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Cablegate: Venezuelan Market Interference Leads to Both Food

VZCZCXRO1615
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1081/01 2142134
ZNR UUUUU ZZH
P 012134Z AUG 08
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 1566
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUMIAAA/HQ USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 02 CARACAS 001081

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MMALLOY
COMMERCE FOR 4431/MAC/WH/MCAMERON

E.O. 12958: N/A
TAGS: EAGR PGOV VE ECON ETRD
SUBJECT: VENEZUELAN MARKET INTERFERENCE LEADS TO BOTH FOOD
OVERSUPPLY AND SHORTAGES

REF: A. CARACAS 597
B. CARACAS 395

1. (SBU) SUMMARY: Although local headlines on July 31
reporting 60 tons of rotten chicken in a city dump proved to
be exaggerated, the incident drew attention to continuing
distortions in the Venezuelan food supply. While the dairy
and poultry industries have successfully lobbied for a
temporary suspension of imports claiming excess supply and a
drop in consumption, shortages of other basic food basket
items with regulated prices such as rice, beef and sugar are
again on the rise. Official figures show the Bolivarian
Republic of Venezuela (BRV) spent almost as much on imported
food by July 8 as it had in all of 2007. The price of food
in Caracas has gone up 49.6 percent in the last 12 months.
END SUMMARY.

---------------------------
SOMETHING ROTTEN IN BARINAS
---------------------------

2. (U) On July 31, reports of 60 tons of rotten chicken
disposed of in a city dump made headlines across Venezuela.
An industry source later told the Agriculture AttachQ that
only 20 of the 60 tons were actually chicken. The remaining
40 tons consisted primarily of spoiled dairy products. While
rumors were rife that suppliers were dumping chicken they had
been unable to sell, subsequent reports indicated that the
food had become unsafe and had to be disposed of due to a
refrigeration equipment failure casued by Barinas' frequent
power outages.

3. (SBU) The incident seemed to support the Poultry
Association's argument that the BRV has imported too much
chicken and local producers have been shut out of the market.
Poultry producers allege that massive government poultry
imports have made it impossible to sell over 26 million
pounds of domestic chicken. In April, the BRV raised the
regulated price of poultry by 84 percent, perhaps explaining
the up-tick in domestic production (ref A).

4. (SBU) The dairy industry, which received a 36.7 percent
regulated price increase for some products, had been making
similar complaints. They argued that while large-scale
imports continued, demand for milk dropped by 10 percent and
domestic production increased seasonally. This left local
producers with considerable excess supply that had to be
thrown out in some cases.

5. (SBU) Figures from the BRV's Commission for Administering
Foreign Exchange, CADIVI, show expenditures for imported food
totaled USD 2.2 billion by early July while expenditures for
all of 2007 only amounted to USD 2.3 billion. On July 27
Chavez himself threatened to eliminate one of the BRV's chief
importers, the PDVSA-run subsidized food distributor PDVAL,
for importing at the expense of domestic production (ref B).

6. (SBU) The Ministries of Food and Agriculture quickly
responded to the complaints by announcing a halt in chicken
import licenses for the rest of 2008 and temporarily
suspending imports of milk and cheese. They announced they
would not issue more beef import licenses until current
orders are fulfilled. These measures only apply to private
importers. The BRV will continue to import at will for its
subsidized markets such as MERCAL and PDVAL.

7. (SBU) The Executive Director of the Supermarket
Association, Luis Rodriguez, told the Agriculture AttachQ
that while poultry and dairy supplies have recovered since
the shortages reported earlier in 2008, meat and rice
supplies are hitting new lows. Rodriguez reported 50 percent
of their member stores have no meat, or receive very
irregular shipments. Dataanalisis reported in July that
regulated product shortages increased five percentage points
over June to 17 percent.

8. (SBU) Rodriguez believes regulated prices are the cause of
the shortages and stated Venezuelan ranchers often try to
sell their beef to grocery stores at 60 percent over the
regulated price to recuperate their costs. Industry analysts
report the BRV needs to abandon, or dramatically increase
regulated prices as it did with poultry and dairy products,
in order to address rolling shortages of certain basic foods.


CARACAS 00001081 002 OF 002


-------
COMMENT
-------

9. (SBU) According to the Central Bank, the price of food in
Caracas has gone up 49.6 percent in the last 12 months.
Continued government interference in the market is likely to
lead to even more inflation in this critical area.
DUDDY

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