VENEZUELAN MARKET INTERFERENCE LEADS TO BOTH FOOD

UNCLAS SECTION 01 OF 02 CARACAS 001081 SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MMALLOY COMMERCE FOR 4431/MAC/WH/MCAMERON E.O. 12958: N/A TAGS: EAGR PGOV VE ECON ETRD SUBJECT: VENEZUELAN MARKET INTERFERENCE LEADS TO BOTH FOOD OVERSUPPLY AND SHORTAGES REF: A. CARACAS 597 ¶B. CARACAS 395 ¶1. (SBU) SUMMARY: Although local headlines on July 31 reporting 60 tons of rotten chicken in a city dump proved to be exaggerated, the incident drew attention to continuing distortions in the Venezuelan food supply. While the dairy and poultry industries have successfully lobbied for a temporary suspension of imports claiming excess supply and a drop in consumption, shortages of other basic food basket items with regulated prices such as rice, beef and sugar are again on the rise. Official figures show the Bolivarian Republic of Venezuela (BRV) spent almost as much on imported food by July 8 as it had in all of 2007. The price of food in Caracas has gone up 49.6 percent in the last 12 months. END SUMMARY. -------------- SOMETHING ROTTEN IN BARINAS -------------- ¶2. (U) On July 31, reports of 60 tons of rotten chicken disposed of in a city dump made headlines across Venezuela. An industry source later told the Agriculture AttachQ that only 20 of the 60 tons were actually chicken. The remaining 40 tons consisted primarily of spoiled dairy products. While rumors were rife that suppliers were dumping chicken they had been unable to sell, subsequent reports indicated that the food had become unsafe and had to be disposed of due to a refrigeration equipment failure casued by Barinas' frequent power outages. ¶3. (SBU) The incident seemed to support the Poultry Association's argument that the BRV has imported too much chicken and local producers have been shut out of the market. Poultry producers allege that massive government poultry imports have made it impossible to sell over 26 million pounds of domestic chicken. In April, the BRV raised the regulated price of poultry by 84 percent, perhaps explaining the up-tick in domestic production (ref A). ¶4. (SBU) The dairy industry, which received a 36.7 percent regulated price increase for some products, had been making similar complaints. They argued that while large-scale imports continued, demand for milk dropped by 10 percent and domestic production increased seasonally. This left local producers with considerable excess supply that had to be thrown out in some cases. ¶5. (SBU) Figures from the BRV's Commission for Administering Foreign Exchange, CADIVI, show expenditures for imported food totaled USD 2.2 billion by early July while expenditures for all of 2007 only amounted to USD 2.3 billion. On July 27 Chavez himself threatened to eliminate one of the BRV's chief importers, the PDVSA-run subsidized food distributor PDVAL, for importing at the expense of domestic production (ref B). ¶6. (SBU) The Ministries of Food and Agriculture quickly responded to the complaints by announcing a halt in chicken import licenses for the rest of 2008 and temporarily suspending imports of milk and cheese. They announced they would not issue more beef import licenses until current orders are fulfilled. These measures only apply to private importers. The BRV will continue to import at will for its subsidized markets such as MERCAL and PDVAL. ¶7. (SBU) The Executive Director of the Supermarket Association, Luis Rodriguez, told the Agriculture AttachQ that while poultry and dairy supplies have recovered since the shortages reported earlier in 2008, meat and rice supplies are hitting new lows. Rodriguez reported 50 percent of their member stores have no meat, or receive very irregular shipments. Dataanalisis reported in July that regulated product shortages increased five percentage points over June to 17 percent. ¶8. (SBU) Rodriguez believes regulated prices are the cause of the shortages and stated Venezuelan ranchers often try to sell their beef to grocery stores at 60 percent over the regulated price to recuperate their costs. Industry analysts report the BRV needs to abandon, or dramatically increase regulated prices as it did with poultry and dairy products, in order to address rolling shortages of certain basic foods. CARACAS 00001081 002 OF 002 -------------- COMMENT -------------- ¶9. (SBU) According to the Central Bank, the price of food in Caracas has gone up 49.6 percent in the last 12 months. Continued government interference in the market is likely to lead to even more inflation in this critical area. DUDDY