New Market Research Report: Venezuela Agribusiness Report Q2 2011

New Food and Beverage market report from Business Monitor International: "Venezuela Agribusiness Report Q2 2011"
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May 4, 2011 - PRLog -- BMI View: The Venezuelan economy is forecast to return to growth in 2011, with BMI currently anticipating real GDP growth of 1.9% year-on-year (y-o-y), up from a 1.4% contraction in 2010. However, the recovery will largely be driven by the increase in oil prices and huge structural imbalances within the economy remain unresolved. The economy remains particularly vulnerable to food price inflation that has been exacerbated by the damage to crops and infrastructure in the aftermath of the heavy rains from September to December 2010. Supply-side shortages have pushed inflation to the highest level in the region, at 29.8% in February 2011, and we are currently forecasting full-year inflation to come in at 25%. Food prices have been hit hard and have increased by 37.3% over the past 12-months. Prices of plantain, vegetables, cocoa and taro rose by 51.3% between January 2010 and November 2010, putting increasing strain on consumers, particularly low-income families. Inflation is set to continue to rise, as in January 2011, the Venezuelan government unified the official exchange rate at VEF4.3/US$. Throughout 2010, Venezuela used two exchange rates for US dollars: VEF4.3 and VEF2.6, depending on the category of the product, which kept import prices down for many staple food products. Venezuela's food processing chamber (CAVIDEA) is now forecasting that increased input costs could see the costs of food manufacturing rise by as much as 65%, with foods such as pastas, bread, vegetable oils, tomato paste, oats, milk, sugar, tuna and white corn the hardest hit. BMI believes that the government will introduce policies to rein in inflation, including price caps and subsidies. However, we believe that the fixed exchange rate regime for the bolivar remains overvalued and will need further adjustment going forward.

Key Forecasts

* Supply shortages and food price inflation saw coffee consumption fall by an estimated 13.7% yo- y to 880,000 bags in 2010. Supply shortages have, however, been eased to a certain extent by the increase in imports in. With imports set to grow again in 2011, we forecast demand to rise by 8.7% y-o-y to 956,900 bags. Out to 2015, we see demand growing by 19.7% to 1.05mn bags.
 * We estimate that beef production grew in 2009/10 as imports from Colombia were suspended, giving a boost to local producers. Output increased by an estimated 15.5% y-o-y to reach 335,000 tonnes. However, we see production dropping back once again in 2010/11, due to high energy and feed costs and consequent lack of profitability for producers. We forecast production falling back by 1.8% y-o-y to 329,000 tonnes. Towards the end of our forecast period we expect production to begin to rise again as the government makes efforts to lessen the reliance on imports. However, the recovery will be slow and we see production increasing by just 2.1% on the 2009/10 level to reach 342,200 tonnes in 2014/15.
 * We believe that cocoa consumption fell by 1.7% y-o-y in 2010 to 13,820 tonnes as Venezuela suffered a second successive year of economic contraction. With food prices still rising, consumer budgets are likely to remain tight and we see consumption falling further in 2011 to a forecast 13,580 tonnes.
 * We estimate that sugar production fell by 9.9% y-o-y in 2009/10 to 599,100 tonnes. We see production increasing only marginally in 2010/11 to 608,500 tonnes as land expropriations and price controls continue to take their toll. The low production levels will see Venezuela rely on imports once again in 2011, which are forecast to total around 700,000 tonnes in 2011. However, the tight caps placed on refined sugar prices by the government for the domestic market make sourcing imports difficult. This situation is likely to be exacerbated by the unification of the official exchange rate at VEF4.3/US$ in January 2011.

Key Trends And Developments

In December 2010, the government announced that the fixed price at consumer levels for different presentations of ground coffee and coffee beans would rise by 29%. This was the first increase in price since November 2008. The price of a kilogramme of coffee beans or ground coffee rose from VEF18.45 to VEF23.88, excluding VAT. The price increase was, however, less than the coffee processing industry had hoped for. The sector has seen its profitability eroded through increases in the prices of packaging, parts and the 27% increase in the farmgate price for green coffee in November 2010. The December increase is, therefore, unlikely to lead to significant increases in profitability; however, the expropriation of the two main coffee-producing companies, Fama de America and Cafe Madrid, will enable production to continue, despite the squeezed profit margins.

In March 2011, it was announced that officials from the Colombian and Venezuelan governments are developing a joint plant to support coffee growers on both sides of the Colombia-Venezuela border in areas that have been hard hit by the long-running conflict in Colombia. The Binational Plan for the Perija Mountain Range will benefit coffee cultivators in Colombian departments of Cesar and La Guajira and in the Venezuelan state of Zulia. As well as boosting coffee production, the plan also aims to improve food security, housing improvements, educational infrastructure, energy infrastructure and internet access. The binational plan marks a further step forward for collaboration between the two countries, following an extended suspension in diplomatic relations during the premiership of former Colombian President Alvaro Uribe.

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Tags:Food, Coffee, Milk, Sugar, Cocoa, Venezuelan, Wheat, Corn, Agricultural, Colombian
Industry:Food, Restaurants, Research
Location:Massachusetts - United States
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