see demand dipping in 2011 owing to high prices and have pencilled in a y-oy decline of 4.8% to take consumption to 1.48mn tonnes. Out to 2015, we see consumption growing by
9.9% on the 2010 level to reach 1.70mn tonnes.
Venezuela Wheat Consumption & Trade
Wheat Consumption,
1
'000 tonnes
Wheat Net Trade
1
Balance, '000 tonnes
e
2010
2011
2012
2013
2014
2015
1,550.1
1,475.2
1,534.7
1,586.9
1,644.4
1,702.7
-1,550.1
-1,475.2
-1534.7
-1,586.9
-1,644.4
-1,702.7
f
1
Notes: BMI estimates. BMI forecasts. Sources: USDA, BMI.
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Venezuela Agribusiness Report Q3 2011
Venezuela Corn Production, Consumption & Trade
2010
2011
2012
2013
2014
2015
Corn Production, '000
1
tonnes
1,634.0
1,705.2
1,786.3
1,872.3
1,973.6
2,075.9
Corn Consumption, '000
1
tonnes
3,400.0
3,457.9
3,513.3
3,600.8
3,707.9
3,807.5
Corn Net Trade Balance,
1
'000 tonnes
-1,319.8
-1,281.1
-1,276.1
-1,276.4
-1277.5
-1,277.0
e
f
1
Notes: BMI estimates. BMI forecasts. Sources: USDA, BMI.
Grain Produces Receive Boost From Agro Venezuela Programme
In January 2011, the government of Hugo Chávez launched Mission Agro Venezuela, a new programme
designed to support the country's agricultural production. The programme aims to boost domestic
production and lessen reliance on imports, thus improving Venezuela's food security. Mission Agro
Venezuela will provide low-interest loans, machinery and technical assistance to the country's agricultural
producers - from small to large-scale landowners. VEF9.9bn (US$2.3bn) has been committed to the
programme. As part of the programme, a census is also being carried out of Venezuela's agricultural
sector. By mid-April, 586,000 growers had registered for the programme, according to government data.
In April 2011, over 20,000 producers received government assistance of VEF554mn (US$129mn)
through the Mission Agro Venezuela programme at an event at Municipio Ture, in Portuguesa State.
According to Juan Carlos Loyo, the Minister for Agriculture and Lands, the funds will support the
development of an additional 150,000 hectares of farmland for the cultivation of rice and white and
yellow corn.
Coca Growing Hits Corn Production
The diversion of fertiliser from legal crops to coca growing is damaging Venezuelan corn production,
according to a December 2010 report by the Miami Herald. Urea, the nitrogen-rich fertiliser used to grow
corn and other agricultural produce, is being sold through the black market to coca growers and farmers
are complaining that they do not have sufficient fertiliser, particularly during the main planting season,
beginning in May. 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, according to a Miami Herald report.
However, farmers in the main growing regions of Portuguesa and Guárico complain that a lack of access
to fertiliser is damaging their harvest. The negative impact of the drugs trade upon grains production is a
further obstacle to Venezuela's corn producers, who have also been hampered by land expropriations,
farmgate prices and extreme weather conditions in recent years.
Government To Centralise Wheat Imports
In March 2011, the Venezuelan Ministry of Food requested private companies to provide information
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Venezuela Agribusiness Report Q3 2011
about their requirements for wheat for the following nine months in order to authorise imports. Requests
totalled 1.40mn tonnes. The move is part of the government's plan to centralise imports of a number of
food products, including raw milk, wheat, sugar and oil. The decision has been criticised by the industrial
sector, who argue that the government's priority should be to revise food price controls that are impacting
heavily on profitability as input costs continue to rise. Many sectors of Venezuelan agroindustry are
becoming increasingly reliant on imports to meet domestic demand as production continues to fall in the
face of lack of investment, poor management and high production costs.
Chávez Authorises Further Corn Price Increase
In May 2011, the government of Hugo Chávez approved a 30% increase in the farmgate prices of corn,
rice and soybeans, which will come into effect on August 15. Producers' associations had been petitioning
the government to raise the controlled prices since the beginning of 2011, to counter the rise in input costs
that have hit farmers. The price of white corn will rise from VEF1.15 to VEF1.50 per kilo, while yellow
corn will increase from VEF1.02 to VEF1.33 per kilo. Previously, in September 2010, the government
announced that it would authorise increases in the price of corn, rice and sunflower seeds at the
production stage, in order to encourage planting of these crops for the 2010/11 harvest. The move came
following sustained complaints from Venezuelan agricultural producers that the regulated farmgate prices
had not been adjusted in line with rising costs, which had been driven upwards by high inflation. On
September 1, the price for a kilogram of yellow corn increased by 27.5% from VEF0.80 to VEF1.02,
while a kilo of white corn rose by 27.8% from VEF0.90 to VEF1.15. production.
Government Suspends Corn Imports
In mid-September 2010, the Venezuelan government suspended the issuance of licenses to private
companies for imports of white and yellow corn for the remainder of 2010. The move was designed to
ensure that domestic corn producers would have a market for the crops harvested during Q410. The
announcement will be welcomed by domestic corn producers, who have long raised concerns that
competition from imports was damaging their profitability. However, domestic production will not be
sufficient to meet demand, so imports will continue to be needed for the foreseeable future to cover the
shortfall.
Government Seizes Agroisleña
In late September 2010, the government of Hugo Chávez announced the seizure of Spanish-owned
Agroisleña. Agroisleña is the largest private agricultural supply distributor in Venezuela, with a large
network of rural stores supplying pesticides, fertiliser, tools and machinery etc. It also controls around a
third of the country's grain storage capacity. Chávez argued that Agroisleña had become an oligopoly in
the market of agriculture inputs, contrary to the provisions of the Constitution. He stated that the seizure
would further the progress of his agricultural reform programme and would further his government's
ambitions to improve food security and lower production costs. However, should the services provided by
Agroisleña become disrupted or fall foul to state mismanagement, the expropriation may compromise the
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output of domestic producers who have been reliant on Agroisleña's provision of goods and services. The
move thus may prove one further obstacle for Venezuela's grain producers, who are already struggling to
cope with rising prices and farmgate price controls.
Mixed Results For Chávez's Production Drive
Since Hugo Chávez came to power in 1999, production has increased. 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 is to not only end Venezuela's reliance on imported corn, but to build up a surplus for export.
Since coming to office, Chávez has 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 of 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. The farmgate price of corn
was raised by 30% in April 2008, by 24% in July 2009 and by 28% in September 2010. Producers are
also given direct subsidy payments and access to cheap fertiliser. Despite this, farmers have long
complained that the farmgate price is too low, threatening future production.
Chávez's aim to attain 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 was to relax import permit procedures in order to reinforce its
'food security' policy and avoid domestic food shortages. In 2009/10, corn imports were estimated at
1.30mn tonnes, a similar total to that seen in 2008/09, of which 300,000 tonnes are expected to have been
white corn, which is largely for human consumption, and a further 1.0mn tonnes of yellow corn for
animal feed, according to data from the US Department of Agriculture (USDA). In addition, Venezuela is
expected to have imported some 1.6mn tonnes of wheat.
Chávez Backs Down Over Gruma Takeover
The relationship between the Venezuela government and the Mexican firm Gruma, one of the world's
largest producers of corn flour for tortillas, was a turbulent one throughout 2010. Gruma's Venezuelan
operations accounted for 18% of total sales in September 2009. In January 2010, Chávez announced that
his government would temporarily take control of Gruma's Monaca unit, following the arrest of one its
major shareholders under charges of financial irregularities.
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Subsequently, in May 2010, the government announced the expropriation of Monaco, following
accusations that Gruma had refused to sell flour during a national shortage in the previous month. The
move came as the Chávez government tightened its control on the supply chain in the face of national
shortages and rocketing inflation. However, in July 2010, the government retracted and announced that
rather than seizing Gruma's assets, it was considering forming a joint-venture with the Mexican company.
Venezuela Wheat Consumption & Trade
2006
2007
2008
2009
2010
2011
1,700.0
1697.0
1,500.0
1,550.0
1,550.1
1,475.2
-1,688.0
-1762.0
-1,500.0
-1,500.0
-1,550.1
-1,475.2
Wheat Consumption,
1
'000 tonnes
Wheat Net Trade
1
Balance, '000 tonnes
e
f
1
Notes: BMI estimates. BMI forecasts. Sources: USDA, BMI.
Venezuela Corn Production, Consumption & Trade
2006
2007
2008
2009
2010
2011
Corn Production, '000
1
tonnes
1,600.0
2,000.0
1,800.0
1,800.0
1,634.0
1,705.2
Corn Consumption, '000
1
tonnes
1,750.0
2,400.0
2,700.0
3,200.0
3,400.0
3,457.9
Corn Net Trade Balance,
1
'000 tonnes
-152.0
-534.0
-1,103.0
-1,200.0
-1,319.8
-1,281.1
e
f
1
Notes: BMI estimates. BMI forecasts. Sources: USDA, BMI.
Risks To Outlook
As mentioned above, growth in Venezuela's grain production will be reliant on the continued support of
the government. With government revenues severely reduced by the fall in oil prices, funds to the
agricultural sector could dry up. This would see corn production undershoot our forecasts. On the demand
side, consumption will be reliant on the continued subsidization of the price of staple foods and the ability
of the government to source sufficient grain supplies on the export market. If the government were to
allow grain prices to rise, consumption would be hit. On the other hand, if oil prices rise faster than we
expect, a recovery in government revenues could see increased investment in agriculture and continued
stronger-than-expected growth in both production and consumption of grain.
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Venezuela Agribusiness Report Q3 2011
Venezuela Sugar Outlook
BMI Supply View: Sugar production rose rapidly between 2003/04 and 2007/08, growing by 41.8% to
reach 780,000 tonnes. This growth was driven by improving efficiency of production, as the area under
sugar cane cultivation saw no significant increase over the period. Since then, however, the sugar sector
has declined and the country has been facing severe sugar shortages. The uncertain investment climate
and marginal profitability of the sugar sector has seen the area planted to sugar fall, as land seizures and
government price caps have deterred producers. Adverse weather conditions, including both heavy rains
and severe droughts, have caused further declines in production.
We estimate that production fell by 27.1% y-o-y in 2009/10 to 485,000 tonnes. The lack of profitability
has deterred investment and many mills now stand idle. We see production increasing by only 4.3% y-o-y
in 2010/11 to 505,800 tonnes as land expropriations and price controls continue to take their toll.
However, on June 2 2011, the government announced an increase in the controlled price of sugar from
VEF3.73 per kilo to VEF4.89. This should bring some relief to beleaguered producers.
Over our forecast period to 2014/15, we expect sugar production to increase by 17.7% on the low 2009/10
level to reach 571,000 tonnes. This will be achieved with new mills coming on line. We warn, however,
that this will be dependent on the policies of President Hugo Chávez' government. In 2008, a number of
sugar cane plantations were seized by the government. If the seizure of sugar cane plantations continues
and the new co-operatives created to run them are unable to sustain production, then the managers of the
new mills being built may find that there is not enough cane to supply them.
BMI Demand View: Sugar consumption has seen strong growth over the last few years, spurred by the
economic recovery from 2004. From 2005 to 2010, consumption increased by 45.7% to 1.26mn tonnes,
as rising per capita incomes allowed consumers, particularly from poorer segments of society, to increase
the amount they spent on food. Around 60% of sugar is destined for the industrial sector and used in soft
drinks, snacks and confectionary. Domestic consumption accounts for the remaining 40%.
High food price inflation and supply shortages have, however, countered this strong growth in recent
years. With domestic production covering only a fraction of consumption in recent years, imports have
had to be found to supply the remainder. The Chávez government has been criticised by industry bodies
for not acting more quickly to ensure that enough sugar was available to meet demand. Conversely,
Chávez has blamed the shortages on producers hoarding their output and illegally exporting it to
neighbouring countries such as Colombia.
A large increase in imports in 2010 helped ease shortages, allowing consumption to continue to rise. In
2010, consumption grew by an estimated 20.0% y-o-y to reach 1.26mn tonnes. We see imports increasing
to around 850,000 tonnes in 2011, which will continue to support domestic consumption. However, as
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Venezuela Agribusiness Report Q3 2011
food price inflation continues to rise, we see the growth slowing and consumption increasing by 3.0% yo-y to reach 1.30mn tonnes. Out to 2015, we expect sugar consumption to grow by 6.2% on the high 2010
level to reach 1.34mn tonnes.
Venezuela Sugar Production, Consumption & Trade
2010
2011
2012
2013
2014
2015
485.0
505.8
519.8
534.7
552.9
571.0
Sugar Consumption, '000
1
tonnes
1,260.0
1,297.6
1,307.3
1,322.1
1,329.6
1,338.5
Sugar Net Trade Balance
1
('000 tonnes)
-438.5
-413.6
-400.0
-392.4
-390.8
-386.9
Sugar Production, '000
1
tonnes
e
f
1
Notes: BMI estimates. BMI forecasts. Sources: USDA, BMI.
Price Rise Fails To Revitalise Sugar Sector
Venezuelan sugar production has fallen dramatically since 2008. Large amounts of sugar-producing land
have been expropriated in the states of Aragua and Carabobo under the government's 'Land and Free Men'
programme to 'liberate' land from private control. The expropriations have had a negative impact on
Venezuelan sugar production and the area planted to sugar has fallen. Sugar cane growers have also been
discouraged from planting from the shrinking profit margins in the sector. Despite two increases in the
official cost of sugar on the domestic market in October 2009 and March 2010, producers have remained
reluctant to devote acreage to sugar or to invest further in the sector. A further price increase in June 2011
from VEF3.73 per kilo to VEF4.89 may prove insufficient to reverse the sector's decline: producers had
requested for the regulated price to rise to VEF6.40 per kilo.
The negative production margins bode ill for Venezuela's sugar sector going forward. BMI sees little
hope of much needed investment in the sector through 2011 and anticipates that an increasing amount of
domestic demand will be satisfied through imports. Imports shot up from just 180,000 tonnes in 2008 to
an estimated 800,000 tonnes in 2010, according to data from the US Department of Agriculture (USDA).
Imports, therefore, outstripped domestic production of an estimated 485,000 tonnes. The majority of
imports are raw sugar from neighbouring Brazil. However, the tight caps placed on refined sugar prices
by the government for the domestic market make sourcing imports difficult and reduce profitability on the
domestic market.
Sourcing affordable imports is set to become increasingly difficult in light of the unification of the official
exchange rate at VEF4.3/US$ in January 2011. Throughout 2010, Venezuela used two exchange rates for
US dollars: VEF4.3 and VEF2.6, depending on the category of the product. Sugar was one of the
commodities that benefited from the preferential exchange rate; hence, sugar imports will be considerably
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Venezuela Agribusiness Report Q3 2011
more expensive going forward. The sugar shortages experienced in recent months could, therefore,
continue to hit the Venezuelan market unless the government relaxes its restrictive policies.
Threat Of Seizures Continues
In March 2011, the Venezuelan government ordered an inspection of the El Palmar sugar mill and has
threatened to expropriate it, according to a report by El Universal newspaper. The government is currently
in control of eight sugar mills, which were expropriated following accusations of hoarding or putting
profits ahead of the national good. Just six mills remain in private hands.
The agriculture ministry has vowed to raise sugar production at its mills, but we believe this will be
difficult without considerable investment. Years of price controls of sugar have worked as a disincentive
to investment in milling technology. The rise in the price of sugar will do little to solve the problem millers wanted the price to be raised to VEF4.40/kg claiming that at before the most recent rise they
received only VEF1.20/kg against costs of VEF2.60/kg. The government has offered subsidies to
encourage investment, but many millers complain that payment of the subsidies has been irregular. There
is now little excess milling capacity available to increase sugar production. This will not be easy to turn
around. The performance records of food production units seized by the government have been highly
mixed. The government often lacks experienced managers to replace the outgoing former owners leading
to difficult transitions. We therefore do not expect to see a major increase in production from the seized
mills any time soon.
Seizures Alone Cannot Drive Production
In April 2008, Venezuelan soldiers seized 32 sugar plantations in the north-western state of Lara. The
plantations were expropriated on orders from the National Land Institute which claimed they were
unproductive and could therefore be seized under the Land and Agricultural Development Law. The
president of the institute was quoted in press reports as saying that only 20% of the total 2,460 hectares
seized was productive. The local sugar producers association, however, reportedly claimed that 80% of
the land was under cane cultivation and protests followed which the police dispersed with teargas. The
seized land has been transformed into a state co-operative called a Social Production Unit (SPU). SPUs
have been popping up on expropriated land across the country, but it is still too early to say whether the
hoped for gains in production can be achieved and sustained over the long term.
Despite the dramatic news of land seizures and protests (with more than 80% of sugar cane grown by
independent farmers on plots averaging only 45 hectares according to USDA data) just as much attention
will have to be given to assisting smallholders as to pressuring large plantation owners. Measures
introduced to help cane growers include subsidies for every kilogram of cane produced, zero income tax,
cheap fuel and finance.
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These measures will only help relieve future sugar supply shortages if the milling capacity is built up to
match any increase in sugar cane production. The government has begun work on new sugar mills, but
construction has been delayed and the projects have been hit by corruption allegations. The most
infamous problems have been with the Ezequiel Zamora Agro-Industrial Sugar Complex in Chávez's
home state of Barinas. In early 2006, 17 people, including members of the military, were arrested amid
accusations that millions of dollars had gone missing from the project. The delay in bringing new mills
online has led to cane being left in the field, owing to a lack of processing capacity.
Shortages Force Changes In Consumption
Refined sugar is one the basic food staples for which the price is controlled by the government. While this
has insulated consumers from the high food price inflation, the government has often been unable to get
enough sugar to the market at the official rate, leading to long queues at its Mercal-branded
supermarkets. The black market has been quick to fill the gap left by shortages for those who can afford
to pay a premium, with street stalls selling refined sugar at three or four times the official price. Other
consumers have turned to less favoured types of sugar such as bars of brown sugar and fruit lactose
products, which are not covered by price controls. In March 2009, the government signed into law new
regulations stipulating that 70% to 95% of output from companies producing basic food products such as
sugar must be products that come under the price control system. This could restrict supply of alternatives
to refined sugar.
Venezuela Sugar Production, Consumption & Trade
2006
2007
2008
2009
2010
2011
Sugar Production, '000
1
tonnes
745.0
750.0
780.0
665.0
485.0
505.8
Sugar Consumption, '000
1
tonnes
950.0
960.0
960.0
1,050.0
1,260.0
1,297.6
Sugar Net Trade Balance
1
('000 tonnes)
-144.0
-175.0
-389.0
-450.0
-438.5
-413.6
e
f
1
Notes: BMI estimates. BMI forecasts. Sources: USDA, BMI.
Risks to Outlook
Our forecasts for sugar production are highly dependent on government policy. If, in the face of flagging
popularity, President Chávez steps up land seizures, it could seriously dent confidence among large sugar
producers and be a significant disincentive to investment in the sector. How effectively the new cooperatives are able to manage the seized lands will also have an impact on production levels.
The introduction of ethanol production could also threaten sugar production, as sugar cane would have to
be diverted to make the fuel. In July 2008, Chávez said that he planned to build 14 ethanol plants in
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Venezuela Agribusiness Report Q3 2011
Venezuela, with the first four to be completed by the end of 2009. Unless sugar cane production can be
significantly raised, this will put further pressure on the countries already face tight sugar supplies.
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Venezuela Agribusiness Report Q3 2011
Venezuela Coffee Outlook
BMI Supply View: The best Venezuelan coffee comes from the Maracaibo region, in the far west of the
country, along the border with Colombia. Production is estimated to have fallen by 19.4% year-on-year
(y-o-y) to 725,000 60kg bags in 2009/10, due to dry weather related to El Niño-Southern Oscillation in
the Pacific. The failure of government-mandated prices to keep a pace with increasing costs in the face of
rocketing inflation has hurt the profitability of coffee production in Venezuela, leading farmers to turn
towards more profitable crops. In addition, lack of producer unity and the government's expropriation of
two main coffee processors have made the sale of coffee more complicated for producers, providing a
disincentive to continue production. Producers have also faced competition from imported coffee, leading
many to abandon the sector in favour of more lucrative areas such as cattle ranching. In recent years, the
number of coffee-growing families has fallen from an estimated 80,000 to less than 50,000.
There had been hopes that the 2010/11 harvest would see a significant increase in output; however, the
heavy rains at the beginning of 2011 disrupted the flowering process, leading to lower yields.
Furthermore, the area harvested declined by an estimated 12% y-o-y to 180,000 hectares, due to the
decreased profitability of coffee production. We now see production growing by just 3.1% y-o-y in
2010/11 to 748,000 bags, with domestic demand expected to outstrip supply for the third successive year.
The 2011/12 harvest should, however, benefit from the renewal of fertilisation programmes as part of the
government's Agricultural Plan. We currently forecast a y-o-y increase of 12.3% to take output to 840,000
bags.
Government support for small-holder coffee growers, who make up the majority of farms, could see
production grow once again over the late years of our forecast period. In 2014/15, we currently see
production reaching 944,500 60kg bags, 30.3% higher than the low level seen in 2009/10. This, however,
will be dependent on government policy, particularly price controls. If the government relax price
controls further, interest in investing in production of Venezuela's high-quality coffee would likely
increase, leading to greater production than we are currently expecting. Conversely, if price controls
continue to squeeze profits, farmers may switch to other less tightly controlled crops.
BMI Demand View: Coffee consumption has shown strong growth in recent years, rising by an
estimated 25.7% from 2005-2010. The vast majority of coffee consumed is roasted ground coffee, with
soluble instant coffee accounting for only around 1% of total consumption. Coffee is included in the
government's basic food basket and is available in government food stores at controlled prices. This has
allowed more low-income Venezuelans to afford it, leading to a strong increase in demand.
Demand growth has, however, at times led to severe supply shortages and a booming black market.
Wealthier consumers are able to buy their coffee at cafes or street stalls, but poorer consumers are often
unable to afford the high prices. The government has blamed the shortages on unscrupulous suppliers
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