VENEZULEAN NATIONAL GUARD STILL OCCUPYING CARGILL

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000290 SIPDIS HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MMALLOY COMMERCE FOR 4431/MAC/WH/JLAO SECSTATE PASS AGRICULTURE ELECTRONICALLY E.O. 12958: DECL: 03/07/2019 TAGS: ECON PGOV PREL ETRD EINV EAGR VE SUBJECT: VENEZULEAN NATIONAL GUARD STILL OCCUPYING CARGILL PLANT REF: A. CARACAS 270 ¶B. CARACAS 280 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: US agribusiness giant Cargill has yet to receive an official expropriation order following President Chavez's March 4 threat to expropriate the company's rice plant (ref A). According to Cargill Venezuela, the company has three days to respond to a citation issued as a result of the official March 5 inspection of the plant by INDEPABIS, Venezuela's consumer protection agency. Cargill will consider its options over the weekend and convene a board meeting on March 9 to determine its next steps. A Cargill source indicated that the company believes it possible that the issue will quiet down and no expropriation will occur but this is not certain. Other industry sources speculate Chavez will not follow through on the expropriation threat indicating that once Chavez has intimidated rice producers sufficiently, he will move to take on cooking oil and corn flour producers. The entire industry is standing by to see what happens in Chavez's weekly TV show, "Alo Presidente," on March 8. END SUMMARY. ¶2. (C) Ramon Sosa, Cargill's Director for International Relations in Venezuela, told Post on March 6, that after Cargill Venezuela President Roberto Moro presented his points to Minister of Agriculture Elias Jaua on March 5, the Minister said the decision on whether or not to expropriate the Cargill plant "is beyond me," obviously a reference to Chavez's televised March 4 threat. (NOTE: In fact, Minister Jaua issued a press release about his meeting with the company before the meeting was held.) INDEPABIS has given Cargill three days to respond to its citations for failing to print prices on rice packaging and failing to produce sufficient rice at the regulated price. Sosa says Cargill will consider its options over the weekend and convene a board meeting on Monday to determine its next steps. -------------- SOURCES SAY GOVERNMENT IS BLUFFING -------------- ¶3. (C) Sosa noted that Chavez has threatened to nationalize companies in other sectors, but in some cases did not follow through. He believes that while expropriation is still very much on the table, there is a chance it will blow over. Two other sources from the agricultural sector believe that the Venezuelan government is "bluffing". Juan Fernando Palacios is president of a large agricultural coop in the state of Portuguesa, home to Cargill's rice plant. Palacios told Econ staff on March 6, that after speaking to the Presidents of both Cargill and leading Venezuelan food processor Polar, he now believes the Venezuelan National Guard will remain at Cargill's plant for 15 days and then move on to focus on cooking oil and corn flour plants. He does not believe Cargill's plant will be expropriated. Francisco Dominguez, General Manager of Operations for "Inversiones Porcinas", part of a large Venezuelan agricultural conglomerate, repeated the same theory to Econ staff. ¶4. (C) Both Dominguez and Palacios speculated that once rice producers are sufficiently intimidated and are willing to toe the government line, Chavez's focus will shift to the other 12 basic food items the government listed as essential staples in a March 3 decree. In the decree, the government mandated that producers of items ranging from ketchup to margarine sell between 70-95 percent of their products at low, government-established prices. Ensuring that producers will comply may keep government agencies and the National Guard very busy in the coming weeks. INDEPABIS President and newly named Commerce Minister Eduardo Saman has publicly committed to inspect every plant in the country that produce the 12 staple products. -------------- - GOVERNMENT EXPECTS PRODUCERS TO SELL AT A LOSS -------------- - ¶5. (C) Sosa said that rice processing is no longer profitable in Venezuela due to government regulations in the sector and both Polar and Cargill would love to sell their rice plants if anyone would buy them. Sosa confirmed that it would be CARACAS 00000290 002 OF 002 time consuming and "extremely costly" to convert Cargill's parboiled rice plant to plain white rice production. ¶6. (C) Palacios says that government agency for silos and warehouses, SADA, visits all food processing plants in Portuguesa on a daily basis to check production levels and "mobilization guides." (Note: The government-established guides determine where companies can sell their products, as one association estimates 20 percent of Venezuelan rice production is illegally exported to Colombia. End Note.) SADA also tries to ensure that companies are not engaged in "double accounting." Palacios said that rice growers will not sell rice to plants at the government established grower price, as the price is lower than their production costs. Consequently, many plants keep two sets of books, one showing rice purchases at the government price, the other showing the true purchase price. Palacios expects Chavez to increase the government-established grower price for rice during his "Alo Presidente" show on March 8. -------------- COMMENT -------------- 7.(C) It is likely that Chavez's March 4 announcement was pre-cooked political theater. The Cargill plant has produced parboiled rice for seven years which was well-known to government representatives. It would have been impossible for the plant to be re-tooled to meet the production specifications announced in a March 3 decree (ref B). If the plant is expropriated, it is possible that the government would continue to produce parboiled rice and sell the value-added product at a loss at the government-regulated white rice price. ¶8. (C) Chavez appears determined to tighten government control over food production starting from the ground up (increases in land nationalizations to be covered septel.) The idea of hurting Polar, a powerful opposition supporter, along the way also appears to be adding fuel to the fire. While Cargill's short term strategy is to keep its head down, Polar has chosen a different route by issuing a full page ad in a major Venezuelan paper on March 6. If the government does seize the Cargill plant or other plants, it is clear that food processing in Venezuela will become less efficient. GENNATIEMPO