By Frank Jack Daniel – Analysis
CARACAS (Reuters) – Venezuela’s President Hugo Chavez has put food and farms at the center of his socialist revolution, tightening the government’s grip on supplies of staples in a strategy that risks sparking social unrest.
Chavez nationalized a local unit of U.S. food giant Cargill on Wednesday and threatened to take over the South American country’s top food producer, Empresas Polar.
Since winning a referendum vote three weeks ago that allows him to run again for re-election in 2012, Chavez has moved against food companies, imposing output quotas and sending troops to grain mills.
Chavez risks disrupting the supply chain with the aggressive steps, but the former paratrooper is gambling he can rein in soaring prices for staples and at the same time maintain production with a renewed focus on farming.
If he fails, he will anger Venezuelans. Sporadic food shortages in the past dented his popularity and attempts to boost farm output via land reform led to rural violence.
This week, he imposed tough new quotas forcing companies to direct most of their output to products with price caps. He took over Cargill’s rice plant for producing only parboiled rice, which is exempt from the price controls.
The government also announced it will issue $1.9 billion in local currency bonds to finance soft loans to peasant farmers.
Chavez, who grew up in the countryside, has even bigger long-term plans, including doubling the amount of land under cultivation in the vast South American country.
“The land is not private, it’s social property. If you put up a fence, or farm it, or have some barns, well these things are private, but the land belongs to nobody in particular, it’s everybody’s,” Chavez said at the weekend.
In the past he has taken over big farms deemed idle and given them to small farmers. The land reform sparked violence, with dozens of peasant farmers murdered in the last few years.
On Wednesday, Agriculture Minster Elias Jaua warned big companies they would lose their land if harvests fell.
“If we start to see a decline in plantings, we will occupy the land and the Venezuelan state will plant it” he said.
Venezuela is South America’s largest oil exporter and its fertile plains and hills were abandoned when the booming oil industry crowded out coffee and cocoa farms in the 1920s.
The OPEC member is now one of Latin America’s few net food importers. Oil contributes to a strong currency, meaning it is often cheaper to import food than produce it domestically.
Cheap fertilizer and new irrigation systems have helped Venezuela increase production of some crops in recent years, but output has not kept pace with soaring demand during several years of an oil-funded economic boom.
Over the last two years, Chavez leveraged record oil prices to put large chunks of the economy under state control, first taking over oil, power and telecommunications companies, and then moving on the nation’s steel and cement industries.
But crude prices are now at less than a third of their peak last year, ending the spending spree.
Despite the lower income, his referendum victory last month has given Chavez the political capital needed to push on with his plan to bring most of the economy into hands of the government or state-backed groups such as cooperatives.
But the plan is risky in agriculture as government intervention has discouraged investment and been a factor in sporadic shortages of products like milk and chicken.
“The capacity of the government to produce and distribute food on its own, without the private sector, is nil,” said political analyst Luis Vicente Leon.
The shortages damaged Chavez’s popularity and helped the opposition beat him in a referendum vote in late 2007, his only defeat at the ballot box.
Chavez fixed the problem last year by increasing imports and setting up a food distribution network run by the state.
But lower oil income could force the government to devalue the bolivar currency. If that happens the cost of imports will shoot up and shortages could resurface as a political issue.
A weaker currency would help farmers compete, but Venezuela is still a long way from being self sufficient in food.
(Additional reporting by Enrique Andres Pretel)