Courtesy Proagro

To the chickens’ dismay, poultry has become the lowest cost protein for Venezuelans to consume.

In Venezuela’s never-ending quest to break the economic chains of oil-revenue dependency by diversifying its economy, agricultural self-sufficiency ranks among the most lucrative yet elusive rewards to be had.

Turbulent times and unclear government motives for development of the agricultural industry have not fazed the country’s tried-and-true agribusiness producers, who continue to grow year after year and hope the government will work with them to develop a clear vision for the future.

Venezuela’s leading producers remain at the top only by constantly innovating, competing aggressively, and using the most up-to-date technology and management techniques to increase efficiency. Long term planning is important, but surviving in Venezuela’s agribusiness industry requires daily and monthly projections.

"In [political and economic] situations like we have today, you change from a ‘forecast management’ perspective to one of ‘daily control.’ This is something we’ve learned from past crises," remarked Rafael Alfonzo, President of Alfonzo Rivas & Cia, a nearly century-old Venezuelan company leading the market in corn, wheat and cereal production and distribution.

Alfonzo Rivas & Cia has grown more than ever over the past 12 years, from manufacturing four consumer products in 1989 to over seventy today. A great deal of the company’s success stems from knowing how to get and stay on top in a competitive market with ever-changing consumer demand. "We don’t live with paradigms – what’s good today might not be good in two years. We launch a product, and if it isn’t successful we don’t hesitate to throw it out and put a better one in its place," noted Alfonzo.

Venezuela’s leading agribusiness companies also invest a large percentage of their profits into technology, purchasing the most advanced equipment available from countries such as the United States, Italy, Germany and Spain.

"Agriculture has become a cutthroat world," remarked Roberto Moro of Cargill de Venezuela C.A, fully owned subsidiary of Cargill Inc. and one of Venezuela’s most important manufacturers of pasta, oilseed, rice, flour, sugar, pet food and other staple products. "If you don’t hold the technology to be competitive, either you will end up selling the business or closing it down," said Moro.

And technological innovations are proliferating. For instance, Plumrose, a Danish-owned company thriving in Venezuela for 50 years and the country’s undisputed leader in the beef processing market, uses a GPS satellite technology system to increase efficiency and security among its distribution channels.

Another common theme among Venezuela’s agribusiness industry leaders is that no matter what the product, each company strives to achieve as vertically integrated a business as possible, learning over generations to manufacture as much of their product as they can from start to finish, a strategy that helps protect them from the vicissitudes of the Venezuelan economy.

Such measures have become the norm, as the agricultural sector moves forward after the past decade’s downsizing. Prior to the decision by Venezuela’s Central Bank to float the Venezuelan bolivar in February 2002 and devalue the currency, many considered the bolivar to be overvalued by as much as 30-40 percent. This hampered the development of an export industry. And the cost of importing raw materials remained expensive to boot.

Moreover, Venezuela’s large agribusiness producers have received few subsidies from the government and thus remain relatively unsheltered on the open market. Those businesses unable to compete locally against stiff foreign competition have been weeded out.

While the currency devaluation should help export-oriented companies become more competitive on the international market, it may make profitability more difficult to achieve for companies producing for the domestic market, at least in the short term. As the rate of inflation rises, local purchasing power declines.

Agribusiness leaders fear that demand and consumption will also continue to fall. Organizational streamlining and cost cutting now become even more important for a company’s bottom line.

"We’ve innovated and switched the amounts of what we were selling in credit…now we are selling in cash, through cash incentives. That has produced a big change in the flow of our working capital. We are also offering month-to-month discounts with principal distributors," said Alfonzo.

One area that has stood out within the sector is Venezuela’s poultry industry. Despite the ups and downs of the economy, the Venezuelan poultry industry grew an impressive 40 percent in four years, from 486,000 metric tons in 1998 to 671,000 metric tons in 2001. Protinal/Proagro, Venezuela’s largest poultry processor and a major animal feed producer, vaulted ahead of the pack, growing at a pace of 60 percent over this same time span. Consequently, Protinal/ Proagro’s market value skyrocketed from $190 million in 1997 to $270 million in 2001.

Proagro COO Ernesto Vogeler said improved operational efficiencies and benefits from Proagro’s partnership with U.S.-based AGP’s grain procurement group have been instrumental to his company’s success. Proagro strengthened operations through boiler production efficiencies, feed plant modernization, and slaughter-house improvement.

He also attributed the company’s success to recent market conditions. "Until recently, there was an increased purchasing power from the people that were buying our products, the government pushed for lower interest rates that allowed the industry to grow, and a strong bolivar helped by competitively pricing agricultural commodities. The industry was growing within this framework, but as the government has implemented some changes in trying to promote agricultural production, they have closed the industry from access to competitively priced commodities," Vogeler remarked.

Government tinkering of the industry has taken shape in the form of supply side market and loan support agreements, social programs and other incentives intended to help bring Venezuela’s least competitive producer – the poor small farmer – into a vague and loosely-supported co-op system.

The government hopes this will generate growth and employment, but private industry leaders contend that protecting only one part of the agricultural system in such a manner makes the whole system very unproductive and inefficient, and fuels corruption.

Vogeler and his peers have proposed to the government alternative plans to drive thousands of small producers into a co-op system like the government wants to implement, but one which has the objective of making prices accessible to the consumer.

One approach would have the government help support both big and small-sized producers by pulling them into an integrated agricultural system. This would serve to give producers a more consistent income by diversifying the number of crops from which the farmers draw revenue, thereby reducing their risk. "Protection should be structured in a way that marketing and loan support agreements are supplied to the most competitive firms in the market," commented Vogeler.

The animal feed industry has proposed an innovative solution to generate 50,000 new jobs within the agribusiness system by urging that growth generation be tied to demand, with the consumer buying a competitively priced product. "We agree with the government that we have to generate more growth and productivity in Venezuela, but that has to be tied to the consumer being able to buy competitively priced chicken, egg and pork that will pull commodity production through the system," said Vogeler.

At present poultry is competitive in productivity, but not in cost of raw materials, because artificial local prices for corn and soybean meal are priced 70 percent higher than on the international market. The consumer suffers from this government strategy, because ultimately prices of the finished product go up.

But Vogeler believes that with reasonable prices of local raw materials and competitive duties on import products, the industry can produce chicken, eggs and pork competitively. "Rather than imposing a supply-side change of structure, we’re saying that supply-side support agreements benefiting the producer must be tied into a highly competitive priced product so that people can eat better. That’s where the employment will be generated," he contended.

Agribusiness leaders have had little interaction with the Ministry of Production and Commerce, and fear that their proposals to revamp the industry have fallen on deaf ears among government officials. Development of a long-term program to revitalize the agriculture industry, or any sector for that matter, is problematic – President Chavez has announced nearly 45 Cabinet level changes during his three years in power, and momentum for change often falls by the wayside in the government shuffle.

However, Venezuela’s agribusiness producers remain optimistic that a productive dialogue can be started with new Minister of Production and Commerce Adina Bastidas.