VENEZUELA NATIONALIZES U.S. COMPANY CARGILL'S RICE

C O N F I D E N T I A L CARACAS 000433 SIPDIS HQ SOUTHCOM ALSO FOR POLAD COMMERCE FOR 4431/MAC/WH/JLAO TREASURY FOR RJARPE NSC FOR RKING SECSTATE PASS AGRICULTURE ELECTRONICALLY E.O. 12958: DECL: 04/06/2019 TAGS: ECON PGOV PREL ETRD EINV EAGR VE SUBJECT: VENEZUELA NATIONALIZES U.S. COMPANY CARGILL'S RICE PLANT REF: A. CARACAS 280 ¶B. CARACAS 352 ¶C. CARACAS 290 Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b) and (d). ¶1. (C) On March 31, the Venezuelan government made President Chavez's threats official by publishing a "forced acquisition order" for U.S. company Cargill's rice plant (Ref A). Citing the "Law of Expropriation for Reasons of Public or Social Utility", the decree, which appeared in the Venezuelan equivalent of the federal register, authorized the takeover of "the plant allegedly the property of Cargill de Venezuela." Cargill de Venezuela Director of International Relations Ramon Sosa (protect throughout) told the Agriculture Attache on April 2 that after the government's moderate statements in private to Cargill Executives, the company was surprised by the hard line the government has taken (Ref B). The decree states that Cargill is producing the wrong product, parboiled rice versus government-regulated white rice, is violating Venezuelan law, and must be seized for the "social good." ¶2. (C) Contrary to Cargill's previous understanding, the decree indicates once the government seizes the plant, it will begin producing white rice, rather than the more expensive parboiled rice. In order to do this, the plant will have to be re-tooled. Additionally, the decree calls upon "the workers that labor for Cargill de Venezuela as well as the producers in the area to participate in the execution of the (nationalization) project." Article 9 of the decree declares the plant nationalization "urgent" and leaves three different government ministries in charge of its implementation. Neither the government nor Cargill has proposed a figure for compensation. Sosa said no one expects to get any clarification from the government on any point until after the upcoming Easter holidays. Sosa emphasized that Cargill continues to express its willingness to cooperate with the government. ¶3. (C) COMMENT: Cargill will likely shy away from the example of large Venezuelan food product company, Polar. Polar, which has strong ties to Chavez's political opposition, recently took the Venezuelan government to court, arguing that its production limits on non-price controlled products are unconstitutional. Instead, Cargill will likely quietly sacrifice the rice plant in order to protect its much larger interests in the country. Cargill has 50 percent of the Venezuelan market for cooking oil, pasta, and wheat flour. Even if it could somehow save its rice plant, recent government regulations have made the rice business unprofitable in Venezuela (Ref C). Cargill seems inclined to let the government have its way with the plant, although the company is hopeful it will eventually receive compensation. END COMMENT. CAULFIELD