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Venezuela: Venezuela Agribusiness Report

2011/08/16

Venezuela Agribusiness Report

On April 21 2011, Venezuela departed from the Community of Andean Nations (CAN). The decision to withdraw was taken in 2006, in opposition to Peru and Colombia signing free trade agreements (FTA) with the United States. However, in the weeks leading up to the end of Venezuela's subscription to CAN, President Hugo Chávez travelled extensively throughout the Andean region to strengthen bilateral relations, leading to the signing of trade agreements with Bolivia, Colombia and Ecuador and ongoing trade negotiations with Peru. The exit from CAN should not, therefore, impact too strongly on the country's agricultural sector.

 

Venezuela's agricultural sector has been hit by further heavy rains and landslides, that killed at least 21 people and caused extensive damage to infrastructure. Almost 300,000 acres of agricultural land in the northwestern state of Zulia were flooded, badly damaging milk and livestock production.

Key Forecasts

We anticipate that demand for butter and cheese will remain strong over our forecast period, as government price controls make them affordable for lower income consumers. After growing by 13.0% from 2005-2010, we forecast growth in cheese consumption to increase by 14.2% from 2010-2015 to reach 126,530 tonnes. We see growth in butter consumption increasing from 12.8% from 2005-2010 to 22.7% from 2010-2015 to reach 3,038 tonnes at the end of our forecast period.

We now see coffee production increasing by 3.1% y-o-y in 2010/11 to reach 748,000 bags. The 2011/12 harvest should benefit from the renewal of fertilisation programmes as part of the government's Agricultural Plan. We currently forecast a y-o-y increase of 12.3% to take output to 840,000 bags.

The heavy rains in December 2010 hit the 2010/11 corn harvest and we forecast production rising by just 4.3% y-o-y to 1.71mn tonnes. Out to the end of our forecast period to 2014/15, we expect output to continue to rise and are forecasting production to grow by 27.1% on the 2009/10 level to reach 2.08mn tonnes.

We see beef production falling by 1.7% y-o-y to 342,200 tonnes in 2010/11 due to high energy and feed costs and consequent lack of profitability for producers. Furthermore, heavy rains and mudslides from February-May 2011 flooded pasture lands in northwestern Venezuela, impacting livestock production.

We estimate that sugar production fell by 27.1% y-o-y in 2009/10 to 485,000 tonnes. The lack of profitability has deterred investment and many mills now stand idle. We see production increasing by only 4.3% y-o-y in 2010/11 to 505,800 tonnes as land expropriations and price controls continue to take their toll. Over our forecast period to 2014/15, we expect sugar production to increase by 17.7% on the low 2009/10 level to reach 571,000 tonnes.

Key Trends and Developments

In April 2011, the Venezuelan government declared cocoa to be a primary need, or basic staple product, and unveiled plans to form the Corporación Socialista del Cacao Venezolano (Socialist Corporation of Venezuelan Cocoa) to administer all aspects of the cocoa supply chain. The corporation will bring together public and private sector companies and other organisations and associations involved in cocoa production and distribution. The government has previously criticised the cocoa sector for focusing primarily on the export market and serving the interests of elite classes.

The costs of milk production in Venezuela have shot up by almost 30% over the past 14 months, according to a study by the Venezuelan Cattle Federation, Fedenaga. The study, carried out in the highland dairy-producing region of Merida State, showed that rising prices of vaccines, medicines, antibiotics, oil and other inputs had pushed up production costs by 29.8%. This is making dairy production increasingly unsustainable: farmgate prices remain at VEF2.20/litre, while producers claim that the real cost of production is VEF3.26. According to Fedenaga, in order to make ends meet, small and medium-sized producers are reducing feed supplies and cutting back on investment, which will further damage output. The federation called for the government to review the remit of the National Fund for Dairy Production, which currently does not grant any additional support to smaller producers.

In April 2011, the governments of Colombia and Venezuela reached an agreement to restore trade relations following a meeting in Cartagena on April 9. At the end of July 2009, Chávez froze diplomatic relations with Colombia in response to Colombia allowing US troops to operate out of Colombian bases in their fight against drug production. The agreement will ensure that cross-border trade is not damaged by Venezuela's exit from the Community of Andean Nations trade pact as from April 22 - the departure was prompted by Venezuela's opposition to free trade agreements signed between Colombia and Peru with the US. The new Colombia-Venezuela agreement included the offer to export 100,000 tonnes of Colombian dairy products across the border, including liquid, evaporated and powdered milk, cheese, butter, whey and milk-based drinks. The deal also opens the way for the sale of 6,500 heads of Colombian cattle, in addition to 3,000 live cattle, 3,500 pregnant cows, 60,000 day-old chicks and 100,000 hatching eggs.

In January 2011, the government launched Mission Agro Venezuela, a new programme designed to support the country's agricultural production. The programme aims to boost domestic production and lessen reliance on imports, thus improving Venezuela's food security. Mission Agro Venezuela will provide low-interest loans, machinery and technical assistance to the country's agricultural producers - from small to large-scale landowners. VEF9.9bn (US$2.3bn) has been committed to the programme. As part of the programme, a census is also being carried out of Venezuela's agricultural sector. By mid-April, 586,000 growers had registered for the programme, according to government data. In April 2011, over 20,000 producers received government assistance of VEF554mn (US$129mn) through the Mission Agro Venezuela programme at an event at Municipio Ture, in Portuguesa State. According to Juan Carlos Loyo, the Minister for Agriculture and Lands, the funds will support the development of an additional 150,000 hectares of farmland for the cultivation of rice and white and yellow corn.

In May 2011, the government approved a 30% increase in the farmgate prices of corn, rice and soybeans, which will come into effect on August 15. Producers' associations had been petitioning the government to raise the controlled prices since the beginning of 2011, to counter the rise in input costs that have hit farmers. The price of white corn will rise from VEF1.15 to VEF1.50 per kilo, while yellow corn will increase from VEF1.02 to VEF1.33 per kilo.

On June 2 2011, the government announced an increase in the controlled price of sugar from VEF3.73 per kilo to VEF4.89. This should bring some relief to beleaguered producers who have seen profitability eroded in recent years. However, the move may prove insufficient to reverse the sector's decline: producers had requested for the regulated price to rise to VEF6.40 per kilo.

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