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Venezuela Agribusiness Report Q2 2009Published by: Business Monitor International Published: Apr. 24, 2009 - 34 Pages Table of Contents
AbstractIn BMI's Venezuela Agribusiness Report for Q2 2009, we introduce the new Business Environmentsection. This section gives an overview of agriculture in Venezuela and its significance to the overalleconomy and labour market. We also cover support given to agriculture by the government.As oil prices fall and the flow of petrodollars into Venezuela's economy slows this year, the food andagriculture sector will come under increasing government focus as President Hugo Chávez seeks toensure food remains affordable for his support base among the poor in the coming downturn. In 2009, weforecast economic growth to fall to -5.6 from 4.8% in 2008 and 8.4% the previous year. With another,albeit smaller, GDP contraction expected in 2010, these will be tough times following the five years ofrapid growth up to 2008. At the beginning of 2009, the government's nervousness over a potential fall in living standards for themasses was plain to see. In March, the government signed into law new regulations stipulating that 70%to 95% of output from companies producing basic food products such as milk, sugar and rice must beproducts that come under the price control system. This will further reduce profits for food processorsalready hard pushed by the pricing restrictions. In the same month, Chávez ordered the takeover of a rice mill belonging to US company Cargill. Thisfollowed seizures of facilities belonging to Venezuela's largest food processor Empresas Polar.Processors will not be the only targets of the government. The agriculture minister has warned largefarmers that land will be seized if they reduce the area planted, owing to the strict price controls. Weexpect the pace of land seizures to increase this year as Chavez seeks to distract attention from the poorstate of the economy. The high price of agricultural imports will also be a factor in speeding up reform of the sector. In 2007,imports of agricultural products cost US$4.93bn and accounted for 10.7% of total imports. While thislevel of imports may not have seemed so bad when oil revenues were at record highs, now that the priceof oil has fallen so far they will place an increasing strain on Venezuela's trade balance. If, as we expect,the government opts for a devaluation of the Venezuelan bolivar, the cost of food imports will becomeeven harder to bear. The big question, of course, is whether the seizures and land reforms will indeed lead to increasedproduction. The risk is high that the government's actions will further inhibit investment by larger,efficient farms and new peasant co-operatives, even if they were to prove successful in the long term, willtake years to find their feet. Beef production, where large farms predominate, has certainly been badly hitby the reforms with output falling dramatically in 2008. The land reforms have also been a source of social unrest with protests from both peasants hoping to gainfrom the reforms and landowners angry at the confiscations. There have also been cases of peasantfarmers on seized land being harassed and even murdered. In his efforts to revitalise Venezuela'shabitually under-performing agricultural sector, Chavez will have to take a fine line between bringingmore of Venezuela's large swathes of potentially productive land under the tiller and scaring offinvestment from proven and efficient producers. Get Full Details About This Report >> |
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