Given this, financial institutions have come under governmental pressure to comply with banking regulations. In 2012 Chávez publically threatened banks in non-compliance with nationalization. In 2015, the Superintendent of theBanking Sector of Venezuela fined BancoCaribe bank 280 million bolívars for failing to fulfill agricultural lending requirements in parts of 2014 . The percentage of lending to the agriculture sector by private banks has risen since 2001 and has resulted in large increases in absolute amounts of credit delivered to the sector. Bank lending to agriculture had risen 114% from January 2014 to January 2015 . High annual inflation, however, greatly reduces the amount of real increase of credit levels and in some years eclipses it entirely. In 2014, agriculture financing increased 26% over 2013 funds but was essentially erased in real terms by a 53.4% inflation rate . Banks also must provide said loans to the sector at a preferential interest rate. As of July 2008 a government decree30 mandated that agriculture loans be lent out at a 13% interest rate. By way of comparison, bank loans to other sectors can carry an almost doubled interest rate of 24% . Although 13% is significantly higher than agriculture credits provided by some government institutions to small producers, where rates can be low as 3% and are often forgiven in case of non-repayment,dutch buckets low rates provide an important source of operating funds to commercial agriculture.
Lending to agriculture from commercial banks effectively functions as a subsidy to the operation of commercial agriculture ventures, which capture a majority of these loans as opposed to smaller, less credit-worthy producers who rely on the state for financing. Agrarian reform beneficiaries do not receive transferable title to land in order to avoid sales and reconcentration of land and therefore have no collateral to offer private sector banks. As this policy operates at the expense of commercial banks, it is unlikely that it would survive the passing of ruling control to an opposition government with a position of re-liberalizing segments of the economy. Policies that mandate private bank lending to agriculture create possibilities for high profits that are relatively unrelated to productive activities for well positioned growers, and incentivizes commercial farmers without actual need for credit to seek loans . While the stated goal of commercial bank lending requirements to agriculture is to stimulate production, loans often go largely into servicing old debt . High inflation effectively erases debt for producers allowing profit to be made by continuously taking out loans at each growing cycle. One commercial producer stated that by constantly taking out loans he made as much as a 10% profit from the funds as by the time repayment occurred the bolívar denominated debt has disappeared in real terms . Funds from loans can also be re-loaned out by recipients themselves into non-controlled channels where interest rates are higher. Thus, a cycle of taking private loans year to year—an activity unavailable to the peasant sector—maintains the commercial grower sector even within a context of low, controlled prices.
The Venezuelan government’s currency controls are also an avenue through which the commercial sector benefits from state policy. Venezuela has a three-tier exchange rate where dollars can only be purchased through the central bank for importation of goods and industrial inputs or for foreign travel. The cheapest rate for dollars, CONCOEX—6.3 BsF per dollar—is reserved for imports of food and medicine, underlining the importance for the government of securing food supplies.31 Access to official dollars essentially functions as a largely hidden subsidy to middle-class and other well-positioned actors in Venezuela with the wherewithal to travel abroad and own businesses requiring foreign goods and inputs. Foreign currency purchases at all official exchange rates are well below the black marketrate for dollars, which at writing was at 1,100 BsF per dollar. Dollars obtained through the central bank can be traded on the black market back into bolívars for many times their official value which can then be used for consumption or servicing debt. In one striking example, in 2013 international flights from Venezuela were booked months in advance yet were reported to be leaving half empty from the airport . Dollar advances obtained for travel combined with credit card scams where phantom purchases were placed cards with travel dollar allotments that were then paid out in cash, provided dollars that could be converted back into bolívars at black market rates. The gap in the official and black market rates meant that purchasing international plane tickets was in many cases a transaction made only to secure travel funds for black market exchange.
In off the record interviews, medium-sized importers of consumption goods admitted to me that both travel and phantom import orders had been used to access dollars. While the government has increased control over the exchange system to try to limit forms of currency arbitrage, and although growers interviewed were understandably reluctant to admit to engaging this illegal behavior, given the integration of grower associations and agroindustrial processors with access to food commodity imports, it is likely that many commercial farmers could avail themselves of parts of this system. Commercial agriculture also benefits from general agricultural subsidies for some agro-inputs and fuel that target producers at all levels of agriculture. Venezuela has a relatively well-developed national petrochemical industry that developed alongside its petroleum sector. Pequiven, the state petro-chemical company, manufactures urea and other fertilizers and supplies the national market with product below international prices for fertilizers. According to FEDEAGRO, Venezuelan urea is 5-6 times cheaper than foreign sources, in 2012 costing 19 BsF per 50 kilogram sack, versus 100 BsF price for non-subsidized urea . To bring more of the agro-chemical sector under state control the Venezuelan government nationalized of the largely Spanish-owned agro-chemical company Agroisleña in 2011. Agroisleña was transformed into AgroPatria, a stateowned enterprise that supplies pesticides and herbicides and other agrochemicals at below market prices to both commercial and peasant producers. Agroisleña controlled around 70% of agro-chemical and seed distribution in Venezuela and its nationalization was oriented towards ensuring a low-cost supply of inputs to the agriculture sector in order to boost production . There were also a number of other state-owned AgroTiendas that sold inputs at subsidized prices. Producers registering with AgroVenezuela were to receive streamlined access to state-managed agro-inputs at ‘just’ prices. Ostensibly, this lowered production costs for commercial producers whose industrial production systems were heavily reliant on large quantities of chemical inputs. However, producer associations asserted that supply and quality problems of AgroPatria complicated crop production. Growers reported that followed nationalization inputs were often unavailable at the needed time in the growing cycle, or that there wasn’t sufficient quantity of available inputs from AgroPatria ,grow bucket incidentally a claim repeated in interviews by peasant producers as well. In 2015 FEDEAGRO reported that AgroPatria had only supplied 50% of white maize seeds, 22% of yellow maize seeds and only 18% of agro-chemicals requested by producers for the season . Critics cited reduced production after Agroisleña’s nationalization and increased diversion of inputs from AgroPatria to the black market where inputs commanded higher prices, often three to four times above the market price . This contributed to lack of sufficient input availability in AgroPatria for both commercial growers and smallholders. FEDEAGRO complained that the MPPAT’s policy was to allot equal proportions of state-controlled inputs to the commercial and state sectors, even though FEDEAGRO claimed that the private sector was responsible for 85% of national agriculture production and, thus, required more inputs .
FEDEAGRO argued that over-allotment to the state sector of inputs fed diversion into the black market and increased scarcity at subsidized prices . Although agricultural inputs were reportedly not reliably available in new, state stores, they could often be found from private distributors or on the black market. Yet the high prices for inputs charged at these outlets largely defeated the stated purpose of AgroPatria of low-price input distribution. Commercial growers could more easily utilize private agro-chemical distributors than smallholders due to greater capitalization and access to private credit. This allowed commercial growers to both benefit from lower input prices at state AgroTiendas for a portion of input costs, and maintain flexibility in face of disruptions to state-managed distribution chains. However, private input providers couldn’t compete with AgroPatria’s below market prices, and were, thus, often ill-positioned to fill shortfalls when they emerged. In addition, growers claimed that some agrochemicals were of inferior quality post-nationalization . Agroisleña had bought active chemical ingredients of inputs and mixed them in-country, while due to production difficulties, AgroPatria often imported some pre-mixed, and lower quality, chemicals . After nationalization, commercial growers had to pay upfront for input orders by making cash deposits with AgroPatria, while with Agroisleña grower associations would purchase on credit and service their debt after selling crops, reducing the amount of pre-harvest capital needed at the beginning of crop cycles. Grower associations were also able to leverage bulk input purchases for its members to access discounted rates on inputs bought from AgroIsleña, which they could warehouse and distribute to members as needed. The need to go to AgroPatria, cash in hand, combined with the difficulty of obtaining sufficient inputs of sufficient quality in the correct time frame, disrupted commercial accumulation processes even as some degree of cheaper inputs helped to reduce production costs. The chief complaint of commercial growers in regards to state agricultural policy was the regime of price controls on many agricultural and food products. With the rise of oil prices and increased rent circulation in Venezuela, persistent high inflation pushed prices of consumer goods higher. To combat high inflation of food prices and perceived ‘unjust’ prices offered by merchants the Venezuelan government began to set maximum prices in 2004 on a number of basic food items that made up the ‘food basket’ of the Venezuelan public. This included sugar, rice, grains, corn flour, chicken, sardines, pork, steak, cooking oils, milk and others . Prices are regulated by the National Superintendent for the Defense of Social Economic Rights which sets maximum prices for producers, wholesalers and consumers, effectively regulating the farmgate and market price. Low controlled prices are a common complaint among both commercial and some peasant growers, especially in the coffee sector where there are many small producers. Growers contend that prices are often below production prices, which is exacerbated by input and labor costs rising faster than adjustments to crop prices. Coffee producers claimed that production costs in 2014 for a quintal of coffee was between 5,400 and 6,500 BsF in Portuguesa, over double the controlled price at the time of 2.657 BsF . Coffee prices were raised in September 2014 to 4,500 BsF to close the gap yet remained below the stated production prices. 32 The price of rice was last raised in October 2014 from 8.6 to 23.6 BsF per kilo , a figure significantly lower than the 38.74 BsF per kilo requested by the Venezuelan Association of Rice Processers . Growers also contend that SUNDDE’s price adjustments are often irregular in timing. Price uncertainty causes many headaches for growers who argue that not only are prices too low for many crops, delays in price adjustment, especially in the face of inflation, mean that farmers may have to plant crops without knowing what the controlled price will be at harvest time. While price uncertainty is, of course, present in open markets and dealt with in part through contracts and hedging, controlled prices could be theoretically set before plantings by the government. Regulated prices contribute to the diversion of food from controlled into informal markets where they command higher prices. According to rice processors and producers only 30% of rice consumed in country is sold at the regulated price while the rest is sold on the black market. Food manufacturers also avoid price controls by processing controlled crops into other, non-controlled forms, such as processing rice or milk into flavored rice or cheese . As a partial response to this strategy of price evasion through processing, SUNDDE set a policy that flavored rice could only be sold at 25% above the controlled price for rice , limiting manufacturers’ ability to avoid price controls. Export restrictions mean that growers cannot easily move crops into export commodity chains in search of higher prices, which, as was the policy’s intention, keeps production in country.