Wall Street Journal
February 3, 2013
By Kejal Vyas

Courtesy of: AFP/Getty Images

CARACAS—On any given day at the Quinta Crespo wholesale market, dozens of people lurk in the back alleys trying to get their hands on a white powder. Dealers sell it on the sly at inflated prices, careful to avoid patrolling National Guardsmen who can arrest them.

But this is no illicit substance trading hands in this grimy downtown bazaar: It is corn flour, used to make Venezuela’s staple food, the pancake arepa.

In oil-rich Venezuela, the worst food and consumer-goods shortages in nearly four years are making buying flour and other goods such as meat, sugar, cooking oil and toilet paper into a harrowing ordeal. Even medicines, like asthma inhalers, are hard to come by.

Courtesy of: Wall Street Journal

Business leaders say the explanation is simple: Currency controls adopted in 2003 to prevent capital flight also complicate the purchase of imports, while price caps, expanded in late 2011, don’t cover production costs.

Economists say the shortages those factors created were exacerbated by President Hugo Chávez’s overspending during his re-election campaign last year.

The shortages have become the government’s latest challenge, as it deals with the political uncertainty of Mr. Chávez’s now six-week absence from Venezuela as he recovers from cancer in Cuba.

The central bank’s Scarcity Index, a measure of the percentage of products missing from store shelves, jumped to 16.3% in December, the highest level since May 2008 due to price controls that were too low, many economists say.

“Here you have to know someone, know the right people, before you can get what you want,” said Antonio González, a 22-year-old bakery worker out looking for supplies in Quinta Crespo on a recent day.

Despite neon-colored signs posted outside stores saying sugar and flour are out of stock, Mr. González said some owners sell to preferred customers ready to spend anywhere from 30% to 90% above state-regulated levels.

The ingredients are unlikely to go toward products with low state-controlled prices, such as loaves of bread that cost 3 Venezuelan bolívars (70 cents). Instead, they are likely to be used for unregulated items like breads stuffed with cheese or ham, which can command more than 20 bolívars.

In the wealthier neighborhood of Chacao, many bakeries have limited customers to buying two baguettes. Many supermarkets remind shoppers they can purchase no more than two packages of cooking oil or corn flour, products whose prices are regulated. Long lines of customers buying rationed goods are a common sight.

Venezuela’s largest food packager and distributor, Empresas Polar, said in a recent report that the cost of buying white corn, among other raw materials it uses in its popular P.A.N. brand corn flour, was 50% above price-control levels.

The government acknowledges the latest wave of shortages, but it blames an unusual January rise in food consumption, as well as hoarders and speculators that it says seek to destabilize its socialist project.

In recent weeks, state television has broadcast live searches of warehouses for hidden inventory. Food Minister Carlos Osorio recently said that more than 17,000 tons of foodstuffs had been confiscated in recent weeks as authorities cracked down on around 3,000 storage houses allegedly hoarding goods.

“There are sectors of the opposition that want you to think that there is this total lack of food,” Mr. Osorio said in televised comments.

One official from a large Venezuelan food-packaging company denied that his company was hoarding. He called the government inspections of warehouses “political theater,” adding that state regulations require companies to frequently record movement of their supplies and “they already know how much inventory we have at all times.”

Ángel García Banchs, head of local economic-research house Econometrica, said in an opinion column: “There’s only one strategy left for the government, even though it’s a failed one from my point of view: to design and execute a media campaign to blame the shortages on private national companies.”

Despite price caps, many goods are sold at unofficial, higher prices. Central bank data show an unusual 5.7% rise in the prices of foods and nonalcoholic drinks in December.

Critics say the government flooded the market with dollars last year ahead of Mr. Chávez’s successful October re-election bid. The central bank’s 2012 annual report showed imports jumped 20% on the year to $56.4 billion, the highest in 16 years.

Since the October vote, the flow of dollars to the private sector has dried up. The dollar shortage has caused the black-market rate for the dollar to nearly double to 17.5 bolívars from October.

Last month, Venezuelan authorities announced a change to the tax system that it applies on its oil partners, a move that officials said will send $2.47 billion more to the central bank, which will be able to distribute the hard currency into the local economy.

Economists say Venezuela needs to change its currency-control system. One such move could be a devaluation of the state-set exchange rate of 4.3 bolívars per dollar. That would leave more dollars to distribute in the local economy, economists say.

But a devaluation would also exacerbate already high inflation by making the cost of imports higher in bolívar terms.

With Mr. Chávez ill, his government could be wary of any move that might spark discontent.

“If this is not a sign of a looming crisis, then only god knows what it will happen,” wrote Mr. Garcia Banchs, the economist.

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