Venezuela Agribusiness Report Q4 2012Published by: Business Monitor International Published: Oct. 17, 2012 - 73 Pages Table of Contents
AbstractBMI View: While the likelihood of a victory by opposition candidate Henrique Capriles Radonski inVenezuela’s October 7 presidential election has increased in recent months, we still believe PresidentHugo Chávez is the most likely winner. Whatever the outcome of the election, making improvements toVenezuela’s deep-seated economic and social problems will be extremely challenging. Venezuela’sagricultural and agribusiness sectors remain crippled by a combination of rising input costs, spirallinginflation, poor management and infrastructure, and controlled farmgate prices. With the countryincreasingly reliant on imports to meet domestic demand, the outlook for the sector is poor. We hold toour forecast that the bolívar will be subject to devaluation following the election. While the overvaluationof the bolívar is exacerbating the problem of competition from imports, devaluation may add to therunaway inflation that is eroding producers’ profitability.Key Forecasts Venezuela faces major political and economic uncertainty in the run-up to and immediateaftermath of the election. Although real GDP growth came in at 5.6% y-o-y in H112, we stillexpect a sharp slowdown in growth in the second half of the year, as the country’s currentgrowth model, which is driven by pre-electoral fiscal and monetary stimulus, is unsustainable.We forecast full-year GDP growth of 4.7% in 2012 and 2.6% in 2013. Consumer price inflationwill remain elevated, forecast at 26.0% in 2012 and 20.0% in 2013, the highest level in LatinAmerica. The operating environment will remain very precarious for foreign multinationals inthe country. The lack of profitability is leading beef producers to leave the sector. The national cattle herd isforecast to shrink by 4.7% y-o-y in 2012 to 12.1mn head. We forecast that production will fall to290,000 tonnes. This is a bigger fall than previously forecast, owing to producers leaving thesector liquidating their herds. We see production increasing to 297,000 tonnes in 2013. Policychanges after the presidential election could mean production increases further. We forecastproduction reaching 321,000 tonnes in 2016. After shooting up by 49.1% to 1.31mn bags in 2011 due to an increase in imports, we forecastthat coffee consumption will increase only marginally in 2012 to reach 1.32mn bags. Weforecast consumption remaining at a similar level in 2013. Through to 2016, we forecast demandgrowing by 4.5% on the high 2011 level to 1.36mn bags.Key Trends And Developments In July 2012, Venezuela was granted full membership of the South American trading blocMercosur, six years after it first applied to join. Its membership was previously blocked byParaguay because of concerns over a lack of democratic rights in Venezuela. However, Paraguayhas been suspended from Mercosur until its presidential election in 2013 due to the impeachmentof President Fernando Lugo. Chávez has highlighted the potential for Venezuela to widen itsmarket access and diversify its exports. However, many producers are concerned that theelimination of tariffs will mean cheap imports of coffee, soy and meat threatening domesticproduction, which has already been hit by price controls, inflation and a lack of investment. In September 2012, the government announced a further increase of an average of 33% in fixedcoffee prices. The price for Good Washed ‘A’ green coffee rose from VEF1,200 to VEF1,600per quintal; Good Washed ‘B’ rose from VEF 1,080 to VEF1,400 and Good Washed ‘C’increased from VEF980 to VEF1,350. Lower-quality coffee prices also rose, with Good Naturalrising from VEF940 to VEF1,240 and Natural Standard increasing from VEF820 to VEF1,090. Prices charged to consumers for ground coffee are likely to be revised in Q412. In addition to theprice increases, the Ministry of Agriculture and Land said it would open 35 purchase points toserve producers in Lara, Barinas, Portuguesa, Trujillo, Mérida, Táchira and Monagas. It will alsoopen nine roasters, five of which will purchase directly from farmers to eliminate middlemen.The changes have disappointed producers, who argue the price increases are insufficient to coverthe rapid increase in production costs. Manuel Morillo, director of the Association of VenezuelaCoffee Producers, said the organisation had worked for months to demonstrate to the ministrythat the true costs of production are VEF1,700-2,200 per quintal. On August 1 2012, the government raised the farmgate prices of corn and rice. The price ofyellow corn increased by 42.9% from VEF1.33 to VEF1.90 per kilo, while white corn rose by46.6% from VEF1.50 to VEF2.20. However, the increase has not been sufficient to satisfyproducers, who argue that even with the price rises they cannot cover production costs, whichhave increased dramatically. Antonio Pestana, vice president of the National Confederation ofAgricultural Producers Associations of Venezuela (Fedeagro), said the cost of producing a kiloof white corn is VEF2.40, VEF0.20 higher than the new government-mandated price. He alsowarned that a failure to invest in improving crop irrigation and drainage poses threatens therecovery of domestic grain production, leaving the crops vulnerable to drought and flooding. Get full details about this report >> |
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