THERE'S TROUBLE BREWING: VENEZUELAN COFFEE

C O N F I D E N T I A L CARACAS 001029

SIPDIS

SECSTATE PASS AGRICULTURE ELECTRONICALLY

E.O. 12958: DECL: 08/03/2029
TAGS: ECON EAGR ETRD VE PGOV
SUBJECT: THERE'S TROUBLE BREWING: VENEZUELAN COFFEE
INDUSTRY UNDER ATTACK

Classified By: Randall Hager, Agricultural AttachQ, for reasons 1.4 (b)
and (d)


1. (C) SUMMARY: Government intervention in Cafe Madrid and
Fama de America, two
of Venezuela's leading coffee processors, began the weekend
of August 1-2 for
alleged violation of government production and supply
regulations. Minister of
Agriculture and Lands Elias Jaua stated that non-compliance
with government
dictates could result in expropriation, a claim subsequently
backed up by President
Chavez the night of August 4. Harassment of the industry
continues, perhaps
to cover the failure of misguided government coffee
production policy and the
misallocation of funds applied to the sector. END SUMMARY.


2. (C) On August 1, Minister Jaua, along with Minister of
Commerce Eduardo Saman, and
Silos Superintendent Carlos Osorio announced government
intervention in Cafe Madrid
and Fama de America, coffee processors that represent about
80 percent of the local
market, for supposedly exporting coffee to Colombia,
hoarding, and overpaying farmers
for raw beans. Jaua further claimed that these companies
were "monopolies" not
allowed under Venezuelan law. President Chavez went one step
further in a speech
the night of August 4, saying, "..we are doing a study to
expropriate them, and
they will pass to the people and the nation..." NOTE: Given
the gap between
controlled prices in Venezuela and higher market prices in
Colombia, some coffee beans
likely do cross the border. However, the Ministry of
Agriculture and Superintendent
of Silos require onerous documentation of these companies'
processing operations, and
thus it is unlikely that they could export any notable
amount. END NOTE.


3. (C) According to Jaua, coffee availability in Venezuela
is not sufficient due
to a lack of rainfall in growing regions, and illegal
exports. The Embassy believes
that rainfall has had some effect on total output. However,
fixed output prices
against rising production costs and ineffective government
support are the more
important factors.


4. (C) According to Pedro Vicente Perez (protect),a leading
coffee producer
and member of FENDEAGRO (Venezuela's most important umbrella
organization for
agricultural producers),anyone who dares speak out against
the official line
risks harassment. In fact, during a recent conversation with
AgSpecialist, Perez
noted that officials from the National Land Institute (INTI)
were about to visit his
farm, with a real possibility of his land being summarily
taken from him. As a
result of his press statements earlier this year warning of
possible coffee
shortages, he was called a "liar" and subject to other
derogatory comments
by Minister Jaua.


5. (C) Venezuela's so-called Plan Cafe, initiated about five
years ago, purports
to provide significant support to domestic coffee producers
via technical assistance
and credit. Despite significant funds allocated, some Bs.
700 million in the last
few years (or approximately $325.5 million at the official
exchange rate),industry
commentators note that production has declined.


6. (C) COMMENT: Producers directly warned government
officials of possible
lower production and the potential need for imports months
ago. Government officials
dismissed these warnings and are now using the current
shortages to justify
government nationalization.
DUDDY