VENEZULEAN NATIONAL GUARD STILL OCCUPYING CARGILL

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000290

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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.

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SOURCES SAY GOVERNMENT IS BLUFFING
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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.

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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.

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COMMENT
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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