Venezuela agribusiness report q3 2012

Q3 2012 www.businessmonitor.com VeneZueLa agribusiness Report INCLUDES BMI'S FORECASTS ISSN 2040-0489 Published by Business Monitor International Ltd VENEZUELA AGRIBUSINESS REPORT Q3 2012 INCLUDES 5-YEAR FORECASTS TO 2016 Part of BMI's Industry Report & Forecasts Series Published by: Business Monitor International Production Date: July 2012 Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2012 Business Monitor International All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International, 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 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 makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Venezuela Agribusiness Report Q3 2012 © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 CONTENTS Executive Summary SWOT Analysis Venezuela Agriculture Swot Venezuela Business Environment SWOT Supply Demand Analysis Venezuela Livestock Outlook Table: Venezuela Poultry Production & Consumption, 2011-2016 Table: Venezuela Pork Production & Consumption, 2011-2016 10 Table: Venezuela Beef & Veal Production & Consumption, 2011-2016 10 Table: Venezuela Poultry Production & Consumption, 2008-2012 13 Table: Venezuela Pork Production & Consumption, 2008-2012 13 Table: Venezuela Beef & Veal Production & Consumption, 2008-2012 14 Venezuela Grain Outlook 14 Table: Venezuela Wheat Consumption, 2011-2016 16 Table: Venezuela Corn Production & Consumption, 2011-2016 16 Table: Venezuela Wheat Consumption, 2008-2012 20 Table: Venezuela Corn Production & Consumption, 2008-2012 20 Venezuela Coffee Outlook 20 Table: Venezuela Coffee Production & Consumption, 2011-2016 22 Table: Venezuela Coffee Production & Consumption, 2008-2012 25 Commodity Price Analysis 27 Monthly Softs Update 27 Cocoa: 2012 Outperformance To Continue 28 Coffee: Next Support At USc130.0/lb 29 Palm Oil: False Break? 31 Sugar: More Fears Over Brazilian Crop 32 Cotton: Technical Bounce Over? 33 Table: Select Commodities: Performance & BMI Forecasts 34 Monthly Grains Update 35 Wheat - Deteriorating Supply Prospects 36 Corn - Anticipating US Supply Downgrades 37 Soybean - Range Trading Ahead 38 Rice - Ample Supply To Keep Prices In Check 40 Table: Select Commodities: Performance & BMI Forecasts 41 Upstream Analysis 42 Tractor Growth In The Americas Driven By Brazil And Argentina 42 GM Plantings Growth To Slow, Americas To Remain The Largest Exporter 45 Americas Fertiliser Quarterly 49 Downstream Analysis 51 Food 51 Table: Canned Food Value/Volume Sales - Historical Data & Forecasts 53 Table: Fish 53 Edible Oil 54 Table: Oils & Fats 54 Confectionery 56 © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 Table: Confectionery Value/Volume Sales - Historical Data & Forecasts 56 Drink 57 Alcoholic Drinks 57 Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts 57 Table: Wine 58 Soft Drinks 59 Table: Soft Drink Value Sales - Historical Data & Forecasts 59 Hot Drinks 60 Table: Hot Drink Value Sales - Historical Data & Forecasts 60 Mass Grocery Retail 61 Table: Mass Grocery Retail Value Sales by Format - Historical Data & Forecasts 61 Table: Sales Breakdown by Retail Format Type 62 Trade 62 Table: Trade Indicators - Historical Data & Forecasts 62 Country Snapshot: Venezuela Demographic Data 63 Table: Venezuela's Population By Age Group, 1990-2020 ('000) 64 Table: Venezuela's Population By Age Group, 1990-2020 (% of total) 65 Table: Venezuela's Key Population Ratios, 1990-2020 66 Table: Venezuela's Rural And Urban Population, 1990-2020 66 BMI Forecast Modelling 67 How We Generate Our Industry Forecasts 67 © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 Executive Summary BMI View: Food shortages continue to affect Venezuelan consumers in the run-up to the next presidential election, set for October Milk and sugar were top of a June index of food scarcity in Venezuelan capital, Cáracas Beef, chicken, rice and vegetable oil have also been in short supply The Venezuelan Central Bank's scarcities index - which monitors the availability of food and other basic supplies - was up by 24% year-on-year in May Shortages are particularly acute in governmentcontrolled shops, which provide affordable food to low-income households The shortages have seen renewed criticism of the government's price control policies, which have seen agricultural producers' and manufacturers' outputs fall owing to a lack of profitability As a result, reliance on imports continues to grow, despite President Hugo Chávez's emphasis on the importance of food sovereignty Venezuela now imports more than 70% of its food supply, according to the Food and Agriculture Organization Key Forecasts ƒ Venezuelan consumer price inflation has been declining since the beginning of the year, reaching 23.6% year-on-year (y-o-y) in April from 29.0% at the end of 2011 However, BMI believes that inflation will tick up later this year due to demand-side inflationary pressure, as the administration is likely to increase its monetary stimulus to boost domestic demand ahead of the October elections As such, we are sticking to our 26.0% end-year consumer price inflation for 2012 We see GDP growth coming in at 3.5% y-o-y in 2012 and 2.2% y-o-y in 2013 ƒ Beef production is forecast to fall by 13.4% y-o-y in 2011/12 to 290,000 tonnes as the sector continues to be held back by a lack of profitability owing to high input costs and government price controls, along with increased competition from imports from Brazil and Nicaragua A steep rise in imports is, however, expected to support domestic beef demand, which we see growing by 0.9% y-o-y to 560,000 tonnes in 2012 ƒ In 2011/12, we see corn production falling by 15.2% y-o-y to 1.45mn tonnes as poor weather, poor agricultural policies, a lack of fertiliser and low profitability continue to blight the sector In 2012/13, we believe that output will recover by 22.1% y-o-y to 1.77mn tonnes Output is expected to be aided by the government's announcement that it will assist corn producers through the winter crop cycle by providing fertiliser and seeds through the state-owned Agropatria chain of agricultural supply shops Out to the end of our forecast period in 2015/16, we expect corn output to grow by 18.7% on the 2010/11 level to reach 2.03mn tonnes ƒ We estimate that coffee consumption shot up by 49.1% to 1.31mn bags in 2011 owing to a spike in imports to 622,000 bags, from 316,000 bags the previous year Imports are forecast to reach 606,000 bags in 2012, and we see consumption increasing marginally to reach 1.32mn bags Out to 2016, we see demand growing by 4.5% on the high 2011 level to 1.36mn bags © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 Key Trends And Developments ƒ In April 2012, Venezuelan Foreign Minister Nicolás Maduro and his Colombian counterpart, María Holguín, signed a partial bilateral trade agreement at the Sixth Summit of the Americas held in Cartagena, Colombia The agreement establishes a new model for trade relations between the two nations, covering preferential trade agreements, sanitary norms, technical norms, rules of origin, trade protection and the mechanism for the settlement of disputes The agreement also includes plans to increase joint infrastructure and agricultural production The pact signals the continued improvement of diplomatic relations between the two countries, which were suspended in 2009 owing to a trade dispute The increased availability of imports should help to ease continued food shortages in Venezuela ƒ Also in April 2012, the Venezuelan government's National Superintendence of Securities authorised an issue of agricultural bonds by the National Development Fund (Fonden) The bonds, worth VEF7bn (US$1.63bn) will be purchased by Venezuelan banks and will be due in 2015-2017 The banks in turn will provide funds for agricultural programmes Fonden was established in 2005 to fund the government's investment projects and has to date received US$95bn in funds, according to Jorge Giordani, the minister of finance and planning ƒ Despite ongoing price controls and supply issues, the retail sector is forecast to grow strongly over the coming years There are currently 162,054 retail outlets selling food and drink in the country, including supermarkets, government-owned shops and small-scale convenience stops There are more than 15,500 government-run MERCAL shops, which sell goods at subsidised prices The number of convenience stores is forecast to expand quickly as petrol stations begin to incorporate shops into their facilities ƒ In March 2012, the Venezuelan government announced funding of VEF725mn (US$168mn) to assist the country's sugar sector The funding will be targeted at increasing output at governmentowned mills Ten of the 16 operating sugar mills are currently state-controlled Price controls, fear of expropriation and increasing competition from imports have constrained domestic production in recent years Production has fallen from 780,000 tonnes in 2007/08 to a forecast 503,000 tonnes in 2011/12 ƒ In June 2012, the government announced the creation of a new coffee supply and distribution company: Venezuela Coffee: Shops and Services The new chain will be an affiliate of the Venezuelan Coffee Corporation and will be responsible for facilitating and coordinating economic activities relating to the coffee industry, including cultivation, processing, sales and exports © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 SWOT Analysis Venezuela Agriculture Swot ƒ Strengths ƒ ƒ Weaknesses ƒ ƒ ƒ Opportunities ƒ ƒ ƒ Threats ƒ Venezuela's tropical climate allows for production of a diversified range of agricultural products Venezuelan cocoa and coffee are known for their high quality; cocoa especially is sought after by producers of premium chocolate Despite having large areas of fertile arable land, lack of investment in agriculture has left Venezuela a major food importer High food price inflation and frequent supply shortages have dampened growth in food consumption Price controls in place since 2003 squeeze the profits of producers and are a disincentive to investing in increasing production The government has shown interest in revitalising coffee and cocoa production after years of decline The government has introduced a number of programmes, including financing and subsidies, to help small holders increase production Falling oil revenues are bringing more attention to increasing agricultural production to reduce the cost of food imports The threat of land seizures and nationalisation inhibits investment in agriculture in Venezuela Falls in the oil price will severely limit the amount of money the government will be able to spend on agriculture Venezuela Business Environment SWOT Strengths ƒ ƒ Venezuela is an important supplier of oil to the US and is a member of OPEC Home to some of the largest oil reserves in the world, the Orinoco region will provide opportunities for large-scale investment Weaknesses ƒ A lack of domestic and international investment, largely as a result of the uncertain political environment, could undermine the long-term growth outlook Privatisation has ground to a halt since President Hugo Chávez took office, with the administration instead preferring production-sharing agreements to encourage foreign direct investment ƒ Opportunities ƒ Government support for businesses, through a range of low interest rate loans, is available The government fund for industrial credit provides large sums of money for small- and medium-sized businesses Threats ƒ The implementation of stringent foreign currency controls has hit the business community hard This has restricted import growth, as businesses lack the currency to purchase raw materials State expropriation of 'idle' plants and proposals for land reform will act as a disincentive for prospective investment (domestic and foreign) ƒ © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 Supply Demand Analysis Venezuela Livestock Outlook BMI Supply View: After strong growth in the 1990s and the first few years of the 21st century, Venezuelan beef production has gone into reverse in the past few years Venezuela was self-sufficient in beef in 2003, but 2012 imports are forecast to account for 53% of domestic consumption A complex system of price controls imposed by President Hugo Chávez in 2003 has restricted the profitability of livestock production in the country Chávez is hoping to boost production by turning over land judged as unproductive to landless farmers The project, however, has been met with mixed results; some formerly productive ranches have seen production evaporate under the direction of inexperienced new managers We believe that beef production fell in 2010/11 as high energy and feed costs led to a lack of profitability for producers Furthermore, heavy rains and mudslides from February-May 2011 flooded pasture lands in north-west Venezuela, affecting livestock production We estimate that output dropped by 3.7% year-onyear (y-o-y) to 335,000 tonnes We forecast that production will fall by a further 13.4% y-o-y to 290,000 tonnes in 2011/12 as the sector continues to be held back by a lack of profitability owing to high input costs and government price controls, along with increased competition from imports from Brazil and Nicaragua Venezuela now depends on imports for more than half of beef consumed, according to Instituto Nacional de Estadística, the national statistics institute The government has promised credits to cattle ranchers in 2012 and, if granted, this could provide a much-needed boost to the sector 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 forecast production reaching 321,000 tonnes, still down by 4.2% on the 2010/11 level Poultry production has weathered the storm of Chávez's reforms somewhat better than the cattle-rearing sector The poultry sector accounts for an estimated 30% of total agricultural GDP and almost 50% of animal production The poultry industry is vertically integrated and efficient, and producers are constantly working to modernise and improve their production methods Despite these strengths, the sector has been hit by the poor economic climate, continued high input costs and the increasing competition from imports from Brazil and Argentina Producers continue to be affected by the state-controlled price regime, which is squeezing profitability The state-regulated price for poultry was increased in March 2010 to VEF13.83/kg; this provided some relief for producers but has done little to stem the downwards spiral We estimate that output fell by 3.8% y-o-y in 2010/11 to take production to 625,000 tonnes, and we forecast a further decline of 3.0% in 2011/12 to 606,000 tonnes Out to 2016, we see production increasing by 4.5% on 2011 output to reach 653,000 tonnes, still some way below the level seen in the early years of the 21st century © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 Venezuela produces only small quantities of pork Output has remained stable at around 125,000 tonnes in recent years We see production increasing by 4.0% on the 2011 level over our forecast period to reach 130,000 tonnes in 2016 BMI Demand View: Meat consumption soared in Venezuela's boom years from 2004 to 2008 The rise in demand was driven by a combination of strong oil-fuelled economic growth and government price controls making staple foodstuffs more affordable After falling sharply in 2003, poultry consumption had grown by more than 50% by 2008 Beef consumption also grew by almost 40% between 2004 and 2008 In 2011, annual per capita consumption stood at an estimated 28.7kg for poultry, 19.2kg for beef and 5.1kg for pork While price controls have increased demand, they have worked against investment in production and led to an increasing reliance on imports In 2012, imports are forecast to reach 275,000 tonnes for poultry and 325,000 tonnes for beef We now believe that demand for poultry fell by 3.2% y-o-y to 859,000 tonnes in 2011 on the back of lower production Imports estimated at 234,000 tonnes supported domestic demand We see consumption growing by 1.6% in 2012 to 872,700 tonnes Out to 2016, we forecast that demand for poultry will grow by 10.5% on the 2011 level to reach 949,300 tonnes In 2011, the reliance on imports continued to shore up beef consumption, and we estimate that consumption increased by 6.1% y-o-y to 555,000 tonnes High import prices and a drop in domestic production are likely to constrain beef consumption, and we therefore currently forecast demand to grow by 0.9% y-o-y in 2012 to 560,000 tonnes Despite the increase in imports, consumption continues to be constrained by limited availability Out to 2016, demand for beef is forecast to grow by 7.4% on the 2011 level to 596,100 tonnes Pork consumption is much lower than that of poultry and beef Consumption grew by 8.4% from 20062011 to reach 141,000 tonnes We forecast growth of 3.5% between 2011 and 2016, fuelled primarily by population increases, to take consumption to 146,000 tonnes at the end of our forecast period Table: Venezuela Poultry Production & Consumption, 2011-2016 Poultry Production, '000 tonnes Poultry Consumption, '000 tonnes e f 2011e 2012f 2013f 2014f 2015f 2016f 625.0 606.0 622.0 632.0 644.0 653.0 859.0 872.7 885.8 903.5 926.1 949.3 Notes: BMI estimates BMI forecasts Sources: USDA © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 Confectionery In 2010 52% of the overall market was Confectionery Sales accounted for by chocolate 2007-2016 confectionery, followed by sugar confectionery and gum with market shares of 41% and 7% respectively A young population and busier lifestyles have led to growing demand for on-thego snacks, but Venezuelan consumers have been forced over recent years to adapt consumption patterns to cope with rising prices and limited product availability For many consumers, confectionery has e/f = BMI estimate/forecast Source: National Institute of Statistics, BMI thus returned to being a luxury product, with product availability through the government-subsidised Mercal network, which is intended to provide discount food staples for the impoverished, being at best limited Table: Confectionery Value/Volume Sales - Historical Data & Forecasts 2009 Total confectionery sales (tonnes) 2010 2011e 2012f 2013f 2014f 2015f 2016f 256,590.57 251,778.12 258,463.19 264,834.58 270,740.85 277,705.23 284,422.25 290,619.05 Total confectionery sales growth, tonne, (y-o-y) -4.83 -1.88 2.66 2.47 2.23 2.57 2.42 2.18 Total confectionery sales (VEBmn) 1,913 2,387 3,146 4,112 5,149 6,200 7,290 8,563 Total confectionery sales growth, VEB, (y-o-y) 22.84 24.72 31.84 30.68 25.22 20.42 17.58 17.47 Gum sales (VEBmn) 187.1 233.5 307.6 401.2 503.1 605.2 712.8 837.6 578 724 947 1,223 1,546 1,848 2,199 2,589 Chocolate confectionery sales (VEBmn) 1,148 1,429 1,891 2,487 3,099 3,746 4,378 5,137 Total confectionery sales (US$mn) 892.2 555.0 731.7 956.2 774.2 620.0 633.9 685.1 Gum sales (US$mn) 87.26 54.31 71.53 93.31 75.65 60.52 61.98 67.00 Sugar confectionery sales (US$mn) 269.5 168.3 220.3 284.4 232.5 184.8 191.2 207.1 Chocolate confectionery sales (US$mn) 535.5 332.4 439.9 578.5 466.1 374.6 380.7 411.0 Sugar confectionery sales (VEBmn) e/f=BMI estimate/forecast Source: National Institute of Statistics, BMI © Business Monitor International Ltd Page 56 Venezuela Agribusiness Report Q3 2012 Drink Alcoholic Drinks Venezuela has the highest per capita beer consumption rate in Latin America and between 2005 and 2010, consumption in volume terms increased by 7% However, BMI is forecasting that government measures to reduce consumption combined with the country's weak economic growth will take their toll over our forecast period We expect that beer volumes will grow by only 4% to 2016 Venezuela is also a big consumer of spirits, with whiskey particularly popular According to the Scotch Whiskey Association, Venezuela is currently the fifth-biggest market for Scotch in the world However, demand in this sector is also likely to decline Sales of spirits were strong in years leading up to the downturn owing to a boost in the price of oil, which allowed the government to continue funding its welfare programmes In turn, this allowed low-income consumers to increase their expenditure However, owing to the government's desire to reduce alcoholic consumption in Venezuela through measures such as a new consumption tax, such growth is unlikely to be repeated in the immediate future BMI is therefore forecasting that volume sales of spirits will decline by 3% over the next five years to 2016 and that consumption of imported luxury spirits may be hit particularly hard Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f Alcoholic drinks sales (mn litres) 2,056 2,045 2,061 2,076 2,089 2,106 2,121 2,136 Alcoholic sales growth, litres, (y-o-y) -0.18 -0.55 0.76 0.72 0.66 0.78 0.74 0.68 Beer sales (mn litres) 1,975 1,964 1,979 1,994 2,008 2,024 2,039 2,054 Wine sales (mn litres) 20.72 20.42 20.84 21.23 21.60 22.04 22.45 22.84 Spirits sales (mn litres) 60.68 60.92 60.58 60.26 59.96 59.61 59.27 58.95 Alcoholic drinks sales (VEBmn) 5,394 6,828 8,811 11,275 13,892 16,378 18,930 21,874 Alcoholic sales growth, VEB, (y-o-y) 26.86 26.58 29.05 27.97 23.22 17.89 15.59 15.55 Beer sales (VEBmn) 3,631 4,592 5,938 7,616 9,405 11,119 12,885 14,922 Wine sales (VEBmn) 275.2 336.3 449.6 590.1 741.6 892.7 1,053.0 1,240.5 Spirits sales (VEBmn) 1,488 1,899 2,423 3,069 3,745 4,366 4,992 5,711 Alcoholic drinks sales (US$mn) 2,515 1,588 2,049 2,622 2,089 1,638 1,646 1,750 Beer sales (US$mn) 1,693 1,068 1,381 1,771 1,414 1,112 1,120 1,194 Wine sales (US$mn) 128.32 78.20 104.57 137.24 111.51 89.27 91.56 99.24 © Business Monitor International Ltd Page 57 Venezuela Agribusiness Report Q3 2012 Table: Alcoholic Drink Value/Volume Sales - Historical Data & Forecasts Spirits sales (US$mn) 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f 693.6 441.7 563.6 713.7 563.2 436.6 434.1 456.9 e/f=BMI estimate/forecast Source: National Institute of Statistics, BMI Table: Wine 2009 2010e 2011e 2012f 2013f 2014f 2015f 2016f Wine production, litres mn 2.54 2.42 2.66 2.87 3.08 3.35 3.60 3.84 Wine production, litres mn, % change y-o-y -10.49 -4.67 9.87 7.67 7.44 8.64 7.68 6.50 Wine exports, litres mn 0.02 0.04 0.03 0.02 0.02 0.01 0.01 0.01 Wine exports, litres mn, % change y-o-y 1.93 139.02 -24.65 -20.23 -18.75 -20.81 -26.86 -37.54 Wine imports, litres mn 19.93 19.18 19.81 20.13 20.48 20.83 21.19 21.56 Wine imports, litres mn, % change y-o-y -22.76 -3.72 3.24 1.63 1.72 1.73 1.73 1.74 Wine balance, litres mn -19.91 -19.15 -19.78 -20.11 -20.46 -20.82 -21.18 -21.55 Wine balance, litres mn, % change y-o-y -22.77 -3.83 3.30 1.66 1.74 1.75 1.75 1.76 Source: e/f = BMI estimate/forecast Source: United Nations, BMI © Business Monitor International Ltd Page 58 Venezuela Agribusiness Report Q3 2012 Soft Drinks From 2005 to 2010 the soft drink sector Soft Drinks Sales grew thanks to the general upward trend 2007-2016 in consumer spending, which had been buoyed by bumper oil receipts However, weak economic growth is expected to have a negative impact on the market over the forecast period While high inflation will boost sales in local currency terms, total soft drinks sales are expected to fall in US dollar terms over the five years to 2016 The bulk of the market is accounted for by carbonates and this sector is expected e/f = BMI estimate/forecast Source: National Institute of Statistics, BMI to stay dominant throughout the forecast period However, sales of juices, energy drinks and flavoured water have also been driving growth over the review period and are expected to become more important over the next five years Drinks companies have been responding to changes in demand by launching new innovations on the market, such as sugar-free drinks and by increasing the choice of flavours Energy drinks are still a relatively small subsector but over the review period are growing rapidly These drinks were originally targeted at young partygoers but the market has expanded to include people leading busy lifestyles, students, truck drivers and business executives Empresas Polar launched the Adrenaline Rush brand in 2006, which has helped the sector develop over the past four years Healthy living is a growing trend in Venezuela, while maintaining an attractive physical appearance is also important to Venezuelans Both of these factors should help drive the market in health-based soft drinks over the forecast period Subsectors such as fruit and vegetable drinks should show strong development as should bottled water Conversely, carbonated drinks, which have high levels of sugar and an unhealthy image, could suffer Table: Soft Drink Value Sales - Historical Data & Forecasts 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f Soft drinks sales (VEBmn) 2,694 3,430 4,584 5,963 7,585 9,007 10,441 12,012 Soft drinks sales (US$mn) 1,256 798 1,066 1,387 1,141 901 908 961 e/f=BMI estimate/forecast Source: National Institute of Statistics, BMI © Business Monitor International Ltd Page 59 Venezuela Agribusiness Report Q3 2012 Hot Drinks Coffee has a share of around 55% of the Tea And Coffee Sales Venezuelan hot drinks market Sales had 2007-2016 been declining up to 2003, but in the years up to the economic downturn this trend had reversed thanks to launches of new and innovative speciality products targeted at the growing number of middle-class consumers Over the five-year forecast period, coffee sales in volume terms are expected to largely stagnate e/f=BMI estimate/forecast Source: National Institute of Statistics, BMI Sales of tea, meanwhile, have increased over recent years from a low base and this trend can be expected to continue due to tea's increasingly widely recognised health benefits and its low unit price Table: Hot Drink Value Sales - Historical Data & Forecasts 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f Coffee sales (VEBmn) 649.4 817.7 1,054.3 1,367.7 1,712.8 2,046.8 2,398.5 2,810.7 Coffee sales (US$mn) 302.8 190.2 245.2 318.1 257.6 204.7 208.6 224.9 Tea sales (VEBmn) 122.15 153.80 198.51 257.52 322.49 385.38 451.61 529.22 Tea sales (US$mn) 56.96 35.77 46.16 59.89 48.50 38.54 39.27 42.34 e/f=BMI estimate/forecast Source: National Institute of Statistics, BMI © Business Monitor International Ltd Page 60 Venezuela Agribusiness Report Q3 2012 Mass Grocery Retail The country's mass grocery retailers benefited from high GDP growth rates between 2004 and 2007, as proceeds from the windfall oil revenues were redirected into the non-oil economy This increased the disposable incomes of the poorer segments of the population, although poverty and underemployment rates remained high Because of the slowdown in the economy, local currency devaluation and ongoing supply problems, consumer confidence has taken a hit In overall value terms, the supermarket format is expected to be the main beneficiary of this projection, although a large proportion of this growth will be accounted for by Mercal Even when the economic uncertainties are omitted, the competitive environment in Venezuela is perhaps the toughest in Latin America, with private-sector retailers going head-to-head with the governmentsubsidised Mercal grocery chain As the firm does not operate on a profit-and-loss basis, and has almost unlimited (for now) access to expansion capital, its existence creates quite a challenge for the country's other retailers Table: Mass Grocery Retail Value Sales by Format - Historical Data & Forecasts 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f Supermarkets (VEBbn) 6.257 7.786 10.304 13.680 16.820 20.413 23.450 27.360 Hypermarkets (VEBbn) 2.235 2.781 3.680 4.886 6.007 7.290 8.375 9.772 Convenience (VEBbn) 0.447 0.556 0.736 0.977 1.201 1.458 1.675 1.954 Total mass grocery retail sector (VEBbn) 8.938 11.124 14.720 19.542 24.028 29.162 33.500 39.086 Total mass grocery retail sector growth, VEB, (y-o-y) 25.01 24.45 32.33 32.76 22.96 21.36 14.88 16.67 Supermarkets (US$bn) 2.917 1.811 2.396 3.181 2.529 2.041 2.039 2.189 Hypermarkets (US$bn) 1.042 0.647 0.856 1.136 0.903 0.729 0.728 0.782 Convenience (US$bn) 0.208 0.129 0.171 0.227 0.181 0.146 0.146 0.156 Total mass grocery retail sector (US$bn) 4.168 2.587 3.423 4.545 3.613 2.916 2.913 3.127 e/f=BMI estimate/forecast Source: National Institute of Statistics, BMI © Business Monitor International Ltd Page 61 Venezuela Agribusiness Report Q3 2012 Table: Sales Breakdown by Retail Format Type 2011 2021f Organised/MGR 25% 35% Non-organised/Independent 75% 65% f = forecast Source: BMI Research Trade Venezuela's trade balance, as expressed Exports, Imports, Trade in US dollar terms, will decline to around 2007-2016 US$-2.9bn Domestic food production is expected to be negatively impacted by the increased government interference in the private sector This will increase the reliance on imports and reduce the country's food and drink exports In the period between 2011 and 2016, the value of exports is expected to post a drop 18% in US dollar terms, with e/f = BMI estimate/forecast Source: United Nations Conference On Trade and Development (up to 2006), BMI imports growing by 12% Table: Trade Indicators - Historical Data & Forecasts 2009 2010 2011e 2012f 2013f 2014f 2015f 2016f Exports (food, drink & tobacco) (US$mn) 82.1 79.4 76.7 74.0 71.3 68.7 66.0 63.3 Imports (food, drink & tobacco) (US$mn) 2,429 2,435 2,605 2,721 2,687 2,750 2,815 2,883 -2,347 -2,356 -2,528 -2,647 -2,616 -2,681 -2,749 -2,820 Balance (US$mn) e/f=BMI estimate/forecast Source: United Nations Conference On Trade and Development (up to 2006), BMI © Business Monitor International Ltd Page 62 Venezuela Agribusiness Report Q3 2012 Country Snapshot: Venezuela Demographic Data 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 key to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail Venezuela's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life expectancy The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split Source: World Bank, UN, BMI © Business Monitor International Ltd Page 63 Venezuela Agribusiness Report Q3 2012 Table: Venezuela's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012f 2015f 2020f 19,685 22,035 24,348 26,664 28,980 29,891 31,226 33,340 0-4 years 2,719 2,740 2,775 2,856 2,926 2,940 2,937 2,901 5-9 years 2,488 2,707 2,730 2,766 2,847 2,881 2,919 2,931 10-14 years 2,274 2,485 2,703 2,726 2,763 2,792 2,845 2,917 15-19 years 1,967 2,269 2,478 2,696 2,720 2,728 2,757 2,839 20-24 years 1,870 1,960 2,258 2,465 2,684 2,710 2,708 2,746 25-29 years 1,725 1,862 1,949 2,244 2,452 2,549 2,670 2,696 30-34 years 1,425 1,716 1,851 1,937 2,231 2,322 2,438 2,655 35-39 years 1,228 1,414 1,701 1,835 1,922 2,026 2,215 2,421 40-44 years 1,000 1,214 1,397 1,682 1,816 1,840 1,903 2,194 45-49 years 766 982 1,194 1,375 1,657 1,728 1,791 1,878 50-54 years 592 745 957 1,165 1,343 1,453 1,622 1,755 55-59 years 496 567 716 921 1,124 1,188 1,300 1,573 60-64 years 413 464 533 676 873 952 1,069 1,241 65-69 years 294 372 422 487 620 688 806 992 70-74 years 203 250 319 364 424 463 545 713 75+ years 226 289 366 470 579 629 703 887 Total f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 64 Venezuela Agribusiness Report Q3 2012 Table: Venezuela's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012f 2015f 2020f 0-4 years 13.81 12.43 11.40 10.71 10.10 9.84 9.41 8.70 5-9 years 12.64 12.29 11.21 10.37 9.83 9.64 9.35 8.79 10-14 years 11.55 11.28 11.10 10.22 9.53 9.34 9.11 8.75 15-19 years 9.99 10.30 10.18 10.11 9.39 9.13 8.83 8.52 0-24 years 9.50 8.89 9.27 9.25 9.26 9.07 8.67 8.24 25-29 years 8.76 8.45 8.01 8.42 8.46 8.53 8.55 8.09 30-34 years 7.24 7.79 7.60 7.26 7.70 7.77 7.81 7.96 35-39 years 6.24 6.42 6.99 6.88 6.63 6.78 7.09 7.26 40-44 years 5.08 5.51 5.74 6.31 6.27 6.16 6.10 6.58 45-49 years 3.89 4.46 4.90 5.16 5.72 5.78 5.73 5.63 50-54 years 3.01 3.38 3.93 4.37 4.64 4.86 5.19 5.26 55-59 years 2.52 2.57 2.94 3.46 3.88 3.98 4.16 4.72 60-64 years 2.10 2.11 2.19 2.53 3.01 3.19 3.42 3.72 65-69 years 1.50 1.69 1.73 1.83 2.14 2.30 2.58 2.97 70-74 years 1.03 1.13 1.31 1.37 1.46 1.55 1.74 2.14 75+ years 1.15 1.31 1.50 1.76 2.00 2.10 2.25 2.66 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 65 Venezuela Agribusiness Report Q3 2012 Table: Venezuela's Key Population Ratios, 1990-2020 1990 1995 2000 2005 2010 2012f 2015f 2020f Dependent ratio, % of total working age 71.5 67.0 62.0 56.9 54.0 53.3 52.5 51.5 Dependent population, total, '000 8,205 8,842 9,314 9,668 10,159 10,393 10,754 11,340 Active population, % of total 58.3 59.9 61.7 63.7 64.9 65.2 65.6 66.0 Active population, total, '000 11,481 13,193 15,034 16,996 18,820 19,497 20,472 21,999 Youth population, % of total working age 65.2 60.1 54.6 49.1 45.4 44.2 42.5 39.8 Youth population, total, '000 7,481 7,931 8,208 8,347 8,536 8,613 8,701 8,749 Pensionable population, % of total working age 6.3 6.9 7.4 7.8 8.6 9.1 10.0 11.8 Pensionable population, '000 724 910 1,106 1,321 1,623 1,780 2,054 2,591 f = BMI forecast; 0>15 plus 65+, as % of total working age population; 0>15 plus 65+; 15-64, as % of total population; 15-64; 0>15, % of total working age population; 0>15; 65+, % of total working age population; 65+ Source: World Bank, UN, BMI Table: Venezuela's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2012 2015 2020 Urban population, % of total 84.3 86.8 89.7 92.3 93.5 93.7 93.9 94.4 Rural population, % of total 15.7 13.2 10.3 7.7 6.5 6.3 6.1 5.6 Urban population, '000 16,649.2 19,133.3 21,807.0 24,530.6 27,094.8 27,998.8 29,332.0 31,463.1 Rural population, '000 3,100.8 2,909.7 2,504.0 2,046.4 1,885.1 1,891.9 1,894.4 1,876.5 Source: World Bank, UN, BMI © Business Monitor International Ltd Page 66 Venezuela Agribusiness Report Q3 2012 BMI Forecast Modelling How We Generate Our Industry Forecasts 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 BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses 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 poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately-selected regression models BMI selects the best model according to various different criteria and tests, including, but not exclusive to: ƒ R2 tests explanatory power; Adjusted R2 takes degree of freedom into account ƒ Testing the directional movement and magnitude of coefficients ƒ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ƒ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity BMI uses the selected best model to perform forecasting It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s industry forecasting Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Within the Agribusiness industry, this intervention might include, but is 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: the explanatory variables for both of them are quite similar, but the underlying economic theory is different Example of Rice Consumption Model: © Business Monitor International Ltd Page 67 Venezuela Agribusiness Report Q3 2012 (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: ƒ β are parameters for this function ƒ 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 ƒ 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 ƒ 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 ƒ 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 ƒ Government Expenditure typically causes total disposable incomes to rise So the sign of β5 is expected to be positive ƒ 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 ƒ 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: ƒ 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 ƒ If high inflation is caused by food prices increasing, farmers will be more profitable Then they will supply more agricultural product (e.g rice) to increase their marginal (extra) profit, although this is tempered by the rising cost of other inputs in line with inflation ƒ 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 © Business Monitor International Ltd Page 68 Venezuela Agribusiness Report Q3 2012 production i.e agricultural machinery Higher real lending rates discourage investment, which in turn reduce production ƒ BMI assumes only the rural population has a positive effect on agricultural product supply ƒ 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 ƒ Again, previous food production positively affects this year’s prediction ƒ y affects this year’s prediction © Business Monitor International Ltd Page 69 Reproduced with permission of the copyright owner Further reproduction prohibited without permission [...]... similar total to that seen in 1997/98 In addition, Venezuela is expected to import some 1.55mn tonnes of wheat © Business Monitor International Ltd Page 19 Venezuela Agribusiness Report Q3 2012 Table: Venezuela Wheat Consumption, 2008 -2012 Wheat Consumption, '000 tonnes f 1 2008 2009 2010 2011 2012f 1,500.0 1,550.0 1,550.0 1,500.0 1,462.5 2008 2009 2010 2011 2012f 1,800.0 1,800.0 1,634.0 1,710.0 1,450.0.. .Venezuela Agribusiness Report Q3 2012 Table: Venezuela Pork Production & Consumption, 2011-2016 Pork Production, '000 tonnes 1 Pork Consumption, '000 tonnes e 1 2011e 2012f 2013f 2014f 2015f 2016f 125.0 126.0 128.0 129.0 129.0 130.0 141.0 141.7 142.4 143.7 144.8 146.0 f 1 Notes: BMI estimates BMI forecasts Sources: USDA Table: Venezuela Beef & Veal Production & Consumption, 2011-2016 2011e 2012f... in January 2011 President Hugo Chávez unveiled the Gran Misión Agro Venezuela (Great Venezuelan Agricultural Mission), which formed part of his government's two-year plan for the © Business Monitor International Ltd Page 14 Venezuela Agribusiness Report Q3 2012 agricultural sector, the Plan Bienal para la Producción de Alimentos 2011 -2012 The plan set out ambitious plans for agricultural production,... f 1 Notes: BMI estimates BMI forecasts Sources: USDA © Business Monitor International Ltd Page 13 Venezuela Agribusiness Report Q3 2012 Table: Venezuela Beef & Veal Production & Consumption, 2008 -2012 Beef & Veal Production, '000 tonnes 1 Beef & Veal Consumption, '000 tonnes e f 1 2008 2009 2010 2011e 2012f 305.0 290.0 348.0 335.0 290.0 615.0 508.0 523.0 555.0 560.0 1 Notes: BMI estimates BMI forecasts... 606,000 bags in 2012, and we see consumption increasing marginally to reach 1.32mn bags Out to 2016, we see demand growing by 4.5% on the high 2011 level to 1.36mn bags © Business Monitor International Ltd Page 21 Venezuela Agribusiness Report Q3 2012 Table: Venezuela Coffee Production & Consumption, 2011-2016 Coffee Production, '000 60kg bags 1 Coffee Consumption, '000 60kg bags f 1 2011 2012f 2013f 2014f... Thailand and Australia) for the 2012/ 13 season, and we forecast the global sugar market to register increased surpluses in both 2011/12 and 2012/ 13 at 11.1mn tonnes and 15.5mn tonnes respectively This underpins our view of lower average prices in 2012 at USc22.50/lb and 2013 at USc21.50/lb © Business Monitor International Ltd Page 32 Venezuela Agribusiness Report Q3 2012 Cotton: Technical Bounce Over?... from legal crops to coca growing is damaging Venezuelan corn production, according to a December 2010 report by the Miami Herald Urea, the nitrogen-rich fertiliser used to grow corn and other agricultural produce, is being sold through the black market to coca growers As a result, © Business Monitor International Ltd Page 17 Venezuela Agribusiness Report Q3 2012 farmers say, they do not have sufficient... bags in 2012 Much of this has come from Brazil and Nicaragua This has further exacerbated tension in the sector, with producers claiming that the government is effectively subsidising foreign coffee producers, as © Business Monitor International Ltd Page 22 Venezuela Agribusiness Report Q3 2012 the price paid for imported coffee can be more than 50% more than the fixed price for domestic producers Venezuela. .. International Ltd Page 25 Venezuela Agribusiness Report Q3 2012 On the upside, the dramatic fall in oil prices over the second half of 2008 and the following doldrums since could lead to more interest in developing agriculture as a major export earner, once again At the end of July 2008, Venezuela- owned petrol station chain Citgo Petroleum Corporation announced that it would sell Venezuelan coffee at its... also be boosted by growth in Vietnam and eventually Colombia, for which we forecast 6% output expansion in 2012/ 13 Thus, we see downside risks to our forecast for average prices of USc200/lb in 2012 and USc180/lb in 2013 © Business Monitor International Ltd Page 30 Venezuela Agribusiness Report Q3 2012 Palm Oil: False Break? Three-month palm oil continued to trade lower in June after a seven-month rally ... completeness of any information hereto contained Venezuela Agribusiness Report Q3 2012 © Business Monitor International Ltd Page Venezuela Agribusiness Report Q3 2012 CONTENTS Executive Summary ... to our 26.0% end-year consumer price inflation for 2012 We see GDP growth coming in at 3.5% y-o-y in 2012 and 2.2% y-o-y in 2013 ƒ Beef production is forecast to fall by 13.4% y-o-y in 2011/12... addition, Venezuela is expected to import some 1.55mn tonnes of wheat © Business Monitor International Ltd Page 19 Venezuela Agribusiness Report Q3 2012 Table: Venezuela Wheat Consumption, 200 8-2 012