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 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.
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.
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.Caracas Chronicles is 100% reader-supported. Support independent Venezuelan journalism by making a donation.