Caracas, February 12, 2007 (venezuelanalysis.com)— The Venezuelan Government announced yesterday that it would remove value added tax (VAT) on meat and other foodstuffs in a set of new measures aimed at curbing inflation. The measures also include agricultural subsidies for some basic products, and two decree laws to combat food hoarding.
The announcements were made at a joint press conference held in Maracaibo, Zulia State, by the Minister of Finance, Rodrigo Cabezas, the Minister of Light Industry and Commerce, Maria Cristina Iglesias, and the country’s Vice-President, Jorge Rodriguez.
The move comes in the wake of recent shortages of basic foods such as meat and sugar.
The government has accused private producers and distributors of hoarding and pushing up prices. In turn, producers and distributors have complained that it is not profitable for them to produce at the price mandated by government price controls, in place since early 2003.
Rodriguez said that among the basic foods that would no longer carry VAT, currently at 14%, were items such as beef, pork, turkey, mayonnaise, oats and white cheeses, and stated that VAT would be eliminated from every link in the production and retail chain, that is, from producer to middleman to final consumer.
“We are doing this in order to ensure that meat prices are maintained the way that the government envisaged,” Rodriguez said, according to the Venezuelan daily, El Universal.
Last week, Cabezas announced that the government was designing an anti-inflation package that aimed to bring inflation down to 12 percent this year. According to Central Bank of Venezuela (BCV) figures, inflation in January rose 2 percent and inflation last year reached 17 percent, the highest rate in Latin America.
Elias Jaua, the Minister for Land and Agriculture, speaking on Televen’s program Diálogo Con, warned yesterday, “It is good for all sectors to know that this government will not allow itself to be blackmailed, that it is our duty to prevent the use of traditional mechanisms of blackmail, shortages of supplies and speculation, to force the [National] Executive to raise prices that do not need increasing.”
“The problem does not essentially lie with the producers. The producers in general are abiding by the regulations; the speculative process occurs, in the case of meat, in abattoirs, processing plants and supermarkets.”
Jaua said that Venezuela was importing a small percentage of meat compared to national production, saying, “last year [production] was 469 thousand tons, and 27 thousand 500 tons were imported. This year we estimate that we will import 31 thousand tons, with a production of 497 thousand tons.”
As part of its fight against inflation, the government also announced it will provide subsidies for cotton, sugar, corn, sorghum and rice. Producers will receive $183 million in subsidies, in exchange for maintaining the price of the goods they market. The first part of this subsidy, $70 million is scheduled to be paid this month with the remaining $113 million due in September 2007.
Rodriguez pointed out that the subsidies would be handed out once an agreement had been signed between producers to maintain the price.
“They must commit to there being a real impact as a result of the elimination of VAT,” and added, “We are not eliminating VAT on some foods and giving subsidies in some areas so that the same price situation persists.”
Rodriguez stated that 700 tons of hoarded food had been detected in recent days. Officials from Indecu (Institute for the Defense and Education of the Consumer), have been inspecting the cellars of large stores in order to ensure meat is not being hoarded.
The measures will come into force as soon as they have been published in the Official Gazette.
For her part, Minister Iglesias announced the creation of supply committees which will come from the Communal Councils in order to supervise the levels of production, distribution and the prices registered on the market. Iglesias authorized the Communal Councils to immediately begin combating food hoarding, and urged mayors around the country to take markets, “that were left in the hands of those they shouldn’t have”, back into the public domain.
During the press conference, Iglesias also announced that the Ministry of Light Industry and Commerce (MILCO) was working on two decree laws aimed at controlling prices to be approved as part of the Enabling Law in the next few days.
One is to be called the Special Law for the Defense against Hoarding, Speculation and Usury on Foods under the price control system. The other, a Presidential decree called the Defense of the Right to Food and the Restitution of Order in the distribution chains of foods under the price control system, is aimed at preventing distributors from stopping sales of basic products, and allowing officials to take control of distribution chains in extreme cases.
The government is concerned about the effects of hoarding and speculation after the crippling opposition-led oil strike in 2003—aimed at ousting President Hugo Chavez—led to shortages of food, cooking oil, gasoline and electricity, and which cost the Venezuelan economy an estimated $10 billion dollars.