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C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002074 
 
SIPDIS 
 
SIPDIS 
 
SECSTATE PASS DEPARTMENT OF AGRICULTURE FAS ELECTRONICALLY 
 
E.O. 12958: DECL: 10/04/2017 
TAGS: ECON EAGR ALOW VE
SUBJECT: AGRICULTURE EXPERTS PREDICT CORN, WHEAT, AND MILK 
SHORTAGES IN VENEZUELA 
 
REF: A. CARACAS 597 
     ¶B. CARACAS 994 
 
Classified By: ECONOMIC COUNSELOR ANDREW N. BOWEN FOR REASON 1.4 (D) 
 
¶1. (SBU) Summary: Milk, white corn and wheat which make up 
Venezuela's three most consumed products (milk, pre-cooked 
corn meal, and pasta), are all facing worsening or impending 
shortages.  Global price increases combined with local price 
controls have led to the current milk shortage and an 
emerging wheat shortage.  Bad weather, price controls, and 
smuggling into Colombia could also cause a white corn 
shortage, the key ingredient in numerous Venezuelan staple 
dishes.  The continued oil windfall has further magnified 
demand.  Shortages of these staples would hurt BRV prestige 
and could provide it with an excuse to lash out against large 
private producers.  End Summary. 
 
------------- 
"We are Corn" 
------------- 
 
¶2. (SBU) After milk, white-corn based products are the most 
consumed food staple in Venezuela.  White-corn is used to 
make pre-cooked corn meal (Harina de Maiz precocida), which 
is the key ingredient in various Venezuelan staples such as 
the Empanada and the Arepa.  The Arepa is the Venezuelan 
version of the Mexican tortilla and is consumed by lower 
income Venezuelans at least once or twice a day.  Given the 
importance of corn in Venezuela, it is no surprise that the 
Ministry of Popular Power for Agriculture and Land (MPPAT) 
lists corn as a strategic crop in its Comprehensive Plan for 
Agriculture Development (2007 - 2008.)  For the BRV corn has 
become the key benchmark for measuring agriculture 
productivity, partly for its symbolic and dietary importance, 
but mainly because it is one of the few crops for which it 
can claim a production increase. 
 
-------------------- 
The Corn Controversy 
-------------------- 
 
¶3. (SBU) During his September 2 "Alo Presidente" television 
show held in a newly inaugurated Iranian corn processing 
plant, Chavez claimed the BRV had increased corn production 
from 1 million metric tons (mmt) in 1998 to 2.5 mmt in 2007. 
During the September 27 - 30 "We Are Corn" conference in 
Caracas, the Ministry of Popular Power for Agriculture and 
Land (MPPAT) announced plans to further increase corn 
production from 2.25 million metric tons in 2006 to 4 mmt by 
¶2010.  This ambitious production target was set to help meet 
Chavez' goal of turning Venezuela into the great corn 
producer of Latin America, a corn exporter, and provider of 
corn to needy countries who Chavez asserts can no longer 
afford it due to the USG ethanol program (Reftel A).  (Note: 
The "We Are Corn" slogan is a reference to the Mayan creation 
belief that the first "true men" were created from corn, an 
idea Chavez has drawn on to help make his argument for 
replacing/substituting imported wheat with domestically 
produced corn in the Venezuelan diet.  End Note.) 
 
¶4. (SBU) Despite lofty BRV production goals and claims, 
calculating the real level of corn production in Venezuela is 
a difficult task given the lack of reliable statistics and 
the highly political nature of the data.  The president of 
the National Confederation of the Associations of Agriculture 
Producers (FEDEAGRO), contacts in the processed-food giant 
Polar, and agriculture experts have all indicated that the 
real level of corn production for this year's harvest is 
likely to only reach 1.8 mmt (80 percent of this is white 
corn) due to poor weather.  Carlos Machado, acting director 
of the Institute for Graduate Studies of Administration 
(IESA) and an agriculture specialist, also said if Venezuela 
only produced approximately 1.8 mmt of corn, this would 
result in shortages.  Although Ag-Minister Juau neglected to 
publicly share any production doubts with Chavez during the 
September 2 "Alo Presidente," even he has said that Venezuela 
would not produce 2.5 mmt goal of corn in 2007 due to weather 
conditions.  Instead, he claimed that Venezuela would produce 
2.2 mmt, which he argued would allow Venezuela to be 
"self-sufficient" in corn. 
 
¶5. (C) Nevertheless, during an October 3 meeting, the 
Chairman of Polar's board of directors, Hernan Anzola, told 
EconOffs that Polar had to cut back its production of 
white-corn based Harina Pan (pre-cooked cornmeal), explaining 
 
CARACAS 00002074  002 OF 003 
 
 
that if it were to meet the market demand for Harina Pan, it 
would have exhausted its supply of white corn by July 2007. 
Anzola explained that a large factor driving this demand was 
that members of the D and E social classes (categorized as 
poor and very poor) have seen their real incomes grow by 30 
percent in the past three years as the result of the oil 
windfall and government transfers.  Polar produces 70 percent 
of the pre-cooked cornmeal in Venezuela and has not been 
permitted to import the little white corn available on the 
world market.  Anzola accepted the possibility of a white 
corn shortage as early as November while other Polar contacts 
predicted white corn shortages as late as July of next year. 
On the topic of general shortages and scarcity, he noted that 
the head of a large supermarket chain had told him that in 
the last three months the number of sales receipts had 
increased some 300 percent, although total sales had not 
increased significantly.  The increase in velocity of sales 
points to people making more trips to the stores in search of 
items.  Separately, Anzola confessed that although they were 
Venezuela's largest private industrial concern, they had no 
interlocutor in the BRV. 
 
------------------------------------------ 
Venezuelan Food Smuggled across the Border 
------------------------------------------ 
 
¶6. (C) Another factor aggravating any potential corn scarcity 
is the amount of corn being diverted to Colombia.  Between 
Venezuelan price controls and Colombia's appreciating 
currency, it is increasingly more profitable to illegally 
divert agriculture products through the porous 
Venezuelan-Colombian border than sell them in Venezuela. 
Gustavo Moreno, the president of FEDEAGRO, told the 
Venezuelan press that producers receive 560 bolivars (USD 
0.26) in Venezuela for one kilo of white corn compared to 800 
bolivars (USD 0.37) in Colombia. 
 
¶7. (SBU) The official peso/bolivar exchange rate is 
approximately 1:1.  However, unlike Venezuela, Colombia has 
no foreign exchange restrictions, making it possible to 
change pesos to dollars at a rate of 2,011 pesos per dollar. 
Venezuelans who illegally export corn to Colombia can convert 
their pesos to dollars, and then convert the dollars into 
bolivars at the Venezuelan parallel rate which currently 
stands at around 5950 Bs/dollars.  Therefore Venezuelan 
producers could sell 500 kilos of white corn at 800 pesos per 
kilo in Colombia, covert the pesos to dollars and then 
bolivars through the parallel rate, and end up with 1,118,490 
Bs (USD 520).  This same producer would only receive 280,000 
Bs (USD 130) if the 500 kilos of white corn were sold in 
Venezuela.  In this example, illicitly diverting food would 
increase revenue by 299 percent. 
 
¶8. (C) Agriculture contacts have also told us that the 
Venezuelan National Guard has facilitated this illicit 
commerce, and that tons of food destined for Chavez' 
subsidized grocery stores (Mercals) have ended up in 
Colombia.  To combat smuggling, on September 5, the Ministry 
of Popular Power for Food issued a resolution restating the 
prohibition against the extraction or exportation of corn 
from Venezuela, explaining that this was a crime that could 
result in prosecution.  However, during an August 29 trip by 
emboffs to the state of Portuguesa (known as the "barn of 
Venezuela"), Juan Fernando Palacios Lugo, the president of 
the 529 member farm association, Asoportuguesa, told EconOffs 
that food was increasingly being diverted to Colombia.  He 
estimated that approximately 50 percent of the rice stored in 
Asoportuguesa's Maracaibo warehouse was smuggled across the 
border.  He noted wryly that Zulia, one of the Venezuelan 
states bordering Colombia, has "one of the highest rice per 
capita consumption (rates) in the world." 
 
------------------------------ 
Wheat, the Imperial Substitute 
------------------------------ 
 
¶9. (SBU) Wheat, the third most consumed product in Venezuela, 
also faces a possible shortage due to significant global 
price increases and the unwillingness of the BRV to raise the 
controlled price for pasta.  Since Venezuela imports nearly 
all of its wheat, the local market is especially vulnerable 
to abrupt changes in the world price.  The price Venezuelan 
importers are paying for wheat has dramatically increased 
from USD 220 per ton in July to USD 850 per ton on October 
¶25.  This 286 percent price increase has intensified pressure 
to raise prices on staples such as pasta.  Industries sources 
 
CARACAS 00002074  003 OF 003 
 
 
argue that they cannot keep selling pasta at the regulated 
price of 1,740 bolivars per kilo (USD 0.80 per kilo at the 
official rate).  The Association of Venezuelan Pasta 
Manufacturers (AVEPASTA) has asked for a 58 percent increase 
in the controlled price for pasta and have argued that the 
fair price of pasta should be 4100 Bs (USD 1.91) per kilo. 
The controlled price of pasta in Venezuela has not changed 
since April 2004. 
 
10 (SBU) According to a recent report by the daily El 
Universal, pasta warehouses have reduced their inventory by 
nearly 30 percent in the last three months.  AVEPASTA has 
also estimated that 10 of the 14 pasta producers in Venezuela 
may have to shutdown due to the shortage in raw materials. 
With operating costs nearly 130 percent higher than selling 
at the controlled prices, many importers have decided to not 
import rather than to operate at a loss.  This impending 
scarcity in wheat could also increase the demand for white 
corn, a substitute for pasta, further adding to the 
probability of a corn shortage.  (Note: According to the U.S. 
Bureau of the Census Trade Data, Venezuela imported 51 
percent of its wheat (USD 168 million) from the United 
States, and has imported 25 percent more wheat from January 
to August in 2007 than during this same period in 2006.  End 
Note.) 
 
------------------------------------ 
Shortages Worsen, Especially in Milk 
------------------------------------ 
 
¶11. (SBU) According to the Venezuelan polling firm, 
Datanalisis, surveys done in 60 supermarkets, bodegas, BRV 
subsidized Mercals, and informal shops in Caracas indicated 
that controlled priced goods are on average unavailable 23 
percent of the time someone visits a market, up two 
percentage points from April.  Seventy-two percent of the 
supermarkets in the Datanalisis poll also reported not having 
any milk to sell, and representatives from the Milk 
Processing Association (ASOPROLE) predicted that fresh milk 
will be in even shorter supply in October.  Controlled market 
prices for processed milk products are also about 25 percent 
lower than the price of raw milk to the industry, which has 
acted as a disincentive for expanding output to meet the 
greater demand. 
 
------- 
Comment 
------- 
 
¶12. (C) Since February Venezuela has experienced rolling 
shortages in milk, eggs, meat, chicken, black beans, sugar, 
sardines, and white cheese (Reftel B).  The Datanalisis poll 
also indicated that 51.7 percent of stores have no sugar, 
43.5 percent have no meat, 40 percent have no corn oil, and 
28.3 percent have no chicken.  However given the symbolic and 
dietary importance of corn, wheat, and milk, worsening 
shortages of these items would cause Venezuelans to view 
shortages in a much more severe light.  Thus far, Chavez and 
his Minister of Food have blamed the food shortages on 
hyperbole and  "media conspiracy."  However, if the shortages 
worsen, the BRV would be forced to find another scapegoat, 
which likely would be large private food producers and 
distributors. 
 
FRENCH