Cereal socialism in Venezuela

July 31, 2012

Free Market Foundation

A new consumer protection law, which went into effect on February 1, allows Venezuela’s Hugo Chávez to expropriate virtually any company if he deems it to be in the national interest.

On January 17, Chávez expropriated six Exito supermarket stores, controlled by France’s Groupe Casino. Chávez wants to transform the chain’s outlets into what he calls “socialist megastores” that sell food, appliances, and clothing with virtually no mark-up, says BusinessWeek.

Chávez has been skirmishing with supermarkets for years. In 2002, big food producers and distributors participated in a two-month nationwide work stoppage that nearly brought the economy to its knees. In response, Chávez opened a rival network of government-run grocery stores, where more than a quarter of Venezuelans now shop.

The biggest state-owned chain, Mercal, has 16,600 outlets, ranging from street-corner shops to huge warehouse stores.

They employ 85,000 workers selling basic products such as rice, sugar and beans at prices as much as 40 per cent below those the government sets for private stores.

Mercal also has a fleet of trucks that serve street markets, and it offers free lunches and afternoon snacks at 6,000 soup kitchens.

Supplying Venezuelans with cheap chicken is not cheap. Félix Osorio, Chávez’s Food Minister, says the government will spend $605 million this year on food subsidies, plus $1.8 billion to run the Mercal system, says BusinessWeek.

Supermarket managers estimate that the government regulates prices on about 20 per cent of the items they sell, but these products account for up to 40 per cent of volume.

“We make zero profit on most of the regulated foods, so we have to make up for it by charging more for other goods,” says Carlos Hernández, manager of Los Campitos, a small grocery in Caracas’ upscale El Rosal neighborhood.

And at Exito and Coda stores, says one executive, the government seems intent on eliminating any possibility of turning a profit. “How are they going to replace freezers and forklifts as they wear out?” he asks.

In a poll by the research firm DATOS taken two weeks after the Exito seizure, 58 per cent of respondents said they disapprove of Chávez’s takeover of stores.

Chávez “is moving in the opposite direction from what people say they want for their country,” says DATOS director Joseph Saade. “People look at everything the government has taken over and they’re seeing that the companies have become dysfunctional.”

Source: Geri Smith, Cereal Socialism in Venezuela, BusinessWeek, March 22 and 29, 2010.

For text: http://www.businessweek.com/magazine/content/10_12/b4171046603604.htm

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

First published by the National Center for Policy Analysis, Dallas and Washington, USA

FMF Policy Bulletin/ 30 March 2010