Assess the Food and Drink Industry in Venezuela.

DUBLIN, Ireland -- Research and Markets (http://www.researchandmarkets.com/reports/c58808) has announced the addition of Venezuela Food and Drink Report Q1 2007 to their offering.

The Venezuela Food & Drink Report provides independent forecasts and competitive intelligence on Venezuelas food & drink industry.

In our Q407 update, we asked what President Chavez's second term, which began on January 10 2007, would bring for the Venezuelan food and drink industry. We predicted continuing price controls, further dominance of the Mercal state-run mass grocery retailer (MGR), and we did not rule out more expropriations of food and drink plants.

We had also forecast that inflation in 2007 would decline from its high of 18% in December 2006 and end the year at between 3% and 4%, as a result of a lower level of government-induced liquidity in the economy. However, on this point, it appears that events have overtaken us somewhat. Just days after the Chavez inauguration ceremony, grocery shoppers began to feel the pinch of price rises that put even last year's in the shade. By the end of the month, it was confirmed that the Consumer Price Index (CPI) during the first 30 days of the New Year had risen by 2%.

In early February, President Chavez and his economic team decided, following late-night emergency sessions, to eliminate VAT from food and drink items, in an effort to stem the tide. To begin with, red meat, pork, chicken and turkey, oats, white corn (maize), mayonnaise, white cheese, and the transportation of all foodstuffs, will be exempt from the tax throughout the production, processing, and selling stages. In addition, production subsidies are to be granted for cotton, sugar cane, maize, sorghum, and rice.

Price controls on food and drink items have been in place since 2003; they currently cover 400 products. To now have to overlay VAT exemptions onto the controls is a blow for the government, as it seeks to extend its influence in Latin America, via showcasing its policies to the left-leaning regimes in Nicaragua, Bolivia, Brazil, and Argentina. VAT on food was introduced in Venezuela in 1997, and has been raised three times since then, to its current level of 14%.

The last days of February saw intense speculation around what the government may do next, should this latest measure not stop the rot. A broad consensus is developing around the view that Chavez may see fit to take full control of the entire food distribution system. We believe this unlikely, for the government, for all its bluster - and with everything else it has on its plate right now - would have little inclination to take charge of the complex logistics associated with both the food and drink and retail sectors.

Additionally, we do not think that food and drink producers want to reach a dramatic showdown with Chavez either, as this may result in further expropriations and the halting of production, neither of which are in their interest. The stockpiling that many are engaged in at the moment, in protest at the government's price caps, is hurting them enough already. Most are keen to reach an agreement forthwith with the government, though we see no such in sight for this quarter.

Should the VAT cuts not stop inflation moving upwards, we would be forced, in Q207, to reconsider our forecast for this year and possibly next. Moreover, if the price of crude oil were to move below its recent price band of between US$55 and US$60 per barrel, we would go even further and question the viability of President Chavez's socialist (or Bolivarian) project itself. The cornerstones of the food and drink industry at the moment are government-sponsored and financed: the Mercal supermarket chain, that seeks a 60% market share; the flourishing food co-operative movement, that provides up to 20% of the country's food; and the heavily subsidised staple-food-product programme (extended to government sponsored imports of Argentinean meat and powdered milk in February, to try to allay shortages).

Meanwhile, state-run Mercal is about to meet with a stronger competitor than it has yet had to deal with. Dutch retailer Makro opened its first Mikro outlet in January, created as a low-price, discount format for the low-income sector. Contrary to Makro, Mikro will be very much a retailer. The intent is to compete with Mercal on its home ground, in low-income neighbourhoods, with up to 100 stores over the next three years. Whether, in fact, Mikro will be able to match Mercal on price we do not know. Its format, though, may also be a draw for customers, as it will be the first appearance in poorer neighbourhoods of a supermarket with a bank, money-exchange house, butcher, and pharmacy, all under one roof - a concept that Mercal does not have.

Should Mikro succeed in denting Mercal's market dominance, it will inject new life into the Venezuelan private-sector MGR segment, which has been at something of a loss lately about how and where to make its presence felt in a market being increasingly blanketed by Mercal. Mikro's discount stores represent the first new food retail outlets to be built in Venezuela for some time.

Topics Covered
Executive Summary
Chapter 1 - Business Environment
Chapter 2 - Retail
Chapter 3 - Food & Drink
Chapter 4 - Tobacco
Chapter 5 - Competitive Landscape

Companies Mentioned

* Cencosud

* Cadbury Schweppes 

* Kraft Foods 

* Mercado de Alimentos Mercal CA

* Coca Cola FEMSA 

* Alimentos Heinz CA

* Pernod Ricard Venezuela

* Makro Venezuela

* Cargill de Venezuela

* Empresas Polar 

For more information visit http://www.researchandmarkets.com/reports/c58808