It seems the international media really started noticing the Venezuelan economic meltdown when the Coca-Cola factory shut its doors because it ran out of sugar. The national beer provider Empresas Polar soon followed, citing barley shortages. So, now Venezuelans are running out of coke, beer, and pretty much any basic commodity. Online videos show people running at full speed to a delivery truck bringing rice and chicken; parents are taking their children out of school to make them wait in day-long lines to score groceries. Eerie parallels to East Bloc communist countries abound; though the level of crisis, particularly of inflation and food shortages, Venezuela is experiencing is arguably more intense than most of Eastern European history.
Unsettlingly, global food security indicators have not kept pace with the developments of the last years: the Global Hunger Index gives Venezuela a 7 (with 0 being no hunger and 100 the worst possible score), citing low levels of hunger, and the Economist’s Global Food Security Index ranks it 48 out of 109 index countries.
Yet, outside of official statistics news of food shortages are becoming more and more severe. According to one source, in February 2015, there was an 80-90% shortage rate of milk (powdered and liquid), margarine, butter, sugar, beef, chicken, pasta, cheese, corn flour, wheat flour, oil, rice, coffee, toilet paper, diapers, laundry detergent, bar soap, bleach, dish, shampoo and soap toilet. This means that in 8-9 stores or vending points where you should be able to find these products, you couldn’t. Hence the lines. The days spent hunting down groceries. And the inflation of food prices – prices have increased by around 500% – as more and more food is resold on the black markets of the street economy. In response, between 2012 and 2013 the average consumption levels of basic goods, such as corn flour, rice and pasta, dropped by between 7 to 16%. Protein consumption rates are even more dire. Furthermore, in a recent survey of university students, 12% of those polled said they ate less than three meals a day. In a sample of school-age children, 30% were malnourished, and school absences were on the rise since schools couldn’t afford lunch programs any longer.
How did it come so far? And what can Venezuela do to stop this downward spiral?
After having done some digging, it seems to me that Venezuela is the perfect storm of historical lessons gone unheeded and having been exacerbated by the siren calls of a resource-based globalized economy. Chavismo is on its last legs, and presents another opportunity to analyze how not to create an equal-opportunity, smallholder-based economy.
First off, let’s review the historical lessons. What the Soviet Union, the East Bloc, South East Asia (think Cambodia) and China have taught us time and again is that heavy-handed state interventions in the economy usually cause disasters. In Venezuela’s case, a populist intention to control consumer expenditures led the government to implement price controls on basic goods since 2003. While initially, those price controls just kept pace with inflation, since 2007 they became increasingly unlinked from market realities. The last couple of years, more and more firms stopped production because the official prices were set below the cost of production and they were making losses on each and every unit.
Second, since 2001 a wave of nationalizations has rocked the country and created a fearful business climate. Particularly in agricultural firms, it also often led to decreases in output by 20 to 35% and occasionally the near-complete halt of production on the circa 5 million expropriated acres. The expropriation and redistribution laws in this sector were highly ideologically motivated and intended to increase food sovereignty by granting access to land to smallholders. Again, these state policies were possibly well-meaning but executed in an incredibly amateurish form: government officials would expropriate well-functioning agricultural business on the pretense of inefficiency, and redistribute the agricultural land to formerly landless poor, but then leave them without any training, equipment or inputs. Not surprisingly, many of the new farmers half-heartedly planted crops, most of which failed due to improper management and the lack of inputs, and continue to eek out a low-level subsistence existence out of land that previously produced crops to be sold in cities. Further examples cite officials encouraging corn production on land formerly used for sugarcane – which is highly unsuitable for corn, dooming that entire endeavor.
“These people know nothing about agriculture,” exasperated farmers complain.
This development led to an ever increasing Venezuelan dependency on imports: in 2013, 70% of the goods Venezuelans consumed were produced outside of the country. In exchange, Venezuela exports oil. That’s basically it. A quasi-perfect example of the resource curse theory, Venezuela’s economy overwhelmingly relied on the extraction of crude oil for the last decade -hydrocarbon revenues accounted for 96 percent of Venezuela’s exports and half its national income. That one-trick-pony strategy worked well – and covered up a lot of macroeconomic inconsistencies – until oil prices fell and it didn’t.
As export earnings dried up, Venezuela found itself in a worsening conundrum on how to afford its imports. This was made even worse by the way trade is regulated in the country. In order to import those goods, traders require foreign currency – typically, US dollars – which the government is also controlling tightly. The currency controls in place at the moment, intended to stabilize the local bolivar against the dollar, only allows the official exchange of bolivars to foreign currency according to the economic necessity.
These exchanges at the government-controlled exchange rate are widely cheaper than at the current real value of the bolivar (which has dropped by 93% in two years) and has led to widespread fraud – the NY Times cited estimates that “$20 billion of the $59 billion that went to product imports in 2012 disappeared through fraudulent transactions,” meaning that no products entered the country in exchange for that money. Meanwhile, up to 30% of all cheap subsidized goods that do make it onto the market often disappears across the border to Colombia, where products are much more expensive.
There is a lot of other really bad stuff happening (electricity shortages, inflation rates skyrocketing from 70% in 2014 to 180% in 2015, the list goes on…) but the central fact is this: Venezuela has to do something or risk large-scale socio-economic collapse. There are already reports of riots and lootings linked to the food shortages, and the situation seems to be getting worse by the day.
What to do? In short, it’s complicated, but many economists advocate a short- to medium-term reversal of the central bureaucratic controls and red tapes that are being constantly circumvented by the black market anyhow. Taking serious steps against corruption, using that money to provide basic food necessities at payable prices and letting the currency float against the dollar seem to be the more short-term solutions, while reversing the nationalizations and collaborating better with the private sector are mid- to long-term fixes to the one-trick-pony hydrocarbon nightmare Venezuela has had to deal with.
How does all that relate to food policy? Well, if you look at those hunger numbers I cite above, economic stability is food policy as far as it concerns the proper access and affordability of food. Furthermore, from what I have seen it seems the government had a hugely ineffective way of supporting their ideal of food sovereignty through smallholder agriculture – if there is one thing I have most definitely learned doing my research here in Central America, it’s that agronomic knowledge is power that most poor farmers don’t have yet. It’s not enough to give long speeches about empowering the lower classes – you actually have to follow through.
Finally, the current shortages may require a whole new level of food policy – aka how to ensure that Venezuelans can feed themselves in the period until the economy stabilizes. Apparently the government just created a Ministry of Urban Agriculture, and people are starting little urban gardens and community-supported agriculture schemes to supplement their diets. It will be interesting to see whether this can evolve to a real solution and how those skills will be used in the future.