Venezuela's Black Tuesday Price Controls Announcement

Always watching for subtle but seismic changes to the law made by the government, the Editors of Veneconomy found a new law published January 13 that indicates that the government is now going to set price controls on EVERY product sold. "With this resolution," says Veneconomy, "the Chávez administration will end up forcing businessmen to sell all their production at a loss."

The government has announced that it will extend and consolidate price controls on food products.

On Tuesday, January 13, a joint resolution by the People's Power Ministries for Health, Food, Light Industries and Commerce, and Agriculture and Lands was published in Gaceta Oficial that establishes “the conditions and production and import levels that agribusiness and importers must comply with for regulated food products manufactured from the same raw material.”

Businessmen will no longer have the option of offering variations of controlled products containing aggregates that provide greater variety in the daily diet and that, in addition, as they are not subject to price controls, allow the manufacturer to offset the losses generated by regulated products. For example, until now, it has beenpossible to sell, with a reasonable profit margin, special cornmeal for empanadas (patties) or sweet arepas or corn oil flavored with garlic, onion or aromatic herbs.

With this new four-ministry resolution, the Executive has established a first line of attack in order to restrict and control all types of food products, sounding the death knell of variety in Venezuelans' diet. It will not be long before people feel the disastrous effects of a totally controlled economy. The resolution allows businessmen 90 days in which to inform MILCO of the cost structures for their portfolio of “varieties,” both domestic and imported, so that it can set prices. And, as is to be expected of an autocratic government and as Agricultural Silos, Warehouses, and Depots Superintendent Carlos Osorio has already warned, the prices of the affected products “will be lower than those proposed by the manufacturers and merchants.”

One might think that, on one level, this is simply yet another step taken by the Executive to hem in and control the private sector of the economy, along the same lines as the measures that businessmen have learned to cope with in order to survive over the past ten years. However, a closer look at the resolution reveals that it is a rope around the businessman's neck that will end up strangling the private sector. With this resolution, the Chávez administration will end up forcing businessmen to sell all their production at a loss, as they will now not be able to offset the losses resulting from price controls with sales of unregulated products. So far, Chávez's control and regulation policy has resulted in stagnated growth in the private sector, a situation that has increased the domestic production deficit and generated huge imports of basic products.

In a scenario of total control of production and prices, it is practically impossible for any agrifood business or merchant to continue in business. This policy of controls, which is destroying the productive sector and promoting imports, is unviable and unsustainable with the price of the barrel of oil at $22.5 (price as at January 15). It is worth remembering that the major failing of the communist regimes of the 20th century, such as the former Soviet Union , was that they believed that it was possible for government to decree the profit levels that a healthy economy should produce.

The result for the Venezuelan consumer will be that he will find his purchasing power shrinking still further and, to top it all, he will be offered lower quality, less variety, and increased shortages, besides seeing even more sources of jobs disappear.