Venezuela agribusiness report q3 2013

Q3 2013 www.businessmonitor.com VENEZUELA AGRIBUSINESS REPORT INCLUDES 5-YEAR FORECASTS TO 2017 ISSN 2040-0489 Published by:Business Monitor International Venezuela Agribusiness Report Q3 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 2013 Business Monitor International 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@businessmonitor.com Web: http://www.businessmonitor.com © 2013 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 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 2013 Business Monitor International 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@businessmonitor.com Web: http://www.businessmonitor.com © 2013 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 2013 CONTENTS BMI Industry View SWOT Agribusiness Business Environment 11 Industry Forecast 12 Livestock Outlook 12 Table: Venezuela Beef & Veal Production, Consumption & Trade 13 Table: Venezuela Pork Production, Consumption & Trade 14 Table: Venezuela Poultry Production, Consumption & Trade 14 Table: Venezuela Beef & Veal Production, Consumption & Trade 16 Table: Venezuela Pork Production, Consumption & Trade 16 Table: Venezuela Poultry Production, Consumption & Trade 16 Grains Outlook 17 Table: Venezuela Corn Production, Consumption & Trade 19 Table: Venezuela Wheat Production, Consumption & Trade 19 Table: Venezuela Corn Production, Consumption & Trade 23 Table: Venezuela Wheat Production, Consumption & Trade 23 Coffee Outlook 24 Table: Venezuela Coffee Production, Consumption & Trade 25 Table: Venezuela Coffee Production, Consumption & Trade 29 Commodity Strategy 30 Monthly Grains Update 30 Monthly Softs Update 34 Table: Select Commodities - Performance & BMI Forecasts 43 Table: BMI Commodities Strategy 44 Upstream Analysis 45 Americas GM Outlook 45 Americas Fertiliser Outlook 49 Americas Machinery Outlook 55 Downstream Analysis 62 Food 62 Food Consumption 62 Table: Food Consumption Indicators Historical Data and Forecasts 2010-2017 63 Canned and Prepared Food 63 Table: Canned Food Volume/Value Sales Historical Data and Forecasts 2010-2017 64 Table: Fish Volume Sales, Production and Trade Historical Data and Forecasts 2010-2017 64 Oils and Fats 66 Table: Oils and Fats Volume Sales, Production and Trade Historical Data and Forecasts 2010-2017 67 © Business Monitor International Page Venezuela Agribusiness Report Q3 2013 Confectionery 69 Table: Confectionery Value/Volume Sales Historical Data and Forecasts 2010-2017 69 Drink 70 Alcoholic Drinks 70 Table: Alcoholic Drinks Volume/Value Sales Historical Data and Forecasts 2010-2017 70 Soft Drinks 72 Table: Soft Drinks Value Sales Historical Data and Forecasts 2010-2017 73 Hot Drinks 73 Table: Hot Drinks Value Sales Historical Data and Forecasts 2010-2017 74 Mass Grocery Retail 74 Table: Mass Grocery Retail Sales by Format Historical Data and Forecasts 2010-2017 74 Table: Sales Breakdown by Retail Format Type 75 Regional Overview 76 Regional Overview - Americas 76 Competitive Landscape 82 Table: Venezuela Agribusiness Competitive Landscape 82 Demographic Forecast 83 Table: Venezuela's Population By Age Group, 1990-2020 ('000) 84 Table: Venezuela's Population By Age Group, 1990-2020 (% of total) 85 Table: Venezuela's Key Population Ratios, 1990-2020 86 Table: Venezuela's Rural And Urban Population, 1990-2020 86 Methodology 87 © Business Monitor International Page Venezuela Agribusiness Report Q3 2013 BMI Industry View BMI View: The victory of Nicolás Maduro of the ruling Partido Socialista Unido de Venezuela in April will most probably ensure the continuity of many of the interventionist policies of Chávez's era Tough Years Ahead Venezuela - BMI Agribusiness Market Value By Commodity (As % of total) Price fixing in particular continues to be a source of woe for producers unable to meet input costs which are soaring in line with some of the highest rates of inflation in the world Some respite has arrived in the form of a 20% rise in the government-fixed price of food items including beef, chicken and dairy products, but even this will fall short of the rate of inflation which is expected to increase 30% year-onyear in 2013 Inflation is also contributing to the diminishing purchasing power of Venezuelan households while foreign currency shortages after a pre-election spending boom are causing shortages of Source: BMI some imported goods Key Forecasts ■ ■ ■ ■ ■ ■ ■ Corn consumption growth to 2017: 8.5% to 4.17mn tonnes Consumers hit by economic turmoil will turn to the cheapest staple food, more than compensating for reduced demand from the livestock sector Coffee production growth to 2016/17: 10.6% to 940,000 60kg bags The hike in government prices and increased investment in small farms will see some recovery in supply Beef production growth to 2017: down 1.9% to 358,000 tonnes High input costs, cheaper Mercosur competitors and reduced domestic demand will stymie growth BMI universe agribusiness market value: US$4.47bn in 2013 (down 5.0% from US$4.70bn in 2012; forecast to grow annually by 2.2% on average from 2014 to 2017) 2013 real GDP growth: 2.6% (down from 5.6% in 2012; forecast to grow annually by 3.4% on average between 2012 and 2017) 2013 consumer price index: 30.0% year-on-year (y-o-y) (up from 20.1% in 2012; forecast to grow annually by 22.9% on average between 2012 and 2017) 2013 central bank policy rate: 15.5% (up from 15.0% in 2012; forecast to increase to 16.5% in 2014) © Business Monitor International Page Venezuela Agribusiness Report Q3 2013 Key Revisions To Forecasts ■ Beef consumption in 2013 to fall to 565,000 tonnes (revised down from a previous forecast of 581,000 tonnes) Consumption is expected to fall due to high costs and reduced supply Industry Developments We expect consumer price inflation in Venezuela to remain elevated over the coming months fuelled by the February devaluation of the bolívar (see 'New Dual Exchange Rate, Same Old Problems For The Private Sector', March 22) Inflation reached its highest level in three years in April, coming in at 29.4% year-onyear (y-o-y), a sharp uptick from 25.1% y-o-y in March Venezuelan residents rely heavily on imports for essential household goods, and we therefore forecast that a weaker currency will drive average inflation of 30.0% this year, up from 21.3% last year Moreover, food prices have been particularly sensitive to a weaker bolívar, which we expect will keep social tensions high and continue posing threats to political stability through anti-government demonstrations Venezuela imported about US$8bn in food-related products in 2012, over 17.0% of total imports, meaning that food prices are particularly susceptible to weaker currency Just in April, food prices rose by 6.4% month-on-month (m-o-m), well above the 4.3% m-o-m increase in the overall consumer price inflation index The recent announcement of a 20% rise in the government-fixed price of important foodstuffs including beef and chicken by the new government of President Maduro may give some encouragement to producers The shift in policy came in the wake of a meeting with business leaders which may signal a thaw in relations with the private sector However, prices for basic goods set artificially low by the government were instrumental in allowing increasing consumption of meat and coffee among lower-income households; increasing prices will make such commodities unaffordable for some Venezuelans © Business Monitor International Page Venezuela Agribusiness Report Q3 2013 SWOT Agribusiness SWOT Analysis Strengths ■ Venezuela's tropical climate enables production of a diverse range of agricultural products ■ Venezuelan cocoa and coffee are known for their high quality Cocoa especially is sought after by producers of premium chocolate Weaknesses ■ 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 Opportunities ■ 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 smallholders increase production ■ Falling oil revenue is bringing more attention to increasing agricultural production to reduce the cost of food imports © Business Monitor International Page Venezuela Agribusiness Report Q3 2013 Mass Grocery Retail Sales by Format Historical Data and Forecasts 2010-2017 - Continued 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f Total mass grocery retail sector growth, VEB, (y-o-y) 25.67 32.00 31.88 26.22 30.98 21.90 19.00 16.74 Supermarkets (US$bn) 1.848 2.414 3.184 2.441 2.380 2.396 2.677 3.062 Hypermarkets (US$bn) 0.660 0.862 1.137 0.872 0.850 0.856 0.956 1.094 Convenience (US$bn) 0.132 0.172 0.227 0.174 0.170 0.171 0.191 0.219 Total mass grocery retail sector (US$bn) 2.640 3.449 4.548 3.487 3.399 3.423 3.824 4.375 Source: National Institute of Statistics, BMI e/f = BMI estimates/forecast Table: Sales Breakdown by Retail Format Type 2011 2021f Organised/MGR 25% 35% Non-organised/Independent 75% 65% f = forecast Source: BMI Research © Business Monitor International Page 75 Venezuela Agribusiness Report Q3 2013 Regional Overview Regional Overview - Americas BMI View: This quarter we present our inaugural Americas regional overview In our view, the Americas will remain the dominant livestock exporter, while the US in particular will return as the leading global grain exporter We see long-term opportunities but also challenges for production prospects in the Central American coffee sector Finally, we believe that the Brazilian farm sector will benefit the most from favourable government policy in the coming years This quarter we present our first regional overview for the Americas region, highlighting in particular the US farm bill, Brazilian farming sector competitiveness, the future growth prospects of Latin American coffee production, and the Americas' role in global livestock and grain exports US Farm Bill To Be Renewed … Eventually We believe the most likely scenario is for the current US farm bill to be extended If the US Congress simply passed an extension of the current bill, it would not be a fiscal catastrophe The Congressional Budget Office estimates that extending an old bill will cost the US government an extra US$23bn over 10 years (to US$993bn), compared with passing a new bill in early 2013 Another reason why there may not be a rush to pass a new bill pertains to the structure of the bill's outlays; the key provisions, including subsidies and food stamps, remain in place despite the bill's expiry in October A slight delay in the bill's passage is routine, with the passage of the 2008 bill delayed by almost nine months before being passed © Business Monitor International Page 76 Venezuela Agribusiness Report Q3 2013 All About Food Stamps US - March 2012 CBO Baseline 10-Year Outlays For Current Farm Bill (US$bn) Sources: BMI, CRS, CBO, USDA Short-Term Challenges For CentAm Coffee Sector We continue to see Central America's coffee sector as the most vulnerable in the region to external shocks, and we see potential for output volatility in the coming years First, the region's poor infrastructure and production techniques are making production growth highly vulnerable to diseases Periodic outbreaks of rust result in significant output losses, and regional programmes to combat these outbreaks have so far been inefficient Second, the region suffers from extreme weather patterns, and the coffee crop can be affected by flooding, drought, earthquakes or volcanic eruptions Over the long term, we could see consolidation in the industry and private investment helping to close the current gap between Central America and the rest of South America © Business Monitor International Page 77 Venezuela Agribusiness Report Q3 2013 Export Volatility Central America - Exports (LHS) & Ending Stocks ('000 bags) Source: USDA Americas To Remain Dominant Livestock Exporter We believe the prominence of North and South American beef producers among global meat exports will continue over the long term, even if their pace of relative expansion is declining We expect this to continue as European meat producers struggle under increasing costs and high feed prices The key issue in the global meat market is whether the current trends can continue over the long term While we believe that the Americas will remain a global leader in meat exports, we believe the pace of the redistribution in export growth will slow over the coming years as EU exports stabilise and the rate of production growth in the Americas falls © Business Monitor International Page 78 Venezuela Agribusiness Report Q3 2013 EU Falls Off The Saddle Select Regions - Meat Exports By Region (% of total) Sources: BMI, USDA Favouring Brazil On More Efficient Government Policy Out of all the region's government support frameworks, we believe Brazilian agricultural policy has been the most efficient in encouraging production and enhancing competitiveness on the global scene Total support to the sector, which includes support to producers and the financing of general services to agriculture, averaged BRL8.2bn (US$2.7bn) annually over 2002-2004 This is only 0.5% of GDP, compared with 1.1% on average for OECD countries Also, three-quarters of this support is delivered directly to producers and accounts for approximately 3% of total gross farm receipts in 2002-2004, one of the lowest percentages globally © Business Monitor International Page 79 Venezuela Agribusiness Report Q3 2013 Brazil Close To New Zealand Select Countries - Producers Support (% of total gross farm receipts) Source: OECD US To Return To Leading Grain Exporter Status We believe the US will remain the largest grain exporter in the Americas despite news that Brazil is expected to replace the US as the world's top corn and soybean exporter Indeed, we anticipate the US grain sector as a whole to rebound in 2013 We believe Brazil will be a key player in terms of global soybean exports, but Argentina and the US will return to being the dominant corn exporters over the long term By some measures, such as total net grain exports (including corn, soybean and wheat), the US remains the world's largest exporter, since Brazil is one of the world's largest wheat importers and few countries in Europe produce and export soybeans © Business Monitor International Page 80 Venezuela Agribusiness Report Q3 2013 US Still On Top Select Countries - Net Grain Exports ('000 tonnes) Note: FSU-12 = former Soviet Union 12; EU refers to member states prior to joining; grain exports include wheat, corn and soybean; 2012/13 is a forecast Source: BMI, USDA © Business Monitor International Page 81 Venezuela Agribusiness Report Q3 2013 Competitive Landscape Table: Venezuela Agribusiness Competitive Landscape Company Empresas la Polar sa Proagro Productos EFE sa Revenue (US$mn) Sub-Sector Fiscal Y/E Market Capitalisation (US$mn) Dairy 785.7 12/2012 334.9 Feed & Livestock 672.2 08/2011 51.2 Dairy 120.4 09/2011 24.5 Sources: BMI, Bloomberg © Business Monitor International Page 82 Venezuela Agribusiness Report Q3 2013 Demographic Forecast 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 Page 83 Venezuela Agribusiness Report Q3 2013 Table: Venezuela's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2012 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 Page 84 Venezuela Agribusiness Report Q3 2013 Table: Venezuela's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2012 2015f 2020f 0-4 years 13.81 12.43 11.4 10.71 10.1 9.84 9.41 8.7 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 11.1 10.22 9.53 9.34 9.11 8.75 15-19 years 9.99 10.3 10.18 10.11 9.39 9.13 8.83 8.52 0-24 years 9.5 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 7.6 7.26 7.7 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 6.1 6.58 45-49 years 3.89 4.46 4.9 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 2.1 2.11 2.19 2.53 3.01 3.19 3.42 3.72 65-69 years 1.5 1.69 1.73 1.83 2.14 2.3 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 1.5 1.76 2.1 2.25 2.66 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Page 85 Venezuela Agribusiness Report Q3 2013 Table: Venezuela's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 Active population, % of total Active population, total, '000 Youth population, % of total working age Youth population, total, '000 1990 1995 2000 2005 2010 2012 2015f 2020f 71.5 67.0 62.0 56.9 54.0 53.3 52.5 51.5 8,205 8,842 9,314 9,668 10,159 10,393 10,754 11,340 58.3 59.9 61.7 63.7 64.9 65.2 65.6 66.0 11,481 13,193 15,034 16,996 18,820 19,497 20,472 21,999 65.2 60.1 54.6 49.1 45.4 44.2 42.5 39.8 7,481 7,931 8,208 8,347 8,536 8,613 8,701 8,749 6.3 6.9 7.4 7.8 8.6 9.1 10.0 11.8 724 910 1,106 1,321 1,623 1,780 2,054 2,591 Pensionable population, % of total working age Pensionable population, '000 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 2015f 2020f 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 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Page 86 Venezuela Agribusiness Report Q3 2013 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 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: ■ 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 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 ensure 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 that the explanatory variables for both of them are quite similar, but the underlying economic theory is different © Business Monitor International Page 87 Venezuela Agribusiness Report Q3 2013 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 ■ ■ ■ 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 i.e agricultural machinery Higher real lending rates discourage investment, which in turn reduce production © Business Monitor International Page 88 Venezuela Agribusiness Report Q3 2013 ■ BMI assumes 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 Page 89 [...]... Business Monitor International Page 13 Venezuela Agribusiness Report Q3 2013 Table: Venezuela Pork Production, Consumption & Trade 2012 2013f 2014f 2015f 2016f 2017f Pork Production, '000 tonnes 1 125.0 120.0 127.0 129.0 130.0 131.0 Pork Consumption, '000 tonnes 1 141.0 138.2 139.4 140.5 141.7 142.8 Table: Venezuela Poultry Production, Consumption & Trade 2012 2013f 2014f 2015f 2016f 2017f Poultry Production,... by 0.8% y-o-y in 2013 to 650,000 tonnes Through to 2017, we see production expanding by 6.4% on the 2012 level to 697,000 tonnes © Business Monitor International Page 12 Venezuela Agribusiness Report Q3 2013 Venezuela produces only small quantities of pork Output has remained stable at around 125,000 tonnes in recent years We see production dipping by 4.0% y-o-y to 120,000 tonnes in 2013, owing to high... the programme's objectives for © Business Monitor International Page 21 Venezuela Agribusiness Report Q3 2013 2013 In total, VEF7.81bn will be available for 2013, of which VEF3.0bn will be dedicated to improving farm roads Coca Growing Hits Corn Production The diversion of fertiliser from legal crops to coca growing is damaging Venezuelan corn production Urea, the nitrogen-rich fertiliser used to grow... © Business Monitor International Page 20 Venezuela Agribusiness Report Q3 2013 inflation However, in July 2010, the government retracted and announced that rather than seizing Gruma's assets, it was considering forming a joint venture with the Mexican company Gran Misión Agro Venezuela Fails To Deliver In January 2011, the government launched Gran Misión Agro Venezuela, a new programme designed to support... prospective investment (domestic and foreign) © Business Monitor International Page 11 Venezuela Agribusiness Report Q3 2013 Industry Forecast 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 in recent years the country has... 23 Venezuela Agribusiness Report Q3 2013 Coffee Outlook BMI Supply View: The highest quality Venezuelan coffee comes from the Maracaibo region, in the far west of the country, along the border with Colombia However, as with other agricultural sectors, the failure of government-mandated prices to keep pace with increasing costs amid rocketing inflation has hurt the profitability of production in Venezuela, ... International Page 26 Venezuela Agribusiness Report Q3 2013 Despite the government's goal to attain self-sufficiency in food production, mismanagement of the sector, as well as adverse weather conditions, have seen production dwindle and forced the government to turn to imports to meet the requirements of Venezuela' s processing industry and supply domestic demand Before 2003, Venezuelan coffee imports... 1,500.0 2013f 1,545.0 2014f 1,591.3 2015f 1,637.5 2016f 1,683.3 2017f 1,730.5 Notes: f BMI forecasts Sources: 1 USDA © Business Monitor International Page 19 Venezuela Agribusiness Report Q3 2013 Further Corn Price Increase Authorised On August 1 2012, the Venezuelan government raised the farmgate prices of corn and rice The price of yellow corn increased by 42.9% from VEF1.33 to VEF1.90 per kilo, while white... Uncertainty over the country's political and economic landscape has increased following the death of President Hugo Chávez © Business Monitor International Page 10 Venezuela Agribusiness Report Q3 2013 Business Environment SWOT Analysis Strengths ■ 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.. .Venezuela Agribusiness Report Q3 2013 SWOT Analysis - 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 ... key break of technical resistance - - AGRICULTURE Bullish Cocoa (Front-Month LIFFE) 16-Apr -2 013 ENERGY - - METALS Bearish Iron Ore (SGX Asiaclear Swap)* 16-Jan -2 013 150.2 16.06% Less bullish than... contained Venezuela Agribusiness Report Q3 2013 INCLUDES 5-YEAR FORECASTS TO 2017 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: June 2013. .. lower-income households; increasing prices will make such commodities unaffordable for some Venezuelans © Business Monitor International Page Venezuela Agribusiness Report Q3 2013 SWOT Agribusiness