Archive for October 5th, 2010

Venezuela’s Destructive Spiral by Veneconomy

October 5, 2010

As I said last night, others know more than me about Agroisleña. I quoted Daniel’s article last night, I leave you today by this excellent and detailed article from Veneconomy that tells you how this nationalization is a total disaster for Venezuela.

Destructive Spiral by Venconomy

The decree officially announcing the expropriation of Agroisleña was published in Gaceta Oficial on Monday, as ordered by the President in a nationwide networked broadcast last Sunday when he said “Agroisleña is expropriated; come to me, I’ve got the winning hand,” the phrase with which he seals all his revolutionary death blows.

This lapidary phrase puts an end to an agro-industrial company that has operated for more than 52 years in Venezuela to become its biggest supplier of inputs for the agricultural sector.

This expropriation of Agroisleña will have far greater consequences than any of the hundreds of expropriations already carried out by this confiscator government.

Agroisleña is a company with Spanish capital that has 90% of Venezuela’s agricultural market and covers a wide range of agricultural activities, among them supplying 70% of the sector’s agricultural chemicals; supplying seeds, in particular for the cultivation of 80% of the vegetables in the Andes, Lara, and Guárico; the supply of farm machinery and equipment; technical consulting services for farmers; and storage services in eight silos belonging to the company. In addition, it finances 90% of the inputs it supplies.

Equally important is the fact that Agroisleña has stood as direct guarantor to some 18,000 domestic producers engaged in producing a wide range of products that are of fundamental importance for Venezuela’s food security. In this cycle alone, it backed the planting of 235,000 hectares of cereal and oil seed crops. It is currently carrying out a special program with some 3,000 agricultural producers, for whom it is standing guarantor for the harvesting of 800,000 tons of a variety of crops, including corn, rice, and sorghum.

It should be remembered that Venezuelan banks are being forced by the present administration to allocate 21% of their loan portfolio to agriculture. Agroisleña has facilitated those loans and has been an ally of small producers by standing as their guarantor, which gives them access to credit that they would have found it difficult to obtain otherwise.

What will happen to those loans now? Who will stand as guarantor? Will this be yet another blow for the banks?

Another sad fact is that the expropriation of Agroisleña will result in a large number of these producers being left up in the air. Who will now stand as their guarantor? A government that has been proved to be in default?

Apart from the perverse effects that this measure will have for these producers, there are the impacts it will have on the country’s already shrunken productive capacity. There are reasons for thinking that the future holds more acute shortages, higher unemployment, and greater dependence on imports.

The government, exasperated by its defeat at the polls and seeking to achieve total control of the productive sector, is once again fueling its destructive spiral to continue swelling the company cemetery with industries that were once in full production.

This is a hold up