2013/14 Corn Production To Show Modest Growth
BMI View : We have revised up our 2013/14 corn production forecast for Venezuela to 1.32mn tonnes, meaning that the country is expected to record its first year of production growth since 2006/07. However, we believe that this is a one-off and forecast production to fall the next four years on the back of detrimental government policy, limited input usage and low price incentives.
Venezuela's agricultural industry has been held back over the past decade by poorly executed control policies and limited agricultural inputs. The country's socialist government has for some time pegged its procurement price for corn below the cost of production, which has resulted in declining output for several years. The Venezuelan bolivar's weakness and limited loan availability in the country has also meant that there is limited usage of agricultural inputs. Indeed, 2012/13 corn yields were at the same level as in 2004/05.
|Successive Devaluations Hurt Reserves|
|Venezuela - Exchange Rate, VEF/USD (RHS) & Foreign Exchange Reserves (USDmn)|
Venezuelan corn consumption has increased significantly over the past 10 years owing to its role as a relatively cheap staple. In contrast, consumption of wheat- which is wholly imported - has stagnated owing to its increasing cost as the bolivar's peg has been successively downgraded over the last decade, making imports more expensive. Venezuela has therefore increasingly relied on grain imports to meet its food requirements. Indeed, the country imports about 70% of its total food supply.
|Reliance On Imports|
|Venezuela - Corn Imports & Production Balance ('000 tonnes)|
We forecast in 2013/14 corn production to rise 1.5% to 1.32mn tonnes which would represent the first yearly growth in the crop since 2006/07. This view is based on data from the National Agricultural Producers Association, which suggests that the area devoted to corn will marginally increase year-on-year, from 414,000 hectares (ha) in 2012/13 to 443,000ha in 2013/14. This is a result of relatively favourable government prices compared to other commodities, and less production risk. Our belief that the poultry sector will experience relative strong growth of 2.3% in 2013/14 underlines this view.
|First Growth For Some Time|
|Venezuela - Corn Production (000 tonnes) & Growth|
Despite our forecast for growth in 2013/14, we remain pessimistic on corn output over the next five years. We believe that a continuation of the government's poor procurement policies will continue, with rampant inflation and poor economic conditions limiting the prosperity of farmers, and therefore their ability to acquire credit for inputs. As such, we hold the view that yields are likely to stagnate over the next few years, with any possible increase in consumption coming from an increase in area harvested. Additionally, the recent implementation of the government's SICAD 2 foreign exchange mechanism, which has three different currency rate levels and gives a favourable rate to food imports, could imply greater focus towards importing the country's food requirements than domestic production.
Saying this, we highlight some upside risks to corn production. First, a change in the government's procurement policy could incentivise farmers to increase plantings, and would also increase their ability to purchase inputs. Second, an improving economic situation may increase consumption and aid credit conditions, allowing greater input usage. Third, improved growth in the poultry sector would increase the demand for corn and could encourage domestic corn production to increase. Finally, further devaluation of the bolivar and declining foreign reserves could result in imports becoming too costly for the government. This could result in a more facilitating environment for domestic corn production.