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Anno 2013 Numero 10-11

october/november 2013

Venezuela: Farm Mechanisation Gets Public Support

In Venezuela, the government is trying to shift the economy from oil dependency by encouraging the farm sector and its mechanisation

The Venezuelan government's direct or indirect support for agriculture is a major factor in the coastal Caribbean state's agricultural machine market. As in other sectors of society and the economy, the government has created misiones, or specifically targeted missions to develop farming and help fund the purchase of farm equipment. In many cases, farm machinery owned privately has been handed over to agriculturists as long-term loans. Venezuela was originally a largely agricultural country, but farming was pushed into the background by commercial and industrial development linked to the country's oil. Today, agriculture contributes just 5% of GDP and 6% of the GDP not deriving from oil. In recent years, moreover, agriculture's productive capacity has also fallen, in some cases by over 5%. Nonetheless, the government now sees the sector as of strategic importance and has introduced measures designed to support and implement traditional crops and animal husbandry.

The country has about 35 million hectares of land for agricultural uses of which 7.3 million are appropriate for crops, 18.4 million for animal husbandry and 9.3 million for mixed farm production. In practice, less than 30% of the agricultural land is used. The twenty leading products include sugar cane, bananas, maize, rice, oranges, tobacco, cocoa, coffee, milk, meat, yucca, pineapple, potatoes, onions, melons, carrots, coconuts, watermelons and poultry.

The government's Misión Agro-Venezuela was set up to supply short-term support for the production of the basic foods most commonly consumed in the country by developing small and medium farming. Implementation of the development plan sets a target of a 34% increase in output of strategically important foods, also considering the fact that over 40% of the food it eats is imported. The plan is to plant about 1.1 million hectares of yellow and white maize, a 44% increase in the area now under maize cultivation, the aim being to achieve an increase of 50% and 59% in output of the two types of corn.

Venezuela has no full-fledged farm equipment industry. The machines used are either imported complete or assembled locally from imported parts. The local assembly plants are public joint ventures subscribed to by the Venezuelan government with Argentina, Belarus and Iran. Unfortunately, the quality of the equipment is not high, and there are problems for after-sales assistance and spare parts. The country needs about 5,000 new machines of various types a year, but imported only 1,500 in 2011 and about 2,500 in 2012, much less than it in fact needs.
The prices are strongly influenced by recent monetary reforms. Early in 2011, the exchange rate for the BolivarF, the local currency, was devalued from 2.60 to 4.30 to the US dollar. In February, the exchange rate was changed again, from 4.30 to 6.30 to the dollar. This automatically increases the cost of imports. From 2010 to 2012, the price of a 130 HP imported tractor rose by around 83%, and the same problem has arisen with spare parts, which have suffered a substantial price rise, while also remaining difficult to find. In a further complication, obtaining import licences may take up to six months, while importers may have to wait months before they receive the repayment code to get the dollars they need from CAVIDI, the relevant government agency, to complete an import deal. This has created an immense delay in payments which has led to the interruption of supplies by foreign businessmen. Yet, thanks to the government's current development policies, imports of agricultural machinery and equipment rose by 169% in 2009-11 and, after falling in 2009, Italian sales recovered well in 2010 and 2011, even if still with marginal quantities.

The following table shows Italian exports of agricultural and forestry equipment to Venezuela in ,000s of US$, while Table 2 shows Italy's share of the Venezuelan equipment and the shares taken by its main rivals there:
The various import shares of the Venezuelan market show that the Italian presence is very limited in a market dominated by China, the US and Panama, which is however not an equipment producer, but is a way-station for equipment made elsewhere, bought by local firms and then sold on to Venezuela. The types of machine for which Italy holds the most significant market share are forage equipment, mowers and animal husbandry systems.

It is estimated that around 60% of Venezuela's agricultural machinery and equipment is close to the end of their life cycle and needs replacing. Yet, given the high cost, especially tractors, owners try to extend their life as long as possible so as to use machines reaching ten years for up to a further five. This makes the market in spares for agricultural machines very important, but also subject to all the complications that the importation of complete machines has to cope with – the long time needed to obtain an import licence, and procure dollars, customs procedures, and so on. In effect, these limit spares imports too.

There are about 160 distributors of agricultural machines and vehicles in the country. They are grouped in CAVEDREPA, the Venezuelan Chamber of Distributors of Spares and Heavy and Agricultural Machinery. There is also a government-owned company which distributes agricultural machinery through low-cost leasing schemes. This is the Compañía de Mecanizado Agrícola y Transporte Pedro Camejo.

Substantially, commercial distribution of agricultural machines is very simple in Venezuela. The central figure is the importer/distributor who makes direct imports and also distributes the imported items, and spare parts when needed. The government's role should not be under-estimated since it makes direct purchases through the Ministry for Agriculture for many of its projects for aiding the farm sector.

In the light of what has been said above, the Venezuelan market clearly presents financial and bureaucratic difficulties, but potentially large opportunities for development and business deals by Italian companies as well. Venezuela is a country with excellent agricultural potential and is placed close to a number of markets, while also enjoying the right weather conditions for large-scale production. Above all, the government's policy is clearly to support agriculture as one way of using the major economic resources stemming from the oil industry. In Venezuela's case, there is no need to wait for agriculturists to find the necessary resources to acquire machinery since one can trust in the government's ability and willingness to use public finance to fund a vast campaign for the modernisation of agriculture and the equipment it uses.

by Michele Lenoci

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