Venezuelan Government Takes Hold of Two Largest Coffee Companies

Reducing the market share of Venezuela’s two largest coffee makers, Fama de America and Cafe Madrid, the government nationalized the former and turned the latter into a mixed enterprise partially owned by the state.

By James Suggett
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Mérida, November 12th 2009 (Venezuelanalysis.com) -- Reducing the market share of Venezuela’s two largest coffee makers, Fama de America and Cafe Madrid, the government nationalized the former and turned the latter into a mixed enterprise partially owned by the state.

The government occupied the production facilities of the two companies three months ago on suspicion that they were hoarding, speculating, and smuggling coffee into Colombia to avoid government price controls.

The head of the National Superintendent of Silos, Carlos Osorio, said the two companies were producing and distributing 70% of Venezuelan coffee, leaving nearly 100 other producers with little market share.

“With this decree, the government is looking to balance the distribution of coffee, so that the 99 coffeemakers have the same right to participate and develop themselves... [and] so that all the raw material that is produced is used here within our territory,” said Osorio in a press conference.

The government’s plan is to reduce Fama de America and Cafe Madrid’s total market share to 50%, and distribute the other 50% to small and medium sized coffee producers and cooperatives nation-wide, according to Osorio. He did not rule out the possibility of creating “a coffee that is national, that is distributed by the state, like Cafe Venezuela, that the whole country consumes.”

Meanwhile, the workers at Fama de America welcomed the nationalization of the company.

Gustavo Martinez, the secretary of the workers union at Fama de America, told the state-owned media that the workers are willing to collaborate with the government to revamp production. Under the old management, “the workers were always protagonists, but in the shadows. We planted, processed, and packaged and [the owners] were the ones who collected the profits,” he said.

Fama de America unionist Wilfredo Bejarano said he hopes the state will bring increase the workers’ participation in decision-making. “We are going to have a meeting with the trade minister, Eduardo Saman, and other functionaries to see what our participation in the process will be, and to form a new board of directors of the plant,” said Bejarano.

This year, some regions of the country have experienced shortages of coffee, a product which holds significant cultural value in the everyday lives of Venezuelans. The director of the Coffee Producers Union of Merida state, Rosa Santaromita, said the state intervention into the sector will not solve this problem.

“The problem in the sector, which is the decline of production, will not be solved with the expropriation of a processing plant. If the costs of production are not honestly assessed, this is not going to work,” said Santaromita.

Osorio said the real problem was not the drop in production, but irresponsible behavior on the part of the private owners. With the nationalization, “there will be a secure supply of coffee, because the monopoly and smuggling will end. The shortages in certain locations are the result of logistical problems of distribution,” said Osorio.

When the government occupied the companies in August, Agriculture and Land Minister Elias Jaua said the companies routinely hoarded coffee in order to increase prices in months preceding the next crop.

In addition to Fama de America, a smaller company, Cafea, was nationalized. Also, two smaller companies that are run by the same distributor as Cafe Madrid, El Peñon and Aroma, were turned into mixed enterprises.

The Venezuelan constitution obligates the government to pay full and fair indemnity for all private property that the state acquires by force.

In October, the government nationalized two major sugar processing plants that failed to comply with state regulations. Since 2007, the government has nationalized or purchased the majority share in several sectors of the economy, including the electricity, cement, steel, oil, and telecommunications sectors. 

 

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