AGRICULTURE EXPERTS PREDICT CORN, WHEAT, AND MILK

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002074

SIPDIS

SIPDIS

SECSTATE PASS DEPARTMENT OF AGRICULTURE FAS ELECTRONICALLY

E.O. 12958: DECL: 10/04/2017
TAGS: ECON EAGR ALOW VE
SUBJECT: AGRICULTURE EXPERTS PREDICT CORN, WHEAT, AND MILK
SHORTAGES IN VENEZUELA

REF: A. CARACAS 597

B. CARACAS 994

Classified By: ECONOMIC COUNSELOR ANDREW N. BOWEN FOR REASON 1.4 (D)


1. (SBU) Summary: Milk, white corn and wheat which make up
Venezuela's three most consumed products (milk, pre-cooked
corn meal, and pasta),are all facing worsening or impending
shortages. Global price increases combined with local price
controls have led to the current milk shortage and an
emerging wheat shortage. Bad weather, price controls, and
smuggling into Colombia could also cause a white corn
shortage, the key ingredient in numerous Venezuelan staple
dishes. The continued oil windfall has further magnified
demand. Shortages of these staples would hurt BRV prestige
and could provide it with an excuse to lash out against large
private producers. End Summary.

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"We are Corn"
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2. (SBU) After milk, white-corn based products are the most
consumed food staple in Venezuela. White-corn is used to
make pre-cooked corn meal (Harina de Maiz precocida),which
is the key ingredient in various Venezuelan staples such as
the Empanada and the Arepa. The Arepa is the Venezuelan
version of the Mexican tortilla and is consumed by lower
income Venezuelans at least once or twice a day. Given the
importance of corn in Venezuela, it is no surprise that the
Ministry of Popular Power for Agriculture and Land (MPPAT)
lists corn as a strategic crop in its Comprehensive Plan for
Agriculture Development (2007 - 2008.) For the BRV corn has
become the key benchmark for measuring agriculture
productivity, partly for its symbolic and dietary importance,
but mainly because it is one of the few crops for which it
can claim a production increase.

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The Corn Controversy
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3. (SBU) During his September 2 "Alo Presidente" television
show held in a newly inaugurated Iranian corn processing
plant, Chavez claimed the BRV had increased corn production
from 1 million metric tons (mmt) in 1998 to 2.5 mmt in 2007.
During the September 27 - 30 "We Are Corn" conference in
Caracas, the Ministry of Popular Power for Agriculture and
Land (MPPAT) announced plans to further increase corn
production from 2.25 million metric tons in 2006 to 4 mmt by

2010. This ambitious production target was set to help meet
Chavez' goal of turning Venezuela into the great corn
producer of Latin America, a corn exporter, and provider of
corn to needy countries who Chavez asserts can no longer
afford it due to the USG ethanol program (Reftel A). (Note:
The "We Are Corn" slogan is a reference to the Mayan creation
belief that the first "true men" were created from corn, an
idea Chavez has drawn on to help make his argument for
replacing/substituting imported wheat with domestically
produced corn in the Venezuelan diet. End Note.)


4. (SBU) Despite lofty BRV production goals and claims,
calculating the real level of corn production in Venezuela is
a difficult task given the lack of reliable statistics and
the highly political nature of the data. The president of
the National Confederation of the Associations of Agriculture
Producers (FEDEAGRO),contacts in the processed-food giant
Polar, and agriculture experts have all indicated that the
real level of corn production for this year's harvest is
likely to only reach 1.8 mmt (80 percent of this is white
corn) due to poor weather. Carlos Machado, acting director
of the Institute for Graduate Studies of Administration
(IESA) and an agriculture specialist, also said if Venezuela
only produced approximately 1.8 mmt of corn, this would
result in shortages. Although Ag-Minister Juau neglected to
publicly share any production doubts with Chavez during the
September 2 "Alo Presidente," even he has said that Venezuela
would not produce 2.5 mmt goal of corn in 2007 due to weather
conditions. Instead, he claimed that Venezuela would produce
2.2 mmt, which he argued would allow Venezuela to be
"self-sufficient" in corn.


5. (C) Nevertheless, during an October 3 meeting, the
Chairman of Polar's board of directors, Hernan Anzola, told
EconOffs that Polar had to cut back its production of
white-corn based Harina Pan (pre-cooked cornmeal),explaining

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that if it were to meet the market demand for Harina Pan, it
would have exhausted its supply of white corn by July 2007.
Anzola explained that a large factor driving this demand was
that members of the D and E social classes (categorized as
poor and very poor) have seen their real incomes grow by 30
percent in the past three years as the result of the oil
windfall and government transfers. Polar produces 70 percent
of the pre-cooked cornmeal in Venezuela and has not been
permitted to import the little white corn available on the
world market. Anzola accepted the possibility of a white
corn shortage as early as November while other Polar contacts
predicted white corn shortages as late as July of next year.
On the topic of general shortages and scarcity, he noted that
the head of a large supermarket chain had told him that in
the last three months the number of sales receipts had
increased some 300 percent, although total sales had not
increased significantly. The increase in velocity of sales
points to people making more trips to the stores in search of
items. Separately, Anzola confessed that although they were
Venezuela's largest private industrial concern, they had no
interlocutor in the BRV.

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Venezuelan Food Smuggled across the Border
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6. (C) Another factor aggravating any potential corn scarcity
is the amount of corn being diverted to Colombia. Between
Venezuelan price controls and Colombia's appreciating
currency, it is increasingly more profitable to illegally
divert agriculture products through the porous
Venezuelan-Colombian border than sell them in Venezuela.
Gustavo Moreno, the president of FEDEAGRO, told the
Venezuelan press that producers receive 560 bolivars (USD
0.26) in Venezuela for one kilo of white corn compared to 800
bolivars (USD 0.37) in Colombia.


7. (SBU) The official peso/bolivar exchange rate is
approximately 1:1. However, unlike Venezuela, Colombia has
no foreign exchange restrictions, making it possible to
change pesos to dollars at a rate of 2,011 pesos per dollar.
Venezuelans who illegally export corn to Colombia can convert
their pesos to dollars, and then convert the dollars into
bolivars at the Venezuelan parallel rate which currently
stands at around 5950 Bs/dollars. Therefore Venezuelan
producers could sell 500 kilos of white corn at 800 pesos per
kilo in Colombia, covert the pesos to dollars and then
bolivars through the parallel rate, and end up with 1,118,490
Bs (USD 520). This same producer would only receive 280,000
Bs (USD 130) if the 500 kilos of white corn were sold in
Venezuela. In this example, illicitly diverting food would
increase revenue by 299 percent.


8. (C) Agriculture contacts have also told us that the
Venezuelan National Guard has facilitated this illicit
commerce, and that tons of food destined for Chavez'
subsidized grocery stores (Mercals) have ended up in
Colombia. To combat smuggling, on September 5, the Ministry
of Popular Power for Food issued a resolution restating the
prohibition against the extraction or exportation of corn
from Venezuela, explaining that this was a crime that could
result in prosecution. However, during an August 29 trip by
emboffs to the state of Portuguesa (known as the "barn of
Venezuela"),Juan Fernando Palacios Lugo, the president of
the 529 member farm association, Asoportuguesa, told EconOffs
that food was increasingly being diverted to Colombia. He
estimated that approximately 50 percent of the rice stored in
Asoportuguesa's Maracaibo warehouse was smuggled across the
border. He noted wryly that Zulia, one of the Venezuelan
states bordering Colombia, has "one of the highest rice per
capita consumption (rates) in the world."

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Wheat, the Imperial Substitute
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9. (SBU) Wheat, the third most consumed product in Venezuela,
also faces a possible shortage due to significant global
price increases and the unwillingness of the BRV to raise the
controlled price for pasta. Since Venezuela imports nearly
all of its wheat, the local market is especially vulnerable
to abrupt changes in the world price. The price Venezuelan
importers are paying for wheat has dramatically increased
from USD 220 per ton in July to USD 850 per ton on October

25. This 286 percent price increase has intensified pressure
to raise prices on staples such as pasta. Industries sources

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argue that they cannot keep selling pasta at the regulated
price of 1,740 bolivars per kilo (USD 0.80 per kilo at the
official rate). The Association of Venezuelan Pasta
Manufacturers (AVEPASTA) has asked for a 58 percent increase
in the controlled price for pasta and have argued that the
fair price of pasta should be 4100 Bs (USD 1.91) per kilo.
The controlled price of pasta in Venezuela has not changed
since April 2004.

10 (SBU) According to a recent report by the daily El
Universal, pasta warehouses have reduced their inventory by
nearly 30 percent in the last three months. AVEPASTA has
also estimated that 10 of the 14 pasta producers in Venezuela
may have to shutdown due to the shortage in raw materials.
With operating costs nearly 130 percent higher than selling
at the controlled prices, many importers have decided to not
import rather than to operate at a loss. This impending
scarcity in wheat could also increase the demand for white
corn, a substitute for pasta, further adding to the
probability of a corn shortage. (Note: According to the U.S.
Bureau of the Census Trade Data, Venezuela imported 51
percent of its wheat (USD 168 million) from the United
States, and has imported 25 percent more wheat from January
to August in 2007 than during this same period in 2006. End
Note.)

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Shortages Worsen, Especially in Milk
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11. (SBU) According to the Venezuelan polling firm,
Datanalisis, surveys done in 60 supermarkets, bodegas, BRV
subsidized Mercals, and informal shops in Caracas indicated
that controlled priced goods are on average unavailable 23
percent of the time someone visits a market, up two
percentage points from April. Seventy-two percent of the
supermarkets in the Datanalisis poll also reported not having
any milk to sell, and representatives from the Milk
Processing Association (ASOPROLE) predicted that fresh milk
will be in even shorter supply in October. Controlled market
prices for processed milk products are also about 25 percent
lower than the price of raw milk to the industry, which has
acted as a disincentive for expanding output to meet the
greater demand.

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Comment
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12. (C) Since February Venezuela has experienced rolling
shortages in milk, eggs, meat, chicken, black beans, sugar,
sardines, and white cheese (Reftel B). The Datanalisis poll
also indicated that 51.7 percent of stores have no sugar,
43.5 percent have no meat, 40 percent have no corn oil, and
28.3 percent have no chicken. However given the symbolic and
dietary importance of corn, wheat, and milk, worsening
shortages of these items would cause Venezuelans to view
shortages in a much more severe light. Thus far, Chavez and
his Minister of Food have blamed the food shortages on
hyperbole and "media conspiracy." However, if the shortages
worsen, the BRV would be forced to find another scapegoat,
which likely would be large private food producers and
distributors.

FRENCH