Venezuelan Government Eases Price Controls On Food, Other Essentials

Venezuelan Government Eases Price Controls On Food, Other Essentials

The economic crisis in Venezuela canaptly be described as a centralized control crisis, a crisis socialist and communist states know and for some reason insist on repeating.  Over and over.  We’ve seen the reports on shortages ranging from toilet paper to food, and rather than risk a revolution that would topple government, the Venezuelan government has decided that it will ease up on price controls on food and other essentials (like toilet paper).

NPR, in October of last year, wrote about the problems with Venezuela’s price controls and the firm grip the government had its citizens access to food.

For Caracas housewife Anny Valero, today is grocery day — whether she likes it or not. Here’s why: It’s Monday, and if Valero doesn’t go now, she’ll have to wait four more days to buy food.

In Venezuela, government supermarkets sell price-controlled food, making them far cheaper than private stores. But Valero explains that people are allowed in state-run supermarkets just two days per week, based on their ID card numbers. The system is designed to prevent shoppers from buying more than they need and then reselling goods on the black market at a huge markup.

Watch the following report on President Maduro announcing new price controls one year ago.

Predictably, these sound good-feel good measures were a complete failure.  Price controls are never a good idea and result in high prices, less availability of consumer goods, booming black markets, and long waiting lists for everything “controlled” (from apartments, to food, to cars, and on).

The Venezuelan government has seen this first-hand and has loosened price controls on food and other essential items, allowing the market to set prices.

The Wall Street Journal reports:

President Nicolás Maduro’s government has begun dismantling price controls, a major policy shift that aims to ease widespread unrest by letting shops sell food at market prices but is worsening Venezuela’s already punishing inflation.

What began as a limited experiment in March in western Zulia state, which borders Colombia, has since been rolled out to six other border states, according to ruling-party governors and interviews with supermarket owners and shoppers across the country. One of the governors says plans are afoot to extend the program to the capital, Caracas, where food riots recently broke out just outside the presidential palace.

“Before there was nothing; now there’s everything,” said Jesús Barrios, 36, as he shopped in Maracaibo, the state capital of Zulia.

The scheme allows state governments and private retailers with access to dollars to import everything from ketchup to rice from neighboring Brazil, Colombia and tiny Trinidad and Tobago. Stores and distributors recuperate the investment by reselling the products at many times the state-controlled price, an approach that until now was anathema to a socialist government bent on controlling every aspect of the economy.

“The authorities brought this food so we would quiet down, because hunger topples governments,” said shopper Fidel Suárez, an accountant in Maracaibo, where dozens of shops were looted in April.

The end of price controls has eased shortages, but prices are high and expected to rise by 500% this year.

The Wall Street Journal continues:

Ending price controls has started to ease the chronic shortages that have resulted in more than half of Venezuelan families skipping meals, according to recent polls. In cities where the controls have been lifted, including Maracaibo and Puerto Ordaz, the long lines of shoppers that snaked outside every store have shortened. Looting of markets and food trucks—a daily occurrence just a few months ago—were down one-third nationwide in August from a May high, according to the Venezuelan Observatory of Social Conflict, a nonprofit group.

The downside for Venezuelans is a tremendous rise in prices—sometimes as much as 20 times the regulated price. That is further fueling inflation that the International Monetary Fund already predicts will rise by 500% this year, the highest rate in the world.

This week in the private De Candido supermarket in Maracaibo, 2 pounds of rice that sells for 12 cents under price controls elsewhere was selling for $2; a 2-pound bag of sugar pegged at 40 cents went for $3.50.

. . . .  As it ends price controls in the provinces, the government is also playing favorites by handing out subsidized food to ruling-party loyalists. About 15% of Venezuelan families get a plastic bag filled with products hand delivered every 45 days, say officials and pollsters.

Another difficulty with these prices is that the Venezuelan government has gutted its currency, making it all but worthless.

The Wall Street Journal continues:

It remained unclear how many would benefit from the imported food. Skyrocketing inflation has made the currency nearly worthless, with even professionals earning the equivalent of $100 monthly. The so-called food basket—the basics for a family—cost $380 a month at the black-market exchange in August, according to labor research institute CENDA.

Still, the choice between the state-controlled prices, empty shelves, and children going to bed hungry each night and the high free market prices is an easy one for many Venezuelans.

The Wall Street Journal continues:

“At least I can come in and buy, even if at high cost,” said Ana Atencio, a nurse who came in after her shift to get some sugar for her baby’s milk. “Before, I wouldn’t even dream of it because of the line and people fighting.”

Still, buying that bag of sugar alone would swallow almost a quarter of her monthly wage.

On the other end of the country, Gisela Lares used to camp outside the shops in Puerto Ordaz to buy food, sometimes even breastfeeding her baby in line. Then came Brazilian imports.

“I used to look for anything, whatever was going, even if it meant getting in line the day before,” she said. “I haven’t had to line up for two months now.”

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