Feb
4
2013
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ICYMI: Covert Flour Deals Show Venezuela Woe

Wall Street Journal
February 3, 2013
By Kejal Vyas

WO AM587 VENSHO G 20130203181503 e1360009164793 ICYMI: Covert Flour Deals Show Venezuela Woe

Courtesy of: AFP/Getty Images

CARACAS—On any given day at the Quinta Crespo wholesale market, dozens of people lurk in the back alleys trying to get their hands on a white powder. Dealers sell it on the sly at inflated prices, careful to avoid patrolling National Guardsmen who can arrest them.

But this is no illicit substance trading hands in this grimy downtown bazaar: It is corn flour, used to make Venezuela’s staple food, the pancake arepa.

In oil-rich Venezuela, the worst food and consumer-goods shortages in nearly four years are making buying flour and other goods such as meat, sugar, cooking oil and toilet paper into a harrowing ordeal. Even medicines, like asthma inhalers, are hard to come by.

WO AM575 VENSHO G 20130203175404 ICYMI: Covert Flour Deals Show Venezuela Woe

Courtesy of: Wall Street Journal

Business leaders say the explanation is simple: Currency controls adopted in 2003 to prevent capital flight also complicate the purchase of imports, while price caps, expanded in late 2011, don’t cover production costs.

Economists say the shortages those factors created were exacerbated by President Hugo Chávez’s overspending during his re-election campaign last year.

The shortages have become the government’s latest challenge, as it deals with the political uncertainty of Mr. Chávez’s now six-week absence from Venezuela as he recovers from cancer in Cuba.

The central bank’s Scarcity Index, a measure of the percentage of products missing from store shelves, jumped to 16.3% in December, the highest level since May 2008 due to price controls that were too low, many economists say.

“Here you have to know someone, know the right people, before you can get what you want,” said Antonio González, a 22-year-old bakery worker out looking for supplies in Quinta Crespo on a recent day.

Despite neon-colored signs posted outside stores saying sugar and flour are out of stock, Mr. González said some owners sell to preferred customers ready to spend anywhere from 30% to 90% above state-regulated levels.

The ingredients are unlikely to go toward products with low state-controlled prices, such as loaves of bread that cost 3 Venezuelan bolívars (70 cents). Instead, they are likely to be used for unregulated items like breads stuffed with cheese or ham, which can command more than 20 bolívars.

In the wealthier neighborhood of Chacao, many bakeries have limited customers to buying two baguettes. Many supermarkets remind shoppers they can purchase no more than two packages of cooking oil or corn flour, products whose prices are regulated. Long lines of customers buying rationed goods are a common sight.

Venezuela’s largest food packager and distributor, Empresas Polar, said in a recent report that the cost of buying white corn, among other raw materials it uses in its popular P.A.N. brand corn flour, was 50% above price-control levels.

The government acknowledges the latest wave of shortages, but it blames an unusual January rise in food consumption, as well as hoarders and speculators that it says seek to destabilize its socialist project.

In recent weeks, state television has broadcast live searches of warehouses for hidden inventory. Food Minister Carlos Osorio recently said that more than 17,000 tons of foodstuffs had been confiscated in recent weeks as authorities cracked down on around 3,000 storage houses allegedly hoarding goods.

“There are sectors of the opposition that want you to think that there is this total lack of food,” Mr. Osorio said in televised comments.

One official from a large Venezuelan food-packaging company denied that his company was hoarding. He called the government inspections of warehouses “political theater,” adding that state regulations require companies to frequently record movement of their supplies and “they already know how much inventory we have at all times.”

Ángel García Banchs, head of local economic-research house Econometrica, said in an opinion column: “There’s only one strategy left for the government, even though it’s a failed one from my point of view: to design and execute a media campaign to blame the shortages on private national companies.”

Despite price caps, many goods are sold at unofficial, higher prices. Central bank data show an unusual 5.7% rise in the prices of foods and nonalcoholic drinks in December.

Critics say the government flooded the market with dollars last year ahead of Mr. Chávez’s successful October re-election bid. The central bank’s 2012 annual report showed imports jumped 20% on the year to $56.4 billion, the highest in 16 years.

Since the October vote, the flow of dollars to the private sector has dried up. The dollar shortage has caused the black-market rate for the dollar to nearly double to 17.5 bolívars from October.

Last month, Venezuelan authorities announced a change to the tax system that it applies on its oil partners, a move that officials said will send $2.47 billion more to the central bank, which will be able to distribute the hard currency into the local economy.

Economists say Venezuela needs to change its currency-control system. One such move could be a devaluation of the state-set exchange rate of 4.3 bolívars per dollar. That would leave more dollars to distribute in the local economy, economists say.

But a devaluation would also exacerbate already high inflation by making the cost of imports higher in bolívar terms.

With Mr. Chávez ill, his government could be wary of any move that might spark discontent.

“If this is not a sign of a looming crisis, then only god knows what it will happen,” wrote Mr. Garcia Banchs, the economist.

To read this article at the Wall Street Journal, please click here.

 
Apr
27
2012
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In Case You Missed It… Articles Roundup Week of 4/27/12

This week: Venezuela’s stocks rise a staggering 99 percent on the speculation that Chávez’s health is rapidly deteriorating; Venezuelans go 11 days without a public statement or appearance by their president; Chávez, meanwhile, continues to shuttle back and forth from Cuba for treatment; he runs the government via twitter during his absences; a New York Times opinion writer reports that the Chávez executive branch had “the last word” on every judicial decision rendered by Venezuela’s Supreme Court; that, along with continuing allegation of bribery by drug lords, keeps the issue of Venezuela’s public-sector corruption in the news. Meanwhile, the World Bank director warns that Venezuela will suffer economically if and when oil prices fall; finally, inflation continues to soar and Venezuelans face shortages of even the most basic goods.

Chavez’s mysterious ailment fuels a run on Venezuelan stocks, The Washington Post

What is the hottest global market so far in 2012? How about socialist Venezuela — where stocks rose 99 percent between Jan. 1 and this week.

Chavez: he’s back! (again), The Financial Times

And… he’s back – again. But after a deafeningly silent 11-day absence in Havana, this time Hugo Chávez returned on Thursday from his radiotherapy to greater speculation than ever that his cancer is more serious than he has so far let on.

Venezuela’s Chavez returns home, CNN

Venezuelan President Hugo Chavez returned home early Thursday after receiving cancer treatments in Cuba. Before landing, Chavez released a statement about coming back to his homeland.

Venezuelan politics in 140 characters or less, Foreign Policy

“Hello Venezuela! I inform you that I approved 1.95 billion bolívars for state and local governments, coming from extraordinary income! Onward!” The above is a rough translation of a tweet written by Venezuelan president Hugo Chávez on April 17.

Hugo Chávez & The Supremes, The New York Times

It happened every week. On Friday mornings, Venezuela’s top prosecutor, the justice minister, the solicitor general, assorted Supreme Court justices, police chiefs and top officials would meet in the vice president’s office to review politically sensitive court cases and decide how they should be handled.

Venezuela’s judiciary: Whistle-blown, The Economist

An impeached judge says the courts are subservient and corrupt. When Hugo Chávez became Venezuela’s president, in 1999, he promised an overhaul of the country’s notoriously venal judiciary. But according to charges made by a recently dismissed supreme-court justice, the flaws Mr Chávez vowed to rectify are nothing compared with what has transpired under his rule.

The Colombian-Venezuelan border: Pick your poison, The Economist

Drug gangs now dominate where guerrillas once reigned. In the last days of Álvaro Uribe’s presidency in 2010, Colombia accused neighbouring Venezuela of letting the FARC and ELN, the two main leftist guerrilla groups, maintain camps along its border. In response Hugo Chávez, Venezuela’s president, recalled his ambassador and skipped the inauguration of Mr Uribe’s successor, Juan Manuel Santos.

Accused drug dealer says paid off fugitive Venezuela judge, The Chicago Tribune

An accused Venezuelan drug lord wanted by the United States said on Wednesday he made monthly payments to a former judge who recently embarrassed President Hugo Chavez with accusations of widespread manipulation in the OPEC nation’s justice system.

World Bank director: Venezuela is not prepared for a fall in oil prices, El Universal

A World Bank director warned Tuesday that not all Latin American countries are equally prepared for an eventual fall in the price of commodities, because some of them, including Venezuela, acted “like the grasshopper of the Aesop fable” and “spent their time singing in the summer.”

With Venezuelan Food Shortages, Some Blame Price Controls, The New York Times

By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries. “Whatever I can get,” said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation.

 
Apr
23
2012
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With Venezuelan Food Shortages, Some Blame Price Controls

The New York Times
By William Neuman
April 20, 2012

jp caracas articleLarge With Venezuelan Food Shortages, Some Blame Price Controls

By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries.

“Whatever I can get,” said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. “You buy what they have.”

Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil.

The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf.

Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”

At the heart of the debate is President Hugo Chávez‘s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.

“Venezuela is too rich a country to have this,” Nery Reyes, 55, a restaurant worker, said outside a government-subsidized store in the working-class Santa Rosalía neighborhood.

“I’m wasting my day here standing in line to buy one chicken and some rice.”

Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities. But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chávez and his ministers say they are trying to eliminate.

They blame unfettered capitalism for the country’s economic ills and argue that controls are needed to keep prices in check in a country where inflation rose to 27.6 percent last year, one of the highest rates in the world. They say companies cause shortages on purpose, holding products off the market to push up prices. This month, the government required price cuts on fruit juice, toothpaste, disposable diapers and more than a dozen other products.

“We are not asking them to lose money, just that they make money in a rational way, that they don’t rob the people,” Mr. Chávez said recently.

But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest.

In January, according to a scarcity index compiled by the Central Bank of Venezuela, the difficulty of finding basic goods on store shelves was at its worst level since 2008. While that measure has eased considerably, many products can still be hard to come by.

Datanálisis, a polling firm that regularly tracks scarcities, said that powdered milk, a staple here, could not be found in 42 percent of the stores its researchers visited in early March.

Liquid milk can be even harder to find.

Other products in short supply last month, according to Datanálisis, included beef, chicken, vegetable oil and sugar. The polling firm also says that the problem is most extreme in the government-subsidized stores that were created to provide affordable food to the poor.

But with inflation so crippling, many shoppers at those stores said the inconvenience was worth it.

“It’s an enormous help,” said Ana Lozano, 62, a retiree who takes in ironing to supplement her pension, who was waiting outside the Santa Rosalía grocery. “That’s why there’s such a long line.”

The government appears keenly aware of the twin threats of shortages and inflation as it prepares for the October election in which Mr. Chávez is seeking a new six-year term. The price controls have been defended in government advertisements and accompanied by repeated threats from Mr. Chávez to nationalize any company that cannot keep its products on the market.

Vice President Elías Jaua has warned of a media campaign to frighten Venezuelans into hoarding, which would provoke artificial shortages. Government advertisements urge consumers not to succumb to panic buying, using a proverbial admonition: Bread for today is hunger for tomorrow.

Francisco Rodríguez, an economist with Bank of America Merrill Lynch who studies the Venezuelan economy, said the government might score some political points with the new round of price controls. But over time, he argued, they will spell trouble for the economy.

“In the medium to long term, this is going to be a disaster,” Mr. Rodriguez said.

The price controls also mean that products missing from store shelves usually show up on the black market at much higher prices, a source of outrage for many. For government supporters, that is proof of speculation. Others say it is the consequence of a misguided policy.

Emilio Ortiz, 52, a shop owner, said he could buy sugar and powdered milk from his distributors only once last year. He gets cooking oil once a month, but only about half of what he requests. He also said that profits were so low on controlled products that he must raise other prices to compensate.

One of his customers asked if the store had Harina Pan, which is considered the quintessential local brand of flour to use in making arepas, the signature corn cakes that are a staple of the Venezuelan diet.

“There isn’t any,” Mr. Ortiz said. It would be like an American store not having any Coca-Cola.

The customer asked if other stores nearby carried it.

“You can’t find it,” Mr. Ortiz said glumly.

If there is one product that Venezuela should be able to produce in abundance it is coffee, a major crop here for centuries. Until 2009, Venezuela was a coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in production.

Farmers and coffee roasters say the problem is simple: retail price controls keep profits close to or below what it costs farmers to grow and harvest the coffee. As a result, many do not invest in new plantings or fertilizer, or they cut back on the amount of land used to grow coffee. Making matters worse, the recent harvest was poor in many areas.

A group representing small- to medium-size roasters said last month that there was no domestic coffee left on the wholesale market — the earliest time of year that industry leaders could remember such supplies running out. The group announced a deal with the government to buy imported beans to keep coffee on store shelves.

Similar problems have played out with other agricultural products under price controls, like lags in production and rising imports for beef, milk and corn.

Waiting in line to buy chicken and other staples, Jenny Montero, 30, recalled how she could not find cooking oil last fall and had to switch from the fried food she prefers to soups and stews.

“It was good for me,” she said drily, pushing her 14-month-old daughter in a stroller. “I lost several pounds.”

María Eugenia Díaz contributed reporting.

To read this post on The New York Times, please click here.

By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries.

“Whatever I can get,” said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. “You buy what they have.”

Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil.

The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf.

Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”

At the heart of the debate is President Hugo Chávez‘s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.

“Venezuela is too rich a country to have this,” Nery Reyes, 55, a restaurant worker, said outside a government-subsidized store in the working-class Santa Rosalía neighborhood.

“I’m wasting my day here standing in line to buy one chicken and some rice.”

Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities. But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chávez and his ministers say they are trying to eliminate.

They blame unfettered capitalism for the country’s economic ills and argue that controls are needed to keep prices in check in a country where inflation rose to 27.6 percent last year, one of the highest rates in the world. They say companies cause shortages on purpose, holding products off the market to push up prices. This month, the government required price cuts on fruit juice, toothpaste, disposable diapers and more than a dozen other products.

“We are not asking them to lose money, just that they make money in a rational way, that they don’t rob the people,” Mr. Chávez said recently.

But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest.

In January, according to a scarcity index compiled by the Central Bank of Venezuela, the difficulty of finding basic goods on store shelves was at its worst level since 2008. While that measure has eased considerably, many products can still be hard to come by.

Datanálisis, a polling firm that regularly tracks scarcities, said that powdered milk, a staple here, could not be found in 42 percent of the stores its researchers visited in early March.

Liquid milk can be even harder to find.

Other products in short supply last month, according to Datanálisis, included beef, chicken, vegetable oil and sugar. The polling firm also says that the problem is most extreme in the government-subsidized stores that were created to provide affordable food to the poor.

But with inflation so crippling, many shoppers at those stores said the inconvenience was worth it.

“It’s an enormous help,” said Ana Lozano, 62, a retiree who takes in ironing to supplement her pension, who was waiting outside the Santa Rosalía grocery. “That’s why there’s such a long line.”

The government appears keenly aware of the twin threats of shortages and inflation as it prepares for the October election in which Mr. Chávez is seeking a new six-year term. The price controls have been defended in government advertisements and accompanied by repeated threats from Mr. Chávez to nationalize any company that cannot keep its products on the market.

Vice President Elías Jaua has warned of a media campaign to frighten Venezuelans into hoarding, which would provoke artificial shortages. Government advertisements urge consumers not to succumb to panic buying, using a proverbial admonition: Bread for today is hunger for tomorrow.

Francisco Rodríguez, an economist with Bank of America Merrill Lynch who studies the Venezuelan economy, said the government might score some political points with the new round of price controls. But over time, he argued, they will spell trouble for the economy.

“In the medium to long term, this is going to be a disaster,” Mr. Rodriguez said.

The price controls also mean that products missing from store shelves usually show up on the black market at much higher prices, a source of outrage for many. For government supporters, that is proof of speculation. Others say it is the consequence of a misguided policy.

Emilio Ortiz, 52, a shop owner, said he could buy sugar and powdered milk from his distributors only once last year. He gets cooking oil once a month, but only about half of what he requests. He also said that profits were so low on controlled products that he must raise other prices to compensate.

One of his customers asked if the store had Harina Pan, which is considered the quintessential local brand of flour to use in making arepas, the signature corn cakes that are a staple of the Venezuelan diet.

“There isn’t any,” Mr. Ortiz said. It would be like an American store not having any Coca-Cola.

The customer asked if other stores nearby carried it.

“You can’t find it,” Mr. Ortiz said glumly.

If there is one product that Venezuela should be able to produce in abundance it is coffee, a major crop here for centuries. Until 2009, Venezuela was a coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in production.

Farmers and coffee roasters say the problem is simple: retail price controls keep profits close to or below what it costs farmers to grow and harvest the coffee. As a result, many do not invest in new plantings or fertilizer, or they cut back on the amount of land used to grow coffee. Making matters worse, the recent harvest was poor in many areas.

A group representing small- to medium-size roasters said last month that there was no domestic coffee left on the wholesale market — the earliest time of year that industry leaders could remember such supplies running out. The group announced a deal with the government to buy imported beans to keep coffee on store shelves.

Similar problems have played out with other agricultural products under price controls, like lags in production and rising imports for beef, milk and corn.

Waiting in line to buy chicken and other staples, Jenny Montero, 30, recalled how she could not find cooking oil last fall and had to switch from the fried food she prefers to soups and stews.

“It was good for me,” she said drily, pushing her 14-month-old daughter in a stroller. “I lost several pounds.”

María Eugenia Díaz contributed reporting.

To read this article on The New York Times, please click here.