BMI View: In view of the substantial headwinds facing the Venezuelan economy, we have downgraded the country's real GDP to - 5 .6% in 2015 and - 2 . 9 % in 2016. Despite enormous natural resource wealth, the economy's outlook will continue to be dimmed by poor macroeconomic governance, high inflation, low oil prices and significant political uncertainty. Furthermore, we expect household consumption to continue to be constrained by high inflation, which has substantially eroded purchasing power (we forecast headline CPI price growth rising to 78 . 3 % year-on-year (y-o-y) in 2015), as well as government price controls, which create market inefficiencies that significantly reduce productivity (and, by extension, incomes).
Headline Industry Data (US dollar terms):
Per capita food consumption compound annual growth rate (CAGR) forecast 2014 to 2019 = 19.2%.
Alcoholic drink sales CAGR forecast 2014 to 2019 = +1.5%.
Soft drink sales CAGR forecast 2014 to 2019 = +1.6%.
Mass grocery retail sales CAGR forecast 2014 to 2019 = -18.4%.
Key Industry Trends And Developments
Chocolates El Rey Confident Despite Venezuela ' s Faltering Economy: Venezuela based chocolate producer Chocolates El Rey is riding the country's economic storm better than many and continues to innovate in a market that has seen many other producers fall by the wayside. Whilst the company is not immune from the foreign exchange and supply issues that plague much of the country's businesses, Chocolates El Rey sources the bulk of its raw materials domestically, which limits the potential for problems. In an interview for the PanAm Post in May 2015 the company's president, Jorge Redmond, said "in depressed economies people tend to consume products like ours, to make themselves happier" and "while other sectors have experienced considerable drops, especially due to rising prices, consumption of our chocolate has remained strong, even as chocolate prices go up."
Coca-Cola Femsa Hit By Venezuelan Headwinds: Mexico based Coca-Cola Femsa reported in April 2015 that its Q115 earnings had been hit by currency depreciation and weak consumer spending in key markets like Brazil and Mexico. The company's Chief Financial Officer, Hector Trevino, warned that the outlook for the remainder of 2015 was unlikely to improve (Wall Street Journal, April 2015). The biggest single hit on Coca-Cola Femsa's revenue resulted from its Venezuelan operations. These account for 7% of the company's sales but brought in just 2% of its total revenue.
Meat Production And Consumption To Slow As Economic Headwinds Deepen: We expect both beef and poultry output to record only weak growth in the coming years, as domestic production is pressured by fixed output prices and high feed costs (see 'Weak Prospects Ahead For Venezuela's Livestock Sector', March 2015). Although the government lifted meat prices in early 2015, local producers' associations argue that they are still below production costs. The country's modern poultry industry should fare better than its beef sector, for which the outlook is especially bleak. We forecast poultry production to grow by a weak 0.4% annually from 2015 out to our forecast period in 2019, reaching 687,200 tonnes; beef output will broadly stagnate and stand at 280,000 tonnes in 2018/19.
Fingerprint Scanners To Be Introduced In Supermarkets: President Nicolas Maduro's government announced in March 2015 that it is going to install 20,000 fingerprint scanners in the country's supermarkets - particularly in those stores that are closest to the country's border with Colombia. The ongoing smuggling of government subsidised basics across the border to Colombia and the failure of the voluntary 'Secure Food Supply' card have sparked this last ditch attempt. The government hopes that the measure will also prevent hoarding, panic buying and lead to shorter queues at supermarkets. Maduro said that seven of Venezuela's major retailers have agreed to adopt the measure.
Government Raises Tax On Alcohol: Venezuela has increased taxes on alcoholic beverages by up to 150%, Tax-News.com reported in February 2015. The tax on wine has been raised to 35% from 15% and the tax on other spirits increased to 50% from 20%. However, the tax on beer remains unchanged. The hikes, which were first announced in a package of revenue-raising measures published in the country's Official Gazette on 18 November 2014, came into effect on 16 February 2015. Additionally, reforms included an increase on the excise duty for luxury goods to 15% from 10% and the removal of income tax exemptions for cooperatives, foundations and associations.
Government Takes Control Of Dia a Dia Supermarket Chain: A Venezuelan retailer was forcibly taken over by the country's authorities in February 2015. Supermarket chain Dia a Dia was accused of hoarding its stock to exaggerate food shortages, in an attempt to undermine Maduro's government. The company operates 35 supermarkets, predominantly in poorer neighbourhoods that are traditionally government strongholds. At the time of the takeover, armed soldiers were sent to a number of supermarkets in Caracas and also to its main storage facility. The official line is that the takeover is temporary and was ordered to protect Venezuelans. The supermarket chain's executives were reportedly 'waging war against the population' and arrested on charges of deliberately acting to destabilise the economy.
Venezuela Swaps Oil For Coffee To Meet Demand: Latest figures from the US Department of Agriculture (USDA) forecast that, for the first time since records began, Venezuela's coffee imports will exceed the country's total bean production. Demand is expected to reach 1.3mn 60kg bags by the end of September 2015 and the country's total production of coffee is forecast to reach only 660,000 bags. These forecasts mean that Venezuela will produce one of its smallest coffee crops in more than 50 years and imports will have to hit a record 685,000 bags to meet demand.
Empresas Polar Investments Increasing Production: Following a recent investment of VEB260mn, Empresas Polar announced in February 2015 that its margarine production capacity had increased by 40%. This brings total production of its Mavesa, Chiffon and Dorada brands up to a level of 8.1mn kilos per month. Subject to the ongoing availability of raw materials, the company will be able to achieve its target of an average monthly output of 8.8mn kg from June 2015, stated Empresas Polar's President Lorenzo Mendoza.
Key Risks To Outlook
The potential for elevated political tensions will remain high due to lower oil prices, continued recession, falling confidence in the administration of Maduro and a more confrontational stance taken by the US with regards to alleged human rights abuses. The opposition will gain traction in the late-2015 legislative elections, which will increase political polarisation and heighten social tensions.