COFFEE INDUSTRY EXPECTED TO CONTINUE DECLINE

C O N F I D E N T I A L CARACAS 001339

SIPDIS

SECSTATE PASS AGRICULTURE ELECTRONICALLY

E.O. 12958: DECL: 09/29/2024
TAGS: EAGR ECON ETRD PGOV VE
SUBJECT: COFFEE INDUSTRY EXPECTED TO CONTINUE DECLINE

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


1. (C) SUMMARY: Leading private sector representatives
state that Venezuela's policy of fixed output prices,
ineffective support for farmers, and probable takeover of
two leading coffee processors, will reinforce a downward
trend in output and result in additional raw coffee
imports. As even dark Venezuelan clouds have silver
linings, some may benefit; we suspect that those
government officials who control trade (imports and
prohibited exports),or some part of the industry, will do
rather better even while continuing to play the role as
defenders of the people. END SUMMARY.

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A MAN, A PLAN, LESS COFFEE
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2. (C) According to Vicente Perez (protect),president
of a leading coffee growers organization, the BRV's "Plan
Cafe," a multi million Bolivar initiative run by the
Ministry of Agriculture to support domestic coffee
production, has been a total failure, with much of the
money never reaching the small producers as intended.
Minister of Agriculture Elias Jaua has strongly supported
the initiative to build up local production to ensure that
the domestic market for this staple food item is covered.
But, according to Perez, even he recognizes that the Plan
has not worked. In addition to not getting needed financial
assistance to farmers, owners often cannot visit their
farms due to the presence of guerrillas from the Frente
Bolivariano de Liberacion Nacionale (FBLN) in the region,
further restricting output.

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WHEN IN DOUBT, ATTACK!
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3 (C) As has happened in other sectors, failure to
achieve the stated production outcome is addressed by assigning
blame to the private sector. A case in point is the BRV's
intervention in two leading coffee processors, Cafe de
Madrid, and Fama de America. Both companies are blamed for
internal shortages and are accused of hoarding, price fixing,
and illegal exports. Although a government decision on their
fate will not be made until early November after a required
90 day period of analysis and appeal, strong statements by
President Chavez indicate that a takeover in some form is highly
likely.


4. (C) In the meantime, raw coffee imports are controlled by
government
agencies, and beans are allocated to processors according
to their whims. Smaller processors seem to be favored,
while Cafe Madrid and Fama de AMERICA are given enough to
keep them operational. According to Roberto Azuaje
(protect),Fama's President, his company is running at
about 65-75 percent of capacity, perhaps getting that much
to keep sufficient coffee on the shelves, especially in
Caracas, as the government understands only the large
processors have the ability to provide enough final product
to consumers.

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THE END GAME
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5. (C) According to Perez, there are two factors that
might save Fama and Cafe de Madrid from complete government
control--their Spanish heritage and their demonstrated
ability to manage the farm to market chain. Both companies
are owned by Spanish descendants, and thus, Perez
commented, might receive some support from the Spanish
government. As raw coffee procurement and distribution of
the final product are complicated, the BRV may also
understand that it is best to leave most of the management
and business structure in place, asserting ultimate
control perhaps via an appointed general manager and upper
management staff. Further complicating this picture,
informed sources have told Perez that Venezuela's third-largest
coffee processor, Cafe Flor de Patria, was recently acquired by
Energy Minister Ramirez.

DUDDY