Venezuela was once the richest country in South America, but food prices have skyrocketed in recent years, forcing many to scavenge for things to eat. The cost of basic groceries is now about five times the minimum wage.
Price of basic groceries
1,000,000 Bolivares
800,000
600,000
400,000
Monthly minimum wage
200,000
’98
’05
’10
’15
’17
Price of basic groceries
1,000,000 Bolivares
800,000
600,000
Monthly
minimum wage
400,000
200,000
’98
’05
’10
’17
’15
On July 1, the monthly minimum wage was raised for the third time this year, to help control inflation. Still, the increase does little to help struggling families, and the country’s inflation rate could reach 720 percent this year, according to the International Monetary Fund.
Since April, protesters have taken to the streets, demanding international food aid and early presidential elections. More than 90 people have been killed in the demonstrations. A local human rights group reported that more than 3,600 people have been arrested.
Here are the factors that led to the food crisis.
Venezuela overspent during a period of high oil prices.
Elected in 1998, President Hugo Chávez became widely popular for his promise to share the country’s oil wealth with the poor and to guarantee food security. To fund his “21st Century Socialism” agenda, he relied on oil revenues, which accounted for 93 percent of exports in 2008.
Oil price boom
Price per barrel
$100
80
60
40
20
2000
’05
’10
’15
’17
Oil price boom
Price per barrel
$100
80
60
40
20
2000
’05
’10
’15
’17
The government imported goods and sold them at subsidized prices to make food affordable to the country’s poor.
Oil price boom period
Imports
Imports increased during the oil price boom...
$60 billion
40
... then plummeted
20
2000
’05
’10
’16
Oil price boom period
Imports
Imports increased during the oil price boom...
$60 billion
40
... then plummeted
20
’00
’05
’10
’16
When oil prices collapsed, government spending became unsustainable.
By late 2014, oil money stopped flowing in. Venezuela had saved little from the oil price boom of the 2000s. Under Mr. Chávez’s successor, President Nicolás Maduro, the country slashed imports and used thinning reserves to pay its foreign debt and avoid default. As a result, food and medicine became scarce.
Oil price boom
Imports and foreign reserves
$60 billion
Imports
40
20
Foreign reserves
2000
’05
’10
’15
’17
Oil price boom
Imports and
foreign reserves
$60 billion
Imports
40
20
Foreign reserves
’00
’05
’10
’15
’17
Compounding the problem, a series of government actions paralyzed local food production.
For years, oil revenues enabled the government to import most consumer goods. Meanwhile, the government increased regulations, stifling domestic production. When the country cut imports, weakened local producers could not keep up with demand.
Seizing private property The government tried to redistribute the country’s wealth by aggressively taking over hundreds of private companies and hundreds of thousands of acres of land. This policy was designed to shift ownership from private hands to government control, said Daniel Varnagy, a professor at Simón Bolívar University. But the seized assets were poorly managed, further weakening domestic production.
Controlling currency exchange Private companies that survived the government seizures faced additional hurdles. The government created currency exchange controls in 2003, becoming the sole administrator of American dollars in the country. Most private companies struggled to buy the dollars they needed to import raw materials and machinery to produce goods locally, said Ricardo Hausmann, director of the Center for International Development at Harvard’s Kennedy School. This opened the door to a currency black market, where a dollar can now be sold for more than 700 times its value.
Black market rate
7,678 Bolivares
Bolivares per dollar
7,000
5,000
3,000
Official rate
10 Bolivares
1,000
2010
’12
’14
’16
’17
Black market rate
7,678 Bolivares
Bolivares per dollar
7,000
5,000
3,000
Official rate
10 Bolivares
1,000
2010
’12
’14
’16
’17
The government further restricted access to United States dollars after oil prices crashed, giving the public sector priority access and forcing more private companies to the black market. Unable to afford prices on the black market, many cut imports, leading to even more products vanishing from the shelves.
Oil prices start to drop
Imports by sector
$40 billion
Private
30
20
10
Public
2000
‘05
’16
’10
Oil prices start to drop
Imports by sector
$40 billion
Public
30
20
10
Private
2000
‘05
’10
’16
Regulating production With fewer subsidies on products, the government implemented the Fair Price Law to keep costs affordable. The new law regulated the production, distribution and pricing of products. These measures made many companies unprofitable, causing them to stop producing and worsening shortages, said Félix Seijas, a professor at the Central University of Venezuela. In addition to the high costs, farmers complained that fertilizer and farming equipment were mostly unavailable, and if a piece of machinery broke, the entire supply chain could shut down.
But the government blames an “economic war” waged by its opposition and foreign enemies for the food scarcity, accusing private companies of intentionally cutting back production in an attempt to destabilize the country.
As a result, Venezuelans have turned to expensive imports or to the black market. For many people, staples like eggs and rice have become unaffordable.
Food prices in Bolivares
Fixed prices
Prices Venezuelans
often pay
Rice
Corn flour
Ground beef
Powdered milk
Eggs
Sugar
Coffee
0
3,000
6,000
9,000
12,000
15,000
Food prices in Bolivares
Fixed prices
Prices Venezuelans often pay
Rice
Corn flour
Ground beef
Powdered milk
Eggs
Sugar
Coffee
12,000
15,000
3,000
6,000
0
9,000
These policies led to food scarcity and more poverty.
During the oil price boom, the percentage of households in poverty fell to 29 percent from 53 percent. The government has not released poverty data since 2015. But a survey by three of the top universities in the country indicates that in recent years the government underestimated the level of poverty, which reached 82 percent in 2016.
Percentage of households in poverty, according to:
Survey by top universities
The government
80%
60
40
20
Oil price boom
2000
‘05
‘10
‘16
Percentage of households in poverty, according to:
The government
Survey by top universities
80%
60
40
20
Oil price boom
2000
‘05
‘10
‘16
According to the survey, about 9.6 million people eat two or fewer meals a day and 93 percent of the population cannot afford food.