Venezuelan Coffee Growers vs. the Frente Starbuckista de Liberación Nacional

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Coffee, tea or me?

There’s a certain guilty amusement to seeing chavistas tangle themselves up in knots having to relearn, through trial and error (and error, and error, and error, and error…) all the lessons of the Economic calculation problem.

On any day of the week you can find the detritus of this process strewn through Venezuela’s newspapers. Administratively set prices are like a machine for generating economic chaos and absurdity, reliably pissing people off and destroying their livelihoods for no apparent reason. The government’s approach to the problem is very much like a fly’s approach to the problem posed by a pane-glass window.

Today El Nacional – still capable of doing some good journalism, presumably when its editor calls in sick – has this story telling the sad plight of Venezuelan coffee growers forced to choose between criminality and insolvency by the government’s chronically misgauged administrative price on farm-gate coffee.

So how come you can still find coffee at your local abasto? Simple: because the government imports it, from Nicaragua, for more than twice the price it offers local growers.

1 COMMENT

    • John:

      If you add ideology to the equation it is A LOT easier to understand… don’t forget that Nicaragua is a Chavez ally.

      Indeed, the coffee issue has been brewing since a long time ago: Venezuelan coffee is NOT good, because coffee bushes ‘get old’ and must be replaced. This is costly and economic disincentives have been working against that.

      It is better to smuggle coffee from Colombia, sell it in Venezuela for Bolivares, turn them into cheap dollars (if you are CADIVI-connected, of course), and repeat the cycle. If you add to the mix that coffee is also great to smuggle cocaine (it masks the odor), then you have the whole picture.

      • Dagoberto, how come coffee bushes get old in Venezuela and not elsewhere?
        Or is coffee development different at warmer areas and Venezuelan coffee comes from those areas?

        • I’ll rephrase the paragraph: Economic disincentives have been working in Venezuela against replacing coffee bushes, making uneconomic to keep producing quality coffee.

    • This is a combination of lack of coordination with a top-down decision process. One department has the responsibility to control pricing, while Mercal purpose is simply to keep the shelves supplied. Like any good state-run planned economy, Mercal gets graded on its results with very little regard for the costs. Since Venezuelan farmers have to slash costs top compensate for their lowered income, the Venezuelan coffee supply is very likely unreliable and of lower quality making it easier for Mercal to just buy it abroad.

      And of course it is several Mercal bureaucrats have probably noticed the problem, but since the decision process in Venezuela is strictly top-down, they are unable to communicate directly with whichever-entity sets the prices for coffee to solve the problem. That is why the Coffee growers had to go to Caracas to request a change of the pricing. Only by reaching the lowest common authority between to branches of the government can you expect to find any coordination.

    • John, I would echo what Dagoberto said, but I think that ideology only serves to direct the country from which they source the product. (And by ideology I mean, countries that will continue to support Chavez in power in exchange for money.) If it weren’t available in Nicaragua, they’d buy it wherever they need to buy it. Witness the examples of food from the U.S. in Mercal stores in the past.

      More fundamental than why they choose Nicaragua, though, is why they don’t choose to pay the same price for domestic coffee, which would certainly boost local production. The answer, in a word is, I believe, control. With local producers making money, there’s potential to have competition in the influence realm. With coffee pickers out of work, they look to the government for handouts to keep food on the table. With coffee unavailable in regular stores because of price controls, people more often have to turn to Mercal to get some.

      Maybe dependence is the better word for the goal. We can debate the proper name, but I can’t see any other reason to over-pay for imports.

      • Looking at the other side of the coin, Nicaragua is exporting to Venezuela at inflated price. Will they return the favor when Venezuela wishes to export to them at inflated prices?

  1. My family is from St Cruz de Mora – Merida, an area that has been producing coffee for long time.
    Many farmer cannot stay in business growing coffee, so after been doing that for 2 or 3 generation and having invested money in machines to dry, process, etc., are forced to cut down the coffee bushes and start plating something else …. Until the government attacks again that other crop of course.

    And they DO replaced the bushes. Old bushes do not produced enough coffee, they could be farmers but they are not ignorant, they do what is best for their business.

  2. “Administratively set prices are like a machine for generating economic chaos and absurdity, reliably pissing people off and destroying their livelihoods for no apparent reason.”

    Frame and hang on a huge billboard, for all to see. Not only chavistas, who are really radicalized late-comers, but to remind adecos and copeyanos of their own history in this respect. Social-silly indeed!

    • “Administratively set prices are like a machine for generating economic chaos and absurdity, reliably pissing people off and destroying their livelihoods for no apparent reason.”

      Now, what the MUD should do is take that phrase, put it in words the common people can understand and then, put it in a bumper sticker.

  3. Dagoberto is right, but Venezuelan coffee has also not “been good” because of forced mixing.

    Since the 60’s, Venezuelan growers were forced to comingle their beans with others in order to acheive parity of quality, so that one grower would not have an “advantage” over another grower.

    Mind you, this is a policy from the 60’s, even though it sounds like something the current band of idiots would espouse.

    I know of only one grower that defied this policy, sometimes by force of arms, but am not aware if he still is in business.

    The farm was located near Turmero, Aragua and the Coffee marketed as Cafe Paya.

    • Eric Hobsbawm wrote a lovely bit about guild regulations in France in the 18th century minutely defining how various kinds of fabrics may be woven – down to how many stitches per square inch – to make it impossible for any one producer to compete on quality.

      Reminds me of the same thing…

  4. Do not forget: Import/export business greases many palms. Somebody is having a juicy commission per each ton of coffee that gets in Venezuela, so screw the farmers

  5. funny, I was going to write about coffee imports tonight, I have some incredible numbers, like so far in 2011 we have imported twice as much as all of last year, but I dont seem to have the energy now that I read your post. When will this idiocy stop?

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