VENEZUELAN GOVERNMENT VERSUS U.S. COMPANY CARGILL

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000352 SIPDIS HQ SOUTHCOM ALSO FOR POLAD COMMERCE FOR 4431/MAC/WH/JLAO TREASURY FOR RJARPE NSC FOR JSHRIER SECSTATE PASS AGRICULTURE ELECTRONICALLY E.O. 12958: DECL: 03/19/2019 TAGS: ECON PGOV PREL ETRD EINV EAGR VE SUBJECT: VENEZUELAN GOVERNMENT VERSUS U.S. COMPANY CARGILL REF: CARACAS 351 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: Cargill de Venezuela President Roberto Moro (strictly protect throughout) told the Charge on March 17 that although the Government of the Bolivarian Republic of Venezuela (GBRV) has informed the company that its rice plant would be nationalized on the grounds of "public utility," Cargill still has "no idea" whether the plant will ultimately be nationalized. In the meantime, plant operations continue normally, albeit under the supervision of government inspectors and with members of the National Guard at the door. Chavez's stepped up pressure on the private sector to produce staple products at low government-established prices plays to his political base. END SUMMARY. -------------- CARGILL LEFT WONDERING -------------- ¶2. (C) The Charge met March 17 with visiting Cargill Vice President and Director of Global Security Claude Nebel, Cargill de Venezuela President Roberto Moro, and Cargill de Venezuela Director of International Relations Ramon Sosa. Moro confirmed that the GBRV has informed the company that its parboiled rice plant would be nationalized on the grounds of "public utility," (utilidad publica). Cargill de Venezuela, while currently under investigation, has not been formally accused of any illegal practices. Cargill continues to operate the plant at full capacity, albeit under the supervision of government inspectors and with "a couple" of National Guard representatives at the plant door. Moro noted that while he had "no idea" whether or not the GBRV would ultimately take over control of the plant, he believed it would be difficult for the government to back away from the hard public line it has taken. Nebel added that Cargill has been careful not to publicly challenge Chavez as it had taken his threat to file criminal charges against rice plant operators seriously. The company did not want Moro to be targeted with such charges. -------------- -- CHAVEZ SEEKS LOW FOOD PRICES FOR HIS SUPPORTERS -------------- -- ¶3. (C) Moro noted that Cargill's Venezuelan rice production represents only three percent of the country's installed capacity; nationalizing the rice plant would not solve the government's food supply issues. Nationalizing industry-leader Polar's operations would, however, give the government control over a large percentage of the industry's production capacity. If the government's objective was to educate Polar, he said, it had achieved its goal. Polar and other domestic products have now fallen into line and are producing price-regulated rice at full capacity. In fact, said Moro, the GBRV has struck a deal with Polar and is now selling it rice at a "good price" which lessens the impact on Polar of switching production from value-added rice products. ¶4. (C) Moro noted that the government actually imported more rice than the country could consume last year to show its dedication to feeding the people. He added that on March 16, the Venezuelan National Assembly had issued statements in Venezuela's Federal Register equivalent underlining the need to act against food industry oligarchs. These statements focused on opposition-friendly Polar but did not mention Cargill. -------------- --- CARGILL WORKS CLOSELY WITH GBRV IN OTHER SECTORS -------------- --- ¶5. (C) Moro underlined that Cargill has worked closely with the GBRV in supplying the low cost food products sought by the government. Thirty-five percent of its pasta is sold to the government, as is a large percentage of its cooking oil. Cargill, though its Brazilian affiliate, also supplies much of the chicken purchased by the GBRV in Brazil. Moro added CARACAS 00000352 002 OF 002 that Cargill is no longer able to sell its products to Colombia due to GBRV policies restricting food exports. The company faces serious labor issues throughout the country, he said, and is now experiencing three-month delays in obtaining dollars from Venezuelan currency control agency CADIVI. Moro emphasized that Cargill Headquarters is also very concerned about its inability to repatriate dividends from Venezuela. The Charge noted that as food is one of Chavez's priority sectors, food processors are actually doing much better than other industries in obtaining dollars. Because of the continued wide spread between the official exchange rate and the parallel market rate (reftel),Cargill de Venezuela is considering moving its balance sheets to the parallel exchange rate because keeping them at the overvalued official rate overstates its profits. Re-investment in Venezuela is now zero, said Moro. -------------- COMMENT -------------- ¶6. (C) Some local analysts believe the GBRV may ultimately back quietly away from the nationalization of the Cargill rice plant. It is doubtful that the GBRV has the will to pay for the plant and indeed Cargill de Venezuela's Sosa told Emboffs in another meeting that the company expected that if paid, it would be paid in "paper", i.e. government bonds. It appears that the GBRV sought to use Cargill as an example to get other rice producers to fall in line with its mandate to produce cheap regulated products. That strategy appears to have succeeded. It remains to be seen whether other company operations will be targeted when and if the government chooses to go after other food sectors. CAULFIELD