The collapse of Parmalat is important for Venezuela. Some years ago, Parmalat came to Venezuela with a fat wallet and started buying properties related to the milk business including one of the largest milk producers in the country. In time, the company had many different brand names in milk (Parmalat, La Campina), Milk-based drinks (Riko Malt, El Chichero), Yogurt (Frigurt, Yoka), cheeses (Quenaca) and even fruits juices (Frika) and Tea. The company has about 15% of the liquid milk market in Venezuela and 40% of the powder milk market. I remember being in awe of the company as it came into Venezuela buying many milk producers, paying top dollar and gaining market share. I also remember their advertising of the “cheapest” liter of milk in the country, except the container had less than one litter (This is called Russian inflation). The company boasted when it began opening ice cream stores that each cost one million dollars and I wondered how they could make money selling such crummy ice cream in a country where there is fairly good ice cream (my favorite is called 4-D). Clearly, it was part of the now crumbling Parmalat pyramid, where assets were invented in order to cover losses as the latter occurred and thus expansion with losses was possible as long as nobody discovered the rip-off.
The question now is what is the state of the local operations of Parmalat? There is a lot of confusion on the issue. The Head of local operations says that the company has sufficient cash flow and supplies to continue operating and that its operations in Venezuela were fairly independent of Italy. However, the Government says that it is ready to help the local company which has lost US$ 30 million in letters of credit for imports (mostly powdered milk). The Minister of Agriculture also has said that the Government may intervene the local Parmalat branches and participate financially in it, with a joint venture with the workers. Meanwhile, today’s El Nacional quotes members of a pro-Chavez union as saying that they will propose to the Government that the workers take over the company. The whole issue is further confused by the fact that one of the Parmalat executives reportedly involved with the fraud at the parent company was in charge of the Venezuelan subsidiary.
Obviously, this is all premature. It is clear in my mind that Parmalat was built on cheap capital (It is very cheap when you pay nothing for your capital!). If the company is self-sustaining in Venezuela, I would imagine Parmalat Italy would simply try to sell the unit or keep it until it comes out of bankruptcy if the operations are healthy. Reuters says the company was quite successful in Latin America, give me free capital and any business can be successful, so I am not sure what they are talking about. Curiously no such noise was made when Enron went under. Enron had a unit in Venezuela called Vengas (previously Industrias Ventane) which distributed close to 50% of the bottled butane used mostly by poor people in Venezuela for cooking. Vengas remained healthy after Enron went into bankruptcy and is part of the new Enron which coincidentally may emerge from bankruptcy as soon as next week.
What is remarkable about the case is how rudimentary the fraud was. Reportedly, company executives had been creating assets for more than a decade in order to cover losses as they occurred. They did this by inventing the assets within shell companies in the Cayman Islands and apparently with the cooperation of their auditors. Truly incredible!
The Devil's Excrement 
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