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Opinion and Analysis: Social Programs

Mercal: Reducing Poverty and Creating National Food Sovereignty in Venezuela

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"How can a country consider itself to be a democracy that respects human rights when 80 percent of the population is subjected to the daily outrage of poverty and its terrible consequences? What type of democracy can be built upon illiteracy and the ignorance it breeds, malnutrition, unemployment and the other various plagues that often accompany the drama of poverty?"

–Venezuelan Foreign Minister Alí Rodríguez at a special session of the Organization of American States. February 23, 2005.

Eight months after the opposition’s unsuccessful attempt to topple Venezuelan President Hugo Chávez in a short-lived coup, the then still-powerful anti-Chávez sectors: the CTV union, the main Chamber of Commerce, Fedecamaras, and the Coordinadora Democrática (CD), composed of twenty opposition parties and forty NGOs, resorted to a new tactic – economic sabotage – intended to destabilize the country and force the “fascist dictator” to resign.[1] On December 9th, 2002, a week into what had originally started out as a business strike – largely limited to supermarkets, private schools, and franchises such as McDonalds – the management and white collar workers of the state-owned oil company PdVSA upped the ante by paralyzing the oil industry. This economic sabotage was engineered in a variety of ways: oil tanker captains refused to move ships in both the western and the eastern parts of the country, thus preventing PdVSA from fulfilling its contractual obligations; PdVSAs computer system was sabotaged through the withholding of passwords, leading to the shut down one of the country's main refineries; and 40% of PdVSA employees walked off the job.

By late December 2002, production had dropped from 3.1 million to 25,000 barrels per day (bpd), causing a severe fuel shortage with deep domestic repercussions. Milk and other food staples such as rice, flour, sugar and oil were increasingly more difficult to get a hold of. However, since small and medium sized businesses by and large did not participate in the strike, it was not impossible. According to Caracas engineer Luis Daniel Infante, even more dramatic than the food shortages was the paralysis of the distribution network and the closing of the distributors[2] - a direct effect of the gas shortage. Since the majority of residences in Venezuela do not have direct gas lines, without the delivery of gas canisters, people were able unable to cook. “This caused a lot of problems above all for babies, because the parents could not prepare warm milk for them,” notes Infante, adding that “the adults could eat something else, but normally the babies needed warm milk to be nourished. This created a lot of anguish for the mothers."

Fuel purchased from Brazil as well as the hiring of thousands of retired and foreign oil workers allowed production to get up and running again.[3] However by the time the strike was defeated in early February, 2003, the economic sabotage had cost Venezuela $10 billion dollars, the country’s mining and steel industries had temporarily closed, unemployment increased to 22 percent, poverty shot up from 44% to 54%, and thousands of businesses went bankrupt.

“The strike is unprecedented in what I know of Venezuela's history – of the last 50 years. The oil strike is unprecedented, because before, the oil strikes were workers’ protests…they were one day – and not the entire industry either, but rather one part of the industry. There were never strikes that impacted the distribution of combustibles…It is unexplainable how, in Venezuela, they were able to bear the strike for over two months – and not only bear it but also defeated the difficulty and I would say that they came out of it strengthened because the State created other mechanisms for the future to be able to deal with this type of actions. From there, that is where the idea of Mercal emerged and the idea of the micro businesses,” Infante affirms.

From Zero to 4,161 Tons per Day

Born in the “breast of the Venezuelan military barracks,” on April 24th, 2003, Mercal is an initiative aimed at achieving full national food sovereignty and lowering malnutrition. Largely concentrated in shanty towns and impoverished areas, the Mercal network provides high-quality, non-name brand food staples at discounts of up to 50 percent.

Prior to Mercal, the vast majority of production, storage, transportation, distribution and commercialization of food was in the hands of a small number of transnational corporations and national businesses chains. These corporations and businesses by and large supported the opposition. During his weekly television program Aló Presidente on the second anniversary of Mercal (April 25th, 2003), Chávez spoke of the great food vulnerability Venezuela had during the economic sabotage. “This offensive served us a lot because we learned from the imperialism’s attack, from the Venezuelan oligarchy, and from those who were supporting the aggression against Venezuela and who would liked to have defeated us with hunger. [We learned] that we did not have a gram or a grain of anything, of food reserves. Before any natural, political or social disaster, Venezuela did not have then food reserves," said Chavez.

After the national oil strike the Mercal network evolved quickly, largely due to the participation of the Venezuelan Armed Forces. Before the first three Mercals and two warehouses were built, the Venezuelan military used military garrisons as stores and the military barracks as storage centers. "The army of Venezuela took to the street, gave of themselves and made the task easier with their technology, their human resources, their means of transportation and their installations for storing food,” affirmed Chávez.

At its onset, Mercal sold an average of 66 tons of food per day; by December 2004, sales had increased to 4,160 tons per day. The original three Mercals and two warehouses have multiplied into 13,392 Mercals and 102 warehouses, in addition to 31 recently built Supermercals, 12,500 Mercalitos (small Mercals), and several hundred cooperatives and other entities that work in conjunction with Mercal.

Included in the products that Mercal offers are milk, tomato sauce, bread, fish, fruit, meats, flours, seafood, bread, cheese, cereal, eggs, pasta, coffee, margarine, sugar, oatmeal, raisins, cooking oil, chicken, salt, and rice, all priced between 25 to 50 percent below traditional supermarket prices.

Product

Unit

Mercal Bs.

Supermarket Bs.

Mercal as % of Supermarket

Meat

Kg

6,400

9,400

68%

Coffee

250g

1700

3125

54%

Sugar

Kg

740

1032

72%

Flour

Kg

890

1510

59%

Pasta

Kg

1,100

1740

63%

Oatmeal

packet

1,000

2070

48%

Raisins

250g

1,400

3390

41%

Oil

1 liter

2,850

3,635

78%

Rice

1 kg

1,150

1,420

81%

Average:

62.7%

Source: Author’s own research. $1 = Bs. 2,150

Yet in addition to the price, Mercal is known for its quality. "I belong to the middle class. I have sufficient financial resources to shop in any location without problems. However, I have shopped at Mercal and I have noticed that the products that are sold in Mercal are of extremely high quality. I don't shop at Mercal so much for the price, but rather for the quality. Milk, meat, pasta – all of these products are of very good quality. And I believe that the people of Mercal have concerned themselves with quality and for this, people shop there," notes Infante.

Mercal is currently the second largest government company, after the state-owned oil company PdVSA and the largest food distribution network in the country. Rapidly expanding to serve over 30% of the Venezuelan population, the second phase of the Mercal network, according to Planning and Development Minister Jorge Giordani, is to strengthen the mechanisms that will permit further investment and to attack the dual root causes of high food prices: inflation and speculation.

"Inflation in Mercal is zero," declared Chávez in April, 2005, adding that "neoliberalism says the State should not use subsidies, [it claims] that that is populism. What populism? This is government… Democracy is government for the people and by the people."

Although the government and the Mercal network have committed themselves to sustain prices at their 2004 level through $24 million dollar monthly subsidies, a series of initiatives have been launched to wean Mercal off government financial support while maintaining its zero inflation policy. The three-fold strategy focuses on the promotion of endogenous development to lower dependence on foreign sources of food, to increase national food sovereignty and to create jobs, the elimination of intermediaries through direct purchases from industries and the creation and development of large storage spaces and distribution and transportation networks.

The Endogenous Model vs. the Capitalist Model

As endogenous development has gained momentum, Mercal has steadily increased its purchases from regional and local producers to 40% of its total purchases. As a result of the support for the local agricultural industry in the form of microcredits, jobs have been created in small and medium sized businesses which have not only expanded but have also successfully inserted themselves into the national economy. This in turn, propels the goal of national food sovereignty. “Currently, instead of having a monopoly in for example, the fabrication of flour, there are over 15 small businesses that are making flour…These small businesses play a very important role ensuring that the population does not run out of food," affirms Infante.

Purchases from local and regional businesses reduce costs in transportation, distribution and advertising, thus reducing costs for the consumer and lowering government subsidies.[4] For example, in the state of Portuguesa, Mercal is purchasing 148% more directly from regional producers compared to when it started. This translates into 258,000 tons of products. The coordinator of the region, Xenia Briceño, notes that in the two years since the program began, it has been working towards eliminating the middle man of the commercial chain, as a means for lowering the cost of goods, bringing them directly from the hands of the producer to the hands of the consumer.

Attacking the “Middleman”

Inflation on the 60% of food that is currently being imported is being tackled in two ways. Part of this food is being purchased at wholesale costs, as part of the “oil for food” agreement in which Venezuela trades petroleum for products such as meat, livestock, beans and grains with countries such as Cuba, Argentina, Brazil and Colombia.

Secondly, Mercal is attacking the chain of middlemen between production and when the goods reach the consumer." This chain principally affects the consumer, in the basic necessities," Chávez emphasized, adding that "as we continue to decrease our vulnerabilities, strengthen our autonomy and reduce costs, we will defeat speculation."

Due to Mercal’s wide-reaching success and rapidly expanding clientele, the President of the Venezuelan Chamber of the Food Industry (Cavidea), Pablo Baraybar, speaking on behalf of the agricultural industry, affirmed that businesses affiliated with Cavidea would grant Mercal a special price on a certain percentage of its products. “Cavidea wishes to be the main actor in Mercal, and really wants the greatest percentage of items in these stores to be national products. We have everything that is necessary to be the adequate suppliers for Mercal in terms of price, quality, and nutritional value. We can even place traditional brands, recognized by the population in these stores,” he commented.[5]

Cavidea joins local and transnational agricultrual industries such as Polar, Kraft, Nestlé, Bimbo, Alfonzo Rivas y Compañia, and Alpina, among other private sector companies that evidently want a piece of the action. “There are governmental programs that are basically represented in the Mercal stores and in the Corporation of Agricultural Supply and Services, which will evidently solve a problem in the country; and we, as responsible businessmen, are going to participate in these plans,”[6] said Baraybar.

A Bolivarian Network of Storage and Transportation

The government has also set out to attack speculation that plays an important role in determining inflation by controlling storage and distribution. Twenty six million dollars have been earmarked for the construction of three 21,000 cubic meters of refrigeration units to be located in Maracaibo (Zulia), to service the Western part of the country; in Puerto Cabello (Carabobo), for the central zone, and in Barcelona (Anzoátegui), for the Eastern region. According to the Director of the Corporation of Supply and Agroalimentarios Services (CASA), Comar Duarte, the construction of the refrigeration units is a priority because it will enable Mercal to reduce the costs of storing commercialized products and permit greater food reserves and facilitate distribution.

An estimated ten million dollars have been allotted to recuperating and maintaining storage areas for food stuffs. This money will fund projects such as optimizing the operating capacity of twenty-three silos, acquiring a technological platform to support mission Mercal and constructing large tanks with the capacity to store 380 million cubic meters of water. Additional money is being invested in centers to breed animals such as goats and sheep, in the construction of an industrial zone, and corn, flour and milk processing plants. "The capacity that we have to produce, accumulate, store, transport, commercialize, and put out in the market the food is sovereignty and food security, vital for the people… Mercal is a launching pad for the recuperation of food sovereignty for the Venezuelan people," affirmed Chávez.

Lowering the River

General José Rafael Oropeza, the Director of Mercal, emphasizes the concrete advances the Bolivarian government has made in the distribution, storage and sales of Mercal products and says that these advances reverberate most in people of few resources. However, Oropeza cautions that in order for the government to reduce its subsidies of Mercal, both inflation and speculation must be tackled.

Chávez compares inflation to a river, stating that both, once initiated, just continue to grow. "We are going along, lowering this little by little because it costs a lot, because it is like when a river grows," he affirmed. Indeed inflation in Venezuela has dropped considerably. Inflation for January through April, 2004 was 4.7 percent, down 3.1 percent from the same period a year ago, when inflation was 7.8 percent. At a rate of 15.8 percent, inflation was also noticeably lower between April, 2004 and April, 2005 compared with 23.1 percent between April, 2003 and April, 2004. Based on calculations made by the Finance Ministry, Nelson Merentes predicts that 2005 will close with inflation under 15%

Like any other nascent program, Mercal is not without its irregularities and setbacks. Its most infamous flaw revolves around substantiated rumors of corruption, the disappearance of products and a “certain” administrative disorganization, in the words of the President of Mercal in the state of Lara, Janeth Rodríguez. Lara is perhaps the site where Mercal’s reputation has taken the hardest hits. A one million dollar corruption scandal exploded two years ago implicating the town councilor, Dagoberto Ramos (MVR), tarnishing Mercal’s reputation and forcing its officials to pay closer attention not only to the sale of food products but also to all of the networks integrated in the program. The extent to which corruption plagues Mercal is unknown and efforts to address the problem are just now beginning. With time and increased popular participation, officials expect that irregularities in the Mercal network will be both more easily caught and addressed.

Success Depends on Popular Participation

The military has continued to take an active role in Mercal. According to Brigade General Castor Vicente Pérez Leal, his military unit, Command N. 3 of the National Guard, is working towards the goal of selling twelve tons of food per day by assisting other entities such as Fundacomun, the Ministry of Labor, and PdVSA in projects for Mercal. For example, a Mercal pharmacy was inaugurated, an effort that will allow the adjoining communities to take advantage not only of discounted food staples but also medicines.

Since its initiation two years ago, Mercal has sold over 4,000 tons of food. Over ten million Venezuelans – roughly 30 percent of the population – shop at Mercal. Mercal is one of the Bolivarian Government's social programs "of greatest impact. Everyday it continues to grow," affirms Luis Reyes Reyes, the governor of the state of Lara.

Chávez acknowledges that Mercal's success – even the very existence of the Mercal network – is contingent upon the high level of commitment, in short, popular participation in the endeavor. "There were many factions that participated [in the creation of Mercal]. The Ministry of Alimentation created Mercal, but it is el pueblo [the people] that are the soul of all this. This mission belongs to the Venezuelan people. It comes from the people and it goes to the people; its objective is not anything but breaking the perverse mechanisms of exclusion and inequality," he stated.

Mercal – Reducing Poverty

Although the economic sabotage was the catalyst in creating Mercal, it is necessary to acknowledge that Venezuela had severe problems with poverty and malnutrition prior to 2002. According to Venezuela's Catholic University Andrés Bello, 70 percent of the population lives in poverty. This figure naturally varies, depending on who does the poverty study, but 70 percent is the most widely used figure.

Members of the opposition frequently claim that since Chávez was elected President, poverty, and thus malnutrition, has increased. Yet this claim fails to take into consideration the fact that all studies concur in noting a significant upward trend in poverty in Venezuela – one of the most severe in all of Latin America – over the past two decades.

"The Eradication of Extreme Poverty and Hunger," the first of eight United Nations Millennium Goals, is being monitored through two sets of target indicators: income level and malnutrition. The Economic Commission for Latin America and the Caribbean provides data on the "Proportion of the Population below Minimum Level of Dietary Energy Consumption." for the following years[7]: 1990-1992, 1995-1997, and 2000-2002.

If one looks only at the data for 1990-1992 and for 2000-2002, the claim of increasing poverty under Chavez appears to be substantiated. Between 1990 and 1992, 11% of the Venezuelan population did not meet its daily caloric needs; by 2000-2002, this percentage had risen to 17 percent. However, if one looks at the 1995-1997 level of 16 percent, it is obvious that this rapidly accelerating trend initiated before Chávez came into office and can be accounted for, at least in part, by the fact that the government’s social spending decreased almost 50% percent between 1987 and 1997.[8]

The one percent increase between the 1995-1997 level and the 2000-2002 level can be explained by three factors. After September 11, 2001, the global economy entered a recession, resulting in sharply decreasing oil prices and increased levels of poverty throughout the world. Oil prices prior to September 11th hovered around twenty four dollars a barrel; after the fact, they fell to nineteen dollars per barrel.[9] Combined with the devastating political crisis of the April 2002 coup attempt and the national oil strike, it is not surprising that Venezuela suffered setbacks in the areas of poverty and malnutrition.

Yet the fact of the matter is that both 11% and 17%, in a country of 26.6 million translates into 3 million and 4.5 million people, respectively.[10] Three million people who are unable to meet their daily caloric needs can hardly be considered all right. It is also crucial to take into consideration that while 11% and 17% of the population did not meet their daily caloric intake, it is very probable that of the 83% of the population that do consume over 2,200 calories per day, a large percentage does not necessarily eat a balanced diet that includes fruits, vegetables, milk products and meat, but instead load up on starches. Bread, rice and pasta, the cheapest way to feed a family (and to meet its daily caloric needs), does not translate into a balanced diet, thus often resulting in malnutrition. It is difficult for poorly nourished people to invest in or plan for their future or to become productive members of society.

Eradicating Malnutrition Through Mercal

Due to neoliberalism, children all over the world "die because of illnesses that are practically always preventable and curable at a rate of over 30,000 per day, 21 per minute, and 10 every thirty seconds. In the South, the proportion of children suffering from malnutrition is upwards of 50 percent in quite a few countries, while, according to the FAO, a child who lives in the First World will consume the equivalent of what 50 children consume in an underdeveloped country throughout his or her life."

– Hugo Chávez at the opening of the XII G-15 Summit. March 1, 2004.

Both the Economic Commission for Latin America and the Caribbean and the World Development Report list 42 percent of Venezuelan households as living below the poverty line, as defined by less than two dollars a day, or 60 dollars per month. Yet to say that a Venezuelan who earns three or ten dollars a day – or even the minimum wage – does not live in poverty, strikes anyone who has lived or traveled in Caracas, commonly referred to as the second most expensive city in Latin America (after Buenos Aires), as sorely mistaken. In fact, according to statistics the government released in July 2004, in order to cover the cost of the basic food basket for a family of four, it is necessary to have a monthly income of 252 dollars. This amount does not include any other expenses, such as housing, education or clothing, only food.

In recognition of this, the government increased minimum wage from $160 a month to $202 per month, a 27% increase, in April 2005. In an interview with the state news agency, Agencia Bolivariana de Noticas (ABN), the head of the National Economic Counsel, Efrain Vasquez, stated that this measure will likely affect the income of 51 percent of all workers in the formal sector. According to market research firm Datos, combined with the increase in minimum wage, Mercal has increased the purchasing power of 84 percent of the population by 53 percent (33 percent after taking inflation into consideration.) Pedro, a father of three who has worked in a kiosk for twenty-six years, agrees. "Mercal has helped to alleviate the financial difficulties that even the middle class is experiencing."

Chávez differentiates between a social State and a classic State, affirming that a social State is "a popular State of the people." According to the Venezuelan President, more than just a network of subsidized grocery stores, Mercal is a concrete instance of the capacity of the new social State of law and justice to respond to the demands of the people, while these also have a fundamental role in shaping that state.



[1] On December 5th, 2002 then CTV President Carlos Ortega prolonged what was originally a 24 hour business strike until Chávez, whom he referred to as a “fascist dictator” resigned.

[2] For example, the large businesses, those that produced food, polar, remavenca, almost all of them joined the strike, except for a couple such as Frica that produces fruit juice. There were others that did not participate but by then the distribution network was not working.

[3] “Thanks to the fact that the high-level managers were those who organized the strike and that the worker really never backed it, the petroleum industry recuperated rapidly…Thanks to the cooperatives and small and medium-sized businesses that never joined the (business) strike, the strike turned into a failure,” Infante.

[4] "This is a strategy that we are activating in the new stage of the revolution, in an additional effort that we are making to continue to dynamize the leap forward, the social economic development of the country from below with the endogenous model that does not have anything to do with the capitalist model," notes Chávez.

[5] See Ana Teresa Peña November 29th 2004 “The agricultural industry, willing to struggle against poverty…and to join the Mercals.”

[6] According to Baraybar , if there is an agreement with the government to produce a list of low price products, then this control would not be necessary for the rest of the items sold in the supermarkets.

[8] In 1987, 8% of Venezuela's GDP was dedicated to social spending; by 1997, it had decreased to 4.3%.

[9] "In 2003, the strike, along with the implementation of currency controls, severely impacted Venezuela’s economy, with GDP contracting 29% in the first quarter and 9.2% for the entire year, after already contracting 8.9% the previous year." http://www.eia.doe.gov/emeu/cabs/venez.html

[10] This figure, 26.6 million is the Venezuelan National Statistics Institute’s population projection for 2005. It is based on the 2002 census and can be found at http://www.ine.gov.ve/poblacion/distribucion.asp. However, there is ample reason to believe that this census is fundamentally flawed because of the technique used to carry it out. While surveyors go from door to door in "safe" upper and middle class neighborhoods, the population in urban barrios and rural areas was estimated. Most Venezuelans and scholars attest to the fact that it made severe underestimates and believe that Venezuela has a population closer to 30 million.