2012-11-13 16:16:19 - New Food research report from Business Monitor International is now available from Fast Market Research

While the likelihood of a victory by opposition candidate Henrique Capriles Radonski in Venezuela's October 7 presidential election has increased in recent months, we still believe President Hugo Chavez is the most likely winner. Whatever the outcome of the election, making improvements to Venezuela's deep-seated economic and social problems will be extremely challenging. Venezuela's agricultural and agribusiness sectors remain crippled by a combination of rising input costs, spiralling inflation, poor management and infrastructure, and controlled farmgate prices. With the country increasingly reliant on imports to meet domestic demand, the outlook for the sector is poor. We hold to our forecast that the bolivar will be subject to devaluation following the election. While the overvaluation of the bolivar is exacerbating the

problem of competition from imports, devaluation may add to the runaway inflation that is eroding producers' profitability.


Full Report Details at
- www.fastmr.com/prod/499907_venezuela_agribusiness_report_q4_2012 ..


Key Forecasts

* Venezuela faces major political and economic uncertainty in the run-up to and immediate aftermath of the election. Although real GDP growth came in at 5.6% y-o-y in H112, we still expect a sharp slowdown in growth in the second half of the year, as the country's current growth model, which is driven by pre-electoral fiscal and monetary stimulus, is unsustainable. We forecast full-year GDP growth of 4.7% in 2012 and 2.6% in 2013. Consumer price inflation will remain elevated, forecast at 26.0% in 2012 and 20.0% in 2013, the highest level in Latin America. The operating environment will remain very precarious for foreign multinationals in the country.
* The lack of profitability is leading beef producers to leave the sector. The national cattle herd is forecast to shrink by 4.7% y-o-y in 2012 to 12.1mn head. We forecast that production will fall to 290,000 tonnes. This is a bigger fall than previously forecast, owing to producers leaving the sector liquidating their herds. We see production increasing to 297,000 tonnes in 2013. Policy changes after the presidential election could mean production increases further. We forecast production reaching 321,000 tonnes in 2016.
* After shooting up by 49.1% to 1.31mn bags in 2011 due to an increase in imports, we forecast that coffee consumption will increase only marginally in 2012 to reach 1.32mn bags. We forecast consumption remaining at a similar level in 2013. Through to 2016, we forecast demand growing by 4.5% on the high 2011 level to 1.36mn bags.

Key Trends And Developments

* In July 2012, Venezuela was granted full membership of the South American trading bloc Mercosur, six years after it first applied to join. Its membership was previously blocked by Paraguay because of concerns over a lack of democratic rights in Venezuela. However, Paraguay has been suspended from Mercosur until its presidential election in 2013 due to the impeachment of President Fernando Lugo. Chavez has highlighted the potential for Venezuela to widen its market access and diversify its exports. However, many producers are concerned that the elimination of tariffs will mean cheap imports of coffee, soy and meat threatening domestic production, which has already been hit by price controls, inflation and a lack of investment.
* In September 2012, the government announced a further increase of an average of 33% in fixed coffee prices. The price for Good Washed 'A' green coffee rose from VEF1,200 to VEF1,600 per quintal; Good Washed 'B' rose from VEF 1,080 to VEF1,400 and Good Washed 'C' increased from VEF980 to VEF1,350. Lower-quality coffee prices also rose, with Good Natural rising from VEF940 to VEF1,240 and Natural Standard increasing from VEF820 to VEF1,090. Prices charged to consumers for ground coffee are likely to be revised in Q412. In addition to the price increases, the Ministry of Agriculture and Land said it would open 35 purchase points to serve producers in Lara, Barinas, Portuguesa, Trujillo, Merida, Tachira and Monagas. It will also open nine roasters, five of which will purchase directly from farmers to eliminate middlemen. The changes have disappointed producers, who argue the price increases are insufficient to cover the rapid increase in production costs. Manuel Morillo, director of the Association of Venezuela Coffee Producers, said the organisation had worked for months to demonstrate to the ministry that the true costs of production are VEF1,700-2,200 per quintal.
* On August 1 2012, the government raised the farmgate prices of corn and rice. The price of yellow corn increased by 42.9% from VEF1.33 to VEF1.90 per kilo, while white corn rose by 46.6% from VEF1.50 to VEF2.20. However, the increase has not been sufficient to satisfy producers, who argue that even with the price rises they cannot cover production costs, which have increased dramatically. Antonio Pestana, vice president of the National Confederation of Agricultural Producers Associations of Venezuela (Fedeagro), said the cost of producing a kilo of white corn is VEF2.40, VEF0.20 higher than the new government-mandated price. He also warned that a failure to invest in improving crop irrigation and drainage poses threatens the recovery of domestic grain production, leaving the crops vulnerable to drought and flooding.

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