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.

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CARGILL LEFT WONDERING
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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.

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CHAVEZ SEEKS LOW FOOD PRICES FOR HIS SUPPORTERS
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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.

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CARGILL WORKS CLOSELY WITH GBRV IN OTHER SECTORS
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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.

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COMMENT
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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