How to control a company that’s too popular to take over

by Francisco Toro

President Chávez has a problem. Amid his continuing push to nationalize as much of the Venezuelan economy as possible, he’s finding that some of the firms he’d intended for a state takeover are widely popular with Venezuelans. Chief among them is Empresas Polar, a food and brewing conglomerate that is now Venezuela’s largest privately owned firm. While Polar is a key target for government takeover, the government has been stymied by the fact that, as a June survey found, 76% of respondents have a favorable view of the firm, and just 19% a negative one. Worse yet (for the government) 83% of Venezuelans don’t want Polar nationalized, against just 13% who favor the move.

So what do you do when your number one target for expropriation also turns out to be one of the most trusted and respected institutions in the country? Simple, you squeeze them via the supply chain.

In recent years, the government has taken over record numbers of both Polar’s upstream suppliers and downstream distributors.  November saw the takeover of the Venezuelan affiliate of U.S. based Owens-Illinois, a bottle-maker that supplied the containers many Polar products are shipped in. The government similarly took over Agroisleña, a Spanish agribusiness firm involved in seed credit, agricultural extension and fertilizer and pesticide distribution to many of the farmers who sell to Polar. It has continued to consolidate control over food distribution channels, taking over control of the largest supermarket and hypermarket chains – Cada and Exito – from a French-Colombian joint venture and continuing to expand its own Mercal and PDVAL branded neighborhood shops. And, needless to say, the lands where many Polar products are grown have been a key target for state takeover.

This strategy appears to be the fall-back option for a government that seems to be calculating that, for now, nationalizing Polar would carry unacceptable political costs.

In July, when the government stepped up its rhetoric against private enterprise considerably, President Chávez made a particular point of threatening to expropriate Polar and personally attack its CEO, Lorenzo Mendoza. He chose a symbolically loaded opponent. Founded in 1929, the firm has long been an icon of the Venezuelan industrial sector, and its brands, ranging from Harina PAN and Mavesa to, of course, Polar Beer, are some of the most readily recognizable in the country. Polar is also the Venezuelan licensee for such international brands as Pepsi, Quaker Oats and Lipton Tea. The company is Venezuela’s largest employer as its 17 production facilities in Venezuela employ some 32,000 people with thousands of more jobs created indirectly by its operations.

Last summer, in a series of moves that many believed to foretell an expropriation, the president repeated charges of hoarding, price gouging and “boycotting the government” against the firm, usually couching them in his trademark aggressive, vituperative language. The firm countered using in situ government inspections of its production facilities and distribution chains, and the associated paperwork, to refute the allegations. After seizing 114 tons of food from Polar warehouses recently, the government underscored its animosity by pulling down a large Pepsi advertising sphere, long stationed on top of Polar’s headquarters’ building, and something of a Caracas landmark.

The move came days after the president declared “economic warfare on the bourgeoisie” and seized 18 small and mid-sized food sector wholesalers on similar hoarding charges. In the same week, Energy Minister and PDVSA head Rafael Ramírez had laid out the government’s plans to attain “hegemonic control” over the nation’s food processing and distribution infrastructure.

That “hegemonic control” makes it almost superfluous to take over Polar itself: the firm could just as easily be controlled indirectly, through a shower of regulations and, especially, through control of all the firms it buys from and sells to. These days, Polar may still make the iconic “Harina PAN” needed to make Venezuela’s staple food – the “arepa”, a type of corn-based bread. But to make it, it must increasingly buy corn from state owned farms grown with seed credit provided by a state owned firm and fertilized with state-made, state-sold fertilizer. It must buy the corn at state-controlled prices through a state-controlled marketing board and must them sell it on to State-owned distributors for final sale to consumers – again at state-controlled prices – through State-owned supermarkets, hypermarkets and neighborhood shops.

Like the polar bear in its logo, Polar finds itself adrift – floating on a shrinking bit of sea ice amid a sea of Chávez-controlled buyers and suppliers. The question remains unanswered whether the vast majority of Venezuelans who value and oppose the government’s attempt to take over Polar, will take notice of Chávez’s sly way of putting the company in a box.