An Example Of The Absurd Subsidies And Distortions Present In Venezuela

November 23, 2014

desayuno

As you all know, I go to Venezuela regularly. In fact, I just came back from there. Yesterday, right before going to the airport I had breakfast and, of course, I had to go to my friendly neighborhood arepera to enjoy the true flavor of nice local cheese and arepas, something I do at least once every single time I go. In my travels, it is incredible how I notice inflation from trip to trip. Even the chocolates I buy at the duty free store at the airport were up this time, a full 50%. They are no longer as cheap as they used to seem.

But going back to the breakfast, the picture above shows the menu I had: Two cheese arepas, a jugo de patilla and a cafe con leche grande. I was surprised at the cost, Bs. 402 for such a simple breakfast. Here is the breakdown:

Each arepa was Bs. 120

The juice was Bs. 80

The coffee was Bs. 39

Now, to get the right perspective one could calculate this at various rates. At the official rate of Bs. 6.3, it would be a scandalous US$ 63.8. At the Sicad I rate it would be a still expensive US$ 33.5, at the Sicad 2 rate it would be a still not cheap US$ 8, while at the parallel rate, it would be an very cheap US$ 3.24. Using a different perspective, the Bs. 402 represent 8.2% of the new monthly minimum salary, a clear outrage, as this is just one meal, breakfast, and there are 89 other meals every month. Which clearly show the absurdities of the Venezuelan economy.

But as I sat there reading El Nacional, the only daily left that can be purchased and has some true to what it says, I was amazed to read that Samsung had begun selling appliances, TV’s and the like, purchased at the Sicad I rate on Thursday and that people made long lines and even slept at the stores to get them.

Think about it, while people pay Bs. 402 for a simple breakfast, which is outrageous at the Sicad 1 rate, others benefit from the subsidy (and the luck!) of being able to buy appliances at that same rate. Note that this is simple populism, very few people actually benefit from the subsidy, but the image that the Government is doing something good for the people makes good headlines and many can only hope or dream that they can get their hands on one of these subsidized items. In fact, the Government makes headlines about this many times: when it calls for the auction, when it assigns the foreign currency and when the stuff finally arrives and gets sold.

Let’s try to put it into perspective, the clothes washer that El Nacional says was for sale at the JVG store, cost the equivalent of 31 breakfasts like the one above. That is, for a family of four, it is the equivalent of seven breakfasts. Cheap, no?

Which simply shows how screwed up the system is. Arbitrage is the rule of the day in Venezuela, you have to wonder how much of the stuff that arrived in Venezuela or is waiting in 243 containers at the port, will be sold and resold (or reexported to Colombia or Brazil) by those that are lucky enough to get their hands on one of these appliances.

Because in the end when you go to the store in Venezuela, you have little clue as to at what price something was imported. At Bs. 12,600, that clothes washer would be worth US$. 1,050 at the Sicad 1 rate (not cheap!), US$ 252 at the Sicad 2 rate (cheap) or US$ 101 ( a steal) at the parallel exchange rate. Thus, if anyone purchased this at the lower rate and tried to sell it for twice or three times at much in Bolivars, it would seem like a good deal and it would be the intermediary that was making most of the profit.

But the absurdity and the distortion is that the Government gives out money for this, which in the end is a “luxury”, in a country where there is poverty (and increasing) and people are having a hard times making ends meet.

Picture added from comments, sent by Ira, the Arepa Lady from Barinas at Walmart:

HarinaPanGirl

 

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42 Responses to “An Example Of The Absurd Subsidies And Distortions Present In Venezuela”


  1. […] An Example Of The Absurd Subsidies And Distortions Present In Venezuela […]

  2. Yuzhou Lin Says:

    Happy thanks giving, my Venezuelan friends!

  3. mick Says:

    Crude has dropped 30%, the Saudi’s realize they cannot control it this time, and the Republicans, who will be in majority in both the house and the senate in a few months, have vowed to vote the Keystone pipeline into law. Add this to China cooling off and the rest of the world economy just treading water and you have oil getting back into sync with the other crucial commodities. Costs have gone up but value is relative. When you compare the value of oil to copper or aluminum or corn or beef, oil in the $30-$50 range seems natural. Better get used to having no dollars and no anything else.

  4. FrankPintor Says:

    What’s happening with the parallel Dollar? In a little more than 2 weeks it’s gone from 103 to 137 Bolivars against the Dollar on DolarToday, when it seems that there’s a consensus that economically nothing major is going to happen in 2015. What’s up? Is it a scam like happened with Dolarparalelo?

  5. Boludo Tejano Says:

    Ira’s Arepa Lady from Barinas at Walmart is much too good looking to be featured at People of Wal-Mart.

    I have never met an Arepa Lady in my trips to Walmart.

  6. moctavio Says:

    As long as M2 keeps growing, the party will continue for some people. Last week alone, M2 grew by 7%. Under QE2 in the US , M2 is up 50% since 2008.

  7. Mitchell Says:

    Imagine being an Accountant there and having to do Inflation Adjustment…..I would quit my job….Who could keep track of all the distortions, rates, and misinformation? They could not pay me enough to go to work and try to manage or keep track of that…Inflation Adjustment must be one of the worst jobs to have right now…

    • Ira Says:

      Are you kidding?

      Everyone else is bullshitting and making up the numbers, so why shouldn’t you? Sounds like the easiest job in the world!

      Oh, wait:

      You have INTEGRITY!? And PRIDE in your job!?

      Forget it then. VZ isn’t the place for you.

    • Island Canuck Says:

      From the looks of prices I saw today during a visit to Porlamar everyone is doing exactly what we do – increase your prices 5% to 10% monthly just to tread water.

      Funny thing is business is better than ever.
      I keep thinkling that we will reach a threshold where our client market just can’t pay but that doesn’t seem to be happening.

      • Ira Says:

        I thought you lived in Porlamar.

        • Island Canuck Says:

          Nope, north end of Island near popular beach.
          Sorry to be vague but you never know who’s reading.
          I’ve already had one run in with a Cuban that cost me – don’t want another.

      • Charlie Says:

        “I keep thinking that we will reach a threshold where our client market just can’t pay but that doesn’t seem to be happening.”. To me this is a problem. In Venezuela people complain about the prices, but will pay whatever. If people didn’t buy the product because it was too expensive, manufactures/producers would find a way to reduce their costs so they can still put their products in the market. There’s no incentive to reduce costs, so why bother

        • Ira Says:

          I don’t think you understand manufacturing very well. Or business in general. Or other things:

          As it is, hard goods manufacturers, food processors, apparel companies and other business entities work on very low profit margins. In MOST cases, but not all.

          You seem to have created wiggle room for them to lower their prices, although in the real world of what they pay for labor, materials, overhead, etc. to produce what they produce, that wiggle room simply doesn’t exist if they’re to make a profit.

          And you’re ignoring the SAME inflation that they’re a ALSO subject to for their materials, as if rising retail prices “magically” appear because they (or is it the RETAILER in your view), who suddenly decide to raise prices for no reason at all?

          • Charlie Says:

            I guess I was basing my comment on my own experience in my previous/last job. Our main completion was/is other equipment manufacturer in the US and Europe. The difference in technology was not that significant and since the economy was not the best, our customer ended up purchasing based on pricing. So we had to re-engineer some products to reduce manufacturing process costs, improve our purchasing procedures to obtain better raw materials prices, replacing materials for less expensive ones, but that were as good, resourcing materials and manufacturing overseas, and a long etc., which included things as apparently as insignificant as re-setting the thermostats in the offices. So, maybe I don’t understand business in Venezuela, but I do understand it in the US.

          • Charlie Says:

            PS Our efforts allowed us to reduce our costs and pass those savings on to our customers.

  8. Jose L. Marcos Says:

    You fill up on gas for your car in Miami, let’s say 50 USD; in Venezuela the same tank will cost about 6 Bs. So if you use one tank per week, it means that with the same amount of money that gets you gas for a week in Miami, you get gas for about 20 years in Venezuela (about one thousand weeks for 6,000 Bs)

    One 30,000 liter tanker (gandola) will cost you about 2,400 Bs. This means that with what you pay for a bottle of Scotch, you can buy two (2) tankers !!!!

    Go figure

    • HalfEmpty Says:

      With all the distortions in the economy and the amount of on-the-fly math needed to survive it’s little wonder Venezuela produces so many world class bond traders. 🙂

  9. Rafael Vicente Says:

    Miguel, the economic distortions are oversized, these gentlemen are cynical, with 600,000 imported artifacts just touch him 0,089 for each Venezuelan family, ie less than 1.00.
    On the other hand I wonder how much it cost the greater these products, I put an example a Samsung 32 “TV, basic costs $ 199.97 at Walmart to SICAD 1 cup is Bsf .: 2399.64, rate SICAD 2 is Bsf.: 9998.50, and the black of, is Bsf. 19997.00, what is the real price of the product ?, you can not determine which creates more distrotion, and volume pricing are like 20 % lower as are previous series or old models.
    To which of the 4 types of change Bsf / $ has access most Venezuelans ?, Miguel to black, you have more, are just plugged that access to SICAD 1, since neither the SICAD 2 no possibility of acquiring the $, if you want to leave the country, we we fucked.

  10. Charlie Says:

    Bruni, $8 with minimum wage of $500 sounds like rather a lot. A better comparison would be that it costs ~2.5 hours of work @ min wage to buy that breakfast in Montreal compared to almost 2 days in Venezuela.

    • Bruni Says:

      Charlie, I included the min wage just for information, but had not made the calculation. My point is that in absolute value in any first world economy, 8$ is very cheap for all that Miguel got.

      Now, if we are looking at relative values with respect to the minimum wage, neither 8$ nor 3.75$ are cheap for a venezuelan, because it would mean 2 and about 1 day of minimum wage. It does not make sense that someone has to work 1 day to get breakfast.

      As for the equivalent Montreal breakfast representing 2 hours of minimum wage, that is not fair either. It means breakfast alone represents about 25% of their income.

      The conclusions are:

      1.-Miguel’s breakfast is too copious
      2.-Minimum wage is not enough to have a decent living either in Montreal or in Caracas.

      • Miguel Octavio Says:

        Copius? I did not think it was that copius, mostpeople in areperas order two not one. You can buy a large steak with that.

      • Charlie Says:

        Just for the sake of comparison, we need to put the same thing under the same common denominator. So, 1 breakfast in Montreal costs ~10% of a person’s wage of 2.5 days. In Venezuela, the same breakfast cost 100% of his/her 2.5 day wage.

        Also as Alexis above commented that very few people in Montreal make minimum wage, while in Venezuela a huge chunk of the population make min, wage.

        I guess some times I have a hard time dealing with absolute values with issues like this, even in first world economies, as the same expense is not the same if incurred in Baton Rouge LA vs. London, England, etc.

        • Ira Says:

          Excellent comparison!

          It’s even impossible to compare Baton Rouge to Miami. Baton Rouge is WAY less expensive, but again, that’s because the pay scales are lower.

  11. Bruni Says:

    Tremendo desayuno, Miguel! You say that at 8$, that is “still not cheap” ?

    A simple “latte” half the size of the one you are presenting would cost 3.75$ here at a Starbucks. Each arepa from 6 to 10 $ and the juice around 3$.

    So here in Montreal, you would have paid (if it had been possible to get the three items together) a minimum of about 19$, plus 15.5% in taxes, plus 15% in tip (about 25 $ overall).

    (See http://fr.yelp.ca/biz/arepas-montr%C3%A9al for the arepas)

    The 8$ sounds suuuuuuper cheap for me.

    The minimum salary here is 10.35$/hour

    • Alexis Says:

      Interesting coincidence to encounter another reader from Montreal. 🙂

      It’s all a matter of perspective, relatively to people’s income (note that very few people gain the minimum salary here!).

      You a very nice (and huge) breakfast at Cora or some similar place for $25, so I really don’t think two bland arepas would cost as much.

    • vennytrader@em.com Says:

      Surprising how people pay $3.75 for bad coffee.

    • Yuzhou Lin Says:

      buy a Nespresso coffee maker , a vitamix blender, and a bag of Croissant from Costco. then you will have a breakfast only cost 4 dollars.

    • Wes Says:

      In Miami, the $8 arepa has arrived courtesty of Amaize. Checkout the gorgeous menu and prices. Prices not cheap if you are hungry and chow down two arepas:

      http://www.amaizeyou.com/menu.php

      There are plenty of places nearby to get cheaper arepas: Don Pan, La Coriana and about ten more places within 5 miles.

      You can still get a desayuno of two eggs, bacon or ham, cafe con leche and tostada con mantequilla (and marmalade) for $3.

  12. Charlie Says:

    Apparently, Barbie dolls and Christmas trees were imported at 6.3 or the Sicad I rate …. go figure.

  13. Ira Says:

    I have to assume there are no longer any Harina Pan shortages.

    • liz Says:

      Ira, the shortages are still the same. I just bought 6 kilos this week, but I haven’t bought any for more than a month. And I just kept 2 for my house the others went to other family members.
      Maybe the restaurants have a better distribution than us, simple customers.

      • Ira Says:

        A fascinating thing happened to me yesterday. Not really fascinating, but ironic.

        I went to the Wal-Mart food market to buy all of my Thanksgiving supplies. (Not meat or poultry, which my wife, as a Wal-Mart employee, has a problem with.) As you may know, in addition to Super Wal-Marts which sell everything from tires to potatoes, we have Wal-Marts that are just food markets. So this was just a food market.

        So I enter the store, and within 2 minutes of grabbing my cart and starting down aisle one, a lovely voice to my left beckoned me, asking, “Would you like to try an arepa?”

        And there she stood with a special display and sampling stand…giving out free samples…to convince you to buy Harina Pan. I wish I knew how to link a damn photo here, so you could see it. (Miguel, can I send you the photo so YOU can post it?)

        This young girl from Barinas, wearing earrings of the colors of her native land, speaking excellent English….

        Paid for by the company to push sales in Coral Springs, Florida, with HUNDREDS of available packages, while her people back home can’t find the stuff. Because the Chavista government makes it impossible for the company to operate at a profit, which is what companies do:

        Or they become BANKRUPT companies, and simply disappear.

        So in Venezuela people wait hours in line to buy it, and in the United States, the company is hiring people to CONVINCE people to buy it. VZ has none, and the U.S. has tons.

        So which system is doing a better job of delivering the product to the people?

    • Island Canuck Says:

      Ira, those packages are “Hecho en Colombia” not Venezuela.
      You may already know this. 🙂


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