Shortages of basic food products in Venezuela are estimated at 80 percent, which means that 80 percent of these products are not available at a given store at a given time. Lines to buy whatever products might arrive at mostly empty supermarkets start before dawn. Food shortages have brought the Maduro government’s popularity to an all-time low and are testing its mechanisms of control. Tellingly, lines to comply with the government’s requirement that individuals validate their signature for a recall referendum organized by the opposition were also very long.
Food shortages in Venezuela are a consequence of economic policies enacted by former President Hugo Chávez and continued by his successor, Nicolás Maduro. Specifically, food shortages are the result of exchange control policies, price controls, and expropriation and nationalization. These shortages might be the downfall of the Maduro regime.
Exchange controls have been in place in the country since 2003. At that time the exchange rate was fixed at 1.6 Venezuelan Bolívars (BsF) per dollar, and limits were set for how many dollars Venezuelans could acquire. Though the Bolívar Fuerte has been devalued 11 times since, it remains one of the most overvalued currencies in the world. This policy is affecting the food situation in two ways. First, Venezuelan producers, who rely on imported raw materials to make food, are unable to get access to the dollars needed to import them. Second, the government has to spend substantial reserves to maintain the overvalued currency. These are dollars that could potentially be used to directly support food production in the country or to import food for consumption. Though the government did have a “preferential dollar” rate for companies interested in producing or importing food and medicine into the country, it has abandoned this approach, as dollars from oil exports have dried up due to lower oil prices and lower production.
Price controls are a second economic policy measure that has affected the food situation. Price controls, like exchange controls, were introduced in Venezuela in 2003 and have expanded to include more products. Price controls dictate very low prices for everything from soap and shampoo to milk and cheese. As a response to price controls, local farmers switched from producing items that are included in the price control system to other items. The result is that Venezuelan supermarket shelves don’t have pasteurized milk (the price of which is set at $1 for a half gallon) but may carry Greek yogurt (the price of which is not regulated.) It’s hard to find white rice (regulated, price: $0.12 per lb.) but you can buy a bag of basmati rice (not regulated, price: $34 for a 10lb bag).
Expropriation and nationalization is the third contributing economic policy. In the first ten years after assuming the presidency, Chávez expropriated more than one thousand companies in Venezuela. The food and beverage sector was hit hard by expropriations, as assets from companies like Nestle, and Fama de América and Café Madrid – two coffee producers – were taken by the government. Under state ownership, the companies were significantly less productive than they had been, and many went under soon after. Expropriations significantly reduced productive capacity in Venezuela.
Though these economic policies are responsible for the severe food shortages in Venezuela, an underlying cause of the problem is the country’s dependency on oil. Oil exports are at least partly responsible for the fixed and overvalued currency. Many other resource-reliant countries face the same problems. Oil dependence could also explain why the country relies so heavily on imports: oil appreciates the currency, which makes exports uncompetitive and encourages people to abandon agriculture and industry to focus on other activities. The fall in the price of oil also explains why the government doesn’t have more resources to deal with the shortages.
Ultimately, Venezuelans are blaming the government for the shortages. In the first five months of 2016, there have been 2,779 protests and riots, according to a Venezuelan watchdog group. The president’s approval rating is at its lowest ever (it was 26 percent in March and has dropped since.) The opposition is organizing a recall referendum to have Maduro removed from power.
The government is rightfully worried about the food shortages and is scrambling to find a solution. So far, the government’s strategy has been to prioritize loyalists and the capital. In June, President Maduro announced that his government was creating a system for food distribution. The system of committees, known by its Spanish acronym “CLAP,” distributes bags with hard to find items, such as flour, coffee, and sugar, to supporters of the government.
The government is also prioritizing food distribution to Caracas over the rest of the country. Though lines are long and supermarkets are empty in the capital city, the situation is reportedly worse in other areas. Maracaibo, a western city capital of a state that has never elected a governor from the president’s party, is one of the hardest hit.
It’s not clear whether the strategy of rewarding supporters (or rather, sparing supporters) will pay off. The government’s other option – massive changes to economic policy – is partially unviable. Out of the three policies that are causing the shortages, only two can be reversed, and it wouldn’t be easy. First, the government could move to unify the exchange rate and further devalue the currency (which it has been doing). This would free up more dollars for imports but would add to the already incredible rate of inflation. Second, the government could abandon price controls, which might encourage some companies to reactivate production. This would be politically costly in a country that has had price controls for over a decade and one in which a basket of basic items costs 17.5 times the minimum wage.
For now, inaction is costing the government popularity, but not its grip on power, which it is maintaining through a combination of repression (including martial law) and control over the electoral and judicial authorities. The food shortages are evidence that the economic policies of Chávez and Maduro have failed. Now we have to wait to see whether the political calculations will succeed.
