September 19, 2003
Outlook For Venezuelan Poultry Production 2003
Venezuela's poultry production for 2003 is estimated to drop to 300,000 tons, 6% below the previous year, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service dated Thursday.
Poultry production for 2003 is estimated to drop to 300,000 tons, 6% below the previous year due both to lower demand in the face of an economic recession, and to higher costs for imported feed ingredients. Post is currently forecasting an increase in production levels for 2004, but that forecast assumes that current government restrictions on imported feed ingredients will be loosened. Venezuela produces chickens, eggs, small quantities of turkeys and other minor poultry species. Production numbers referred to in this report are for chicken production only.
Venezuela has a fairly well developed, vertically integrated poultry sector. Poultry production is concentrated in a few large operations, and these bigger operations often contract with smaller producers to supply all inputs and to buy all production. The concentration in the poultry sector has increased in recent years as smaller companies facing economic difficulties are acquired by the larger operations. Today, two companies represent about 44% of the poultry sector, followed by several small to medium sized companies.
Venezuela's poultry production depends on imported feed ingredients such as yellow corn, soybean meal and yellow grease. Access to most of these products had been restricted in the past as the government tried to ensure the purchase of local production of sorghum and white corn before allowing imports. A tight feed situation became even tighter at the end of the two- month national strike in February of 2003, when feed importers were no longer able to gain access to dollars due to the imposition of foreign exchange controls, the press release said.
The Foreign Exchange Control Board (CADIVI) was slow to initiate operations, and without dollars at the official exchange rate of Bs. 1,600 to the dollar, importers were forced to look for dollars on the black market at rates of up to Bs. 3,000 to the dollar. At those levels imported feed ingredients became too costly, and producers began to remix their feed formulations using higher percentages of domestically grown sorghum which resulted in slower weight gains and lower production efficiency. Yellow grease imports surged this year as well since this higher fat content was needed in the sorghum based ration.
The restriction on access to dollars has also contributed to a further consolidation in the industry, since large producers faced with limited access to dollars for feed imports make sure that their birds are fed before reselling feed to the smaller producers. This has led to a backlash from the smaller producers claiming unfair practices.
However, the increasingly complicated processes required by the GOV to import feed ingredients are almost inevitably eliminating smaller players from this sector.
Estimating Production Levels
Estimating levels of poultry production has become increasingly difficult since there are no longer any published data series in the country. The Venezuelan Farmers Association (FEDEAGRO) had the most consistent series, but has not published data since 2000. The Venezuelan Poultry Producers Association (FENAVI) published projections from 1995 to 1999 but also no longer makes any official pronouncements on the levels of poultry production. Post is calculating levels of poultry production based on past levels, estimates for local demand based on price structure, and a review of availability of feed ingredients in the country. The demand side of the equation will be addressed in the Consumption section of this report. On the input side, the following table presents an overview of the availability of the major feed ingredients in Venezuela since 1990. While the poultry sector is not the sole user of these feed ingredients, it does represent that largest feed use sector. The dramatic decline in feed availability in 2002 and 2003 is reflected in lower levels of poultry production.
Poultry consumption has been dropping due to the economic recession that the country is experiencing and the drop in disposable incomes. In addition, while poultry used to be only 34% of the cost of beef, it is now relatively more expensive which has also dampened demand.
Price controls were established for many basic foods in February 2003, including poultry and eggs. Producers alleged that the initial prices were set too low to cover the costs of production and subsequently poultry products and eggs were hard to find in the markets. The producers successfully lobbied for a price increase in June, which eliminated most of the shortages. However, with the new price of Bs. 2,000 per kilo for whole chicken ($ 0.57 per pound) many producers and wholesalers are finding it more profitable to further process the poultry into forms or pieces that do not fall under the price control regime and therefore are able to charge a higher price. In addition, the unregulated sector of street vendors and small shops often sell products at above the controlled price.
Factors Affecting Trade
The Venezuelan government has used sanitary restrictions as a non-tariff trade barrier to protect the domestic poultry sector since 1993. Poultry and poultry product imports were initially prohibited supposedly to protect the domestic poultry industry from Avian Influenza (AI). In 1997 a new resolution was published which allows the Venezuela Animal and Plant Health Service (SASA) more latitude in determining when imported products present risk factors to the domestic production. SASA requires both export sanitary permits and country of origin certificates from the exporting country and it must issue an import permit before product is allowed in Venezuela. Gazette Notice 36,165 from 1997 states that "sub-products of avian origin coming from countries where the presence of AI has been detected will be subject to the authorization given by SASA." Post's current assessment is that SASA will be reviewing import requests on a case by case basis, and product from the United States, or other countries that are free of high path AI, could be deemed eligible for export to Venezuela.
Recent Government Imports
In June 2003, the GOV imported 3,500 tons of whole chicken from Brazil in response to the shortages seen after imposing price controls. The imports were contracted by CASA, a recently reconstituted government state trading entity that is charged with handling both food imports as well as purchasing some local production. The objective was to bring in product for sale through the government's developing network of food stores in low income neighbourhoods called "MERCAL", and through sales by the military in special street markets "Mercado Popular" where sales are handled by independent merchants but under the logistics and supervision of the military. Both of these systems are operational, but at limited levels so far.
CASA approached U.S. poultry exporters for price quotations in April and July 2003, and the U.S. would be an attractive supplier for poultry parts if CASA should undertake further imports. The United States and Brazil are the most logical suppliers of poultry to Venezuela due to price competitiveness.
Post has been informed that the CASA imports were allowed in without being assessed duties, were purchased with dollars at the official exchange rate, and received expedited handling for the issuance of SASA import permits, the press release said. This type of preferential treatment conveys a great advantage to government purchases that the private sector cannot compete with, and that local poultry producers complain provide an unfair advantage to imported product
However, CASA was faced with more complicated distribution problems for the chicken compared to earlier purchases of rice and black beans. Some product has been moved to cold storage facilities owned and administered by the military and located in Venezuela's major military compound (Fuerte Tiuna) and is being distributed in a piece meal fashion. Some companies in the private sector have also collaborated with CASA and allowed the use of their trucks and distribution network to move some of the Brazilian chicken into markets in the interior of the country.
Future Trade Expectations
The status of future imports will continue to be based on government decisions rather than market signals. Private sector access to poultry imports remains severely restricted through the permit mechanism. GOV imports will be driven by the objective to ensure consumer access to poultry products within the price control levels. However, post is forecasting only minimal additional amounts of poultry imports for this year, mainly due to the difficulties in handling and distribution that have been encountered.
During 2002, Venezuela exported 385 metric tons of poultry to Hong Kong. No imports were recorded during that year, according to Venezuela's National Statistics Institute. No exports are forecast for 2003 or 2004.
Poultry imports are currently not subject to import tariffs. The GOV published a decree in the Official Gazette No. 37,728, dated July 9, 2003, exonerating basic food products from tariffs and other taxes. Poultry is included in this list. However, since the GOV continues to tightly regulate the import licenses and permits required to import these products, as well as the more recent restrictions on access to foreign exchange, the effect of this decree is mainly to exempt government purchases from the payment of tariffs and taxes.
The established tariff structure for poultry products is quite high.