With Venezuelan Food Shortages, Some Blame Price Controls

New York Times: With Venezuelan Food Shortages, Some Blame Price Controls

… At the heart of the debate is President Hugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find. …

… Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities. But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chávez and his ministers say they are trying to eliminate.

They blame unfettered capitalism for the country’s economic ills and argue that controls are needed to keep prices in check in a country where inflation rose to 27.6 percent last year, one of the highest rates in the world. They say companies cause shortages on purpose, holding products off the market to push up prices. This month, the government required price cuts on fruit juice, toothpaste, disposable diapers and more than a dozen other products.

“We are not asking them to lose money, just that they make money in a rational way, that they don’t rob the people,” Mr. Chávez said recently.

But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest. …

… If there is one product that Venezuela should be able to produce in abundance it is coffee, a major crop here for centuries. Until 2009, Venezuela was a coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in production.

Farmers and coffee roasters say the problem is simple: retail price controls keep profits close to or below what it costs farmers to grow and harvest the coffee. As a result, many do not invest in new plantings or fertilizer, or they cut back on the amount of land used to grow coffee. Making matters worse, the recent harvest was poor in many areas.

A group representing small- to medium-size roasters said last month that there was no domestic coffee left on the wholesale market — the earliest time of year that industry leaders could remember such supplies running out. The group announced a deal with the government to buy imported beans to keep coffee on store shelves.

Similar problems have played out with other agricultural products under price controls, like lags in production and rising imports for beef, milk and corn. …