It’s become the Venezuelan economist’s grim mantra: it’s going to get worse than people realise. As bad as the current food shortages are, it will get worse. The government is facing a gigantic hole in its dollar finances. Whatever decisions they make on the foreign debt, adjustment will be carried out through people’s stomachs. Literally.

Observers have been sounding the alarms, and with good reason. Estimates vary, but all are grim. Unless there’s a rapid and very rapid rise in the price of oil, the food imports Venezuela has become increasingly dependent on are simply not affordable this year. Not even close.

Food imports have increased significantly since 1999, as shown in Charts 1 and 2. Here, we include live animals, meats, fruits, seeds, vegetables, cereals, flours, all food preparations and farm animal feed.

Imports by Value
Chart 1 – Imports by Value
Chart 2 - Imports by Volume
Chart 2 – Imports by Volume

Imports of food skyrocketed after 2008. Between 2008 and 2014, they averaged USD 8.2 billion. The average volume rose to 8.08 million metric tons. That’s an increase of 299% and 74.5%, respectively, compared with the average for 1998-2007.

And they increased at a much faster pace than total imports: food now accounted for 19% of the total value, and 50% of the volume, vs. 10.6% and 33% in the previous years. ¿Why did the value of imports increased so much faster than the volume? First of all, because international food prices rose sharply. But, also, because of CADIVI and corruption.

As large as these figures look, they nonetheless understate the share of Venezuela’s imports that are food-related. They don’t include, for example, packaging, equipment, fertilizers, chemicals, nor anything related to the distribution chain.

One of the government’s excuses is that “we import more because we are more people”, but the numbers don’t bear that out. Per capita figures tell the same story, as shown in the Charts 3 and 4.

Chart 3 - Imports by Value per capita
Chart 3 – Imports by Value per capita
Chart 4 - Imports by Volume per capita
Chart 4 – Imports by Volume per capita

The population growth excuse only explains 20% of the increase by value, and 27% of the increase by volume. Just as before, 2008 was a watershed year. Per capita food imports increased to an average of USD 283 per person in 2008-2014, a 239% increase compared with the previous years. By volume they increased by 54.5%, to 279Kg.

Another standard government response to the dependence on imports and food shortages is that– thanks to the revolution – Venezuelans now eat more. But guess what, the government’s own figures don’t agree.

Chart 5 shows INE’s report of the top seven staple foods consumed by Venezuelans, in grams daily per person, available up to the first half of 2014. All of these staples depend on imports, some by a lot, such as pasta and bread because wheat is not grown in Venezuela.

Chart 5 - Food consumption
Chart 5 – Food consumption according to INE

If Venezuelans eat more of their favorite staples under chavismo, it doesn’t show in the data. Between 2003 and the first half of 2011 the overall changes are ambiguous, with consumption of four staples increasing and three decreasing. But after the first half of 2011 there’s a clear downwards trend in every staple. People ate on average 20% less of these foods in those three years than in the previous years.

Any gains achieved in 2003-2011 were more than reversed by 2014: only the consumption of chicken was higher in 2014 than in 2003. After eleven years of chavismo, people ended up eating 16.5% less of these staples. There’s no reason to believe the situation has improved since 2014: food shortages have only worsened .

The increase in food imports wasn’t caused by population growth or better nutrition. It was promoted and carried out by the government, partially to make up the shortfall left by declining domestic production, but also because the overvalued official dollar rate makes it wildly profitable to import food – or to be seen to import food, as a way of getting at the dollars.

The government has vastly increased the public sector’s imports of food traditionally supplied by domestic producers. The government buys food abroad at prices many times higher than what it would cost to produce it in Venezuela, and then sells it for a loss at prices well below production costs. In effect, it’s self-inflicted dumping: a trade practice so destructive it’s actually illegal under international trade regulations. Except in Venezuela, it’s us doing it to ourselves.

No wonder domestic production collapsed.

And to add insult to injury, the government has changed regulations to favor imports over domestic production.

The domestic food industry is in no shape to pick up the slack. The government stopped issuing statistics on food production years ago, but statements by industry chambers and associations – and mostly unchallenged by the government – paint a clear enough picture.

Price controls have decimated the industry, together with expropriations and the crunch on imported supplies. Farmers facing ever-increasing costs can’t make a living selling at government-sanctioned prices. They lack equipment and spare parts, and can’t compete with the artificially-cheap imports the government brings in. Food production depends on other industries as well, such as the packaging industry, which is also in bad shape.

These industries can’t be reactivated quickly or cheaply. Venezuelan companies owe billions to their foreign suppliers, as the government has a nasty habit of authorizing imports but then failing to disburse the funds to pay for them. Importers usually buy on credit, and suppliers won’t dispatch more until old debts are settled. Why would they?

Nor are high level guarantees worth much these days. The government is in arrears even for imports brokered directly between Maduro and the President of Uruguay. The questionable creditworthiness of our domestic industry and the government is well known around the world.

The food supply chain has long roots and is dependent on many industries: transport, chemicals, plastics, electric energy, aluminum, agriculture and retailers, just to name the obvious. Many of these are similarly dependant on all kinds of imports.

The government is not oblivious to the problem. The Economic Emergency Decree, approved yesterday by the TSJ under non-sensical reasoning, shows signs they are aware, and that their instinct is to go for the wrong policy responses. The decree grants the government the power to seize all assets related to food production and distribution. In glorious autocratic parlance, the power to “take all necessary measures”.

The usual chavista tricks are useless against the looming food crisis. Chavismo can’t print dollars to pay for added imports, and expropriations will not yield more food. And the scale of the external shock we now face makes it certain that – repeat after me – it will get worse than people realise.

 


 

Note on Methods: I defined “food imports” as everything contained in Chapters 1 to 23 of the Venezuelan Customs Code, except Chapter 14 and the alcoholic beverages of Chapter 22, as reported by INE. INE’s foreign trade data is available from 1998 to October 2014, so November and December of 2014 were estimated.

36 COMMENTS

  1. Un buen artículo. Para un seguimiento más a pie de calle de todo esto por decirlo de alguna forma, visito de vez en cuando el twitter de @jazmendez64. Es un agricultor que habla de todo un poco pero cuando comenta sobre lo suyo cuenta cosas que se explican por sí solas. Les dejo con algunos tweets

    Llegar a la finca y encontrarse que 2 transformadores y los bajantes de electricidad fueron robados, piensas en tus siembras

    Lorenzo Mendoza”Hay q producir y dejar el bla, bla, bla” Nicolàs maduro”Tengo 50 gallinas, ¿Verdad Cilia?” 2 visiones, elija la d su agrado.

    Gbno pide a gritos ¡PRODUZCAN! y deben reìr ante la nula capacidad de maniobra q tenemos, saben q deambulamos de cuidad en ciudad x 1 insumo

    Ezequiel “la Sra Nelly tenìa 2.000 gallinas y el dìa q Arreaza colocò los huevos a 420, ese dìa las vendiò” no solo Nelly, Sultano y mengano

    El campo muere de mengua y el pueblo llora por un vaso de leche. El tractor se quedó sin motor y la cosechadora espera por una batería nueva

    Hoy 31 de enero NO hay una semilla disponible y el “conuco” como bandera. Ojo,semillas estàn en Vzla, no las liberan, no saben a q precio.

  2. What a rolling disaster! Self-inflicted illegal dumping and the decimation of domestic food production in order to buy more expensive food elsewhere!

    Seriously, has there EVER been a more incompetent bunch of yahoos in charge of running a government, anywhere in the world?

  3. Great article. There is something strange about those levels of imports. Particularly the jump between 2007 and 2008. There is no way that can be explained just by price increase of food and decline of national production in one year only. So, very simply, the explanation is “companias de maletin and smuggling”. Note that volume didn’t increase that much from 2007-2008 which only means one thing: overbilling.

    I take the point on national production being obliterated now, etc. But I can’t see a rational explanation why imports of food “must” be ~$10bn. a year. But again, witch hunt of bond holders carries on while ignoring the elephant in the room.

    • Yes, the difference between the growth in value and volume is most likely due mainly to overbiling of CADIVI imports and fake imports (and there’s a way to estimate how much, you just need to construct a price index for Venezuelan food imports). But even if we ignore the increase in the value, the increase in the average volume per year after 2008, of 75%, gives us a good idea of how much more food we are importing. And those cheap imports have had an undeniable crowding-out effect on the private food industry. So, Venezuela is importing more, producing less, even though Venezuelans are eating less.

      • According to very reliable independent sources absolutely oblivious to oppo-regime divide , average overbilling for Venezuelan food imports has been between 25 and 30% , this is considered ordinary trade practice for Venezuelan food imports . This data derives from expert study done at the demand of US court for reasons unrelated to Venezuelan politics .

        Additionally there is testimony from Head of Colombian Association of Meat Industry appearing on Colombian TV that when Chavez stopped imports from Colombia , Venezuela was paying such high prices for Colombian meat imports that when they tried going back to selling the meat domestically or to foreign markets their costs made them inviable and non competitive (costs of producing meat rose in response to the bigger profits from applying higher than normal prices to Venezuela .)

        Now its being revealed in a discussion in Uruguays congress that prices of milk products sold by Uruguayan farmers to Venezuelan government ( and which Venezuela is in arrears in paying) are twice the normal market price for such products.

        Maybe govt should hire professional international trading companies to buy the countries food needs using competitive bids methods , following request for food imports made by private wholesalers or industries , and another to check on the efficiency of operations performed by the former ….quite sure they would do a better job than govt agencies and maybe than some private business who also game the system to fraudently take in some surplus dollars. In short lets out source to international professional trading companies the buying of food imports and the control of their operations.!!

        • The 25-30% estimate is in line with one made by Ecoanalitica, of 20%. As for outsourcing imports, none of that would be necessary if you just lift the exchange controls. Without the FX control there’s no gain in overbilling or fictitious imports. There would be no surplus dollars to graft. What’s needed are not better controls, but rather the elimination of controls that provide incentives for corruption.

          • Maybe my understanding is wrong but I believe the problem with lifting controls at one go is that there wouldnt be enough $ to meet demand except at such high cost that a lot of people would be unable to buy the bs cost of imported food and would starve. Please correct me if my assumption is wrong and please explain why……this is not a questioning of what you said but a genuine perplexity …..

            I seemed to have read that to lift forex controls you need a lot of money , which would involve going to he FMI…..or some such international financial institution ….

          • Bill-The adjustments required by the technocrats would almost certainly be extremely difficult from a political point of view. This was the case in 1989 when Hausman / IMF recommended to Carlos Andres Perez to immediately raise the price of gasoline. The “Caracazo” ensued and the ground was laid for Chavez. The next regime will almost certainly need to get a big loan from the IMF, but will need to eliminate many of the economic disparities in order to get disbursement of the IMF loan.

    • Not just the imports, but, in a great analysis by Mr. Rosas, how much of the statistics mentioned (assuming they’re mostly/all from the INE) are fake?

      • INE’s foreign trade figures are not perfect, but are considered reliable. Remember that all foreign trade transactions leave two records: one in the exporting country, and one in the importing country. You can double-check INE’s figures simply by looking at the stats of trade partners. By and large, INE import stats match the story told by the exports records of other countries. The stats offered by others agencies in Vzla, such as the Central Bank, don’t provide the same level of detail. In INE’s database you can get imports/exports by custom code, that is, in detail by product. The dataset comes from the transactions in Customs, where imports are declared and duties paid. It’s the same used by SENIAT to collect foreign trade taxes.

  4. The other argument people throw out there is Venezuela’s world-topping rate of obesity. But as food becomes more scarce Venezuelans’ diets are increasingly composed of fats, flour, salt and sugar, as nutritional options disappear or become prohibitively expensive. What the regime chooses to subsidize is literally killing people. The whole situation shows a total indifference of the regime to the welfare of people, especially poor people who are the most affected by this corruption and stupidity.

  5. An idea for printing food–print the bills with flavored inks, so that the Pueblo can lick them (especially the lower-denomination ones), and get some value out of them….

  6. The government stopped issuing statistics on food production years ago, but statements by industry chambers and associations – and mostly unchallenged by the government – paint a clear enough picture.

    The FAO has statistics on Venezuelan food production. According to these figures for per capita production taken from the FAO, Venezuelan agricultural production overall hasn’t been doing that badly, with the exception of sugar and perhaps cereals [corn]- though cereals are better than 1998,
    Production_Indices_E_Americas: Venezuela
    Gross per capita Production Index Number (2004-2006 = 100)

    Item Year 1998 (compared to 2004-2006)
    Meat indigenous, total 94
    Milk,Total 126
    Oilcrops Primary 87
    Roots and Tubers,Total 104
    Sugar, raw 96
    Vegetables and Fruit Primary 126
    Agriculture (PIN) 100.78
    Cereals,Total 67.82
    Crops (PIN) 103.24
    Food (PIN) 100.19
    Livestock (PIN) 99.03
    Non Food (PIN) 135.74

    Item Year 2013 (compared to 2004-2006)
    Meat indigenous, total 114
    Milk,Total 173
    Oilcrops Primary 63
    Roots and Tubers,Total 131
    Sugar, raw 68
    Vegetables and Fruit Primary 139
    Agriculture (PIN) 118.14
    Cereals,Total 85.64
    Crops (PIN) 111.29
    Food (PIN) 118.49
    Livestock (PIN) 123.01
    Non Food (PIN) 97.97

    The FAO gets these figures from the Venezuelan government. Are these figures accurate?
    How do these figures compare to what the Venezuelan government has released in Venezuela?

    http://faostat3.fao.org/download/Q/QC/E

    • I did check the FAO stats for this post. I didn’t check the indexes, but rather the raw datasets from which those are constructed. My opinion of these datasets varies from “Suspect” to “Liar liar, pants on fire”.

      The source of every data point is identified in the datasets. Not all come from the government. Some are FAO estimates, and some say “Calculated”, but it doesn’t explain where this calculation came from.

      The data that says “FAO estimate” are very suspect. For example, some years the values don’t change, at all. If you believe FAO’s estimates, then the total (not per capita) production of “Milk, whole dried” remained constant at 22500 for three years straight, 2011 to 2013. In 2009 it was the exactly the same, 22500, but in 2010 it had gone down slightly, to 22200. That’s just one example; I found unchanged FAO estimates of production across several years in many other crops and foods: tomatoes, tobacco, cotton, tubers, etc. That just very lazy, and can’t be trusted. (And some it’s also counterintuitive: dried milk disappeared from Venezuelan markets. But production levels remained the same?)

      Then there’s the data provided by the government. I checked the food/crops/produce that we know for sure has suffered in the last few years: milk, beef, coffee, and cattle livestock. Milk, beef and coffee are some of the most difficult items to find for consumers, and its producers have been hit hard by price controls. That has been the case for years, especially for milk and beef. Imports of all of these have increased significantly in the past years to make up for the lost production.

      But according to the FAO stats, provided by the Venezuelan government, the production of all of these has been increasing almost every year since 2009. On top of that, some exhibit very weird jumps. The number of cattle livestock increased by 18% in just one year, for example. The numbers are completely counterintuitive to reality, and also to the reports of farmers’ associations.

      No wonder FAO gave the Venezuelan government an award just last year.

      • Thanks for the input. And like you said, no wonder the FAO gave Venezuela an award. Miguel Octavio has often cited a certain Allison who is one of the experts on Venezuelan agriculture. It would be interesting to have him get in touch with the FAT.

  7. This govt has shown consistently that to the extent that its prestige demands that if heavily fake or ‘massage’ figures ti will do so, where this is difficult of impossible (because the true figures are difficult to falsity ) then it will simply stop publishing them , where it cant easily do either it will try to show figures which although false dont totally deviate from the true ones .

    Look at the oil production figures for instance , Opec periodically publishes two figures in respect of each country , one the officially reported production figure and next to it the production figure which results from research done by independent sources . Many Opec countries show a small difference , the one country showing the most difference is Venezuela , for example for the most recent period the official production figure is of about 2.8 million of bls per day while the ‘independent source’ figure is of about 2.4 million bls a day, a 400.000 bl difference .

    The regime whenever possible uses methods and criteria that help it inflate the production figure, for example it may include in it the per bl equivalent of natural gas production (which isnt liquid oil and thus cannot be considered as the equivalent of crude oil ) or they will report the heavy faja production in situ but not reflect that when its passed thru an upgrader 10% of that volume is lost leaving 90% of the production as the volume thats really capable of being sold on the market.

    Because of the above, many follow the much more reliable production figures published by the Energy Information Agency of the US which reports last years production as 2.5 million bls per day.

    Quite certain that the food and essential imports figures released by any Venezuelan agency , will be accurate to the extent they cannot be believably falsified , still that figure will include distortions arising from the practice of overbilling the import prices to get at the cheap dollars the govt doles out to those doing the importing, higher than market prices paid as a result of govt officials crass incompetence or corruption but that any internal production figure will not be reliable if they dont show an increase that makes the govt handling of local agriculture look good.!!

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