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