CHAVEZ EXPROPRIATES TWO SUGAR MILLS

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001373 SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK NSC FOR DRESTREPO NSC FOR LROSSELLO USDOC FOR 4332 MAC/ITA/WH/JLAO E.O. 12958: DECL: 10/27/2019 TAGS: ECIN ECON EINV ENRG ETRD VE SUBJECT: CHAVEZ EXPROPRIATES TWO SUGAR MILLS Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (SBU) SUMMARY: On October 21, in a state television broadcast, Agriculture and Lands Minister Elias Jaua announced the 90 day occupation and planned expropriation of two sugar mills in western Venezuela. Jaua accused Central Azucarero Venezuela of illegally halting production and Central Azucarero del Tachira of trying to "blackmail" the Government of the Bolivarian Republic of Venezuela (GBRV) by claiming that it could not continue to refine sugar without additional Colombian imports. On October 22, Central Azucarero issued a press statement explaining that production had ceased on September 9 due to shortages of raw materials and liquidity issues. Price controls, GBRV expropriations of cane fields, and land invasions have reduced raw sugar production in Venezuela by 14.8 percent since 2005. After freezing trade with Colombia, the GBRV has looked to Brazil to meet rising demand for sugar, but higher international prices, shipping costs, and logistical problems at Venezuela's largest port have made it difficult to increase imports, and there are still rolling sugar shortages in Caracas supermarkets. END SUMMARY. -------------- GBRV ACCUSES SUGAR MILL OF BLACKMAIL -------------- ¶2. (SBU) On October 21, Jaua announced the occupation of Central Azucarero Venezuela on "the order of President Chavez." Jaua said that the mill had requested permission from the Labor Ministry to shut down temporarily, but illegally halted production before receiving a reply. In the same announcement, Jaua said that the GBRV would expropriate Central Azucarero del Tachira for trying to "blackmail" the GBRV after the mill claimed that it could not continue to refine sugar without additional imports from Colombia. (Note: Colombian investors own a share of Central Azucarero del Tachira, and a significant portion of the cane processed by the mill came from that country. End note.) Jaua stated that the GBRV had assigned raw Brazilian sugar to the mills in order to resume sugar production, while Commerce Minister Saman said that the GBRV would use Central Azucarero Venezuela's electrical generators to supply electricity to the local population. ¶3. (C) In a press statement released by Central Azucarero Venezuela on October 22, the board of directors said that the mill had stopped production and suspended its labor force on September 9 due to shortages of raw sugar and liquidity issues. Central Venezuela is owned by Felipe Brillembourg, whose family owns several farms and processing plants south of Lake Maracaibo. According to Embassy contacts close to the family, refined sugar production has decreased as GBRV expropriations of nearby cane fields and land invasions have reduced raw sugar output flowing into the mill. Embassy contacts have reported in the past that the GBRV was interested in expropriating the mill in order to develop an ethanol project with the help of the Cuban government. ¶4. (C) Following the expropriation of these two mills, the GBRV now controls six of the 15 sugar mills in Venezuela, although two of the government-owned mills have stopped production. The largest mill, Central Portuguesa, is owned by the Cisneros family, while another large mill, Central Pastora, is owned by the Vollmer family. -------------- JUST A SPOONFUL OF COLOMBIAN SUGAR -------------- ¶5. (C) Price controls have affected the profitability of sugar cane production in Venezuela. (Note: The price of sugar is fixed at 1.3 bolivars per kilogram, or USD 0.61 cents per kilogram at the official rate. End note.) GBRV expropriations of cane fields and land invasions have also acted as a disincentive to investment. Accordingly, national production of raw sugar has declined 14.8 percent since 2005. At the same time, raw sugar imports from Colombia have fallen as a result of President Chavez's decision to freeze commercial relations. Venezuela imported over 14 million kilograms of raw sugar from Colombia in 2008, but only 5.5 million kilograms in the first six months of 2009. CARACAS 00001373 002 OF 002 Meanwhile, Venezuela's demand for refined sugar has increased as the market for soft drinks and confectionary goods has expanded. The GBRV is now looking to Brazil to meet rising demand, but higher international prices, shipping costs, and logistical problems at Venezuela's largest port have made it difficult to increase imports. -------------- COMMENT -------------- ¶6. (C) While the reasons for the expropriation of Central Azucarero Venezuela are not entirely clear, the accusation that Central Azucarero del Tachira tried to blackmail the GBRV into trading with Colombia offers two insights: 1) the GBRV remains determined to halt trade with Colombia; 2) the GBRV is willing to bear economic costs in order to do so. Local industry analysts expect domestic sugar cane production to continue to decline as the industry becomes less profitable. Post expects the GBRV to look to Brazil and other suppliers in order to satisfy a growing domestic market, but it remains to be seen whether this strategy can succeed, as evidenced by the frequent sugar shortages in Caracas supermarkets. DUDDY