Venezuela’s key beef sector suffers amid financial turmoil

By Andrew Rosati, in Caracas

- Last updated on GMT

Related tags United states dollar Cowboy Beef

Financial problems have severly impacted the beef sector
Financial problems have severly impacted the beef sector
Venezuela’s current financial turmoil is compounding problems for the meat industry, where cattlemen and traders alike say they have been severely buffeted by 15 years of socialist rule.

"The sector has been bankrupted,"​ says Rubén Darío Barboza, president of the National Cattle Rancher’s Federation (FEDENAGA). "It’s going to take a serious injection of financing for us to be competitive again."

According to FEDENAGA, Venezuela’s beef production plummeted from 407,601 tonnes (t) in 1998 to 360,000t in 2012. The drop has been offset by a surge in imports, which totalled 330,000t in 2012. "They [the government] have maintained food security, but not sovereignty,"​ says Barboza. He laments that Venezuela now buys almost half its beef from abroad (importing 48% in 2012), while it was virtually self-sufficient in 1998 (importing less than 1%). Statistics for 2013 are not yet available.

The complexity of trading has now intensified, as Caracas rejigged its currency controls for the Venezuelan bolívar (VEF) last month, letting it slide some 88% to around VEF51 against the US dollar on a new exchange mechanism for a wide range of economic sectors.

This will run in parallel with a pre-existing system at the old rate of VEF6.30 per dollar which remains in place for essential imports. These are supposed to include food and medicines, but it is not yet clear whether it will cover animal feed, livestock, veterinary medicine and machinery. Economists have called the move a ‘stealth devaluation,’ which could send one of the world’s highest inflation rates soaring even higher; annual inflation already topped more than 57% in February.

This is a problem, given the entire agriculture industry was already suffering from surging prices and the country’s overall credit crunch. "Every day we wake up to higher prices for feeds, replacement parts and vaccines,"​ says Celso Fantinel, a director at Confederation of Agricultural Producers Associations (FEDEAGRO), himself a rancher.

Producers complain that the country’s strict currency controls have long proved problematic. Fantinel says requests on government-regulated exchanges often go unanswered, leaving them short-changed – as dollars fetch more than 10 times their official worth on street – or struggling to pay off international purveyors for inputs. Even more problematic, as businesses at large in Venezuela struggle to get their hands on US dollars, many key imports – such as automotive parts and vaccines – are simply unavailable.

But beyond the dollar drought, many in the meat industry fear they will struggle to cover their soaring costs due to strict market regulations. The late President Hugo Chávez, who died last March to be replaced by current President Nicolás Maduro, often capped prices to protect consumers from spiralling inflation, at times at the producers’ expense. Beef prices have been frozen since 2009, until last December when industry leaders negotiated lifting the price ceiling, which will begin later this year.

However, the industry is still in a "very precarious"​ situation as the price change is still to be finalised, says Luis Hernández Guanipa president of the state of Táchira’s Cattle Ranchers Association. He explains the hike in wholesale prices – from VEF8.50 to VEF30 per kilo – has yet to be published in the Official Gazette, a government law journal, thereby formalising the law. While cattlemen have already put the prices into practice, Guanipa says that their sales are essentially under the table, leaving traders subject to fines and sanctions.

Even if the price change becomes official, "producers continue to be in a very difficult situation",​ argues Guanipa, as, given the country’s current level of inflation, the suggested price now falls far short of costs. Despite these shortcomings, however, there is some optimism, as the government is at least now talking to the industry for the first time in many years; FEDENAGA participated in government roundtables, its first official meeting in 12 years.

Still, many in the sector maintain there is a long road ahead, as Venezuela’s economy is struggling generally, grappling with chronic shortages of consumer goods. In January, the central bank’s scarcity index hit a record 28%, meaning more than one in four goods were missing from store shelves.

A major point of contention for the agriculture industry, which they say has led to high levels of scarcity, has been the expropriation of large privately held estates, which had been the bedrock of ranching. Since the government passed the ‘Law of Lands’ in 2001, it is estimated that it has redistributed more than 3.6 million hectares of land to small farmers and local authorities. According to the agriculture ministry’s 2014 budget, the government plans to redistribute an additional 350,000 hectares this year.

While Balboza says loosening controls and providing cash-strapped businesses with hard currency certainly helps the situation, he complains that Byzantine regulation and the threat of expropriation remains: "The government has attacked the consequences, but not the causes,"​ he says.

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