Venezuela agribusiness report q2 2015

Q2 2015 www.bmiresearch.com VENEZUELA AGRIBUSINESS REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 2040-0497 Published by:BMI Research Venezuela Agribusiness Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2015 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Venezuela Agribusiness Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2015 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Venezuela Agribusiness Report Q2 2015 CONTENTS BMI Industry View SWOT 10 Agribusiness 10 Operational Risk 12 Industry Forecast 14 Grains Outlook 14 Table: Corn Production & Consumption (Venezuela 2014-2019) 16 Table: Wheat Production & Consumption (Venezuela 2014-2019) 16 Table: Corn Production & Consumption (Venezuela 2009-2014) 21 Table: Wheat Production & Consumption (Venezuela 2009-2014) 21 Livestock Outlook 22 Table: Beef Production & Consumption (Venezuela 2014-2019) 23 Table: Pork Production & Consumption (Venezuela 2014-2019) 23 Table: Poultry Production & Consumption (Venezuela 2014-2019) 24 Table: Beef Production & Consumption (Venezuela 2009-2014) 27 Table: Pork Production & Consumption (Venezuela 2009-2014) 27 Table: Poultry Production & Consumption (Venezuela 2009-2014) 27 Coffee Outlook 29 Table: Coffee Production & Consumption (Venezuela 2014-2019) 30 Table: Coffee Production & Consumption (Venezuela 2009-2014) 34 Commodity Strategy 35 Monthly Softs Update 35 Table: Select Commodities - Performance & BMI Forecasts 42 Monthly Grains Update 43 Table: Select Commodities - Performance & BMI Forecasts 51 Upstream Analysis 52 Americas GM Outlook 52 Americas Machinery Outlook 58 Table: Key Regions To Struggle In 2015 60 Americas Fertiliser Outlook 64 Downstream Analysis 69 Mass Grocery Retail 69 Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Venezuela 2012-2019) 69 Table: Sales Breakdown By Retail Format Type 70 Drink 71 Alcoholic Drinks 71 Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Venezuela 2012-2019) 72 Soft Drinks 73 © Business Monitor International Ltd Page Venezuela Agribusiness Report Q2 2015 Table: Soft Drinks Sales, Production & Trade - Historical Data & Forecasts (Venezuela 2012-2019) 74 Hot Drinks 74 Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Venezuela 2012-2019) 75 Food 75 Food Consumption 75 Table: Food Consumption Indicators - Historical Data & Forecasts (Venezuela 2012-2019) 76 Confectionery 76 Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Venezuela 2012-2019) 77 Regional Overview 78 Competitive Landscape 84 Table: Venezuela Agribusiness Competitive Landscape (USD mn) 84 Demographic Forecast 85 Demographic Outlook 2015 85 Table: Population Headline Indicators (Venezuela 1990-2025) 86 Table: Key Population Ratios (Venezuela 1990-2025) 86 Table: Urban/Rural Population & Life Expectancy (Venezuela 1990-2025) 87 Table: Population By Age Group (Venezuela 1990-2025) 87 Table: Population By Age Group % (Venezuela 1990-2025) 88 Methodology 90 Industry Forecast Methodology 90 Sector-Specific Methodology 91 © Business Monitor International Ltd Page Venezuela Agribusiness Report Q2 2015 BMI Industry View BMI View: The operating environment for the agribusiness sector has deteriorated significantly over recent years due to the poor macroeconomic climate, shortage of foreign currency and therefore agricultural inputs and government mismanagement Venezuela's economy will be under extreme downward pressure in 2015 amidst the drop in international prices The growing headwinds to the economy will weigh on agriculture production and consumption in the coming years, and we will see most commodities see modest if not declining growth out to 2019 Producers of agricultural goods will struggle as rising production costs and controlled prices at farm level reduce margins Agribusiness Market Value BMI Market Value By Commodity (2005-2019) 80 60 40 20 2005 2007 2006 2009 2008 2011 2010 Grains market value, % of total 2013e 2015f 2017f 2019f 2012 2014e 2016f 2018f Livestock market value, % of total FAO/ BMI Calculation © Business Monitor International Ltd Page Venezuela Agribusiness Report Q2 2015 Key Forecasts ■ Poultry consumption growth to 2019: 9.3% to 1.1mn tonnes Demand for poultry is slowing down, amidst the growing headwinds to the Venezuelan economy and to consumers' purchasing power ■ Coffee production growth to 2018/19: -1.9% to 686,800 60kg bags The outlook for coffee production in Venezuela remains dire, as hurdles to output expansion will remain in place over the coming years ■ Beef production growth to 2018/19: 0.1% to 280,400 tonnes High input costs, cheaper Mercosur competitors and reduced domestic demand will stymie growth ■ 2015 BMI universe agribusiness market value: USD20.7bn (up 2.6% from 2014; forecast to grow annually by 2.8% on average from 2015 to 2018) ■ 2015 real GDP growth: -3.6% (down from -2.5% in 2014; forecast to grow annually by 0.2% on average between 2015 and 2019) ■ 2015 consumer price index: 77.0% year-on-year (y-o-y) (up from 61.7% in 2014; forecast to grow annually by 42.5% on average between 2015 and 2019) Industry Developments Venezuela's agricultural sector has been held back over the past decade by poorly executed control policies and limited agricultural inputs The country's socialist government has for some time pegged its procurement price for corn below the cost of production, which has resulted in declining output for several years The control by the Venezuelan government of the bolivar and limited loan availability in the country has also meant there is limited use of imported agricultural inputs This has drastic implications for Venezuelans, as the country dependence on imports has been growing over the past ten years due to the poor policies, and imports now account for about 70% of its food supply The operating environment for the agribusiness sector has deteriorated significantly over recent years, due to the poor macroeconomic climate and shortage of foreign currency Venezuela's economy will be under extreme downward pressure over the coming quarters, due to a confluence of factors including a poor business environment, high inflation, and lower oil prices Some types of politically-important public spending will be bolstered by the government's attempts to consolidate its appeal ahead of the legislative elections scheduled for the end of 2015, but the dearth of public revenue, as well as high inflation, will mute spending growth in real terms We forecast a real GDP contraction of 3.6% in 2015, compared to an estimated 2.5% contraction in 2014, and expect the recession to stretch into its third year in 2016 The already strained grains and livestock sectors in Venezuela will see their operating environment deteriorate further in 2015, as the growing headwinds to the Venezuelan economy will weigh on meat © Business Monitor International Ltd Page Venezuela Agribusiness Report Q2 2015 production and consumption Regarding livestock, beef and poultry output will record weak growth in the coming years, as domestic production will be pressured by fixed output prices and high feed costs Although the government lifted meat prices in early 2015, local producers association argue they are still below production costs The country's modern poultry industry will fare better than the beef sector, for which the outlook is especially bleak Meanwhile, the growing headwinds to the Venezuelan economy will drag meat consumption growth lower in 2015 Venezuela's grain farmers and milling sector will continue to operate in a challenging environment in the coming years Hurdles will include rising production costs and government control over access to foreign exchange and therefore inputs The recent drop in international oil prices poses further risks to the country's foreign exchange reserves and its ability to import much-needed agricultural inputs Corn production, a key staple in the country, will decline Meanwhile, the grain downstream segments, including feed manufacturing and food production, will face mounting challenges © Business Monitor International Ltd Page Venezuela Agribusiness Report Q2 2015 Regional Overview In this quarter's regional overview for the Americas region, we highlight our belief that grain in the US will be increasingly transported via road freight We also outline our forecasts for long-term grain production in the Americas, our outlook for the use of big data in agriculture and our belief that coffee production in Central America will continue to be threatened by coffee rust disease Finally, we take a look at palm oil production in Central and Latin America US Road Freight Sector To Boom Grain in the US will be increasingly transported via road freight, as transport costs - especially for rail - will continue to increase in the coming years We therefore hold a positive outlook on the performance of the full truckload road freight sector, which moves large amounts of homogenous cargo such as grains Underinvestment in US rail and barge freight over the last decade has led to less efficiency and competitiveness in these sectors, meaning that road will be an increasingly important form of freight, in a context of high grain stocks and production in the country Furthermore, strong oil production growth in northern and western US states will continue to take up a lot of the region's rail capacity Our core view is for this to remain the case unless Brent crude oil prices sustain around the USD40/bbl © Business Monitor International Ltd Page 78 Venezuela Agribusiness Report Q2 2015 Road Freight Will Outperform United States - Freight Tonnes Growth (% chg y-o-y) 20 15 10 -5 -10 -15 2010 2011 2012e Rail 2013e 2014e Road 2015f 2016f 2017f 2018f 2019f Inland waterway e/f= BMI estimate/forecast Sources: National Sources, BMI Americas Long-Term Grain Production Growth To Slow We expect grain production growth in the Americas to slow over the coming years, mainly due to high base effects for yields and limited available land for additional plantings This will lead to tightening grain markets in the coming years and higher average prices by the end of our forecast period to 2018, for which we hold an above-consensus view Grain production in the Americas (including corn, wheat, soybean and rice) has grown tremendously in the last decade, a function of the greater use of genetically modified seeds and a larger area dedicated to grains, driven by high prices © Business Monitor International Ltd Page 79 Venezuela Agribusiness Report Q2 2015 Argentina & Brazil Underperformance Select Grains - Production Growth (%) Note: 2013-2018 is BMI forecast Growth is the 2013 level compared with the 2008 level, and the 2018 level compared with the 2013 level Sources: USDA, IBGE, Conab, BMI Disease Will Remain An Issue For Central American Coffee Production Although for now the worst effects of roya, or coffee rust disease, are over in Central America, we believe that output will likely remain volatile in the coming years, as roya will remain an issue in the region In 2012, a roya epidemic swept through Central America, leading to two significantly poor coffee crops in the region over the 2012/13 and 2013/14 seasons Roya lingers in the region due to the high cost of hybrid royaresistant seeds and a lack of farmer knowledge on how to contain its spread Despite the adoption of government support schemes in countries such as Guatemala and Honduras, roya will remain an everpresent threat in Central America due to the subsistence nature of coffee farming and a general lack of farmer education in the region © Business Monitor International Ltd Page 80 Venezuela Agribusiness Report Q2 2015 Volatility Will Remain An Issue Select Countries - Coffee Production Growth (% chg y-o-y) 50 40 30 20 10 -10 -20 -30 -40 -50 -60 Costa Rica El Salvador Guatemala Honduras 2019f 2018f 2017f 2016f 2015f 2014 2013 2012 2011 2010 2009 -70 Nicaragua f= BMI forecast Sources: USDA, BMI Big Potential For Big Data, But Questions Remain As part of a trend known as 'precision agriculture', mountains of data can now be collected and processed from agriculture fields, and companies are working on technology so data can be analysed to maximise yields Precision agriculture, which includes 'smart' tractors, highly localised weather forecasts and advanced insurance policies, looks set to expand as a key feature for agricultural input companies Firms are looking to tap into so-called 'big data' as a means to improve revenues via the sale of higher value-added (and thus more expensive) goods and services, while shielding themselves from the effects of lower grain prices However, we expect challenges along the way, as some ventures will take a while to show progress Falling farm incomes and tightening credit conditions in several markets may threaten to reduce farmer incentives to purchase more expensive products, especially machinery © Business Monitor International Ltd Page 81 Venezuela Agribusiness Report Q2 2015 A New Strategy Needed For A New Era S&P GSCI Grains Index (Weekly Chart) Source: Bloomberg Latin America: Increasing Its Palm Oil Presence Though low by global standards, the Latin America palm oil sector will experience high growth over the coming years In particular, Colombia will gain more importance on the global scene over the next decade, while we also expect Guatemala and Honduras to post strong growth We believe that the region's largest producer, Colombia, has the very real ability to overtake Thai palm oil production in the next decade We also hold the view that Honduras will become an increasingly important player for processed palm oil, with increases in both domestic demand and oil for export © Business Monitor International Ltd Page 82 Venezuela Agribusiness Report Q2 2015 Colombia Will Increase In Global Importance Select Countries - Palm Production Growth (% chg y-o-y) 30 25 20 15 10 2012 2013 Colombia 2014e 2015f Ecuador 2016f Guatemala 2017f 2018f Honduras e/f= BMI estimate/forecast Sources: USDA, BMI © Business Monitor International Ltd Page 83 Venezuela Agribusiness Report Q2 2015 Competitive Landscape Table: Venezuela Agribusiness Competitive Landscape (USD mn) Company Sub-Sector Revenue Fiscal Y/E Feed & Livestock 672.2 08/2011 407.4 Productos efe sa Dairy 120.4 09/2011 28.9 Empresas la polar sa Dairy 804.9 12/2013 45.4 Proagro ca Market Capitalisation Sources: Bloomberg, BMI © Business Monitor International Ltd Page 84 Venezuela Agribusiness Report Q2 2015 Demographic Forecast Demographic Outlook 2015 Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050 The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy Population (1990-2050) 60 40 20 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Venezuela - Population, mn f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 85 Venezuela Agribusiness Report Q2 2015 Venezuela Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Venezuela 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 19,740 24,407 26,725 29,043 31,292 33,416 35,383 na 1.9 1.8 1.6 1.4 1.3 1.1 Population, total, male, '000 9,958 12,283 13,432 14,575 15,680 16,718 17,676 Population, total, female, '000 9,782 12,123 13,293 14,467 15,612 16,697 17,706 Population ratio, male/female 1.02 1.01 1.01 1.01 1.00 1.00 1.00 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast Source: World Bank, UN, BMI Table: Key Population Ratios (Venezuela 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 11,499 15,060 17,024 18,849 20,490 22,009 23,424 58.3 61.7 63.7 64.9 65.5 65.9 66.2 8,240 9,346 9,701 10,193 10,802 11,407 11,958 71.7 62.1 57.0 54.1 52.7 51.8 51.1 Page 86 Venezuela Agribusiness Report Q2 2015 Key Population Ratios (Venezuela 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f 7,505 8,231 8,371 8,560 8,736 8,807 8,761 Youth population, % of total working age 65.3 54.7 49.2 45.4 42.6 40.0 37.4 Pensionable population, '000 735 1,115 1,330 1,633 2,065 2,599 3,196 Pensionable population, % of total working age 6.4 7.4 7.8 8.7 10.1 11.8 13.6 Youth population, total, '000 f = BMI forecast Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Venezuela 1990-2025) 1990 Urban population, '000 Urban population, % of total 2000 2005 2010 2015f 2020f 2025f 16,638.3 21,939.7 24,564.0 27,101.4 29,499.0 31,711.0 33,711.3 84.3 89.9 91.9 93.3 94.3 94.9 95.3 3,102.5 2,467.8 2,161.9 1,941.8 1,793.7 1,705.6 1,671.9 Rural population, % of total 15.7 10.1 8.1 6.7 5.7 5.1 4.7 Life expectancy at birth, male, years 68.3 69.6 70.4 71.3 72.1 72.9 73.8 Life expectancy at birth, female, years 74.1 75.5 76.3 77.2 78.0 78.7 79.4 Life expectancy at birth, average, years 71.1 72.4 73.2 74.2 74.9 75.7 76.5 Rural population, '000 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group (Venezuela 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 2,726 2,781 2,863 2,934 2,956 2,931 2,885 Population, 5-9 yrs, total, '000 2,497 2,737 2,773 2,855 2,926 2,950 2,926 Population, 10-14 yrs, total, '000 2,281 2,712 2,734 2,770 2,853 2,925 2,949 Population, 15-19 yrs, total, '000 1,972 2,486 2,704 2,727 2,765 2,848 2,921 Population, 20-24 yrs, total, '000 1,875 2,263 2,472 2,690 2,713 2,753 2,837 Population, 25-29 yrs, total, '000 1,728 1,953 2,248 2,457 2,674 2,699 2,740 Population, 30-34 yrs, total, '000 1,428 1,854 1,939 2,234 2,442 2,658 2,685 Population, 35-39 yrs, total, '000 1,233 1,703 1,838 1,924 2,216 2,424 2,640 Population, 40-44 yrs, total, '000 1,006 1,399 1,683 1,818 1,904 2,194 2,401 Population, 45-49 yrs, total, '000 764 1,197 1,376 1,657 1,790 1,877 2,165 © Business Monitor International Ltd Page 87 Venezuela Agribusiness Report Q2 2015 Population By Age Group (Venezuela 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 588 961 1,166 1,343 1,619 1,752 1,839 Population, 55-59 yrs, total, '000 493 711 923 1,123 1,296 1,566 1,698 Population, 60-64 yrs, total, '000 408 528 670 872 1,065 1,233 1,494 Population, 65-69 yrs, total, '000 292 417 482 614 804 986 1,146 Population, 70-74 yrs, total, '000 204 318 363 422 542 714 881 Population, 75-79 yrs, total, '000 131 200 257 297 350 453 601 Population, 80-84 yrs, total, '000 72 111 140 184 215 256 336 Population, 85-89 yrs, total, '000 27 48 61 80 107 127 154 Population, 90-94 yrs, total, '000 15 19 26 35 48 58 Population, 95-99 yrs, total, '000 11 15 Population, 100+ yrs, total, '000 0 1 2 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group % (Venezuela 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.81 11.40 10.71 10.10 9.45 8.77 8.15 Population, 5-9 yrs, % total 12.65 11.22 10.38 9.83 9.35 8.83 8.27 Population, 10-14 yrs, % total 11.56 11.11 10.23 9.54 9.12 8.75 8.34 Population, 15-19 yrs, % total 9.99 10.19 10.12 9.39 8.84 8.52 8.26 Population, 20-24 yrs, % total 9.50 9.27 9.25 9.26 8.67 8.24 8.02 Population, 25-29 yrs, % total 8.76 8.00 8.41 8.46 8.55 8.08 7.74 Population, 30-34 yrs, % total 7.24 7.60 7.26 7.69 7.81 7.96 7.59 Population, 35-39 yrs, % total 6.25 6.98 6.88 6.63 7.08 7.25 7.46 Population, 40-44 yrs, % total 5.10 5.74 6.30 6.26 6.08 6.57 6.79 Population, 45-49 yrs, % total 3.87 4.90 5.15 5.71 5.72 5.62 6.12 Population, 50-54 yrs, % total 2.98 3.94 4.36 4.63 5.18 5.25 5.20 Population, 55-59 yrs, % total 2.50 2.92 3.46 3.87 4.14 4.69 4.80 Population, 60-64 yrs, % total 2.07 2.17 2.51 3.01 3.41 3.69 4.22 Population, 65-69 yrs, % total 1.48 1.71 1.80 2.12 2.57 2.95 3.24 Population, 70-74 yrs, % total 1.03 1.30 1.36 1.46 1.73 2.14 2.49 Population, 75-79 yrs, % total 0.66 0.82 0.96 1.03 1.12 1.36 1.70 Population, 80-84 yrs, % total 0.37 0.46 0.53 0.64 0.69 0.77 0.95 © Business Monitor International Ltd Page 88 Venezuela Agribusiness Report Q2 2015 Population By Age Group % (Venezuela 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.14 0.20 0.23 0.28 0.34 0.38 0.44 Population, 90-94 yrs, % total 0.03 0.06 0.07 0.09 0.11 0.14 0.17 Population, 95-99 yrs, % total 0.01 0.01 0.02 0.02 0.03 0.03 0.04 Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.01 0.01 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 89 Venezuela Agribusiness Report Q2 2015 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting BMI mainly uses ordinary least squares estimators In order to avoid relying on subjective views and encourage the use of objective views, we use a 'general-to-specific' method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of 'industry shock', for example, if poor weather conditions impede agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models We select the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); ■ All results are assessed to alleviate issues related to auto-correlation and multicollinearity; © Business Monitor International Ltd Page 90 Venezuela Agribusiness Report Q2 2015 Human intervention plays a necessary and desirable role in all or our industry forecasting Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Sector-Specific Methodology Within the Agribusiness industry, issues that might result in human intervention could include but are not exclusive to: ■ Technology development that might influence future output levels (for example greater use of biotechnology); ■ Dramatic changes in local production levels due to public or private sector investment; ■ The regulatory environment and specific areas of legislation, such as import and export tariffs and farm subsidies; ■ Changes in lifestyles and general societal trends; ■ The formation of bilateral and multilateral trading agreements, and political factors The following two examples show the demand (consumption) and the supply (production) of rice Note that the explanatory variables for both are quite similar, but the underlying economic theory is different Example Of Rice Consumption Model (Rice consumption)t = β0 + β1*(real private consumption per capita)t + β2*(inflation)t + β3*(real lending rate)t + β4*(population)t + β5*(government expenditure)t + β6*(food consumption)t-1 + εt Where: ■ β are parameters for this function ■ Real private consumption per capita has a positive relationship with rice consumption, if rice is a normal good in a particular country If rice is an inferior good in a country, the relationship is negative So the sign of β1 is determined by a specific product within a specific country ■ When inflation is high, people with rational expectations will consume today rather than wait for tomorrow's high price to come Higher rice demand in year t due to higher inflation in that year leads to an assumed positive sign of β2 ■ The relationship between real lending rate and rice consumption is expected to be negative When real lending rates increase, disposable incomes, especially for those with mortgage burdens, etc, will decrease So the sign of β3 is expected to be negative ■ Of course, other things being equal, growth in rice consumption can also be caused by growth in population Consequently, positive sign of β4 is expected © Business Monitor International Ltd Page 91 Venezuela Agribusiness Report Q2 2015 ■ ■ ■ Government expenditure typically causes total disposable incomes to rise So the sign of β5 is expected to be positive Human behaviour has a trend: A high level of food consumption in previous years means there is very likely to be a high level of food consumption the next year So the positive sign of β6 is expected ε is the error/residual term Example Of Rice Production Model (Rice production)t = β0 + β1*(real GDP per capita)t + β2*(inflation)t + β3*(real lending rate)t + β4*(rural population)t + β5*(government expenditure)t + β6*(food production)t-1 + εt Where: ■ The same as above: the relationship between real GDP per capita and rice production depends on whether rice is normal or inferior good in that country ■ If high inflation is caused by food prices increasing, farmers will be more profitable Then they will supply more agricultural product (eg rice) to increase their marginal (extra) profit, although this is tempered by the rising cost of other inputs in line with inflation ■ There is a global move towards corporate farming, away from small holdings, in order to achieve greater agricultural productivity Corporate farming means more investment in the modes of production, ie agricultural machinery Higher real lending rates discourage investment, which in turn reduce production ■ BMI assumes that only the rural population has a positive effect on agricultural product supply ■ With supportive government policy, other things being equal, rice production is expected to go up Government expenditure is likely to play some role in supporting agribusiness ■ Again, previous food production positively affects this year's prediction © Business Monitor International Ltd Page 92 [...].. .Venezuela Agribusiness Report Q2 2015 SWOT Agribusiness Venezuela Agribusiness SWOT Strengths ■ Venezuela' s tropical climate enables production of a diverse range of agricultural products ■ Venezuelan cocoa are known for their high quality Cocoa especially is sought after by producers of premium... increasing agricultural production to reduce the cost of food imports © Business Monitor International Ltd Page 10 Venezuela Agribusiness Report Q2 2015 Venezuela Agribusiness SWOT - Continued Threats ■ The threat of land seizures and nationalisation inhibits investment in agriculture in Venezuela ■ Falls in oil prices will severely limit the amount of money the government will be able to spend ■ Uncertainty... 2.0% to 1.7mn tonnes in 2015; out to 2019, we believe consumption will grow by 14.6% on in 2014 level to 1.9mn tonnes © Business Monitor International Ltd Page 15 Venezuela Agribusiness Report Q2 2015 Table: Corn Production & Consumption (Venezuela 2014-2019) Corn production, '000 tonnes Corn production, % y-o-y Corn consumption, '000 tonnes Corn consumption, % y-o-y 2014e 2015f 2016f 2017f 2018f 2019f... International Ltd Page 19 Venezuela Agribusiness Report Q2 2015 America Benefiting From Growing Imports Venezuela - Corn (LHC) & Wheat (RHC) Imports By Suppliers, 2013 (% of total volume imported) Source: ITC, BMI Gran Misión Agro Venezuela Fails To Deliver Following its intention to boost grains production and reach self-sufficiency in corn, the government launched in 2011 Gran Misión Agro Venezuela, a new... beef meat over the past 10 years © Business Monitor International Ltd Page 25 Venezuela Agribusiness Report Q2 2015 However, the growing headwinds to the Venezuelan economy will drag meat consumption growth lower in 2015 Although the government is likely to expand significantly public spending and subsidies over the course of 2015 in the lead-up to the legislative elections at the end of the year, government... has been making large © Business Monitor International Ltd Page 26 Venezuela Agribusiness Report Q2 2015 inroads into the Venezuelan market as it enjoys large and cheap supply of meat However, Venezuela is now looking at diversifying its exports suppliers, especially towards Uruguay and Paraguay Table: Beef Production & Consumption (Venezuela 2009-2014) 2009 2010 2011 2012 2013 2014 290.0 348.0 345.0... Monitor International Ltd Page 30 Venezuela Agribusiness Report Q2 2015 Sector On The Decline Venezuela - Coffee Production ('000 60kg bags) & Area Harvested ('000 ha) Source: USDA, FAO, BMI From Net Exporter To Net Importer Venezuela was once among the world's largest producers of coffee At the beginning of the 20th century, coffee production was the mainstay of the Venezuelan economy, accounting for... supply chain delays © Business Monitor International Ltd Page 13 Venezuela Agribusiness Report Q2 2015 Industry Forecast Grains Outlook BMI Supply View: Venezuela is a major net importer of grain Though production rose rapidly through the first decade of the 21st century, consumption has also risen, fuelled by oil-driven economic growth Corn is Venezuela' s major grain crop, with the vast majority grown in... International Ltd Page 21 Venezuela Agribusiness Report Q2 2015 Livestock Outlook BMI Supply View: After strong growth in the 1990s and the first few years of the 21st century, Venezuela' s livestock sector has been going through challenging times since 2005 Production has been broadly stagnating in the country (while it grew strongly in the rest of Latin America), including in Colombia and Brazil Venezuela was... consumption, '000 tonnes Pork consumption, % y-o-y 2014 2015f 2016f 2017f 2018f 2019f 127.0 127.6 128.3 128.9 129.6 130.2 0.4 0.5 0.5 0.5 0.5 0.5 143.0 143.3 144.4 145.6 146.8 147.9 0.0 0.2 0.8 0.8 0.8 0.8 Source: USDA/BMI Calculation © Business Monitor International Ltd Page 23 Venezuela Agribusiness Report Q2 2015 Table: Poultry Production & Consumption (Venezuela 2014-2019) Poultry production, '000 tonnes ... 46 Venezuela Agribusiness Report Q2 2015 Big Decline In Surplus In 2015/ 16 Global - Soybean Production Balance, mn tonnes & Stocks-To-Use (%) Stocks-to-Use 2019f 2018f 2017f 2016f 2015f 2014e... Venezuela Agribusiness Report Q2 2015 SWOT Agribusiness Venezuela Agribusiness SWOT Strengths ■ Venezuela' s tropical climate enables production of a diverse range of agricultural products ■ Venezuelan... International Ltd Page 20 Venezuela Agribusiness Report Q2 2015 Table: Corn Production & Consumption (Venezuela 200 9-2 014) Corn production, '000 tonnes Corn production, % y-o-y Corn consumption, '000