Venezuela's agricultural sector has long been plagued by low productivity and benign neglect. After oil was discovered around 1920, agriculture took a back seat to development of the oil economy. Consequently, agriculture slipped in economic importance, moving from a 70% share of G.D.P. in 1930 to about 4% today.
Over the past 15 years, the sector has suffered from a lack of technological advances, leading to high operational costs and, with the exception of rice, little improvement in yields. In the past few years, high inflation and interest rates have exacerbated farmers' problems.
The situation became particularly rocky after implementation in 1989 of reforms known as "El Gran Viraje" (the Great Turning Point). At that time, many subsidies and support mechanisms were reduced sharply or completely eliminated as part of the overall economic liberalization and privatization regime. Today, the government remains involved in only three politically sensitive agricultural products: maize, sorghum and milk.
Government regulations center on grain import controls on coarse grains for feed to protect Venezuela's domestic sorghum production. Because Venezuelan sorghum is high in tannin, feed manufacturers prefer to use yellow maize, virtually all of which must be imported.
Government import licenses are based on an "absorption requirement," whereby users must purchase specified amounts of domestic sorghum as a prerequisite to importing yellow maize. Maize import amounts are set according to announced ratios that vary according to domestic supply conditions.
The import situation can be complicated by production levels of white maize, a food staple. According to recent reports from the Asociación Venezolana de Industrias de Maíz (VENMAIZ), domestic white maize needs for the 1998-99 marketing year were expected to total no more than 800,000 tonnes.
Consumption of pre-cooked white maize flour is expected to drop 15% this year. Although the flour is considered part of the basic Venezuelan diet, the recession has contributed to a decline of about 3 kg in per capita maize flour consumption in just the past three months. In 1998, consumption was 34 kg per capita, but the industry predicts maize flour use will not reach 32 kg this year.
White maize producers expect the final harvest total to reach as much as 1 million tonnes. That would leave a surplus of at least 200,000 tonnes, which processors will be unable to absorb. In the past when white maize has been in surplus, local farm groups have lead demonstrations against yellow maize imports.
Although Venezuelan importers had purchased more-than-usual amounts of yellow maize in the first 32 weeks of this marketing year, supplies apparently were not evenly distributed among users. Consequently, the National Feed Industry Association (AFACA) in June warned the government that some of its members urgently needed to import raw materials because import licenses for yellow maize had not been granted since March 1999.
Another longstanding area of conflict between farmers and users has been grain marketing, specifically the lack of a transparent pricing system for grains. That situation could be alleviated by the June opening of the new Agricultural Board of Trade Exchange (Bolpriaven).
The agricultural board seeks to improve price transparency, improve "respect for contracts" and reduce "friction" created by imported goods. Bolpriaven will offer for trading any commodity, including rice and maize, that is registered for sale in Venezuela, including imported products. Providing a marketplace for domestic and imported commodities is designed to make price comparisons easier. Bolpriaven will work closely with the Agriculture Ministry, which will offer support to secure import permits when needed and improve transparency in the licensing system.
The agricultural policies of the new administration remain unclear, although observers have noted a definite protectionist tone. One stated goal is to develop more than 300,000 square kg of "fertile soils that could make up the breadbasket of the nation." Almost 70% of all arable land remains in state hands and most is not used. The administration is developing a law that would give state land to the homeless to promote agricultural production. Critics, including maize millers and an agricultural consulting company, have complained that this policy ignores the corresponding need to expand consumption by stimulating domestic use or building export markets.
Agricultural Minister Montilla also has signaled potential policy directions that have raised concerns among processors. Earlier this year, Mr. Montilla announced that restrictions on wheat imports were under consideration. More recently, he said that "Venezuela should be fully capable of being self-sufficient in the area of agriculture." In that interview, he stated that rice could substitute for wheat and that the government would encourage rice consumption as well as consumption of other locally produced commodities.
Venezuela is the second-highest per capita pasta consumer in the world behind Italy, and other wheat-based products are highly popular, with an estimated 1998 per capita consumption of 52 kg. According to some observers, these preferences would be difficult for the government to change.
Nonetheless, Venezuela's wheat milling industry is alarmed. ASOTRIGO, the Venezuelan wheat millers association, fears the government not only will restrict wheat imports, but issue a decree obligating millers to blend wheat with other crops such as maize and rice.
The Escuela Latinoamericana de Moineria, or ESLAMO, a joint venture of ASOTRIGO and U.S. Wheat Associates, is willing to show that blending wheat with other grains would lead to unacceptable pasta and bread products.
FLOUR MILLING. Venezuela has between 10 and 20 flour mills, with several large companies accounting for as much as 75% of wheat processing. The mills are concentrated near Caracas, along the northern coast and inland near Ciudad Bolivar. Three milling companies account for 75% of wheat processing. Flour is packaged predominantly in 50-kg paper bags for domestic industrial baking.
Venezuela's flour milling industry has suffered from the recession along with other sectors. Despite the difficult economic environment, Cargill Inc. in December acquired Grandes Molinos de Venezuela S.A. (Gramoven), the Venezuela consumer foods subsidiary of Bunge International Ltd. That acquisition included a flour mill, a pasta plant and an edible oils plant, all located near Caracas. With the acquisition, Cargill is estimated to account for about 40% of pasta production in Venezuela.
Pasta consumption in Venezuela is high not only because of taste preferences but because of price ratios with other products. According to government statistics, pasta is one of the few products that registered the lowest price variation during 1998, rising 6.7% from January-August. That compared with a 21.1% increase for rice and 18.9% for other cereals products.
Even though pasta use is up, durum semolina consumption is not forecast to rise correspondingly because hard wheat is substituting for durum in pasta formulations to provide a cheaper line of products. Also, some pasta producers are using new high temperature technology, which allows for the use of 100% non-durum wheat to produce some types of pasta.