Report No. 1268b-VE Current Economic Position and Prospects of Venezuela (In Three Volumes) Volume 11: Productive Sectors: Agriculture, Industry and Petroleum March 15, 1977 Latin America and the Caribbean Regional Office . - FOR OFFICIAL USE ONLY F: LAfI (X . Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS General Rate: US$1 - Bs 4.285 Bs 1 = US$0.2337 Petroleum Rate: US$1 = Bs 4.20 Bs 1 - US$0.238 GOVERNMENT OF VENEZUELA FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY TABLE OF CONTENTS PART I Page No. AGRICULTURE Introduction ................................... I I. Indications of Growth .................................. 2 II. Agricultural Strategy .................................. 11 Strategy for the Traditional Subsectors .... ....... 11 Strategy for the Modern Subsector .... ............. 13 Strategy and Agricultural Planning .... ............ 14 III. Present Agricultural Policies .......................... 19 Price Policies ............. 19 Production Supplies ............................... 21 Agricultural Credit ............................... 22 Agrarian Reform ................................... 26 Area Expansion ........ ............................ 29 Marketing and Foreign Trade ....................... 30 Other Agricultural Policies ....................... 34 Research Extension Training ..... ................ 34 Comprehensive Program for Agricultural Development ..... ................ 35 Policy Coordination Among Agricultural Institutions 35 Appendix A. Major Agricultural Institutions ................... 38 B. FLnal Chapter of the Recommendations of the Commission Reviewing Agrarian Reform .... ........ 41 C. Supplementary Tables .............................. 44 PART II INDUSTRY I. Growth and Structural Change in Venezuelan Industry ... 58 II. Government Policies for Industrial Promotion .... ...... 64 III. Other Government Policies Affecting Industrial Development .............................. 83 IV. The Impact of Government Policies ......... .. .......... 91 V. The Level and Structure of Profit Rates ............... 93 VI. Concluding Comments and Recommendations ....... ........ 108 Annex .....................................1................. ll This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorimation. TABLE OF CONTENTS (Continued) PART III Page No. PETROLEUM Summary ................................................... 124 I. Nationalization ...................................... 126 FormatLon of Petroven and Operatlng Companies ... 126 CVP ............ ................................. 126 Compensation .................................... 127 Petroven: Finances ............................. 127 Export Sales .................................... 128 Technical Support Services ...................... 128 ConclusLon ...................................... 128 II. Availability and Disposal of Venezuelan Oil, 1965-85 129 Crude Oil Output, 1965-75 .129 Output from Existing Fields, 1976-85 .130 ExploratLon and Development of New Areas 130 Orinoco Heavy Crude OLl Belt .131 Oil Reserves .131 Oil Exports .132 Proposal for National Tanker Fleet .134 III. Oil Export Proceeds, 1965-85 .134 Oil Export Prices .134 Oil Export Proceeds .137 IV. Government Oil Revenues, 1965-85 .137 Gross Revenues and Costs of Hydrocarbons Sector 137 Oil Royalties .138 Taxable Income: Fiscal Export Prices .138 Government Revenue Accruing from Oil and Gas, 1965-85 .140 Government Revenue Collected from OlI and Gas, 1965-85 .141 V. Capital Investment in Petroleum Sector .... ........... 141 Appendix .................................................. 143 AGRICULTURE Introduction 1. Agriculture has undergone many changes as it evolved from the dominant sector in the pre-petroleum era to its present role as a supplier of food products for a vigorous urban industrial society. The combinations of resources available to agriculture have changed, in part because young men and women have left agriculture to seek jobs in other sectors, in part because capital and credit have added physical resources (new land, irri- gated areas, machinery) to the agricultural sector, and in part because technological advances make possible a greater use of purchased inputs (fertilizer, pesticides). 2. The growth in the internal demand for food has stimulated and sometimes exceeded the rate of growth in food production. The output of livestock products has been particularly dynamic, rising from about one-fourth of all agricultural production in the early 1950s to about one-half of a larger total in the early 1970s. Despite a substantial agricultural expan- sion, averaging over 5% since 1950, a recent increase in imports has also been noted. This decline in self-sufficiency is construed as a measure of agri- cultural failure, rather than as a measure of how rapidly Venezuelan incomes and demand are growing. 3. The resulting debate on agricultural policies, programs and projects appears to press out in all directions. It does not give adequate recogni- tion to the very real changes that have occurred in Venezuelan agriculture, changes that have strengthened and expanded the modern sub-sector and reduced the degree of disequilibrium and quantity of impacted resources in the tradi- tional sub-sector. Much of this discussion proceeds without an adequate defi- nition of the role that agriculture should play in an urban Venezuela, without considering the implication for agriculture of likely future changes in the urban sector, without a specification of income distribution objectives among the several agricultural subsectors, and without a realistic strategy for the agricultural sector. Similarly, criteria for judging program and project priorities for public sector investments are related to such opera- tional criteria as stage of project design rather than to more comprehensive criteria such as economic strategy, cost benefit analysis, income distribu- tional impact, etc. 4. In the current period of growth and change, it is particularly important to relate agricultural development to changing needs in other sectors. This dynamic period offers opportunities to shift people and resources from those commodities, locations, tenure situations and enter- prises that have difficulty competing to those commodities, locations, tenure situations and enterprise combinations that can produce efficiently products urban consumers will purchase in increasing quantities in the future. Such opportunities to adjust and recombine resources do not -2- I. INDICATIONS OF GROWTH 5. The value of agricultural production, in constant prices, increased from 1950 to 1974 at a compound growth rate slightly in excess of 5%. (Table 1.) Recent short term growth rates range from 2.3 to over 5.0%, depending on the years chosen for comparison. While production in 1971 and 1972 was down, compared with years on either side (due in part to rainfall deficiencies in several locations), production in 1974 was 22% above 1968, or 3.4% compounded. Favorable conditions may have provided real growth in farm production in 1975 of 6 to 7%; 1974 production was 3.9% above 1973. 6. On a per capita basis, and despite the rapid increase in population, long term growth rates are positive, more than 1% per year over the 25 years since 1950. 7. In economic terms, the demand for farm products has expanded more rapidly than population, as a result of rising real levels of income. Shifts in demand, consequent to higher incomes, have stimulated the consumption of relatively more expensive livestock products, as well as expanding the use of industrial goods and services. Imports have expanded in the past when demand increased or production faltered; however, the pattern of farm imports has tended to move from direct consumer goods towards supplemental supplies and inputs to further production. 8. Rising incomes and shifts in demand have stimulated livestock produc- tion relative to crops. Crop production more than doubled in the period since 1950, but the increase for livestock has been about fivefold during the same period of time. Animal production, formerly about one-fourth of agricultural production, now represents half of the product of the crop, animal, fishery and forest subsectors (Table 2). This expansion in animal production has placed heavy demands upon crop production, namely to supply feedstuffs to the animal subsector on an assured basis and in adequate amounts. With rapidly expanding animal production, considerable amounts of imported feed have been required. See Appendix Tables 4 and 5. 9. Crop production grew more rapidly in the 1960s than it has more recently. Between 1960-64 and 1970-74, only black beans, cassava, coffee and cacao show production decreases, while sesame, rice and sugar cane more than doubled output. (See Table 8.) For the shorter period, 1965-69 to 1970-74, corn and potatoes join the list of declining crops, and only some industrial crops and plantains show significant increases in production. 10. Livestock production has expanded most rapidly for milk, poultry meat and eggs, while swine production has expanded more rapidly than beef production. Poultry and swine have expanded in part in response to the -3- Table 1: AGRICULTTUTRAL GROWTH RATES, FOR INDICATED YEARS, TOTAL AND PER CAPITA Years Total Per Capita 1949-51 to 1968-70 5.7% 1.9% 1968-70 to 1974 3.4% -0.2% 194a9-51 to 1974 5.1% 1.3% Source: Based on data from Banco Central de Venezuela Table 2: CHANGING SFARES OF EACH SUBSECTOR IN AGRICULTURAL PRODUCTION, FIVE YEAR AVERAGES Year CrODs Li-vestcck Fisheries Forestx>, 1,95C-5I8 s66.5 26.1 2.36 1955-59 65.1 28.2 2.6 4.1 196C-62 57.5 36.6 2.5 3.5 1965-69 53.8 hO.1 2.5 3.6 197C-7L £6.7 48.2 2.8 2.3 197C li9.2? 46.1 2.6 2.1 1971 L7.?- L7.2 2.9 2.1 ;-42 Ld44.2 ,.4 2.9 2.5 1973 46.1 2.3 i974 I~6.3 L5.3 2.9 2.5 S2ource: Calculated fr^:TL Lr G Hconcr.ia ;erezc'cana en los 'T-tiros Treinta '-Cs, Banco C entral1 Venezuela, :anaC fron .r.uario Ecorn.onicc 1 7u. - 4 - existing and expanding consumer demand and in part as modern production technology became generally applied in Venezuela. The inventory and output of the cattle industry is confused by uncertainties about the level of non-registered cattle imports. II. The share of gross national product produced by the agricultural sector has not changed very much over the 25 year period, dropping from 8%, in 1950-54 to 6.8% in 1970-74. (See Appendix Table 1.) 12. However, on the basis of population, these figures represent a substantial improvement in income. In 1950, 46% of the population were classified as rural, most of them dependent upon agriculture for their live- lihood, whereas by 1971 only 21.6% were classified as rural. (Table 3.) In other words, in 1950 nearly half of the population received 8% of the national product, while by 1971, less than a fourth received 6.7%. 13. In actual numbers, migration from agriculture has been large, with nearly 100,000 people annually moving from rural to urban locations in 1950 to 1971. (Table 4.) The results show up in employment statistics. (Table 5.) In 1950, 705,000 or 44% of those employed gained their living from agricul- ture. By 1961, the number had increased slightly to 721,000 but the per- centage had dropped to 35%. By 1971, both numbers and percentages had dropped to 655,000 and 21%. While the statistic, 21% employed and re- ceiving 6.7% of national product, still indicates the relatively low level of average agricultural incomes, this statistic is considerably better than it was in 1950 or 1961. 14. Changes in the pattern of income distribution within agriculture, such as implied above, cannot be verified directly by available figures. However, data on the distribution of land by size and tenure suggest that, since 1961, the migration from farm to city has drawn more heavily on renters and farmers operating very small land areas. Presumably, this has had a greater impact upon the more labor intensive, traditional subsector than upon the modern, more capital intensive subsector. 15. Increases in the number of days worked by those remaining in agri- culture also should improve both the level of income and the distribution of income within agriculture. These data, from a recent ILPES study, reflect the greater stability of employment associated with the expansion in livestock production. The combination of a reduction in persons employed and an increase in davs worked per man (for both operators and laborers) should improve both the structure of employment and the level of annual earnings for this tradi- tional low wage sector. 15. The amount of land in farms operated by renters declined from 1950 to 1971. (Table 6.) Share croppers have disappeared as a Census classifica- tion since 1950, while renters declined from 15 to 6% of the farm units, or Lrom 676,000 to 548,000 hectares. The average size of the rental holding Table 3: RURAL AND URBABI POPULATION OF VENEZUJELA Year Numbers Percent Urban Rural Total Urban Rural Total 1950 2,709,344 2,325,494 5,034,838 53.8 46.2 100.0 1961 5,078,624 2,445,375 7,523,999 67.5 32.5 100.0 1971 8,8C4,333 2,317,189 10,721,522 78.4 21.6 100.0 Source: Paez Celis Julio, Ensayo sobre Demografico Econ6mica en Venezuela, Ministerio de Fomento, 1974. Based on Census data. Table 4 : PITRAL URBAN MICGRATION IN VENEZUELA Period Out-migration 1941-195C 693,000 195C-1961 792,0C0 1961-1971 975,0CO Source: Paez Celis Julio, Idem. -6- TablJ-e 5: OCcVFATzIONAL CCLASSIFICATION OF THE PCPJLA-TI(TO (Census years, i.n thousands of peopIle Lectors 1 50 1961 1971 Number Percent Number Percent Number Percent Agricultare 704.7 44.1 721.2 35.3 655-0 21.0 Petroleum anc !Tining L9.3 3.1 45.6 2.2 55.C 1.8 +an;f acturing 167.7 10.5 246.9 12.1 573.0 18.4 Constniction 01.1 5.7 81.5 4.0 186.0 6.0 se rvices 686.5 36.6 947.3 46.3 16146.0 52.& Total 15599.3 100.0 2042.5 100.0 3115.0 100.C Lource: Infonre Final de la Comision de Evalnaci6n y -*estr.ctl .C.-!0r Ge los Organismos de le Reforma Agraria, August 1975, p. 281. Table 6: DISTRIBUTION OF LAND BY TENURE CLASSES, 1950, 1961 and 1971, IN PERCENT Tenure Class 1950 1961 1971 Units Land Units Land Units Land Owners 41.6 80.5 39.8 81.3 62.4 83.2 Renters 15.2 3.1 8.2 1.9 5.6 2.0 Share Croppers 6.4 1.9 4.8 0.5 - _ Occupants 34.2 10.9 39.4 11.0 28.8 12.4 Mixed 2.6 3.6 7.8 5.3 3.2 2.4 Source: See Appendix Table G. - 8 - has increased from 19 to 34 hectares. The proportion of owners increased snarply from 42 to 62%, while the average size of holding decreased from 183 to 123 hectares. These data suggest that security of tenure may have increased, despite some ups and downs for "occupants", but do not necessarily prove that income levels or distribution was improved. However, the number of farms declined by 28,000 from 1961 to 1971, with a 34,000 unit decrease in small farms, those under 5 hectares, or about 21% of the lowest income farm operators. (Appendix Table 6). This trend, as those living on mini-fundios seek other occupations, contributes much to improvement in the agrarian structure of Venezuela, and since less than half of one percent of the land in farms is affected, subtracts little, if anything, from total agricultural production. 17. The amount of agricultural land has increased rapidly since 1950, much of it through an expansion in cultivated pastures as new high yield grasses were introduced and periodically replanted. Land in crops shows an increase to 1969, or about 70% and a subsequent small decline. (Table 7). Changes in crop area harvested show the substantial variations that occur in land devoted to certain crops, particularly cereals and industrial crops. (Appendix Table 8). The changes for maize, sorghum and sesame are particularly large. Among other crops, the variation is relatively large for beans. This suggests that a combination of weather and price ratios may have considerable influence on farmers' choices among these crops and could easily lead to surpluses or shortages if prices are out of line with market conditions. 18. Agricultural exports show little evidence of growth even when ex- pressed in current prices; in real terms the volume has declined. (Appendix Table 3). Imports show a more variable pattern until 1973, with some products declining in importance as Venezuelan production expanded (milk, pork, eggs, rice and sesame), while others expanded to support the livestock expansion, particularly sorghum. (Appendix Table 4). Wheat and maize imports also expanded, for human consumption. In 1973 and 1974 substantial increases occurred for most imported agricultural products. (Appendix Table 5). This increase in imports at current prices to about four times the pre-1973 level results from a combination of higher prices and larger quantities. The larger quantity of imports, in turn, stems from a combination of expanding consumer demand, unfavorable weather, and results in a slower agricultural growth rate in 1971 and 1972. 19. Despite the very substantial rate of growth of the agricultural sector, many Venezuelans express concern about an inadequate develpment of agriculture. They seek ways to "create a dynamic agriculture" rather than to take satisfaction in the very real adjustments that have taken place. The explanation for this discontent may lie in one or more of the following: -- Growth in the agricultural sector has been slower than in other sectors. -- Some import items have grown substantially, particularly cereals, and have attracted more attention than the decrease of other imports such as eggs and cheese, and the large increase in domestic livestock pro- duction based on cereal imports. Table 7 : AMCUINT OF AGRICULTURAL LAND (thousands of hectares) Cultivated Crops pastures Total 1950 1,l1C3 1,639 2,743 1959 1,206 2,606 3,812 1969 1,882 3,751 5,633 1973 1,591 5,092 6,683 bource: La Econoina Venezolana en los Ultirnos Treinta Anos, Banco Central de Venezuela, 1971, and Anuario Estadistico Agropecuario, Ministerio de Agricultura y Crta. - 10 - -- Persistence of traditional agricultural fundamentalism from an earlier era, which places high priority on land and agriculture as a source of personal and national security. -- Concern about being heavily dependent upon petroleum as an earner of foreign exchange, and a desire to have other alternatives available. -- Pressures from those engaged in agriculture (about 20% of the population) to attain incomes more comparable to those directly benefitting from petroleum. -- Recognition that many engaged in agriculture are among the nation's poor, coupled with a belief that general agricultural development will improve their lot. 20. These concerns are understandable for a nation that has expanded its urban-industrial base so rapidly (in 1950, for example, barely half the popula- tion was urban). But a large and expanding urban-industrial complex is a statistical and economic complement to a declining but productive agricultural sector. Less time and a smaller proportion of income is being spent for sub- sistence goods, leaving more income for other consumer products and further investment. This is development; shifts in population and economic structure are part of the process. 21. The contributions that a dynamic urban-industrial society can expect from its agriculture are related to the quality and quantity of natural re- sources, the kinds of investments made and being made to use those resources, and the demographic heritage from the past use of these resources. For Venezuela, the quantity of good soils in convenient locations is limited and most of these are already utilized, albeit not always at high levels of output. Nitrogen fertilizer now is being produced for domestic use and for export; other fertilizer materials are imported. Rainfall patterns vary greatly both geographically and seasonally, making irrigation or drainage, or both, neces- sary for productive utilization of certain areas. Substantial investments have been made and are being made for such purposes. Much of the agricultural popu- lation still is located in areas developed in the pre-petroleum era based upon cacao and particularly coffee exports, areas which are less suited to today's national food needs, and often committed to traditional agricultural practices, suffering from low incomes and limited nearby economic aternatives. 22. The huge capital and technological investments being made in petro- chemicals, a coal and steel industry and an electrical-aluminum processing industry assure that Venezuela will continue to be an urban industrial economy, with the capacity to export the products of these industries in increasing volume if and as the exports of crude petroleum decline. Agricultural pro- duction should be geared to the domestic market, with relatively little concern for exports, since investments to expand the export capacity in selected farm products are likely to be much less profitable than investments to expand production for the domestic market. For Venezuelan agriculture, this conclu- sion should be welcome, since it does not have to be exposed to the vicissitudes - 11 - in export demand. A period like 1973, when Venezuela and the rest of the world all were short of grain and faced high prices, may not be repeated very often and can be offset by domestic policies if the impact is too frequent or severe. The major challenge to Venezuelan agriculture is to expand production at moderate cost and to improve quality, in both cases to enhance the ability to compete with imports and to cater to the expanding domestic market. II. AGRICULTURAL STRATEGY 23. Basic elements: A number of economic facts require a different agricultural development strategy than those of other developing countries, or of partners in the Andean Pact. These facts include: The price paid for human labor is substantially higher in Venezuela, including both skilled and unskilled labor; While the transition is not simple, most young men and women in the rural areas can find urban jobs if they choose to migrate, and nearly 100,000 do so annually; The domestic market contains a large number of high income consumers able to purchase quantities of livestock products in excess of domestic production, whose demands have been satisfied by supplementary imports, despite growth rates in domestic production of 6 to 12%; Rapid expansion of the output of livestock products is limited by feed supplies (relatively small quantities of high quality land and readily available water resources) unless feedgrains are imported, and consequently, consumer prices are linked to the prices charged for imported grains, the result of a combina- tion of the level of world prices and Venezuelan import price policies; -- The older, more traditional, less technologically advanced subsector of Venezuelan agriculture receives low incomes and is declining in importance; and -- The newer, modern and more technologically advanced subsector provides higher incomes and is expanding in importance. 24. Strategy for the Traditional Subsector: Based on a fairly high application of labor to land, or extensive cattle grazing, this subsector is important in the production of subsistence food crops, coffee, cacao, beef breeding and certain fruits and vegetables. The rising cost of labor and an exchange rate based on petroleum makes it difficult to compete in world markets. Overall factor prices have encouraged an outmigration of labor from the traditional subsector, a shift of land resources from crop produc- tion to animal production and to less labor intensive uses, a substitution of - 12 - capital for some of the outmigrating labor resources. This process has contributed substantial amounts of human resources to the rapid growth and development of the Venezuelan economy. Current factor prices continue to stimulate this desirable adjustment in depressed agricultural areas. This process does not mean an overall decrease in agricultural production, but rather a gradual increase in the importance of the modern subsector. It may mean a decrease in production in some states and of some commodities that require a high labor content. 25. In the past, most of these changes have been stimulated by economic forces and price relationships in the private sector. Government policies, such as the credit programs of BAP (now ICAP) and land distribution programs of IAN have tended to slow down or postpone the adjustment process, as clients hoped that their economic positions would improve as they received credit or allocations of land from one of these agencies. It is appropriate to ask whether the efforts of ICAP and IAN ought to be modified, perhaps in some cases reversed, so as to facilitate adjustment for those whose output is likely to contribute small quantities of food to the nation, and low income to themselves. For some individuals now in agriculture, their contribution to Venezuela could be much greater as skilled or semi-skilled workers or as small entrepreneurs in towns or cities. Meanwhile those already committed to agriculture, by using additional land and other resources, and with the help of BAP and IAN, could expand production and income to replace the pro- duction which outmigrants might have provided. 26. Reliance upon differential wages as the principal stimulus for economic adjustment of a rural-urban disequilibrium in resource use, is a cruel and inefficient instrument, cruel because it depresses an entire sub- sector and all age groups, and inefficient because it does not bring parti- cular stimulus upon younger people, those most capable of responding. It seems appropriate to consider possible revisions in public programs to encourage resource shifts rather than to limit adjustment. 27. For ICAP credit programs, this approach could emphasize longer term credits which expand the long-term productivity of the farm and the farmer, by expanding the resource base (more land, more livestock, or enhanced produc- tivity per man) and therefore the income producing potential. For younger people, contemplating a commitment to agriculture, the ICAP program should involve a comprehensive evaluation of the individual problems and prospects in agriculture versus other possible activities. Also, ICAP might be author- ized to make transition loans (or grants) to help individuals seeking employ- ment in other sectors. 28. For IAN, this aproach also suggests that land distribution be confined to those who already are committed to agriculture as a way of life, that the size of the land parcel distributed be large enough to provide an adequate income, and that sufficient additional help be available (capital, technical assistance, other infrastructure) to make that farm a viable opera- tion. This could include, as it does now, cooperative or group farming, again with an adequate size and for individuals who already are committed to agriculture. The concept of "comprehensive agrarian reform" in selected - 13 - areas appears to be appropriate for Venezuela at this time, particularly if interpreted to include principally those areas where labor is excessive relative to the land resources available to them, and to include programs to assist in training young men and women to qualify for better off-farm jobs than they now can obtain. These off-farm jobs could result from an expansion of rural industry, as now discussed as well as service and industrial jobs in larger towns and cities. 29. The marketing operations of CMA are likely to have little impact upon the traditional sub-sector. Guarantees of higher prices have little meaning to producers whose total output is small and who sell only a small fraction of what they produce. An improvement in incomes of small farmers enmeshed in the traditional sector, requires an increase in productivity, in resources controlled and overall production; a higher price for the little they sell is a short run palliative, incapable of improving long-term produc- tivity and income earning potential. 30. Strategy for the Modern Subsector: Using modern technology, includ- ing machinery to substitute for labor, this sector is oriented to cereal and livestock production and to some of the industrial crops, and produces mainly for the domestic market. Most of its members are part of the feedgrain- livestock complex that produces more than 60% of the total Venezuelan agricul- tural output. The economic interactions among livestock types, between livestock and grains, and among grains are complex and very sensitive to slight changes in price ratios, and in particular between feed prices and livestock product prices. While a number of governments have attempted to manage such a feedgrain-livestock complex, most such efforts have been costly and are likely to bring unexpected results, displeasing to both consumers and producers. 31. Under these circumstances, agricultural development strategy clearly should assign priority to continued high performance in the feedgrain-livestock complex and expansion in step with the increase in demand in the urban centers; given the probable elasticities in demand, the rates should be about equal for the increase in income and the increase in demand for livestock products, plus an increase for the larger number of consumers. 32. Policy attention should focus on ways to assure the production of the final products -- eggs, milk and meat. The raw materials to produce these products include feedgrains, protein supplements, productive pasturage and a high level of technology in balancing rations and providing care for the poultry, swine and cattle herds. Raising input prices or introducing rigidities affecting the suppliers of these inputs, are likely to introduce undesirable and unexpected difficulties, such as higher product prices, an increased demand for imports of livestock products, and a reduced domestic production of the desired livestock products. 33. Thus, sorghum production is justified as a contribution to livestock production. If policymakers consider sorghum prices to low, the appropriate strategy is to find ways to encourage farmers to use their sorghum to produce - 14 - livestock, rather than to establish higher feedgrain prices, at the risk of discouraging livestock production and a consequent shortage of consumer products. The value of feedgrains to livestock producers as they sell live- stock products to consumers should be the criteria by which to judge the appropriate level of cereal prices. Occasionally, inadequate infrastructure and poor marketing arrangements could depress sorghum prices temporarily during the harvest season, and warrant temporary assistance, but at levels that continue to favor the use of sorghum in livestock production. 34. With high and rising incomes, it is likely that some consumers would be willing to pay higher prices for improved qualities of certain products if they could be assured that these desired qualities would be present when they took the product home. It is not clear that there are enough consumers willing to pay premiums to warrant the cost of complex grading and packaging systems. It is more likely to be true for milk for direct consumption than for most other farm products, yet the Govern- ment requires that all milk receive the same price regardless of clean- liness or other qualities. Without defining the issue more precisely, this is one example of activities appropriate in responding to a substan- tial, high income, internal market. 35. Import policy for agricultural products should discriminate between materials that are inputs into agricultural production and materials that move directly into consumer markets. While the latter may be subject to tariff treatment similar to that for other consumer goods, the former are more comparable to industrial raw materials. Thus, restrictive import policies for inputs such as protein meal, sorghum, pesticides, farm machinery, could artificially restrict production of desired end products or raise their costs, and in the process go far beyond the immediate effects considered. At the same time, Venezuela has been expanding and seeks to increase further the production of corn, sorghum and certain other feed crops by a combination of a profitable price and a guaranteed price. Ideally, price payments out- side the market could encourage internal production without raising the feed costs to livestock producers above the international level, transportation and handling charges considered. But such a procedure is cumbersome and open to abuse, leaving open only the possibility of modest assistance to internal production primarily through low cost modern inputs. Strategy for products outside the feedgrain-livestock complex are less complicated, because the interrelationships lie primarily in the competition for suitable land areas, and the policy decisions can more easily be made for individual crops. Strategy and Agricultural Planning 36. The Agricultural Plan for 1976-80 identifies a number of desired or expected changes in agriculture. Some are interpretations of probable trends, while others seem to assume, implicitly, that government policy will be changed so as to stimulate growth in particular directions. A comparison of this Plan with changes in agricultural production and in the demand for food over the past 5 to 10 years raises a number of questions of logic, consistency and possible errors. These issues should be resolved before - 15 - irreversible budget, investment and national policy decisions are made. Otherwise there is danger that projects will be funded to produce food not greatly desired by Venezuelan consumers and that other projects will not be pushed far enough or fast enough to expand output for those products that consumers will want in increasing quantities, even to the extent of demanding imports. 37. The overall increase in agricultural production is scheduled at 9% annually or about 54% for the five year period. Crop output is projected to increase by 57%, while that for livestock products is projected at less than 30%. In the past the growth rate for animal products has been greater than for crops, has been more consistent, and even so has not been able to supply as much as Venezuelan consumers were prepared to purchase. (Table 8.) Growth has been rapid enough to permit some import substitution, particularly for milk and poultry. In the next five years, the consumption of livestock products per capita, are likely to expand by about the same rate as per capita income -- these products have a more elastic demand than most food products, approaching unity. Production also needs to expand to meet the demand created by an expanding population. If these two items attain 7%, as projected, or 40% by 1980, they will require more than the projected expansion in livestock production, thus adding to the recent increase in the imports of animal products. In short, the present plan does not provide enough expansion in livestock production, yet the high level of technology in poultry and pork production makes such an expansion economical, even if it has to be based upon imported sorghum and other feedstuffs. 38. At the other extreme, the annual growth rate for cassava (yucca) is scheduled at 11.9% and black beans (caraotas) at 20.7%, or 75 and 156% above 1975 in the year 1980. These are products whose production has declined over the past decade, despite a rising population and without a significant increase in imports. Moreover, the price of yucca has shown little change despite decreased supplies, thus clearly indicating that this is an inferior commodity. It is reasonable to expect that rising consumer incomes will lead to further substitution against yucca. Thus, instead of programming an expansion of more than 70% over the next five years, the effort should be to encourage a further transfer of resources from yucca production. Similar considerations would appear to apply to beans, in terms of recent trends, except that prices rose substantially in 1973 and 1974. Also, beans are a partial substitute for meat proteins, and thus may have a special nutritional role in low income families, both now and in the future. Even so, a 20% annual 1/ rate of expansion seems excessive, both in terms of production possibilities and in terms of consumer demand. It would be more 1/ National concerns for the diets of low income consumers could justify special efforts to increase the supply of beans through production subsidies, or to stimulate consumption through marketing or consumption subsidies and, therefore, to use part of the indicated expansion in production. However, such nutritional goals have little relevance for starchy food products. - 16 - Table 8: OUTPUT CHANVGES FOR SELECTED FARM PROUICTS Agricultural Plan 1970-74 1970-74 Projection over over to 1980 Item 1960-64 1965-69 over 1975 Rice 106.8% 3.1% 60% Maize 27.5 -3.5 121 Sorghum _ 2.6 175 Black beans -27.2 -19.8 156 Cassava -8.1 -4.1 76 Plantain 64.1 28.6 24 Potatoes 11.0 -5.5 27 Coffee -5.6 -4.6 58 Cacao -11.7 -7.7 19 Sugar cane 102.8 33.4 39 Sesame 192.8 21.4 53 Cotton 67.3 41.3 58 Tomnato 40.2 15.3 19 Milk 106.4 40.9 30 Beef 51.1 15.4 21 Pork 68.2 34.8 33 Poultry 115.4 47.9 50 Eggs 152.9 37.6 20 All crops 57 29 All animal products Source: see Appendix Table I. - 17 - realistic if the objective were to halt the decline in production, or to seek a small annual increase. 39. Plantains and potatoes are programmed for a 4 to 5% annual increase in production, products which compete with yucca in consumer diets. The production of plantains has shown a substantial increase with a moderate increase in price, that of potatoes an increase over 10 years and a decrease in the past 5 years, again with moderate price increases. Of the four staples, only plantains seem to enjoy an increasing consumer acceptance in Venezuela, yet the rate of expansion proposed is the smallest of the four. 40. Coffee and cacao are traditional agricultural exports and the major support of the rural economy in adapted production areas. For several reasons, Venezuela has paid export subsidies on these products for many years. Even so, Venezuelan production has slowly declined, with exports declining more rapidly as a larger portion is retained for national consumption. The plan projects an increase of 58% for cofee and 19% for cacao by 1980. These figures overlook the fact that these tree crops require at least five years from planting to the first harvest. The Plan figures would be realistic only if there had been an extensive tree planting program over the past five years which by 1976 would increase the number of producing coffee tree by 8 to 10% annually and cacao trees by about 4%. The realistic options appear to be only two in number, namely: (1) a program to maintain the productivity of existing trees and (2) a program to encourage new plantings anticipating that world prices will be favorable to these crops after 1980 as the trees begin to produce. It is doubtful that either program would be justified by the combina- tion of current prospects for these crops, the prospective strength of the bolivar relative to the currencies of competing export countries, or, within Venezuela, by the comparative advantage of coffee and cacao relative to mineral and industrial exports. 41. The cereal-livestock complex represents 55 to 60% of Venezuelan agriculture. Rice production on one side and beef production on the other are more loosely connected than are sorghum, poultry, pork and milk production. Oilseeds production, oilseed imports and sorghum imports also are closely related to the complex, and through them economic relationships among indus- trial crops are affected. The projected increase to 1980 for cereals, 60, 121 and 175 for rice, maize and sorghum are optimistic and substantially larger than the rates progammed for livestock products, ranging from 21 to 50%. Since both corn and sorghum are imported in substantial amounts, there is no logical inconsistency inherent in the differences of these rates, but some doubt as to whether this rate of expansion is economic. The smaller rate of expansion projected for rice still implies increased exports and a possible small expansion in internal consumption as a partial substitute for wheat and corn in human consumption. With declines in export prices for rice and increased Asian production, consideration should be given to the economic possibilities of shifting some land and water resources from rice to a larger amount of land in corn and sorghum, either directly or through shifts in several crops which lead to this net effect. Such an evaluation requires a combination of technical and farm management data, under alterntive sets of - 18 - price ratios, an analysis that Venezuela should make periodically to ensure that it is using its cereal lands for maximum advantage. 42. The major concern in this cereal-livestock complex is to keep policy focused on the primary objective -- namely an expanding output of livestock products at prices that permit a steady increase in consumption among all classes of Venezuelan consumers. Intermediate objectives of a larger national cereal production should not be permitted to interfere with an expansion of livestock, at moderate prices to Venezuelan consumers and, if necessary, based on continued or even increased imports of feedstuffs. 43. Public sector investments proposed for agriculture list well over 100 different projects. Priorities are based upon the stage of completion of project plans rather than an inherent economic productivity or expected financial return. The preceeding discussion could serve as a basis for an additional and perhaps overriding set of priorities that could affect both commodity and area oriented projects. As examples, low priority could be assigned to projects that seek to expand the production of yucca, beans, coffee and cacao. High priority could be assigned to projects that seek to expand poultry, eggs, pork and milk production, and by implication, projects that appear likely to expand at reasonable price levels, the production of feedstuffs required for livestock rations. Fruits, vegetables, appropriate oilseed and industrial crops could be assigned intermediate priority. 44. In addition, the dynamic character of the demand for food suggests that new projects should be designed which will lead to improved qualities of the foodstuffs delivered to consumers through the marketing system, some of it by improved physical handling, some by creating grades, standards and price incentives which both induce improved qualities and provide consumers with assurances that such qualities are being maintained. The implementation of such projects can lead the way to increased consumer satisfaction with Venezuelan products, and to improved incomes to those producers who make the effort to produce a consistent high quality, particularly for perishable products, such as fluid milk, fruits and vegetables. 45. These comments emphasize that the primary objective of public in- vestments in agriculture should be to expand production of those types of food that urban consumers are likely to use in increasing quantities as their incomes rise. Unless the agricultural sector makes a substantial contri- bution in meeting the dynamics of food demand, it is likely to face both economic and political difficulties in the future, as its minority role be- comes more widely recognized and urban-industrial pressures mount. 46. Finally, the Agricultural Plan indicates that the rural population increased from 1971 to 1974 and is projected to increase further by 1980. Yet the rural population decreased fron 1961 to 1971 according to Census data provided to the 1975 Commission that reviewed Agrarian Reform. Similarly, the Plan projects an increase in the agricultural labor force despite a de- crease from 1961 to 1971. The Mission believes that the Planning Ministry should review the data supplied by MAC with the data from the Census and - 19 - migration data from the Ministerio de Fomento. The Mission has seen no evidence of changes in economic forces that would result in slower rates of rural to urban migration and an accumulation of labor in agriculture. III. PRESENT AGRICULTURAL POLICIES 47. Agricultural policies being followed by the present Government range from price guarantees, through generous credit and agricultural reform, to agricultural marketing. Some are a partial continuance of past policies, while others are relatively new and incompletely implemented. Application varies among commodities, and in some cases, among parts of the country, due to differences in the infrastructure. Price Policies 48. Guaranceed prices have been used in the past as a means of stimula- ting the production of particular commodities. The number of commodities supported, however, has increased, from 7 in 1973 to 17 after June 1974, and subsequently to 24. Support levels established in June 1974 are shown for selected commodities, converted at Bs 4.28 per dollar. Table 9. 49. Several of these price guarantees were above world prices at that time, especially since these are producer, not wholesale prices, while a few were enough below to make exports possible. Corn and sorghum prices were high relative to rice, on a world basis. Coffee was high relative to cacao for 1974, but probably not in terms of late 1975 prices. Cotton prices were low but peanuts were close to world levels. The prices for chickens, eggs and hogs are in about the same ratios but slightly above the farm prices existing in the US at that time. Price changes for major products are shown in Appendix Table 13. 50. There have been indications from the Government that future price increases would not be made on the basis of marginal producers with low yields, as such producers are not likely to contribute to increased national production. This can be interpreted as an emphasis upon commercial agricul- ture and a turning away from price supports as a way to assit small farmers enmeshed in traditional agriculture. However, the proposal to make incentive payments of Bs 100 or 300 per ton when yields exceed certain levels, in addition to a price increase of Bs 100 per ton, suggest going beyond the market as a means of providing income to productive farmers. Such a program implies the development of a whole new set of farmer to government relation- ships. Price increases were put into effect on October 14, 1975 but guide- lines for incentive payments had not been prepared, as of early December. - 20 - Table 9: COMPARISON OF GUARANTEED PRICES AND WORLD PRICES World Prices Jan-June 1975 Price in Bs. Price in US$ US$ y/ Rice MT 400 to 800 93.46 to 186.92 395.00 Corn MT 700 to 720 163.55 to 168.22 121.00 Grain Sorghum MT 600 140.19 111.00 Black beans MT 2,000 467.29 Cotton med. fiber MT 1,970 to 2,140 460.28 to 500.00 per lb. .21 to .23 .52 Peants MT 1,750 408.88 501.00 Coffee 46 kilo bag 190 to 250 .44 to .58 per lb. .59 Cocoa 46 kilo bag 174 to 214 .40 to .49 per lb. .75 Plantains MT 390 91.12 Bananas MT 270 63.o8 240.00 Tobacco Kgs. 6 to 13 1.40 to 3.04 1.38 Live chickens Kgs. 3.90 .91 .65 Eggs, box of 30 doz. 75 to 105 17.52 to 24.53 14 to 18 Live hogs Kgs. 4.25 .99 .89 1 Source: IBRD, Price Forecasts for Major Primary Coimdities, Report II 814. - 21 - 51. Price guarantees are implemented through the Corporacion de Mercadeo Agricola (CMA), whose operations are discussed later. Price guarantees to farmers combined with maximum retail prices for consumers and import subsidies to hold down the costs of wheat, corn and feedstuffs could involve the CMA in heavy subsidies to food marketing, on government account, and could lead the CIA into extensive food marketing operations. Internal accounts report import subsidy expenditures of over Bs 1 billion in 1974, somewhat larger than the 850 million loss the CMA reported for all operations (Table 14). Nearly half of the import subsidy was spent on wheat, in 1975 the total was reduced as grain prices dropped, and will be reduced further in 1976 if this program terminates as scheduled or is drastically reduced. Even so, other costs, such as the distribution of foods to "Popular Markets", higher price guarantees, and incentive payments to high yield producers could offset these savings. The Government could be faced with the necessity for choosing among (1) larger payments to CMA to offset losses, (2) a cutback in price guarantees to farmers, or (3) passing higher prices on to consumers. 52. Experience in other countries, from the Soviet Union 1/ to the United States, has shown that it is very difficult for a government to extricate itself from a program that prices food products by criteria beyond the market. Thus, the Government should examine carefully the implications of guaranteed farm prices at levels above the commercial market, that is, subsi- dies to food marketing, and should define the objectives and operational criteria in advance. Even if the Government decides that higher prices to farmers are justified, it should examine alternative methods of implementation to determine whether to make these payments through CMA losses (which would tend to replace the private trade with CMA operations), through direct pay- ments to farmers, or through payments available both to CMA and private traders, (which would bolster farm prices without changing the structure of the marketing system). In making policy decisions in this area, the Govern- ment should consider that, with about 80% of the population classified as urban, pressures for actions to keep food prices down will be substantial. It would be difficult to maintain, for an extended period, prices for farm products at levels much above world levels if implemented through higher prices to Venezuelan consumers. Production Supplies 53. Subsidies to production exist in a number of forms. The most impor- tant are low interest agricultural loans, discussed in the next paragraphs. In addition, efforts are being made to keep pesticide costs at 1973 levels, to supply ample fertilizer at similar low prices, to hold down profit margins on wholesale feed compounders, and to reduce the cost of farm machinery, includ- ing tractors. In 1974, part of the costs of certain imports used in livestock 1/ The Soviet Union in 1974 allocated about 15% of the state budget to subsidized food marketing. The 1975 drought will increase this cost substantially for 1975 and 1976. - 22 - production were subsidized (through CMA); some freight costs have been absorbed in 1975. It often is easier to manage a program to keep costs of such purchased inputs down than to operate a program of guaranteed product prices; either can improve the cost-price margin for producers. Agricultural Credit 54. Agricultural Credit has been available at concessionary rates for about 15 years, most of it through the Banco Agricola y Pecuario (BAP) now renamed the Instituto de Credito Agricola y Pecuario (ICAP). Much of this credit was to small and medium farmers and had a poor repayment record. The reorganization of BAP that led to ICAP, transferred part of its credit program to BANDAGRO leaving ICAP with a clear responsibility to provide credit to the small farmer, much of it in cooperation with the Agrarian Reform Institute. Since 1970, the credit extended at less than commercial rates by the Banco de Desarrollo Agropecuario has expanded rapidly and with a much better repayment record. The borrowers are medium to large farmers, more likely to be in the modern subsector. The interest charge is 9%, less than commercial rates by about 4%. Both Banks were engaged in short-term loans as a major activity (production credit) with medium-term loans (devel- opment credit) as a secondary activity. Credit activities for BAP-ICAP are shown in Table 10, and for BANDAGRO through the first half of 1975 in Table 11. 55. Several changes during 1974 affected agricultural credit. These include a law which provided for cancellation, reduction and consolidation of old debts, a comparable allocation of funds by the Government to the Banks, a restructuring of the operations of the two government agricultural banks (ICAP and BANDAGRO), and the establishment of the Fondo de Credito Agro- pecuario (FONDO) designed to provide Bs 2 billion of long-term agricultural credit annually. In 1975 and 1976, new regulations are intended to increase, for every commercial bank in Venezuela, the amount of loans for agricultural and agro-industrial purposes. The proportion of such loans must reach 5% by the end of 1975 and 20% by March 31, 1977. 56. The FONDO was originally programmed for use by each of the 55 private banking institutions, including BANDAGRO, with the latter being allocated 200 million or about 10% of the Bs 2 billion fund. As of October 15, BANDAGRO was processing loans for more than 880 million, or about 50% of the total amount loaned out. These funds are slated to provide long-term capital, for up to 20 years, with interest at 3 to 7%. These terms make borrowing attractive, even when the farm is adequately financed. Some pro- ducers will seek to transfer working capital to urban housing or a nonfarm business enterprise. To prevent or reduce the amount of such diversions, each borrower is required to provide an investment plan, indicating the types of capital investments he expects to make for long-term growth (wells, pumps, buildings, a livestock herd), with the signature of an agricultural or live- stock specialist required on the proposal. The FONDO has a small staff to - 23 - Table 10: AGRICULTTJRAL CREDIT SUPPLIED BY BAP, 1965 TO 1974 (In millions of bolivares) Small Government Year Farmers 1 Others Funds Total 1965 115.1 99.9 51.6 266.6 1966 133.0 109.7 49.3 292.0 1967 124.0 123.0 53.7 300.7 1968 117.7 110.5 63.9 292.1 1969 123.3 121.8 67.0 312.1 1970 158.6 67.2 29.2 255.0 1971 175.1 46.o 54.2 275.3 1972 180.8 49.9 31.9 262.6 1973 228.1 71.4 4.2 303.7 1974 367.6 122.6 8.8 499.0 / Gross Annual income below 70,000 Bs. Source: Annual Report of the Banco Agricola y Pecuario, 1974, p. 225. - 24 , Table 11s AGRICULTURAL CREDIT APPROVED BY BANDAGRO 1970 TO 1974 (In millions of bolivares) Year Credit approved, from all sources 1970 127.7 1971 219.8 197? 313.1 1973 470.3 1974 656.7 1975 First semester 1009.8* * The first semester usually represents about 45 percent of the credit approved for the entire year. Source: Report to the Directive Council of the Banco de Desarrollo Agropecuario, second semester 1974 and first semester 1975. - 25 - check as to whether these investments have, in fact, been made. Another Bs 2 billion, according to the original plan, would be allocated to the FONDO after January 1; as of early December there were some doubts as to whether the allocation would be this large. While repayments eventually could help maintain a two billion a year loan operation, these payments will be very small in 1976, due to the newness of the program and some scheduled delays in making the first payment. 57. The Law of Remission, Conversion, and Consolidation of the Agri- cultural Debt applies to loans made prior to March 1974, and that were still outstanding in July of 1974. Small loans for small and medium-sized farms (Bs 70,000 is the maximum gross income for a small farm, and Bs 150,000 for a medium-size farm) for up to Bs 150,000 of debt, would be cancelled if the farmer qualified. Conversion and consolidation apply to larger loans and could involve partial cancellation, an interest rate reduced to 3%, five years of interest but no amortization, and up to 30 years to pay whatever net debt remained. Procedures under this law are continuing. The Government has indicated that the total had reached Bs 1,203 million in remissions, Bs 430 million in conversion, and Bs 199 million in consolidation. While the provi- sions of the Law were helpful in removing overdue debt burdens from many small and medium-sized farms, the psychological effect on repayment attitudes is a source of concern to bank officials operating in rural areas. 58. In the past, agricultural credit has been an effective tool to assist farmers in responding to the increasing demands of Venezuelan consumers. Short-term and intermediate-term credit have enabled farmers to meet the costs of raising crops and carrying livestock through a production cycle. Public long-term credit did not exist, thus limiting the amount of assistance to investments which require more time to make and to pay off. The establishment of the FONDO promised to fill this gap, while the shift of BAP to ICAP and of its commercial portfolio to BANDAGRO promised to separate the functions of small farm and supervised credit from that of commercial credit. -- In the haste to participate in the FONDO program, clients of ICAP and BANDAGRO have been able to move more rapidly, utilizing established procedures and communication links. Thus, the FONDO is much more a source of long-term agricultural financing for the existing agricultural banks than for the entire banking system, as originally intended. -- The pressure to be generous in granting credit appears to have affected the FONDO and some aspects of BANDAGRO's operations and personnel policies, making credit operations less commercial than in the past. -- ICAP does not yet seem to be moving effectively into a greater development of the social aspects of its programs, that is, to assist farmers in making better farm business plans and improving the financial planning of the farm business. Unless ICAP can strengthen this aspect of its program and help its clients improve - 26 - the character of their farming operations, a substantial share of ICAP clients will not be able to repay their loans, and ICAP will see its capital structure deteriorate. Agrarian Reform 59. The program of Agrarian Reform began in 1959; the 15 years of the program were reviewed in a Commission established for the purpose, with a formal report completed in August of 1975. The text of the concluding chapter is translated and reproduced as Appendix B. The Commission, judging from the contents of the long report, became concerned with the status of the entire agricultural sector. In their view, agrarian reform was far more than land division, and required the coordinated activities of all institutions concerned with agricultural production, marketing and the conditions of life in the rural areas. Moreover, a principal purpose of agrarian reform should be the effective development of the entire agricultural sector. The Commis- sion expressed a belief that development would be more rapid and more effec- tive if it occurred through the efforts of the small and medium-size agricul- tural producers. 60. Data on land tenure reviewed earlier indicate a decrease in the number of small farms and an increase in the proportion listed as owners. Farms larger than 1,000 hectares have decreased in importance but still hold about 67% of the cultivated area (Appendix Table 6). Land affected by agra- rian reform through 1974 totaled 8.67 million hectares, or about one-fourth of the 1971 cultivated area (Table 12). However, 73% of the land area affected was public land, most of which was not cultivated prior to action by IAN. The same was true for some of the private land affected. As a result, the amount of the previously cultivated land affected by Agrarian Reform is probably no more than 5%; the program may have made a more substantial contribution towards converting pasture areas to cultivation. This indicates more emphasis on land settlement than on land redistribution. 61. The movement of nearly 100,000 people annually reduces the pressure of population upon land in the areas from which they migrate. This could reduce or eliminate the need for agrarian reform in some areas, while the need would remain in other areas. Another interpretation would urge agra- rian reform in order to halt this rural to urban migration, but this places too heavy a burden on agrarian reform, and particularly in Venezuela, if attempts are made to halt an economic development process that helps to industrialize the nation. In fact, this migration has taken a toll from the direct beneficiaries of agrarian reform. According to reports to the Commis- sion, 24% of the individual parcels and 17% of the collective parcels allocated by IAN had been abandoned by 1969. The tabulation of families benefitted, shown in Table 12, suggests that in 1969 only 59% of the families remained on the parcels that had been issued to them during the previous 10 years. However, some of this reduction of 41% may be due to death rather than migra- tion and abandonment, but the figures do suggest a rather dynamic land tenure situation. - 27 - 62. The Commission, in giving attention to the contribution that agrarian reform could make to Venezuelan agricultural production, imposed on agrarian reform the double criteria of (1) assistance to small, low-income farmers and (2) an expansion in productivity that would simultaneously increase their income and national agricultural production. IAN itself is shifting from land settlement and some redistribution to a greater emphasis on infrastruc- ture, water supplies and other amenities to improve life in the rural communi- ties. Moreover, it is proposed that certain areas be identified as agrarian reform areas, and that IAN should concentrate its efforts in such "Comprehen- sive Areas of Developing Agrarian Reform", including rural industries and other employment generating activities that would reduce the need for land donations. However, no serious consideration has been given as yet to assist- ing the process of migration from those areas that are least productive and for those people whose agricultural contribution is small, and in this way to strengthen the agricultural sector. Such reductions in the low income, labor intensive sub-sector, could lead to small reductions in agricultural produc- tion offset by larger increases in off-farm output, and an increase in the average productivity of those remaining in the agricultural sector. While outmigration is already occurring in many agricultural areas, and may not need further stimulation, there are some areas where rural alternatives are very limited, where productive land is scarce, and where the process of migration has not become established. In such areas, the best social policy may be a program to develop skills which are marketable in urban areas and to establish communication channels to facilitate the process of migration. 63. Thus, the proper function of IAN is indeed broader than land reform. The need for land reform is no longer acute, primarily because of the many alternative opportunities available for young men and women in various cities across the country. While some will prefer life on a rural minifundio to life in temporary housing on the hillsides overlooking Caracas, these are not the necessary choices in Venezuela. The challenge for IAN is to help provide more satisfactory choices, a small farm producing quality fruits, vegetables or livestock products to urban consumers, or to help create qualifications for the skilled or semi-skilled jobs increasingly created by the urbanizing, industrializing nation, skills which are in such short supply. In some communi- ties, or perhaps larger districts, the presence of IAN and agrarian reform are surely needed. But the people in such areas of "comprehensive agrarian reform" need more than land reform; they need new employment opportunities, either by the inmigration of capital (industrial plants) or by the outmigration of human resources. IAN can play an important role in defining the direction of migra- tion and the characteristics of the new plants and additional human skills to be created. 64. Venezuela has not adequately used taxes either as an instrument of agrarian reform, or as a device for improving the distribution of income within the agricultural sector. While the total share of national income received by agriculture is low relative to the total population, the per capita share has improved since 1961. The taxes paid by individuals in the modern subsector should be calculated on a basis similar to those functioning in other sectors of society. There seems to be no reason to favor this part of the agricultural sector, since capital, management and income flows are well integrated with - 28 - Table 12: LAND DISTRIBTTION UNDER AGRARIAN REFORM (000 omitted) No. of farilies benefitted through 1968 158.3 in 1969 4.2 1959-69 Total 162.5 No. of families remaining on parcels 1969 95.3 Additional families 1970-74 45.0 Total 140.3 Hectares of land held by these families 3,505.3 Titles granted average size, single property or 14.0 ha collective 33.6 ha Title and land holding pending 29.6 ha Land affected by Agrarian Reform Private 2,320 ha 26.7o Public 6,348 ha 73.3% Total through 1974 8a,668 ha 100.0< Source: Assembled from information made available by the Instituto Agrario Nacional. - 29 - the rest of the economy. The traditional subsector might qualify for special treatment. However, a more appropriate approach could place emphasis on the income distribution within agriculture, thus avoiding difficult problems in defining whether a particular farm or farming area is modern or traditional. To tax on the basis of the value of the land base (hectares owned times value per hectare), would encourage land redistribution and agrarian reform and ensure that farmers with large flows of income also make substantial contri- butions to the cost of government. Area Expansion 65. A number of programs increase the area under cultivation. This includes irrigation through large storage and diversion dams, small scale ponds, wells and pump projects, extension and improvement of the road system, land clearing and settlement, often part of IAN's program of land distribution of public and private land, drainage of swamps and marshes, plus other projects and activities, such as a new industrial plant, which may stimulate agricultu- ral activities in new areas. Most of the increase in Venezuela's agricultural production from 1950 to 1961 was associated with the expansion in the cultivated areas; the increase to 1971 appears to be due to some increase in areas with higher crop yields (including irrigated areas) as other less productive areas were abandoned. Area cultivated increased by 24% from 1961 to 1971, while crop production in constant values went up about 37%, with most of the increase due to cereals. With unfavorable weather, crop production has subsequently decreased, with no current data on area changes. 66. Many of the investments in area development are in projects operated by the Ministry of Public Works (Obras Publicas) (MOP). The past record of irrigation investments is not encouraging. While the amount of land "irrigable" under existing systems has increased from 116,475 ha in 1961 to 210,798 ha in 1974, the actual areas under irrigation are reported at 35,709 ha in 1961 and 85,234 ha in 1974, and the last two figures include some lands irrigated with pumps. The problems are many, including projects that were too large for the water supply, projects where the secondary and tertiary canals were delayed because of poor coordination among institutions and non-use by farmers be- cause no one took responsibility to train the users of water to produce the crops that would most benefit economically. 67. Despite these problems, the amount of crop land under irrigation has been increasing from 20,083 ha in 1964 to 52,427 in 1974, and much of this land has been extremely productive, particularly for rice. Rice was started early as a natural crop for irrigation and appropriate to the heavy soils which are most common within many of the projects. Because of this, rice now is in surplus, while experience with other crops under irrigation is limited. The farmers who operate the land do not have to cover very many of the excessive public costs made in most of these projects. Consequently, rice prices are moderate relative to other cereals and relative to the current world market. Production of rice is likely to expand further as additional irrigated land becomes available for cultivation with assured water supplies. As dis- cussed earlier, analysis should be made periodically to determine whether the - 30 - large amounts of water applied to rice might be used more productively if applied less intensively over a larger area to support the livestock industry, including sorghums, corn and improved pastures. Since few public investment costs are incorporated in the charges to producers, Venezuela should be par- ticularly concerned that the output of these projects contribute to the social betterment of all the people. 68. Also, area development reflects an extensive rather than an inten- sive approach to agriculture. In some cases, it is more advantageous to apply fertilizer, improved seeds, more labor and advanced technology to lands already in production, with an adequate set of social services and infrastructure, than to carve new land out of the forest with all the attendant costs of creating viable agricultural communities. Since 1961, Venezuela has moved slowly to- wards intensive agriculture with less land in crops, and more production per hectare. This process is only started (see Table 13). Out of 21 crops re- ported, 11 have significant increases in yield, for 2 the change in minor, while for 8 decreases in yields are reported. Most of these yields still leave ample room for improvement. Marketing and Foreign Trade 69. The organization and growth of the Corporacion de Mercadeo Agricola (CMA) as a public corporation, has brought together a number of public and private initiatives in procurement, storage and distribution of food products. The CRA has authority to import and export directly or through contracts, to operate storage facilities, to borrow money to construct facilities, to dis- tribute food at retail or to retail distribution centers for which it is the major supplier, to pay subsidies on either imports or exports, to implement price support activities of the national government, and to contribute to maintaining prices at no more than the government established retail price ceilings. This comprehensive list of functions, and a desire to see them used in the social interests of the Venezuelan people, has led to its rapid growth into multibillion bolivar operation, with net costs to the Government in 1974 of over Bs 850 million. 70. Price guarantees to farmers have required that the CMA set up a variety of purchasing activities in rural areas, in some cases directly, in other cases through contracts with existing private organizations. During 1974, the CMA made very large purchases of rice, presumably including part of the 1973 production being held in storage. It also purchased about half of the corn and sorghum produced and three-fourths of the peanuts. Other price supported commodities were purchased in small amounts, about one-fourth of the potatoes, 10% of the tobacco and sisal and less than 3% for eggs, beans, plantains, and others. Total purchases of national products, by September 1975, were slightly ahead of the same period, 1974, but with less rice and other cereals, more oil seeds and perishable products, such as eggs and plantains. The handling of perishables could pose serious problems for the organization, if the trend continues. - 31 - Table 13 : YIELDS OF VARIO[TS CROPS, 1973-74 CO0PARED 'WITH 1961-63 (Kilograms per hectare, except where indicated) Projected 1961-63 1973-74 1980 Rice 1,551 2,600 3,500 Corn 1,068 1,117 1,500 biorghturi 2,179 (1964-65) 1,309 2,500 Peas 510 356 Beans (black) 468 359 800 Beans % ther) 553 482 667 1iesame 486 466 750 Cotton 70h 1,049 1,224 Peanuts 1,024 866 1,000 Celery 5,389 4,887 5,442 Sweet potato 9,971 (1962-63) 12,323 13,466 Potato 7,689 10,318 12,000 Cassava 12,073 7,720 12,000 sugar cane I/ 66 76 85 Tobacco 1,367 1,h75 1,600 Pineapple j 8,622 9,467 Plantains J2 13,630 18,292 Pananas 1,111 1,327 Garlic 4,270 3,966 Onions 1 3,910 10,887 24h800 Tomato 14,745 17,739 20,200 1/ Metric tons per hectare g/ Units per hectare 5lource: Anuario Estadistico Agropecuario, Ministry of Agriculture and Breeding, 1974 and V Plan, Agriculture. - 32 - 71. The sharp increase in cereal related activities during 1974 led to expanded use of existing grain storage capacity within the country, and a desire for additional capcity in certain locations. A number of grain storage construction projects are a direct result. The CMA is also sensitive to the need for adequate supplies of feedgrains (mainly sorghum) to support the swine and poultry industry, as well as white corn for human consumption. Im- port policies have been geared to having an adequate inventory on hand, rather than to operate on a hand-to-mouth basis and thus exposed to shortages if shipping is slowed or temporarily interrupted. This policy also contributes to the need for storage facilities within the country. 72. Popular Markets are a consumer related operation of CG1A and coope- rating agencies. A local government unit, such as a municipality, provides a store location in a low-income area, and a major share of the clerks. Ano- ther unit of government, such as the Ministry of Public Works, may provide shelving and limited equipment. CMA delivers a selection of basic food commo- dities, and usually a cash register. These commodities are billed at a stand- ard fee, usually regardless of the store's location and extra transport costs. The objective is a net price to the consumer about 10 to 15% below other stores in the community. This operation has grown from Bs 4 million in all of 1974 to over Bs 5 million monthly by August and September of 1975, but is still too small to have an important effect in the overall market. 73. Imports and exports may be carried out by CMA on its own account or by contract through intermediaries. Some personnel would like to expand the CMA's capacity for physically conducting international trade, in part because they see a future potential for profits that they cannot capture when they deal through intermediaries. An internal calculation by CMA indicates that more than Bs I billion were paid out in subsidies to imports in 1974, re- duced to about Bs 600 million in 1975 due to lower world wheat prices and higher Venezuelan prices (Table 14). 74. As the implementing agency for government price policies in the food and agriculture area, CMA accounting results cannot be evaluated in the same way as a private marketing firm. Even so, many will seek to compare CMA with other marketing operations. Some groups will seek to add new tasks during the next few years, while others will charge CMA with inefficiency, high costs and argue for a more limited role. Almost certainly the agency will become in- volved in controversy, with conflicting pressures from consumer and producer groups, and arguments over its role relative to existing private marketing operations. The future path of CMA could be easier if it finds a way to concentrate on certain functions that it can perform better than (or at least as well as) the private sector, or to play a role that the private sector cannot perform. The CMA problem is twofold: to identify roles which it can perform well, and, to convince leadership in government that it be permitted to concentrate on these roles. 75. If the Government is determined to establish domestic agricultural prices that are both above world prices, and higher than the Government is willing to pass on to Venezuelan consumers, the CMA is the institution best - 33 - Table 14: IMPORT SUBSIDIES PAID BY CMA Total Estimate 1974 1975 Product Millions Be % Milliona Be % Wheat 489.6 46.96 433.5 72.25 Cotton seed oil 124.0 11.89 16.0 2.66 Soybean 31.3 3.0 - _ Soybean meal 17.6 1.69 - - Freight 49.3 4.73 - _ Machinery 25.5 2.45 - Sorghum 57.9 5.55 6.2 1.02 Corn 49.4 4.74 - _ Fertilizers 62.2 5.96 - - Sagar 99.6 9.55 - _ Sesame 24.6 2.36 - _ Seed potatoes 0.9 0.09 - _ Black bean seeds 0.9 0.09 - - Sunflower seeds 0.3 0.03 1.1 0.18 Corn export 1.2 0.2 - - Garlic 0.2 0.02 - - Peanut oil - - 16.0 2.66 Copra - - 0.4 o.o6 Shelled peanuts - - 31.2 5.19 Rice seeda - - 6.o 1.06 Freight on corn - - 15.6 2.59 Milk 8.0 0.77 74.0 12.33 Total 1,042.5 100.00 600.0 100.00 Source: Gerencia Administrativa, CMA. - 34 - equipped to implement such a policy. However, the reports of CMA should segregate the inevitable costs of such a policy from the gains or losses due to other marketing operations, and from gains or losses due to import and export activities, particularly since price policies are exposed to the dangers of heavy losses if the price decisions are seriously out of step with market relationships. By separating the results according to function, review and evaluation of CMA activities and governmental price decisions can be based upon a clearer view of the facts, the sources of the costs, and an understanding of who may be benefitting. Otherwise, there is a danger that CMA will be pushed into fulfilling too many functions, displacing operations now adequately performed in the private sector. Other Agricultural Policies 76. Research, Extension and Training activities are being pursued quietly. The intention, of course, is to increase the amount of technical information and improve the quality of the inputs available to Venezuelan agriculture, so as to increase productivity per man and per hectare, as well as to facilitate the substitution of capital for land and labor. It has been established policy to rely upon the private sector to perform certain func- tions that contribute to a high technical efficiency in certain agricultural subsectors, such as feed mixing, the provision of high quality baby chicks, and the supply and repair of farm machinery. Proposals to nationalize some of these functions expose the nation to the danger that continued technical advance will not be maintained. Appendix Table 10. indicates that many modern inputs are being used. 77. Substantial funds are being expended on research, extension and training and efforts are being made to facilitate these operations through autonomous institutes with a minimum of interference from the daily operations of the Government. Undoubtedly, there are problems in administration, in providing appropriate materials, in personnel relationships and in views on which form of organization would be most effective. But these are problems of any organization and not peculiar to Venezuela. 78. The priorities given to particular types of research, extension and training activities, however, is highly important to the long run course of agricultural development in Venezuela. For example, it is possible to waste substantial scarce technical personnel by allocating them to commodities and projects that have few prospects of providing an increase in productivity and an expansion in oroduction in Venezuela. While a particular product may not be appropriate for any of many possible reasons, two principal items should be considered. The first is the possibility that technical advances to make production feasible may not be applicable under Venezuelan conditions. This is a judgement best made by technical research people familiar with the product and research results elsewhere, and including the counsel and exten- sion specialists familiar with appropriate farming operations. The second is the possibility that the product, even with substantial technical advances, cannot compete for a larger role in Venezuelan agriculture, and perhaps faces a declining role. Judgements on such issues require the tools of agricultural economics, and particularly farm management with considerable support from extension specialists. - 35 - 79. Too little attention seems to have been given to utilizing the resources in research and extension to assist in developing pragmatic sugges- tions on priorities within the agricultural sector. The priorities of research and extension to some degree appear to take guidance from government state- ments. Certainly it is approriate for administrators to be sensitive to the statements of political leadership. However, these institutions should be making their own careful research assessments of which products and which lines of research are most likely to bring further development to Venezuelan agriculture. An economic advisor to the Director of the Station with a small staff might be a way in which this function could be initiated, first within the research organization, and as experience is gathered this function could become more useful in channeling technical knowledge into the assessment of agricultural development projects and priorities. 80. The Comprehensive Program for Agricultural Development known as PRIDA (Programa Integral de Desarrollo Agricola) was designed to provide a means by which various programs in the several agencies could be coordinated. PRIDA began in 1971 as a four year program, financed by a combination of loan funds from the Inter-American Development Bank and from the Government of Venezuela. The program has been continued into 1976. The program has stimu- lated considerable interchange among personnel in the several government agencies, and has resulted in joint efforts in many communities. However, there is still doubt about whether this coordination will continue after the loan funds have been expended, and whether PRIDA or a purely Venezuelan successor entity will be instituted. Policy Coordination Among Agricultural Institutions 81. The Venezuelan Government has created a large number of institutes and funds and has allocated functions and finances to these organizations to carry out activities which many other countries retain within their Ministry of Agriculture. Also, some functions which relate to the agricultural sector are performed by ministries other than agriculture, principally the Ministry of Public Works and the Ministry of Planning (see Appendix for a brief des- cription of the many agencies). The reasons for this separation of functions often is logically related to other functions of the Ministry concerned, or to a desire to obtain the greater flexibility and efficiency that can be provided by an autonomous agency. However, this process has made the develop- ment of a comprehensive agricultural policy much more difficult. The problem has been recognized and some coordination attained by providing a Directive Council (Junta Directiva) for each of the separate institutions, with the Minister of Agriculture as the presiding officer. However, this procedure places a tremendous burden upon the Minister, in addition to his normal cabinet duties. 82. Each of these agencies is expected to make a particular contribution to the implementation of agricultural policy. Because of its specific function, each is likely to have a particular view of what overall policy should be and an institutional interest in emphasizing certain approaches and policy concepts. The Minister of Agriculture, as chairman in occasional meetings of - 36 - the Directive Council has neither the time nor the opportunity to hammer out an integrated and detailed agricultural policy embracing all institutions and for the entire country. Even if he did, there would be many difficulties in defining and implementing such policies appropriately in the day-to-day operations of each of the competing agriculturally related institutions. 83. The total national budget allocated to agricultural activities came to Bs 4.3 billion in 1974. See Appendix Table 10. This was about 14% of the national budget. About 45% of this total was assigned to the CMA, a tremen- dous increase from 3% the year before. Next in importance, 14% went to the commercial and small farm credit program of BAP, before its functions were split between ICAP and BANDAGRO. Almost the same amount went to the MAC, with much of this amount being allocated by MAC to the increasingly autonomous research and extension activities. About 9% of the budget was allocated to IAN. The irrigation activities of MOP and the agricultural credit programs of BANDAGRO complete the list of major institutions with 7 and 6% of the budget, respectively. - 37 - Table 15: FINANCIAL RESOURCES ALLOCATED FOR PAYMENT OF PERSONNEL IN AGRICULRTIRAL INSTITUTIONS, AS OF DECa4BER 31, 1974 (In bolivares) Institutions Central Office Field Office Total Ministerio de Agricultura y Cr{a 24,156,252 98,660,508 122,816,760 Instituto Nacional Agrario 33,687,891 50,576,196 84,264,087 Banco Agricola y Pecuario 11,888,078 20,294,855 32,182,933 Corporacion de Mercadeo Agrfcola 9,662,460 3,280,560 12,943,020 Banco de Desarrollo Agropecuario 5,771,713 9,166,273 14,937,986 Instituto Nacional de Cooperacion Educativa 961,000 11,245,000 12,206,000 Total 86,127,394 193,223,392 279,350,786 Source: Informe Final de la Comision de Evaluacion y Reestructuraci6n de los Organismos de la Reforma Agraria, August 1975, op. cit. - 38 - Appendix A Page 1 APPENDIX A MAJOR AGRICULTURAL INSTITUTIONS 1. Venezuela has developed a complex of autonomous institutions, partially or fully funded by government, to conduct specific operations within the agricultural sector. This section briefly describes the admin- istrative location and function of the major institutions. In addition, a series of regional planning centers may create and sometimes carry out agri- cultural development projects. Faculties of agriculture, livestock and veterinary medicine perform training and research functions, and several privately funded institutions (sometimes with government contracts) have modest programs that may be significant for particular crops, livestock, fishing or indigenous people in cultural enclaves. 2. The Ministry of Agriculture and Breeding (MAC - Ministerio de Agricultura y Cria) has overall responsibility for the agricultural sector, and performs specific functions in planning, statistics and in budgeting for the autonomous agencies that use public funds. 3. The Ministry of Public Works (MOP - Obras Publicas) includes a number of bureaus that plan and support engineering works in the agri- cultural sector. This includes dams for irrigation and water control, the building and maintenance of public roads, and small investments in completing facilities in sites for Popular Markets under the CMA program. 4. The National Agrarian Institute (IAN - Instituto Agrario Nacional) has a general responsibility to improve the economic and, increasingly, the social content of rural life. Agrarian reform requires more than land division and the improvement of the technical conditions of production. In cooperation with relevant organizations, this Institute may develop irriga- tion, clear land, provide technical assistance and improve the infrastructure in rural communities, including housing, roads and community services. 5. The Institute for Agricultural Credit (ICAP - Instituto de Credito Agropecuario) is the direct successor to the Agricultural Bank (BAP) estab- lished in 1928 with very broad development functions. During the 1960s, this Bank became heavily involved in loans to small and medium-scale farmers and to cooperative work with the National Agrarian Institute. These charges were consolidated and made the principal function when it became an Institute, with its program of commercial credit to established farmers transferred to the Agricultural Development Bank. 6. The Agricultural Development Bank (BANDAGRO - Banco de Desarrollo Agropecuario) has been a government-owned commercial bank making loans to farmers and ranchers. This role is continued and expanded by the transfer of part of the portfolio from BAP and increased funding from other sources. The role of government and government funding has increased in the last two years. - 39 - Appendix A 7. The Agricultural Credit Fund (FONDO - Fondo de Credito Agricola) is essentially a source of funding to farmers through any bank for long-term development loans. Its small staff is mainly concerned with insuring that established procedures are carried out as loan applications are processed and the funds utilized. 8. The National Irrigation Institute (INR - Instituto Nacional de Riego) is concerned with small-scale water projects, such as wells, small dams and drainage projects, and the distributional procedures for water available as large-scale projects are completed by MOP. As with the other institutions described, the Minister of MAC presides over the Directive Council. 9. The Corporation for Agricultural Marketing (CMA - Corporacion de Mercadeo Agricola) has been given a major role in implementing marketing policies during the past two years, involving several billion Bolivares annually. The Corporation has become a major factor in the domestic and import cereal market in supporting minimum prices and assuring adequate supplies of agricultural inputs, including seed, chemicals and feedstuffs. It also is taking an increasing function in implementing price ceilings in consumer markets, and lower priced supplies of basic foods in low income parts of urban centers. These activities require that the Corporation become the coordinator of storage, import and export policies, and for a number of products, the payer of subsidies to imports, exports, or marketing, sometimes at substantial cost to government. The Corporation appears to have an ambiguous role with respect to private trade, sometimes complementing their activity, sometimes using them as contracting agencies, and at other times competing with them. 10. The National Agricultural Institute (INA - Instituto Nacional Agropecuario) is a proposed union of research and extension, not yet consu- mated. Research is presently in the autonomous government Fund for Agri- cultural and Livestock Research (Fondo de Investigaciones Agropecuarias) which has a comprehensive system of agricultural research operations in five regional and one national center, and including a number of experiment sub- stations in appropriate agro-climatic areas. Extension, now in the Ministry, would have more flexibility in the proposed autonomous organization (and also be less responsive to day-to-day political pressures). The logic of a combined research and extension organization has considerable appeal, pro- vided their increased independence does not create problems as they pursue what may seem to agricultural leadership to be non-relevant or ineffective activities, with a consequent reduction in funding or sponsorship within the Ministry of competing activities. 11. The Foundation for Training and Research Applied to Agrarian Reform (Fundacion para la Capacitacion e Investigacion Aplicada a la Reforma Agraria) known mainly by its initials CIARA has functioned for eight years to provide a corps of specialists to assist the development of agrarian reform. This has included community workers and community leadership as well as actual or - 40 - Appendix A prospective employees of IAN. It now seeks to play a broader role, in coop- eration between MAC and the Ministry of Education, as a National Institute of Training and Rural Education (Instituto Nacipn4l de Capacitacion y Educacion Rural). 12. The Comprehensive Program of Agricultural Development (PRIDA - Programa Integral de Desarrollo Agricola) represents a comprehensive approach to integrate the activities of the various agricultural institutions. Using national funds and the proceeds of a loan from the Inter-American Development Bank, PRIDA has stimulated coordinated efforts by appropriate agencies in many specific locations within Venezuela. While the program has been extended beyond its original schedule, questions are being raised as to how this coordi- nating function will be performed after 1976. 13. The National Parks Institute (Instituto Venezolano de Parques Nacionales, Bosques y Fauna Silvestre) is primarily concerned with the main- tenance and creation of facilities for public recreation in national parks. It is expanding the number and size of such parks, and is developing programs of conservation, primarily in the watersheds where city water supplies are generated. 14. The National Institute for Coffee and Cacao has been split into two separate institutes, which perform a variety of specific functions, including the payment of export subsidies, or implementation of development projects. While providing a forum in which producers and marketing agencies can focus on commodity problems, they also can exaggerate the importance of their particular product relative to the totality of agriculture. 15. The LaSalle Foundation and Shell Foundation through FUSAGRI (Fundacion Servicio para el Agricultor) are private operations which sometimes contract with the government to perform certain functions. The LaSalle Founda- tion is concerned with natural resources, international scientific exchange, and has a major training program in fisheries. Subsequently, it has developed an industrial training program and an agricultural training activity. FUSAGRI has an agricultural station at Cagua, does citrus extension work in the states of Aragua, Carabobo and Falcon, works in pasture improvement in Zulia, and does agricultural work under a contract with the Corporacion Venezolana de Guayana. - 41 - Appendix B Translation APPENDIX B FINAL CHAPTER OF THE RECOMMENDATION OF THE COMMISSION REVIEWING AGRARIAN REFORM The Commission believes that the following guidelines for agrarian policy can be drawn from the analysis made of the agricultural sector as a whole and of the agrarian reform process in particular, as discussed through- out this document. 1. As a declaration of principles the Commission considers that the rural sector covered by the agrarian reform, and small and medium-scale farmers, should form the basis for the nation's agricultural development. Accordingly, Government strategy in the agricultural sector should take the form of policies that effectively permit development of the country's rural majority in the short, medium and long-term. In this connection, all State agencies involved in any way with the agrarian reform process should operate in accordance with these policies and should adjust their goals and structures to the new guidelines that the State will draw up. 2. To achieve the objectives outlined in the preceding paragraph, the State must implement an overall agricultural policy that effectively corrects the unequal terms of trade between agriculture and the industrial and com- mercial sectors and ensures the return necessary to stimulate accelerated agricultural development and a better social and regional distribution of income. 3. It is set forth as a basic principle that changes must be made in the policy governing the awarding and transfer of land. To this end, it is proposed that the agrarian reform process be directed primarily toward the development of agrarian reform areas, without omitting needed action related to individual holdings not located in those areas. Accordingly, IAN should take the initiative, declaring as "integrated agrarian reform development areas" all those required to ensure fulfillment of the objectives established in the Agrarian Reform Law. 4. In the area so classified collective rural enterprises should be organized; in the opinion of the Commission, such groupings will permit better integration of farmers, more effective provision of comprehensive technical assistance, greater facility and economy in the acquisition of required in- puts and the marketing of products, further savings in investments in the production infrastructure and better utilization of the labor contributed by the farmer and his family. Furthermore, one or more enterprises of this type could lead to the formation of agro-industrial companies in which the rural sector is an active participant. As part of this policy, in rural settlements with individual holdings the restructuring of such holdings should be initiated to transform them into collective enterprises. - 42 - Appendix B Translation Under the policy outlined above the awarding of individual plots may be considered in exceptional cases, provided that the circumstances of the applicant so justify. 5. In development by areas, whether large or small, surveying and and zoning activities undoubtedly play a decisive role. In this connection, it is recommended that the agencies responsible for surveys (MAC, MOP -- National Cartographic Service and IAN) immedicately step up their surveying activities in those regions of the country where IAN is to begin agrarian reform projects in the near future. 6. In delimiting national, municipal and private land surveying re- solves tenure problems that otherwise would entail lengthy legal proceedings; in classifying lands by suitability, it also can assess their potential for proper utilization and development. 7. Although zoning is a more complex process involving large-scale studies, it is important that this work be started in the near future, since it will contribute to better use of existing resources and the adoption of a production policy to determine the items that we can and should produce in order to overcome, insofar as possible, dependency on external sources for many of these items. It is also important that both the survey and zoning be essential elements in the rational application of a property tax as re- quired by the Agrarian Reform Law, which 15 years after the enactment of that Law has not yet been legislated. 8. After analysis of the functions of the agencies with direct re- sponsibility in the agricultural sector, the Commission finds that these agencies should be thoroughly reorganized in order to carry out the programs and fulfill the goals established by the highest executive agency of the sector. 9. In this connection, and in general terms, it is proposed that the Ministry of Agriculture be the central agency of the entire agricultural sector. In addition to the specific functions assigned by law, the Ministry will be responsible for supervision of the specialized autonomous agencies proposed in Chapter V. 10. At a time when the Venezuelan State has taken measures to nation- alize many of our important resources, it is proposed that the National Executive study the presence of foreign capital in the agricultural sector, both as a large landholder and as a participant in agro-industry and services. On the basis of the proposed study, a nationalist policy in the agricultural sector should be implemented. 11. In the legislative area, all matters pertaining to agrarian legis- lation must be concentrated in a single body of laws. In this connection, the National Executive should take steps to propose an Agrarian Code to the legislature. - 43 - Appendix B Translation 12. The Commission believes that the conclusions and recommendations set forth in Chapters III, IV and V of this report and the measures pro- posed in relation to them will create a suitable framework for efficient agricultural development, not only to solve production problems but also to deal with the social problems that affect the rural population most severely. The implementation of all these measures will also help ensure the effectiveness of the decrees issued by the Office of the President of the Republic since March 1974 for the benefit of the agricultural sector. - 44 - Appendix C SUPPLEMENTARY TABLES Table 1 Value of Agricultural Production, 1950 to 1974 Table 2 Value of Agricultural Production, 1968 to 1974 Table 3 Exports of Agricultural Products, 1965 to 1974 Table 4 Imports of Selected Agricultural Products, Selected Years, 1950 to 1973 Table 5 Imports of Selected Agricultural Products, 1965 to 1974 Table 6 Distribution of Land by Size of Farm Table 7 Number of Farms and Hectares, According to Tenure Classes, 1950, 1961 and 1971 Table 8 Area Harvested, Selected Crops, 1962, 1969, 1973, 1974 Table 9 Selected Agricultural Commodities, Production Averages, 1960-64, 1965-69, by years 1970-74, and Projections Table 10 Use of Purchased Imports in Agriculture Table 11 Financial Resources Assigned to Institutions in the Agricultural Sector, 1960-74 Table 12 Producer Prices of Principal Agricultural Products, 1964-74 Table 13 Retail Prices for Selected Food Products, 1967-74 -45- Appendix C Table 1: VAILE OF AGRICIJRAL PROIrCTION, 1950 TO 197h Yearly Percent Share of Total Years Product Change Change Product (zdilions of Bs. at 1957 prices) 1950 1013 8.0 1951 1110 97 9.6 7.8 1952 1206 96 8.6 7.9 1953 1427 221 18.3 8.8 1954 1319 -108 -7.6 7.4 1955 1458 139 10.5 7.5 1956 1 44 -14 -1.0 6.8 1957 1564 120 8.3 6.6 1958 16o8 44 2.8 6.7 1959 1703 95 5.9 6.5 1960 1936 233 13.7 7.1 1961 1946 10 0.5 6.8 1962 048 102 5.2 6.6 1963 2162 114 5.6 6.5 1964 2333 171 7.9 6.4 1065 2478 145 6.2 6.4 1966 2583 105 4.2 6.5 1967 2715 142 5.5 6.6 1968 2836 111 4.1 6.6 1969 2908 72 2.5 6.5 (ndllions of Bs at 1968 prices) 1969 3419 7.3 * 197C 3490 71 2.1 7.0 1971 3458 -32 -0.9 6.7 1972 3517 59 1.7 6.6 1973 3747 230 6.5 6.3 1974 40 3 283 7.6 6.8 * The differences in the two figures for 1969 probably results from different weightings. Source: BCV, La Economia Venezolana en los Ultimos Treinta Afios, p. 98 and Anuario Economico for 1974. Table 2: VALUE OF AGRICULTIJRAL PRODJUCTION, 1968-74 (millions of bolivares at 1968 prices) Projected 1968 1969 1970 1971 1972 1973 1974 1980 Agricultural Production 14,2514 4,673 4,803 14,686 4,733 5,005 5,198 8,461 Plant Products 1 805 1 872: 2 008 1,966 1,817 1 928 2 045 3,533 C ereals a12 40T1 371 299 907 Legumes 51 49 48 49 40 34 43 112 Roots and Tubers 245 232 227 224 219 201 221 324 Oilseeds and Fibers 177 189 248 225 208 223 263 445 Fruits 313 326 336 345 357 345 364 633 Vegetables 101 93 111 115 122 102 115 153 Coffee, cacao, sugar, tobacco, plantains 504 573 623 637 572 662 650 859 Animal Products 1 782 1 976 2 046 2,009 2 153 2,173 2 1402 3,317 Milk 608 642 69 907 Beef 618 655 643 631 706 679 765 1,096 Pork 179 238 225 242 214 223 288 357 Poultry 197 206 225 237 271 299 337 518 Other meat 24 13 20 23 24 23 24 40 Eggs 211 232 256 268 281 307 299 317 Fish Products 84 91 98 108 110 110 103 289 Forestry Products 74 70 74 77 91 91 80 93 Other Production and Services 509 664 577 526 562 703 568 1,229 Source: Worksheets of the Banco Central de Venezuela, 1980 projections from V Plan de la Nacion, Plan Agricola, October 1975 S Table 3: EXPORTS OF AGRICTTLTHRAL PROIDJCTS 1965-74 (millions of bolivares at current prices) 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Total 117 138 156 128 133 179 143 227 167 242 * Coffee 78 75 66 35 67 77 83 77 80 99 Cacao 24 21 26 35 37 33 26 23 47 83 Rice 11 22 37 24 5 32 1 28 j/ ISugar 1 19 20 29 16 24 23 116 26 Bananas & plantains 3 5 5 4 5 7 6 4 3 Other fruits 1 1 1 2 4 5 6 8 Tobacco 1 1 2 1 2 221/ _, * Estimate 1/ According to CMA annual report. Source: Anuario EstadLstico Agropecuario 1974, Ministerio de Agricultura y Cria m x- Table 4 : IMPORTS OF SU1iLCTED AGRICUJLTURAI PIOTJJCTS, SELECTED YEARS 1950 TO 1973 (In thousands of metric tons) 1950 1955 1960 1965 1969 1970 1973 Cereals Rice 28.5 * 38.5 * 0.1 0.4 Maize 13.7 0.2 0.3 4S5.O 110.5 109.1 315.0 Sorghum 0.7 180.7 412.0 Wheat 1.2 5.5 308.9 557.5 694.2 690.7 544.8 Legumes Beans 13.6 19.3 12.7 16.4 21.1 22.1 4.2 Peas 6.7 10.7 13.1 15.1 16.9 Roots & Tubers Potatoes 112.5 32.3 16.3 16.2 21.6 19.3 6.1 Others 0.4 0.3 0.2 0.1 6.9 Fibers & Oilseeds Sesame 3.9 12.2 13.7 1.0 Cotton 2.8 3.0 1.0 10.2 6.4 6.o 9.1 Peanuts 0.1 * 0.3 o.6 1.1 1.8 2.1 Other Crops Sugar 39.2 1.5 4.9 0.2 0.9 0.9 17.0 Tobacco 0.1 0.5 1.2 0.1 0.1 * 0.2 Anirmal Products Milk 30.1 36.9 45.8 38.0 26.6 12.8 33.6 Cheese 3.6 5.8 8.9 0.7 0.4 0.4 0.7 Beef 3.0 * * Pork 2.5 5.4 3.0 2.6 0.2 - Eggs 10.0 15.7 23.7 1.3 * Fish 0.4 0.5 0.5 0.9 0.1 0.1 5.8 x Lumber 26.0 67.8 53.8 9.1 4.9 7.6 5.0 * Less than ,0 tons Source: Informne Final de la Cornisi6n de Evaluaci6n y Reestxiicturaci6n de los Organismos de la Reformna Agraria, August 1975. Table 5: IMPORTS OF SELECTED AGRICUJLTURAL PROIXTCTS 1965-74 (millions of bolivares at current prices) 1965 1966 1967 1968 1969 197( 1971 1972 1973 1974 Total 420 332 392 1434 430 434 41 3 442 944 Corn 14 6 31 31 33 30 1/ 198 284 Sorghum 1/ 1 1 1 Io 82 86 131 348 g/ Wheat & Flour 172 167 219 219 196 191 180 213 286 740 g/ Peas 5 7 8 8 8 9 9 10 39 Beans 15 21 23 25 20 23 21 30 11 13 / Other legumes 14 22 15 25 20 36 42 54 135 Potatoes / 9 7 10 5 9 9 7 6 14 5 Tobacco 2 1 1 1 1 1 1 j 1 Cotton 33 20 15 28 20 19 15 25 35 Milk, processed 130 53 72 71 104 54 20 42 137 Cheese 4 2 4 3 3 3 4 4 5 Pork 22 26 24 17 17 16 2 2 2 1/ Less than 500,000 Bs. 2/ According to annual report, CMA. 2/ For seed and direct consumption. Source: Anuario Estadistico Agropecuario 1974, Ministerio de Agricultura y Crxa. (D x c0 Table 6: DISTRIBUTION CF LAND BY SIZE, IN PERCERr FOR 1950 AND 1961; TOrAL AND PERCENT FOR 1971 1950 1961 1971 No. of % of % of No. of % of %of No. of % of Thousands % o Internal farms farms land farms farns land farms farms of ha Land Less than 5 Ha 125,990 53.7 1.1 155,617 49.3 1.3 121,581 42.9 272 1.0 5 - 19.9 69,565 29.6 2.8 99,189 31.4 3.5 90,506 31.9 825 3.1 20 - 49.9 18,900 8.1 2.5 28,600 9.1 3.2 32,335 11.4 915 3.4 50 - 499.9 14,989 6.4 9.3 25,046 8.0 13.2 30,422 10.7 4,240 16.0 500 - 999.9 1,846 0.7 5.6 2,802 0.9 7.1 3,867 1.4 2,517 9.5 1000 and more 3,422 1.5 78.7 4,223 1.3 71.7 4s905 1.7 17,757 67.0 Total 234,730 100.0 100.0 315,477 100.0 100.0 283,616 100.0 26,526 100.0 Sources Informe Final de la Comisi6n de Evaluaci6n y R.eatructuraci6n de loa Organismos de la Reforma Agraria, Caracas, Aug. 1975, pp. 47-49. Table 7: NJMBER OF FARMS AND HECTARES, ACCORDING TO TENURE CLASSES, 1950, 1961 AND 1971 1950 1961 1971 Thou- Thou- Thou- No. of Per- sands Per- No. of Per- sands Per- No. of Per- sands Per- Tenure Class Units cent of Ia cent Units cent of Ha cent Units cent of Ha cent Owners 97,598 41.6 17,823 80.5 125,627 39.8 21,188 81.3 179,340 62.4 22,070 83.2 Renters 35,633 15.2 676 3.1 25,966 8.2 495 1.9 16,044 5.6 548 2.0 Share croppers 14,954 6.4 411 1.9 15,223 4.8 118 0.5 Occupants 80,487 34.2 2,422 10.9 124,119 39.4 2,832 11.0 82,772 28.8 3,281 12.4 (No legal title) Mixed 6,058 2.6 795 3.6 24,542 7.8 1,371 5.3 9,099 3.2 627 2.4 Total 234,730 100.0 22,127 100.0 315,477 100.0 26,004 100.0 287,255 100.0 26,526 100.0 Source: Informe Final de la Comisi6n de Evaluaci6n y Reestructuraciln de los I Organismos de la Reforna Agraria, Caracas, Aug. 1975, p. 43 @ 0 Dl -52- Appendix C Table 8: . AREA HARVESTED, SELECTED CROPS 1962-1974 (Thousands of' Hectares) 1962 1969 1973 1974 Total 1429.4 1815.3 1554.8 1668.1 Cereals 553.5 766.4 559.5 609.7 Rice 69.0 116.6 113.0 117.3 Maize 483.3 641.1 438.9 462.4 sorgh'um - 5.4 6.1 28.4 , heat 1.2 1.3 1.5 1.6 Leg-imes 81.4 127.5 82.1 95.7 Peas 4.5 5.2 2.8 3.6 Black & dry beans 68.4 103.8 66.6 80.7 Others 8.5 18.5 12.7 11.4 Roots & Tubers 65.3 81.9 66.7 77.3 S.>weet potato 2.8 2.3 2.5 2.6 Potato 16.0 1 5.8 12.4 14.3 Cassava 25.7 38.5 33.9 39.6 Others 20.8 25.3 17.9 20.8 Fruits 15C.6 176.2 172.3 175.I4 Banana 39.752 Avocado 12.0 12.2 12.4 12.4 Orange 21.1 27.7 32.2 32.2 Plantain 60.0 60.6 57.8 59.9 Others 17.8 22.9 24.1 24.3 iJegetables 5.4 9.9 10.6 11.1 Garlic 0.5 0.6 0.5 0.9 Onions 1.4 1.4 .1.8 1.9 Tomato 3.5 I.9 5.1 4 9 Others 3.0 3.2 3.4 Industrials 573.2 653.4 663.6 698.9 Scesanme 56.7 153.4 151.0 174.0 Cotton 46.9 48.7 58.8 64.7 Peanu.ts 1.9 4.7 20.7* 20.7* Si sa-i 10.5 10.4 11.6 10.7 Coffee 340.O 303.1 272.5 272.5 Cacao 70.0 71.6 70.3 70.0 Sugar cane 41.2 53.9 69.6 76.5 Tobacco 6.o 7.6 9.1 9.8 * Estimated source: Based on data from the Ministerio de Agricultura y Cria Table 9: SELECTED AGRICIJLTJRAL COMMODITIES, PROUJCTION AVERAGES 1960-64, 1965-69, BY YEARS 1970-74, ANDPROJECTION (thousands of metric tons) Project- 1970-74 1970-74 ed rate over over 1960-64 1965-69 1970-74 1970 1971 1972 1973 1974 to 1980 _/1960-64 1965-69 Rice (paddy) 110.5 221.7 228.5 226.2 153.0 164.7 301.9 296.6 9.8 106.8% 3.1% Maize 460.9 608.6 587.6 709.9 713.5 506.3 454.4 553.8 17.2 27.5 -3.5 Black beans 30.6 27.8 22.3 23.8 27.3 21.4 14.7 23.6 20.7 -27.2 -19.8 Potato 112.6 132.2 125.0 125.0 115.2 109.4 123.7 151.8 5.0 11.0 -5.5 Cassava 331.3 317.5 304.6 317.2 322.7 318.2 272.1 293.0 11.9 -8.i -4.1 Tomato 58.7 72.1I 83.5 87.0 72.7 79.9 84.1 93.8 3.5 40.2 15.3 Plantain 228.0* 291.0 374.1 369.7 377.5 372.0 368.9 382.3 4.3 64.1 28.6 Banana 783.0 884.0 959.0 968.0 989.0 997.0 902.0 937.0 5.3 76.o 8.5 Coffee 57.4 56.8 54.2 60.6 58.4 40.4 65.9 45.9 9.6 -5.6 -4.6 Cacao 20.6 19.7 18.2 18.9 18.9 16.7 19.1 17.3 3.5 -11.7 -7.7 Sugar cane 2,670.0 4,059.0 5,416.0 5,027.0 5,348.0 5,736.0 5,241.0 5,728.0 6.8 102.8 33.4 Tobacco 9.0 9.9 13.2 11.9 13.7 12.5 13.4 14.3 3.8 46.6 33.3 T Sesame 29.3 70.7 85.8 125.6 93.9 59.2 78.4 71.8 8.9 192.8 21.4 Cotton 32.7 38.7 54.7 40.0 46.5 57.3 60.0 69.6 9.7 67.3 41.3 Sisal 9.8 13.0 13.2 12.0 12.5 13.3 14.9 13.5 5.1 34.7 1.5 Sorghum 11.5 11.8 6.5 2.4 7.1 8.9 34.1 22.4 2.6 Milk 490.8 719.0 1,013.0 923.5 969.9 1,048.6 1,023.2 1,099.6 5.3 106.4 40.9 Bee.f 1140.0 183.2 211.5s*4 200.9 214.1 219.4 232.3 239.6 3.9 51.1 15.4 Pork 27.4 34.2 46.1 143.2 143.2 51.8 61.7 62.9 5.8 68.2 34.8 Poultry 148.6 70.8 104.7 86.4 90.7 103.7 114.6 128.4 8.5 115.4 47.9 Eggs*** 554.1* 1,018.0 1,401.2 1,303.9 1,371.7 1,402.0 1,428.2 1,500.4 3.8 152.9 37.6 4 3 years 48f 3 years *Ht in millions of units for consumption Annual rate of increase, calculations made by Min. of Agric. for Cordiplan. x Source: Anuario Estadlstico Agropecuario, 19714, Min. of Agriculture Table 1 ¢ USE OF INFUTS IN AGRICULIURE 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Fertilizer Sales 93,754 114,908 135,245 151,092 147,154 206,940 178,495 209,758 226,689 303,362 Insecticides (imports) 5,754 8,270 6,614 8,529 8,930 9,113 5,891 2,684 12,073 n.a. Seeds certified Total Maize 2,561 2,887 3,183 3,100 5,200 7,177 6,055 5,300 6,500 6,500 Cotton 1,500 1,600 1,094 1,287 1,300 1,266 1,225 1,313 2,070 3,155 Sesame 350 360 397 666 333 687 38 125 462 325 Beans (Black) 160 50 348 374 177 70 268 343 652 611 Beans (other) - 3 12 15 5 - - - 3 40 Rice 1,250 2,240 3,652 3,232 3,447 4,627 4,236 4,080 6,000 7,000 Peanuts 4 5 20 22 50 30 - - - _ Potatoes - 22 150 509 408 735 - 400 100 Machinery (imports) Wheeled tractors 3,038 1,685 1,493 2,015 2,341 2,687 3,406 2,380 2,217 2,786 Track tractors 92 214 487 106 108 528 33 127 200 230 Harvesters 180 181 198 164 265 132 148 104 151 485 Seeders 447 451 456 352 639 434 635 529 234 433 Ploughs 598 457 248 280 273 177 146 42 246 315 Others 5,725 7,161 1,262 652 656 774 729 471 957 1,274 Source: Anuario Estadlstico Agropecuario, 1974, Min. of Agriculture A. x Table lIl FINANCIAL RESOURCES ASSIGNED TO INSTITUTIONS I2N THE AGRIWUL'¶RAL SECTOR, 196o-74 (millions of bolivares) Agric. MOP Rural National Total BAP or BAND- Edure. Irrig- Housing Milk Agric. Share Years Budwet A-,-ric. MAC IAN ICAP CHA AGRO 1/ ation water Subsidy of Total 60-61 9.457.0 1.075.5 362.2 279.4 201.9 - - - 1142.9 15.5 73.6 11.4 1962 6.553.4 557.9 203.8 139.3 63.0 - - _ 102.6 25.6 43.6 8.8 1963 6.633.3 572.2 224.2 107.8 50.0 - - _ 110.2 38.0 42.0 8.6 1964 7.202.4 755.0 232.4 150.8 130.1 - - 1.6 147.3 52.8 40.0 10.5 1965 7.587.2 853.4 279.5 150.8 150.0 - - 11.6 160.3 62.0 39.2 11.2 1966 B.o19.5 869.3 277.9 168.8 100.0 - - 14.9 210.3 61.5 35.9 10.8 1967 B8753.5 942.0 297.2 181.6 135.1 - - 11.2 226.0 60.0 30.9 10.7 1968 9.278.0 1.017.3 311.8 172.3 181.6 - - 13.7 202.9 96.o 39.0 10.9 1969 10.175.5 1.087.7 310.8 178.6 191.6 - - 19.6 246.6 94.2 46.3 10.7 1970 10.286.0 1.149.5 335.4 203.3 237.1 15.0 - 17.1 206.4 90.4 44.8 11.2 1971 12,768.0 1.323.7 360.7 165.8 313.1 51.0 50.0 22.1 241.9 80.7 38.4 10.4 1972 13.478.0 1.2149.0 454.7 170.7 179.2 35.0 143.5 22.3 239.9 65.5 38.2 g/ 9.3 1973 14.872.0 1.298.0 462.2 171.7 177.9 45.0 45.6 27.2 259.2 66.9 42.3 2,/ 8.8 1974 29.520.0 3/ 4.299.4 588.7 360.0 602.9 1.884.2 250.6 30.2 286.4 70.7 225.7 13.8 Total 154.583.8 16.852.6 4.701.5 2.600.9 2.713.5 2.030.2 389.7 191.5 2.782.9 879.8 563.6 10.9 1/ Includes only Agricultural Directorate of Instituto Nacional de Cooperaci6n Educativa L/ Later figures added. D/ Does not include Fondo de Inversiones de Venezuela Sources Informe Final de la Comisi6n de Evaluaci6n y Reestructuraci6n de los Organismos de la Reforma Agraria, August 1975, p. 236. X Table 12: PROIIJCER PRICES OF PRITNCIPAL AGITCIJLTIURAL PROICICTS, 1964i-74 (in bolivares for indicated weights) Unit of Weight 1964 1965 1966 1967* 1968 1969 1970 1971 1972 1973 1974 Rice (paddy) 100 kgs. 61 60 58 61 60 61 62 63 66 69 75 Maize (yellow) 100 kgs. 39 38 35 37 39 38 39 40 38 45 60 Beans (black) 100 kgs. 118 109 113 117 125 127 140 147 146 198 305 Potatoes (white) 100 kgs. 61 52 60 57 51 63 64 55 66 76 81 Cassava (sweet) 100 kgs. 23 24 21 21 23 21 25 25 27 30 30 Tomato 100 kgs. 36 41 53 45 43 50 77 47 95 74 79 Plantains 100 kgs. 10 9 10 12 14 11 8 9 12 12 13 Banana 100 kgs. 21 18 13 16 16 17 17 21 19 19 21 Coffee (washed) 100 kgs. 370 386 352 307 346 319 370 373 353 465 234 Cacao (fino de segunda) 100 kgs. 282 263 267 253 275 281 250 231 241 405 309 Sugar cane 1000 kgs. 38 38 37 38 37 38 37 38 38 41 41 Sesame 100 kgs. 111 110 107 110 119 107 114 120 131 126 180 Cotton fiber (med) 100 kgs. 118 120 122 126 126 129 129 126 130 133 187 Milk 100 liters 63 76 71 65 62 63 66 68+ 68+ 72+ 93+ Beef (live weight) 100 kgs. 171 170 185 179 176 177 165 176 176** 208** 244** Pork (live weight) 100 kgs. 231 235 246 263 265 263 261 263 267 306 363 Poultry 100 kgs. 338 334 332 319 314 313 275 275 270 287 343 Eggs (white medium) 30 dozen 65 56 59 57 53 56 47 59 60 60 70 * Beginning in 1967, prices are weighted. + Before 1971, an average of all milk; from 1971, cold milk at parteurizing plant. ** Before 1972, all beef, live weight; from 1972, young animals 300 to 375 kilos, for alaughter x Source: Anuario Estadistico Agropecuarlo, Ministry of Agriculture and Breeding, various years. Table 13: RETAIL PRICES FOR SELECTED FOOD PRONJCTS 1967-74 Bolivares per Idlo 1967 1968 1969 1970 1971 1972 1973 1974 Rice 1.60 1.61 1.58 1.51 1.54 1.52 1.55 1.64 Maize .58 .60 .60 .63 .62 .64 .77 .87 Beans (black) 1.77 1.76 1.78 1.84 1.92 1.81 2.09 3.3Q Potatoes (white) .96 .90 1.03 .95 .91 1.06 1.21 1.117 Cassava .60 .70 .64 .63 .69 .73 .73 .73 Tomato 1.23 1.26 1.43 1.49 1.39 1.57 1.74 2.11 Plantains .20 .21 .21 .18 .19 .21 .22 .23 Banana (Guineo) .52 .52 .52 .52 .51 .51 .56 .65 Coffee+ 3.68 3.66 3.71 3.94 3.90 3.89 4.73 4.53 Oranges (per dozen) 1.90 2.04 2.35 2.17 1.63 1.51 1.97 1.79 Sugar .97 .96 .96 .97 .96 .96 .98 1.12 Milk (pasteurized)* 1.17 1.17 1.18 1.18 1.17 1.15 1.15 1.42 Beef 5.96 6.05 6.04 5.80 6.09 6.98 9.07 10.56 Pork 5.75 5.85 5.74 6.17 7.03 Poultry (broilers) 3.97 4.03 4.03 3.95 3.93 4.11 4.04 4.55 Eggs** 2.38 2.37 2.56 2.23 2.58 2.63 2.69 3.08 Yello'w cheese 10.58 10.34 10.40 10.25 10.34 11.04 12.37 14.17 Fresh tuna 4.61 4.61 4.73 4.85 4.86 4.94 4.89 4.68 + Wholesale prices, retail prices were 70 to 90 centavos higher, when available * Per liter ** White, large, per dozen > rD Source: Anuario Estadstico Agropecuario, Ministry of Agiiculture and Breeding, 1974 x - 58 - INDUSTRIAL POLICY IN VENEZUELA I. GROWTH AND STRUCTURAL CHANGE IN VENEZUELAN INDUSTRY 1. From 1970 to 1974, Venezuelan real industrial value added, grew at 4.7% per year, while real GDP grew at 4.2%. 1/ These growth rates were modest because this was a period of declining petroleum production. If petroleum refining is excluded from industrial statistics and petroleum pro- duction excluded from GDP, annual growth rates for the period would be raised to 7.4% and 5.9% respectively. These adjusted rates, unaffected by changing policies regarding production and transfer pricing in the petroleum industry, more accurately reflect national economic performance. As Table 1 indicates, they represent a continuation of longer term trends, by which the Venezuelan economy has been able to maintain a high growth rate of GDP and a somewhat higher growth rate of industrial value added. By the standards of recent Latin American experience, these growth rates are not unusual, but they are highly respectable. 2. The comparatively higher growth rate of the industrial sector means that the industrial share of GDP has risen over time. As Table 1 also indi- cates, the size and rate of change of this share depend on whether the de- nominator is total GDP or GDP excluding the petroleum sector. The most appropriate estimate of Venezuela's industrial share for making international comparisons is one which excludes both petroleum refining from the numerator and petroleum production from the denominator. For 1970 this estimate is 18.6% (see footnote to Table 1), which is comparable to the slightly higher figures of Colombia and Peru, and to the substantially higher figures for Brazil, Mexico, and the industrialized countries. It may be concluded that the Venezuelan industrial sector has experienced rapid growth in the last 10 to 15 years, but that the rest of the Venezuelan economy has also grown, so that the industrial share has not changed very greatly and remains somewhat smaller than in other Latin American countries of similar size or stage of development. 2/ 1/ Banco Central de Venezuela, Informe Economico 1974, p. A-134, 1968 prices. 2/ It should be noted that as development proceeds in Latin America the Industrial share of GDP has increased, but at the same time the industrial share in the US and UK has declined, as these countries enter into so-called post-industrial society. In this context the industrial share of GDP ceases to be a useful index of development. More appropriate measures should be derived from agriculture's share and from disaggregation of the heterogeneous service sector. -59- Table 1; G10C'WTH FA7.& AWT INrJSTRY SHES CT GDP AnTr.al Growth Rates (1970 prices) Real Industrial Real GDP Value Added 1960-70 1970-73 1960-70 1970-73 Mexico 7.0 6.1 9.0 6.4 Brazil 6.o 11.0 7.3 11.5 Peru 5.3 6.1 6.3 4.9 Colombia 5.2 6.6 6.o 8.9 Chile 4.4 1.6 .4 .7 United States 4.0 4.4 Venezuela 5.9 4.2 7.3 6.4 Venezuela excl. petroleum production 6.9 5.7 Industrial Value Added Share of GDP I' 1960 1970 1973 Mexico 22.6 27.C 25.3 Brazil 21.6 24.3 24.6 Colombia 17.9 19.2 20.5 Peru 17.2 19.C 18.4 Ecuador 15.6 17.1 17.4 United States 27.4 28.5 25.3 Trnited Kingdom 32.2 28.3 27.1 Venezuela 14.2 16.2 17.3 Venezuela excl. petroleum production 2/ 19.3 20.1 20.5 1/ Data at 1963 prices except for 1973 industrial shares, at current prices. 2/ Exclusion of petroleum refining as well would reduce 1971 industrial value added by 7.6%. (CORDIPLAN, Tercera Encuesta Industrial, 1971, Vol. I, pp. 190-191). This ratio applied to 1970 data reduces industrial share from 20.1% to 18.6%. Source: Inter-American Development Bank, Annual Report 1974, Economic and Social Progress in Latin America, pp. 441, 449, 450. Data for US and UD from United Nations, Yearbook of National Accounts Statistics 1972, Vol. II, pp. 577-580, 630-633; Monthly Bulletin of Statistics, December 1975, p. 210. - 60 - 3. The structure within industry is compared to other countries in Table 2. Industrial development is often viewed as a process of diver- sification, in which production is first concentrated in traditional consumer goods such as processed food and textiles, but subsequently becomes more diversified, with increasing emphasis on metal-working industries. 1/ The distribution of value added among various industrial sectors turns out to be remarkably similar in the United Kingdom and in the United States, which may, therefore, be taken as standards upon which to measure the degree of industrial diversification achieved by Latin American countries. The ratio of value added in metal-mechanical industries to value added in traditional industries is a convenient single measure of comparison. The data of Table 2 give the following values for this measure: Early Seventies 1963 Ratio Year Ratio United States 1.89 1972 2.02 United Kingdom 1.86 1972 1.73 Brazil 0.84 1969 0.93 Venezuela 0.26 1974 0.62 Peru 0.43 1970 0.36 Colombia 0.25 1972 0.27 In the early 1960s, therefore, Venezuela, Colombia and Peru all had indus- trial structures characterized by high concentration in the production of traditional consumer goods. Brazilian industry, on the other hand, had already reached a grade of diversification approximately midway between the three Andean countries on the one hand and the US and UK on the other. In the subsequent decade, however, Venezuela experienced the most rapid change in industrial structure of any of these countries. 4. It might be considered that a measure of industrial development so directly related to the expansion of metal-working industries might make Venezuelan industrial development look particularly favorable, since the country's development plans have given emphasis to precisely those indus- tries. Colombia, by contrast, specializes in the production of textiles, which are classified here as traditional industries. As an alternative measure of diversification, the share of food processing industries (including beverages and tobacco) as a percent of total industrial pro- duction may be considered, also from Table 2. 1/ The category of traditional industries, used in some publications of Venezuelan industrial statistics, comprises processed food, beverages, tobacco, textiles, wearing apparel, footwear, wood products, and furniture. Table 2: INfLISTRIAL STRUCTURE IN SELECTED COJUNTRIES (Percentage Distribution of Industrial Value Added, Current Prices) Brazil Colombia Peru U.K. U.S.A. Venezuela 1963 1969 1963 1572 1963 1970 1 1963 172 963 T7-2 1963 1971a 1971b 1974 Traditional Industries 38.4 34.8 55.9 53.0 55.0 50.8 24.9 25.7 23.8 22.5 50.5 46.3 43.2 37.5 Food, beverage, tobacco 18.7 17.1 33.0 30.4 37.7 35.1 11.9 13.6 12.3 10.7 37.9 33.6 27.0 22.6 Textiles, apparel, footwear 15.6 13.5 21.1 21.2 15.6 12.9 10.5 8.9 8.4 7.9 9.7 9.6 13.1 12.2 wood products, furniture 4.1 4.2 1.8 1.4 1.7 2.8 2.5 3.2 3.1 3.9 2.9 3.1 3.1 2.7 Intermediate Products 24.2 28.4 22.3 21.6 14.8 18.8 19.2 20.5 20.5 19.9 19.3 21.4 23.5 19.9 Paper- 2.9 2.7 2.8 3.3 2.7 2.3 3.0 3.1 3.9 3.7 3.6 4.1 4.0 2.3 Chemicals, rubber 16.2 19.9 13.4 13.0 7.9 13.1 12.0 12.9 12.9 12.6 10.3 11.8 13.3 12.8 Ceramics, glass, cement 5.1 5.8 6.1 5.3 4.2 3.4 4.2 4.5 3.7 3.6 5.4 5.5 6.2 4.8 Metal and Mechanical 32.4 32.2 14.0 14.4 23.7 18.5 47.1 44.4 44.2 45.4 13.0 19.4 21.7 23.1 Iron and steel ) ( o.6 2.6) 13.6 5.8 6.2 4.9 5 7) 6.6 2.4 4.1 ( 4-7 4.3 Non-ferrous metals )12.8 11.4 ( 2.1 0.4) 1.9 1.5 1.8) (0.8 1.0 Metal products ) ( 4.5 4.0) 2.6 3.1 6.7 7.3 6.9 8.0 3.3 5.4 5.1 5.1 Machinery 3.1 5.9 1.1 2.6 2.2 2.6 11.2 10.9 9.9 10.7 0.4 0.7 1.1 2.0 Electrical equipment 6.1 6.3 3.2 2.3 0.8 3.0 8.6 8.7 8.5 8.6 2.2 2.5 3.3 3.1 Transport equipment 10.4 8.6 2.5 2.5 4.5 4.0 12.5 11.1 11.4 11.5 4.7 6.7 6.7 7.6 Other 8.0 11.2 6.6 12.2 8.8 9.4 11.5 12.2 17.1 12.9 11.5 19.4 Petroleum refining (witli chemicals) 2.9 5.0 2.3 8.1 1.1 1.1 1.9 1.6 13.5 9.0 7.7 14.3 Other (342, 385, 390) 5.0 4.6 5.1 6.2 4.3 4.1 7.7 8.3 9.6 10.6 3.7 3.9 3.8 5.1 sources: United Nations, The Growth of World Induttry, Vol. 1, 1973 edition. 1963, 1971a Venezuelan data from CORDIPLAN, reproduced in Table 8-2, World Bank, "Current Economic Position and Prospects of Venezuela", 2 Vole., niueo, November 21, 1973. 1971b, 1974 Venezuelan data from Encuesta Industrial. 0l - 62 - Early Seventies 1963 Ratio Year Ratio United States 14 1972 12 United Kingdom 14 1972 15 Brazil 20 1969 18 Venezuela 46 1974 28 Colombia 36 1972 34 Peru 40 1970 40 The conclusions remain the same: Brazil is halfway between the Andean coun- tries and the industrialized countries, and the industrial structure of Colombia and Peru has not changed greatly since 1963, but Venezuela's struc- ture has changed significantly. 5. Industrial expansion has been accomplished partly by keeping up with expending demand in a growing economy and partly by import substitution. It has been affected hardly at all by the growth of manufactured exports. 6. Import substitution of manufactures has mostly occurred at the level of final consumption. This is reflected in statistics on the compo- sition of imports, which show a decreasing proportion of imports represented by manufactures for final consumption. 1/ Less import substitution is to be found in the industrial sector itself. Table 3 shows that the import content of total industrial production was in 1974 almost exactly what it had been in 1966 -- slightly over 18%, measured in current values. Curiously enough, this industrial import coefficient declined significantly during 1966-1971, and then rose again between 1971 and 1974. 7. It is worth noting the differences in this coefficient between traditional consumer goods industries, intermediate goods industries, and metal-mechanical industries, representative coefficients being approximately 10%, 20%, and 30% respectively. Thus the diversification of Venezuelan industry, with its increasing emphasis on the metal-mechanical industries, has tended to raise the import coefficient and increase the import dependence of the industrial sector as a whole. Counteracting this trend is the tend- ency to reduce the coefficient within each particular industry, in many cases through planned import substitution using local content regulations. 1/ The share of consumer products, other than food and beverages, in total merchandise imports declined from 14.6% to 9.4% during 1968- 1975. Source: Statistical Appendix, Vol. I, Table 3.3. -63- Table 3: IMPORT DEPENDENCE OF VENEZJUELAN INDUSTRIAL SBCTOR (Millions of Bolivares) Gross Value Imported of Raw Ratio Production Materials % 1966 Traditional Industries 7,018 800 11.4 Intermediate Products 2,490 433 17.4 Metal - Mechanical 2, 843 1,004 35.3 Other (incl. petroleum refng;) 4,111 181 Total (excl. petroleum refng.) 12,939 2,372 18.3 1971 Traditional Industries 9,998 856 8.6 Intermediate Products 4,270 767 18.0 Metal - Mechanical 4,86o 1,323 27.2 Other (incl. petroleum refng.) 5,173 180 Total (excl. petroleum refng.) 19,830 3,073 15.5 1 974 Traditional Industries 16,440 1,750 1C.6 Intermediate Products 7,215 1,644 22.8 Metal - Mechanical 10,239 2,816 27.5 Other (incl. petroleum refng.) 15,286 218 Total (excl. petroleum refng.) 35,1C7 6,376 18.2 Source: CORDIPLAN and Direcci6n General de Estadstica, Encuesta Industrial, various issues. - 64 - II. GOVERNMENT POLICIES FOR INDUSTRIAL PROMOTION 8. The salient feature of the Venezuelan industrial environment is the high degree of protection from import competition made possible by government policies. By restricting imports, these policies also raise the exchange rate and lower the domestic price of any product whose importation happens not to be restricted. Many Venezuelan firms could compete success- fully against imports at a low, free-trade exchange rate, but the higher, protection-induced rate makes it difficult for any firm to survive without itself receiving protection. By this process the industrial sector has become highly dependent on favorable treatment by governmental policymakers. Possible variations in government policy carry greater potential effect on profitability than does any likely development in cost reduction or new product promotion. 9. As government policy lowers the domestic price of any unrestricted import, so does it also lower the domestic price of exports, and thus tend to discourage export development. Until recently this has not created great concern, since the fundamental, almost exclusive, objective of industrial policy has been import substitution. 10. Five policy tools for promoting industrialization may be identified. The first and most important is protection from import competition through tariffs and quantitative restrictions. Traditionally Venezuela has placed particular emphasis on import licensing rather than tariffs. This practice was apparently encouraged by the commercial treaty signed with the United States in 1939, under the terms of which both countries agreed not to increase tariff levels on a specified list of products. This provision created no difficulty for the United States, which has been intermittently pursuing a policy of tariff reduction ever since 1934. On the other hand, Venezuela, like other Latin American countries, gravitated increasingly toward policies of protected industrialization in succeeding years. The provisions of the 1939 treaty, therefore, bore more heavily on Venezuela, which turned away from tariffs and toward import licensing as the principal method of securing protection from imports. 1/ 11. Along with import licensing, the Venezuelan protective system relied greatly on specific tariffs, which were generally low for imports either not produced domestically or subject to licensing, but which were prohibitively high for other imports which competed directly with national production. Thus revenue collections from tariffs have always been very small, as Table 4 indicates. 1/ It has been pointed out, however, that the 1939 treaty created a style of policymaking more than it created constraints on policymaking. The Treaty covered only 170 tariff items, of which only 35 were subject to license in the early 1960s. However, import licensing was extended to a substantially wider range of imports. (World Bank, "Current Economic Position and Prospects of Venezuela, Vol. VI, Industry," October 12, 1970, p. 24.) -65- Table 4: CUSTOMS REVENUE (Millions of Bolivares) Customs Revenue Total -as Share Customs Total Tax of of Tax Revenue Imports Collection Imports Revenue 1968 341 6,700 5,659 5.1 6.o 1969 359 6,865 5,508 5.2 6.5 1970 422 7,382 6,145 5.7 6.9 1971 428 8,252 8,295 5.2 5.2 1972 468 9,471 8,888 4.9 5.3 1973 468 1C,855 12,086 4.3 3.9 197h 1,056 16,069 32,191 6.6 3.3 Sources: BCV, Informe Economico 1974, pp. A-208, A-255; Anuario Estadistico 1972, Vol. 2, pp. 310, 433. - 66 - 12. The 1939 commercial treaty was denounced by Venezuela in 1972, thereby making possible the replacement of the old protective system with one relying much more heavily on ad valorem tariffs. The new tariff was announced in late 1972 and introduced in May 1973. The nature of the change is illus- trated by the array of products presented in Table 5, which compares equiva- lent ad valorem tariff levels in two selected years before and after the reforms. It will be seen that the post-reform tariff level is substantially higher. In nearly all cases previously subject to import licensing, the specific tariff was generally very low, seldom more than the equivalent of 10% ad valorem, and so the tariff increase was very great. For those products, it was the license rather than the specific tariff which had achieved the protection desired for domestic industry. For products not previously subject to licensing the ad valorem equivalent of the specific tariffs was often very high, but generally higher still after the tariff reform. In those cases where a low tariff without license in 1967 was replaced by a high ad valorem tariff in 1975, e.g. hydrochloric acid, sodium silicate, and sewing machines, a policy of protection had not existed in 1967 but had been introduced before 1975. The change was presumably caused by the initiation of domestic pro- duction in these lines. 13. It should also be noted that specific tariffs and import licenses were diminished in importance but not eliminated by the reforms of 1973. The continuing importance of licenses is illustrated by the data of Table 6. Licenses serve to plug gaps in the tariff wall. Thus, if a customs category covers a variety of products, only some of which are produced in the country, that category becomes subject to a low tariff combined with licensing. License requests made for the purpose of importing the product made within the country are denied; requests for importing other products are approved. 14. The second major tool of government industrial policy consists of the granting of tariff exonerations on the importation of industrial inputs. It has been pointed out in previous studies that the Venezuelan tariff level on raw materials is unusually high. 1/ In fact, these tariffs, are seldom collected. Most industries receive complete exoneration on any inputs sub- ject to a non-trivial tariff and not available from domestic sources. The significance of the high level of raw material tariffs is, therefore, not that industrial consumers are so greatly penalized, but rather that the Government's decisions in granting or denying exonerations are thus made much more important to any firms's profit position. It bears noting that whereas tariffs are established on a permanent basis, exonerations are granted on a case by case basis. 15. Table 7 gives some dimensions of exoneration policy, it should first be noted that the statistics reported from two different ministerial sources agree quite closely on the value of exonerations recommended, but the discrepancy is substantial regarding the value of exonerations actually used. Furthermore, the total of imports exonerated as reported by either 1/ World Bank, "Current Economic Position ...," October 12, 1970, p. 26, Table 23. Table 5: TARIFF CIIANiES IN SELECTED PROItICTS, 1967-1975 Specific Utnit Value Equivalent Actual Andean Group duty/kilo per kilo ad valorem ad valorem Classificatiioii 1967 1975 1967 1975 (Nabandina) % z parme-an Cheese 02-04.t04.03.02 Bs 1 .20 11/ Bs 14.46 8 200 Oats 02-11.02.02.05 0.01 I/ 1.08 1 5 Apple Pies 02-20.05.89.02.01 0.10 1/ 2.60 4 300 Cotton Textiles up to 150 grmis/m2 11-55.09.01.01 34.00 2/ 33.05 103 150 + 20.00 (= 211) Rynthetic Ty2tiles up to 250ghmt/m TEtiesupto11-56.07.01.01 50.00 1/ 2/ 78.4o 64 75 + 90.00(=190) Kraft Paper 10-48.01.05.99.01 1.20 1.52 79 90 Hydrochloric Acid 06-28.06.01.01 0.20 2.19 9 50 -odium Silicates o6-28.45.00.01 0.05 1.11 5 1CO Potassium Silicates 06-28.45.00.02 0.10 1.76 6 -5 Amuonium Nitrate 06-31.02.02.00 0.001 1.02 0.1 50* Tires 07-40.11.01.04 1.00 1/ 10.41 10 80 + 3.00 (109) ;hite Cement 05-25.23.00.02 0.05 0.38 13 30 Automobile engines 16-84.o6.06.00 0.001 9.05 0.01 1 Electric Batteries 16-85.03.01.02.01 0.20 1/ 5.62 4 80 r,Eing Mlachines 16-84.41 . o.00 0.001 47.6 5 80 Stoves 16-85.12.05.01 Free 11.9 0 10 Refrigerators 16-84.15.01.00 0.40 - 0.60 1/ 8.1 5 - 7 110 Wheeled Tractors 17-87.01.02.00 Free 10.6 0 1 Altl tiotilev 17-87.02.01.01.01 0.15 - 1.00 1/ 8.3 2 - 12. 125 1/ Product subject to import licencing 2/ Prohibited if less than 90 cm. wide Sources: Arancel de Aduanas, 1967 1 0th Edition, Caracas, 1967. Arancel de Aduanas, Decreto No. 338, 13 de Agosto 1974, reprinted in Gaceta Oficial No. 1675 Extraordinatio, 30 Agosto 1974. Estadisticas del Coniercio ExteRior de o Venezuela, Boletin Trinestral, Enero-Narzo 1975. -68- Table 6: IMPORT LICENSES Value of Licensed Number of Customs Imports Categories (Bs Million) End of 1972 1973 1974 1971 1972 1973 Food Products 70 13 12 2 51 294 425 Chemicals 59 8 7 247 154 13 Various lanufactures - 221 33 64 367 219 538 Machinery and Transport equipment 113 46 77 1,187 384 661 Other 120 9 38 67 61 39 Total 583 109 198 2,120 1,113 1,676 Percent of total imports 25.6% 11.7% 15.4% 1973 1974 1975 Th.mber of license applications 2' processea 23,738 33,273 28,068 - 1/ Leather. ;.ood products, paper, textiles, clay products, glass, evw elr3, basic metals. 2/ 11 months sources: BCV, Informe Economico 1974, p. A-262 Ministerio de Fomento, Memoria 1974L, Anexo Estadcistico, p. 31. -69- Table 7: TARIIT EXONERATIONS (Millions of Bolivares) Source Recommended Actually Used Value of Exonerations Fomento 1970 1 556 537 1971 150o4 515 1972 1315 31 3 1973 1959 487 197l4 3133 HaciendaZ1 1970( 11 60 639 1 ?71 11468 9614 1F72 1368 10o45 1 73 2027 9614 197714 3689 1760 Value of' Imports Exonerated Fomento 1973 5287 569 1974 7918 Exonerated Imports Paying Total Imports Tariffs Imports Comercio 1970 2,009 /2 5590 7599 Exterior 1973 3,093 81490 11 583 1975 4,344 L3 11620 /3 15964 L3 /1 Hlacienda figures include minor amounts exonerated under Decree 803 (3/25/67) for export promotion, not included in Fomento data. For 1970-74 value of recommended exonerations under Decree 803 were 6, 14, 5, 7 and B million Bs respectively. L2 Includes 1,216 million Ps raw materials and machLneiy (but not vehicles) imported for industry. 2 January-March data rmultiplied by 14. Sources: Ministerio de Fomento, Memoria 1973, p. I-91; Memoria 19714, pp. 41-42, and Anexo Estadistico, pp. 8,11. BCV, Inforne Economico 9714, p. A-261, where cited source is MLinisterio de Hacienda. IDirecci6n General de Estad:stica, Estad-isticas del Comercio Exterior de Venezuela. - 70 - ministerial sources apparently covers only a small part of total exonerations reported in foreign trade data. The surprisingly large discrepancy between recommendations and active use is explaLned by the frequent failure to carry through with import plans because of "economic circumstances, such as scarcity of raw materials and price flunctuations." 1/ The magnitude of tariffs thus exonerated deserves emphasis. Three estimates of the average tariff exonerated may be derived from Table 7: 37% (1973 recommendations, 1959/5287), 40% (1974 recommendations, 3133/7918), and 86% (1973 exonerations actually used, 487/569). Duties exonerated expressed as a percent of total imports of the industrial sector were about 15% by the Fomento data and about 27% by the Hacienda data. 2/ These figures are lower than the 37-86% range of estimates for the average tariff exonerated because many industrial imports come in without exoneration, but with tariffs trivially small in customs cate- gories where imports do not compete with national products. In 1970, for example, foreign trade data show imports of raw materials and machinery for industry valued at Bs 1,216 million for which exonerations were granted, but another Bs 2,571 million for which duties were collected. 3/ Exonerations are required for the same reason that licenses still remain -- as a means of differentiating among products within the same customs category, only some of which are domestically produced. 16. The third tool of government industrial policy consists of local content regulations, which fix dates by which a certain percent of a given industry's inputs, measured by either value or weight, must be of national origin. Such regulations are best known in the automobile industry, which throughout Latin America has been developed under a schedule of increasing local content requirements. The Venezuelan automobile industry is no excep- tion to this general pattern. Several dimensions of the industry's activities are subject to complex regulation. Part of this regulation stipulates the firms authorized to engage in production and the brands they are authorized to produce. The instruments of enforcement consist merely of denying licenses and tariff exonerations to unauthorized firms or brands. 17. These instruments have also been used to reduce the number of firms, brands, and models in order to minimize the inflation of costs caused by loss of economies of scale. The figures in Table 8 show that substantial reduction of this type has already been accomplished, while the volume of 1/ Ministerio de Fomento, Hlemoria 1974, p. 41 2/ Total industrial imports are given by the Encuesta Industrial of 1966 (p. 89, published in 1968), of 1971 (p. 331, published in 1973), and of 1974 (forthcoming). Fomento data from Table 7 give figures of 15% for both 1966 and 1971. Hacienda data from the same table give 28% in 1971 and 27% in 1974. 3/ Direccion General de Estadistica, Boletin de Comercio Exterior, 1970, pp. 173-184. - 71 - automobile production expanded from 50,042 in 1970 to 78,990 in 1974. Never- theless, economies of scale are so important in the automobile industry and the efficient scale of operation so large that, past efforts of consolidation notwithstanding, the industry's production level remains substantially below an efficient scale. This probably explains why the motor vehicle industry is one of the few in Venezuela which operates only one shift per day. 18. Local content regulations, as they were enacted in 1970 and again in 1975, are also shown in Table 8. The required percentages are expressed in value terms and, until 1979, may be satisfied by exporting automotive parts. Subject to certain constraints, firms are free to choose the parts to be produced locally. One important constraint stipulates that any part, once having been produced locally and included in local content, may not be imported at a future date. This provision insulates parts producers from the threat of future import competition. The other important constraint stipulates that the power train (motor, transmission, differential, and connecting shafts) must be locally produced by 1979. 1/ 1/ It should be noted that the 1975 regulations contained local content provisions for automotive parts as well as for the finished vehicle. -72- Table 8: POLICY M'EASURES TOWARD VENEZULJAN ATJTOM4OBILE INDTSTEY No. of Companies No. of Makes No. of Models 1970 1975 1970 1975 1973 1975 Automobiles 8 7 8 53 25 All vehicles 15 15 41 27 98 4j. Local Content Requirements: Automobiles 1970 Norms 1975 TNorms 1971 43% /' 1973 50% above 1970 1975 150% above 1970 1977 48% 1979 45,1; 2 1981 78% 1983 a8% 1985 9 N £1 BJ weight 5 Not including power train, which will be obligatory as of January 1, 1979. Sources: Gaceta Oficial No. 1L26 Extraordinario, 1 sept. 1970. Gaceta Oficial lNo. 1772 Extraordinario 16 Sept. 1975. Ministerio ae Fomento, T-Temoria 1973, p. I-65. - 73 - 19. The national share of total input purchases for the whole transport equipment industry, comprising both automotive and parts industries, rose from 38% in 1971 to 41% in 1974, while the import coefficient declined slightly from 38% to 36%. 1/ While this represents some progress in the incorporation of local content, the actual rate of change has been substan- tially slower than the schedule set forth in the 1970 norms. It seems reason- able, however, to interpret schedules of local content not as forecasts of what will be accomplished, but rather as devices for urging companies on to greater efforts. For companies, an increase in local content may create problems in both quality control and excess cost. For certain parts, the excess cost margin has at times risen as high as 100% over cif import value; the Government has set a goal of reducing this margin to a maximum of 60%. 20. Local content regulation is by no means restricted to the case of automobiles. In recent years, similar regulations have been developed in other industries as a principal means for continuing the Government's policy of industrialization by import substitution past the first stage of industrial- ization in final consumer goods. Table 9 gives a summary of programs in other product lines. It should be noted that all the products involved in these programs come from the mechanical and metal-using industries. 21. A fourth government policv for industrial promotion involves the provision of credit facilities at subsidized interest rates. The importance OI this policy can be assessed only after first assessing the importance of the Government as a source for long-term credit. Unfortunately, the sources of industrial investment funds are not directly documented, but the data of Tables 10 and 11 shed some light on the issue. The magnitudes involved are summarized by the sources and uses data of Table 10, which includes an estimate of annual net long-term credit made tentative by the absence of a breakdown between short-term and long-term loan repayments. Table 11 gives data on institutional source of credit, which covers only long-term lending, but which covers all sectors, rather than industry alone. The sectoral des- tination of lending is not entirely clear in the case of some institutions, but, in general, lending to the industrial sector can be identified with the Corporacion Venezolana de Fomento (CVF), the Corporacion Venezolana de Guayana (CVG), and the financieras and inversoras. 22. In the case of the CVF, 1974 total new lending, not counting loan guarantees, was Bs 97 million, of which Bs 60 million was directed to indus- try. Of all industrial loans 45% went to the food processing industry, re- flecting a long-standing CVF policy to give special attention to that indus- trial subsector. 2/ CVG lending to industry was even more concentrated in one industrial subsector, steel, and in one firm, SIDOR, which forms the backbone of CVG's program for regional development. Total CVG credits outstanding at the end of 1974 were allocated 71% to SIDOR, 26% to EDELCA, the affiliated electric company, 2% to aluminum, and the remaining 1% to a variety of enter- 1/ Encuesta Industrial, 1971 and 1974. 2! Corporacion Venezolana de Fomento, Memoria y Cuenta 1974, pp. 66-67. -74- Table 9: PROGRAMS FOR INCORPORATION OF LOCAL CONTENT No. of parts Incorporation Earmarked Date of Date of Required for Future Product Initiation Latest Stage at Latest Stage Incorporation Air conditioners, vehicles 1-2-71 30-4-72 17 Air conditioners, windows 1-1-71 1-9-73 8 Air conditioners motors 31-7-74 31-7-76 53% by value to 69.9% Washing machines (35% by weight ) motors 31-7-74 31-7-76 (29% by value ) to 514% by wght. Washing machines 31-8-72 31-8-74 38 Elevators 1-4-72 1-4-74 22 Pumps (10 types) 65% by no. of parts Bronze valves (10 types) 1974 Plumbing equipment (11 products) Other products with programs of incorporation begining 1-1-76: industrial fans, concrete mixers, iron and steel valves, television sets, refrigerators, dry cell batteries, blenders, irons, plows. Source: Ministerio de Fomento, Direcci6n de Industrias. - 75 - prises. 1/ The only important non-industrial recipient of CVG lending, then, is EDELCA. Long-term CVG loans to EDELCA amounted to Bs 49 million and 250 million in 1973 and 1974 respectively. 2/ These figures are subtracted from total CVG lending in Table 12; in addition, the ratio 60/97 is applied to total CVF lending as a means of estimating its lending to industry alone. The resulting totals in Table 12 give a rough estimate of the flow of long- term credit to industry from these four types of institutions. A comparison with Table 11 shows that additional sources of long-term credit were drawn on by Venezuelan industry. These included sale of shares to the public, foreign credits, and borrowing from other financial institutions. For as recently as 1973, therefore, it may be concluded that government institutions were of secondary importance as sources for long-term credit, except in the cases of food processing and steel. 23. This situtation has changed with the recent increase in petroleum prices and the consequent vast increase in governnier.t revenues, much of which has been earmarked for industrial development. To this end, the Venezuelan Investment Fund (Fondo de Inversiones de Venezuela) was created in 1974 with an initial capital subscription of Bs 13,000 million. The Fund deals only with projects larger than Bs 50 million, such as those of the state enter- prises in petroleum, petrochemicals, electric power, and basic metals. More diversified lending to industry is the responsibility of the Industrial Cred-.t Fund (Fondo de Credito Industrial) also created in 1974 with a capital sub- scription of Bs 2,000 million to be paid from the government budget over five years. The Industrial Credit Fund finances projects ranging in size from Bs 6 million to 50 million. Its lending will be channeled through other financial institutions, such as the CVF, private banks, and private financieras. Still smaller loans, under Bs 6 million, are the province of Corpoindustrial (Corporacion de la Pequena y Mediana Industria). In practice, these financial boundaries are not always adhered to. While the Industrial Credit Fund has never exceeded the Bs 50 million limit in any loan, many of its loans are for less than Bs 6 million, some even less than Bs 1 million. 3/ 24. The Industrial Credit Fund has established sectoral priorities within industry which derive from the Government's strategy for industrial development. The priority sectors are metal and mechanical industries, chemicals and petrochemicals, paper, wood products, basic food products, and cement. The most important sectors not included are those characterized as traditional industry. The rather wide range of priority industries reflects the Government's interest in continued industrial diversification through import substitution rather than in specialization. To the extent 1/ Corporacion Venezolana de Guayana, Informe Anual 1974, pp. 66, 69, 73 2/ CVG-EDELCA, Informe Anual 1974, p. 26. 3/ Fondo de Credito Industrial, "Informe que se presenta a la Comision de Finanzas de la Camara de Diputados", October 1975. -76- Table 10: S5JRCES AND USES OF FUNDS IN VENEZJELAN IN]XJSTRY (Millions of Bolivares) 1970 1971 1972 1973 Sources Non-Financial 1. Reserves 303 285 152 286 2. Depreciation 272 369 388 374 Financial 3. Capital 321 449 571 2724 4. Loans - short term 376 636 484 904 5. Loans - long term .154 281 1401 580 6. Other 13 19 80 1 79 Uses Non-Financial 7. Fixed assets 606 818 959 963 8. Inventories 259 460 282 528 Financial 9. Cash and deposits 71 67 137 158 10. Loans 417 596 461 2246 11. Shares 85 73 172 256 12. Other 1 25 65 896 Net Increase in Financial Liabilities 1i 290 624 701 831 Gross long-term credit /2 488 749 1052 3483 Net long-term credit /3 193 353 585 1208 1 Lines 3, 4, 5 and 6, imnis lines 9, 10, 11 and 12 2 Lines 3, 5 and 6 3 Lines 3, 5 and 6, mims lines 11, 12 and half of line 10 Source: BCV, Informe Econ6mico 1974, pp. A-42 to A-45. Table 11: LONG-TERM LENDIN BY FINANCIAI, INSTITUTIONS (excluding mortgages) (Millions of Bolivares) Credits Outstanding, end of year _ _et Flow Share Purchases Long-tem Loans Share Purchiases Long-term Loans 1973 1974 1973 1974 1973 1T7 1973 1974 Public Sector Corporaci6n Venezolana de Fomento (CVF) 1,973 ?,060 303 290 167 137 96 -13 Corporacion Venezolana de Guayana (CVG) 2,236 2,256 285 963 21 20 122 678 Banco Agricola y Pecuario 3 11 0 970 -1 8 380 970 Banco de Desarrollo Agropecuario 0 0 194 310 0 0 133 116 Panco Obrero 27 25 806 925 -27 -2 258 119 Other Public Institutions tt 236 183 202 301 75 -53 50 99 Private Sector < Cormnercial Banks 156 184 0 0 b 28 0 0 Insurance Companies 57 68 127 138 -9 11 -7 11 Sociedades Financieras 28 28 384 491 5 0 47 107 Inversoras 339 386 4 22 41 47 -1 18 Fondos y Caia.s de Ahorros 36 43 316 370 2 7 23 54 Other Private Institutions L2 438 57( 17 114 113 132 2 97 Subtotal: CVF, CVG, Financieras, Inversoras 4,576 4,,730 974 1,766 234 154 164 790 L1 Incl. Corpoindustria Z2 Incl. Bolsa de Valores Source: BCV, Informe Economico 1974, pp. A-81 to A-84; Informe Economico 1973, pp. A-67 to A-70. -78- Table 12: TET LONG-TEU-i LENDING TO INDUSTRYr P.Y FOUR FINANCIAL INSTITUTIONS (Millions of Bolivares) Total Net Flow, Share Purchases Net Flow to ana Long-Term Loans Industry 1973 1977 1973 197 Corporecion Venezolana ce Fomento (CVF) 263 71 163 46 Corporacion Venezolana de Guayana (CVG) 143 688 94 438 S-ociedades Financieras 52 107 52 107 Inversoras 40 65 40 65 Total 498 934 349 656 SourceE: Table 11 and text. - 79 - that Venezuelan industrial specialization is developed, it will be done through the larger projects financed by the Venezuelan Investment Fund in petrochemicals and basic metals. 25. Beginning operations in mid-1974, the Industrial Credit Fund extended credits in the amount of Bs 588 million in its first 15 months of operation. Table 13 shows that a substantial portion of these credits were extended outside the priority sectors. The attractiveness of this source of credit for borrowers is evident from the long maturities and the low interest rates, which should be compared to the going rate of 12% for long- term loans from financieras. 26. Before the creation of these new financial institutions in 1974, the Government was an important but not a dominant source of long-term finance for industrial development. Since that time, the importance of governmental long-term credit has increased greatly, to the point where its availability has become a determining factor in investment decisions of the private sector. The availability of government credit has acquired such importance partly because of the sheer volume of credit available, partly because of the interest rate differential between public and private sources which makes such credit particularly attractive. 27. The fifth tool of industrial policy consists of a system of export incentives. A number of such incentives, the most important of which in- volved preferential access to credit from the CVF (Corporacion Venezolana de Fomento), have been in effect since the early 1960s. Their impact on export development was, however, minimal. A much more ambitious program was initiated in recent years, beginning with the Merhav Report in 1971 and fol- lowing with new legislation in 1974. 1/ While an important aspect of the new program consists of additional financing, through the newly created Export Financing Fund (Fondo de Financiamiento a las Exportaciones), the principal incentive lies not in financing but in subsidies, expressed as a percent of f.o.b. export value. The rate depends on the import value embodied in the exported product, ranging from a 30% subsidy for products with no import content down to 11% for 70% import content. The complete scale, which applies to agricultural as well as industrial products is reproduced in Table 14. 28. Industrial exports have been growing rapidly, from Bs 232 million in 1972 to 396 million in 1973 and 744 million in 1974. 2/ Even after this growth, however, industrial exports remain very small by comparison with 1/ CORDIPLAN, Posibilidades de Exportacion de la Industria Venezolana, 1973. "Reglamento de la Ley de Incentivo a la Exportacion", Gaceta Oficial, No. 1758 Extraordinario, July 4, 1975. 2/ BCV, Informe Economico 1974, p. A-255. The totals correspond to Sections 5, 6, 7 and 8 of the Standard International Trade Classification. -80- Taole 13: LENDING OF INDUSTRIAL CREDIT FUND (FONDO DE CREDITO INDUSTRIAL) (Millions of Bolivares) Loans Approved as of October 22, 1975 NIo. of Loans Value By sector Paper, wood products, basic food procucts 14 107 Chemical and petrochemical 12 Metal and mechanical 19 171 Other sectors 28 222 73 37 Ey interest rate 6 - 6-1/2% 10 86 7 - 7-1/2% 32 226 8 - 8-1/2% 16 101 9% 15 175 73 mF Fy matur- by 4 - 9 years 43 207 1C years 22 225 11 - 15 years 8 156 73 77 Dy region Capital (zone A) 18 69 Central Region (zone r) 3C 224 Rest of Country (zones C and D) 25 294 Source: Fonco de Credito Industrial -81- Table 14 : EXPORT INCEITIVES National Value Added Share /1 Export Subsidy 30- 44.9 11 45 - 59.9 16 6C - 69.9 2C 70 - 79.9 23 80 - 89.9 26 90 - 99.9 29 100 30 Export Products with Established Subsidy Rates Product Class No. of producttE Median NTattl Value 'Added Share Food products 257 75 Chemical & pharmedeutical oroducts 49 61 Plastic & r^ubber products 25 52 Paper products 9 65 Textiles, apparel, footwear 59 75 Ceramics, glass, cement 15 76 Steel, non-ferrous metals 31 60 Ytachinery & metal products 51 47 Electrical equipment 11 49 MKiscellaneous 29' 82 /l Export value f.o.b. less direct import content expressed as a percent of export value. Source: Gaceta Oficial, .NIo. 1758 Ectraordinario, 4 July 1975. - 82 - either total exports or total industrial output. The 1974 figure was 1.5% of exports and also 1.5% of the gross value of industrial production. Much of this growth occurred before initiation of the export subsidy system. Evidently more time is required before the impact of the subsidy system can be assessed accurately. It may be concluded now, however, that successful export diversification requires a means of raising the price received for exports as compared to the domestic price level, and that, in the absence of major shifts in exchange rate policy which would permit substantial devalua- tion, the relative price of exports can best be raised by a subsidy system combined with effective macro policy controlling excess demand in the domestic economy. Such a policy package may be necessary but not sufficient for promoting export diversification, since other factors not directly related to relative prices may also obstruct, viz., bottlenecks in the supply of skilled labor, unfamiliarity with overseas marketing networks, lack of confidence in continuation of the subsidy system, port congestion. These obstacles will eventually be overcome if the subsidy system makes exporting profitable, but the lag between setting the incentives properly and achieving the desired export diversification may extend several years. 29. It should also be noted that eventual success in achieving export diversification is likely to create new problems of a fiscal nature. If Venezuela were to achieve the success in export diversification which has been achieved by Colombia, for example, subsidized exports, both industrial and agricultural would be raised, from 2.1% to 24.9% of total exports. 1/ At a median subsidy rate of 23%, as indicated by Table 14, this would involve total annual payments of about Bs 2,300 million. 2/ This figure is more than twice as much as total collections on import tariffs, which amounted to Bs 1,056 million in 1974, which would have represented 7% of total tax collections in that same year. Colombia abandoned its system by stages in 1973 and 1974 after export subsidies had by 1972 risen to equal 5.5% of governmental tax revenues. 3/ 1/ This hypothetical increase of 22.8 percentage points is the same as that realized by Colombia between 1960 and 1971, according to J. Teigeiro and R. Elson, "El Crecimiento de las Exportaciones Menores y el Sistema de Fomento a las Exportaciones en Colombia", Revista del Banco de la Republica, June 1973. "Minor" exports in colombia are all exports except coffee, petroleum and hides. 2/ This assumes total merchandise exports, including petroleum, of Bs 40,000. The total varies greatly from year to year according to petroleum prices and production rates. 3/ Ibid., Table 14. - 83 - III. OTHER GOVERNMENT POLICIES AFFECTING INDUSTRIAL DEVELOPMENT 30. At any given moment, government policies are pursuing multiple objectives, of which industrial development is only one. Some policies directed particularly at other objectives also have major impact on the profitability of industrial activity and, therefore, on the pattern of industrial development. 31. One such policy is that of price control. Such controls were instituted in 1974 as one of the first acts of the new presidential adminis- tration. Prices were first rolled back to their levels as of January 15, 1974, and frozen at those levels until mid-June. Then when the freeze ended a more selective control system, covering only goods deemed essential, was set in its place. Essential goods were defined to be those important for housing, clothing, health, transport, education, and sports. Certain basic foodstuffs were controlled through price lists published periodically by the regulating authority of the Ministerio de Fomento. Producers of other pro- ducts deemed important within these general categories were prohibited from raising prices above their levels of September 1974 without prior ministerial approval. 1/ In practice, ministry officials have been very reluctant to authorize price increases for controlled products. These prices remained virtually frozen from September 1974 through the first quarter of 1976. 32. The statistics of Tables 15 and 16 give some perspective to Vene- zuela's recent experience with inflation and price control. It should first be noted that the inflation which preceded the Government's first actions was mild by European and North American standards and very mild by Latin American standards. However, the second half of 1973 did witness an increase in the annual inflation rate to about 9%, after having remained at or below 3% for several years preceding. This acceleration in inflation is recorded in both wholesale prices and the cost of living. 33. All sectors were at least in part affected by the price freeze from January to mid-June 1974. 2/ Following this, there occurred a great spurt in prices before selective price controls were applied in the following September. This spurt is shown in the 7.1% and 9.6% quarterly increases registered in cost of living and wholesale price index respec- tively between June and September. It cannot be concluded from the pattern of prices alone whether the sharp spurt was created by excess demand which had been repressed by the price freeze, or whether it represented an anticipation of future price controls. 1/ Gazeta Oficial No. 30,491, 4 September 1974. 2/ Some sections, such as candy, crackers and ice creams, appear by the data of Table 16 to have been unaffected by the freeze, since they experienced a strong increase in prices between March and June 1974. In fact all of that observed change occurred in the last 15 days of June, after controls had been removed. -84- Table 15: TRENDS IN COST OF LIVIN( AND WnULtSAL. PRICES (1968 - 100) Caracas Cost Wholesale Price of living Index Change Index Change 1968 100.0 1.2 100.0 1969 102.4 2.14 101.6 1.6 1970 105.0 2.5 103.1 1.5 1971 108.4 3.2 106.7 3-. 1972 111.5 2.9 110.4 3.5 1973 116.1 4.1 117.4 6.3 19714 126.0 8.5 136.8 16.5 1972 Dec 114.3 111.5 March 1114.4 0.1 113.5 1.8 June 115.2 0. 115.9 2.1 Sept 117.5 2.0 121.2 4.6 Dec. 120.1 2.2 123.8 2.1 1974 March 120.9 0.7 128.1 3.5 June 122.2 1.1 133.4 4.1 Sept 130.9 7.1 1416.2 9.6 Dec 1314.8 3.0 148.4 1.5 1975 March 151.7 2.2 June 154.1 1.6 Sept 159.8 3.7 Sources: Anuario Estadistico 1972, Tomo 1, pp. 507, 518, 541. BVC, Informe Economico 1974, pp. A-112, A-119. Informe Economico 1973, pp. A -93, A-105. BCV, Boletin Mensual, various issues, Cuadro II-2-02. Table 16: WHOLESALE PRICE TRENDS OF SELECTED PHDLRCT CIASSES (1 968 = loo0) Change, Se?t Dec March June Sept Dec March June Sept 1974 to Sept 1973 1974 1974 1974 1974 1975 1975 1975 1975 Processed Foods 120.7 122.6 136.5 143.0 145.2 151.7 152.0 153.2 7.1 Meat ~ 125.1 125.1 158.4 157.3 157.4 Candcy, crackers, ice cream 102.6 102.6 122.8 137.1 151.6 Fruit 119.1 119.1 119.1 127.5 127.5 Dair Prodclcts 128.6 133.7 131.9 143.2 145.9 Grains 114.3 114.3 114.3 116.6 116.6 Textiles 115.9 126.4 128.5 131.3 131.6 138.0 141.0 142.5 8.5 Chenical-Pharmaceutical Pr;Oducts 109.1 108.8 115.4 120.5 120.6 124.5 124.0 124.6 3.4 Paper Prducts 119.1 124.1 142.8 148.8 164.8 166.7 174.1 174.1 17.0 Machiner-r and Equipment 132.4 134.0 135.9 144.0 145.7 147.4 149.9 152.4 5.& 8 Agricaltural Machinery 132.9 132.9 132.9 137.5 137.5 Motor Vehicles 125.1 126.5 126.5 130.8 134.1 Constretion Materials 118.7 131.7 142.1 170.5 171.8 172.0 184.9 186.1 9.1 Ceient 102.5 103.0 103.4 106.3 109.5 Metal structures 111.6 113.4 113.4 183.9 183.9 Beverages and Tobacco 114.0 114.0 114.5 140.3 140.3 140.7 140.7 143.4 2.2 Sourcest Same as Table 15 - 86 - 34. The September 1974 list of products subject to control included 93 basic foodstuffs whose maximum prices were published in the decree, plus the following products for which price increases were made subject to prior approval: 25 other classes of foodstuffs, all food product containers made from tinplate, plastic, paper, or cardboard, all textiles, clothing, and shoes, drugs and soap, construction materials (reinforcing rods, cement, plumbing, hardware, sanitary wares, flat glass), refrigerators, stoves, washing machines, sewing machines, school textbooks, notebooks, and pencils, 14 models of automobiles and three of jeeps, all trucks and buses, various automotive parts, all agricultural tools and machinery, pesticides, fertil- izers, baseball, softball, and football equipment (but not tennis or golf), and, finally, a miscellaneous category including paper, resins, plastics, dry cell batteries, cigarettes, and matches. 35. The list covers such a variety of products that it becomes difficult to separate price-controlled from uncontrolled sectors in the available sectoral division of prices, part of which is shown in Table 16. Some sectors show no price increase at all after September 1974, from which it may be inferred that they consist entirely of price-controlled products. Meat, fruit, grains, agricultural machinery, and metal structures for con- struction all follow this pattern. These sectors did, however, experience price increases during the spurt period between June and September 1974, ranging from 2% for grain prices to 62% in the case of metal structures for construction, this latter category consisting almost entirely of reinforcing rods produced by SIDOR. 36. For other sectors which did show some increase in prices, it is not possible to examine separately the price trends of controlled and un- controlled products. During the first year of selective price controls, from September 1974 to September 1975, a period for which the disaggregated data are not yet available, Table 16 presents the paradoxical result of no apparent correlation between average sectoral price increase and the impor- tance of the sector in the Government's price control policies. The most important sectors, food products, textiles, and construction materials, all show price increases in the range of 7% to 9%. Prices of machinery and equipment, much of it uncontrolled, went up only 5.8%. 37. Some of these sectoral price increases may have represented adjustments in controlled prices authorized by the Ministry, but the more important explanation for the widespread nature of such increases is probably just that all sectors contain a variety of uncontrolled products. The general pattern, mentioned previously in the case of automobiles, is for the basic line in a given product class to be price-controlled, and for higher-quality lines to be free of controls. For a firm which produces both controlled and uncontrolled lines, the situation creates some con- fusion, but it also creates the opportunity to recoup potential losses caused by price controls through raising the price of uncontrolled line and not satisfying all demand for the price-controlled line. The resulting shortages of the controlled product persuade the more impatient consumers to switch over to the higher-priced product. - 87 - 38. Many other firms, however, have product lines which are almost entirely price-controlled. Government regulations have attempted to avoid putting such firms in a severe price-cost squeeze by price-controlling their inputs as well as their output. This measure can be at best only partially successful, since wage costs would Lncrease in any event. Average money wages in manufacturing rose 10% in 1972-73 and 18% in 1973-74, representing real wage increases of 5.7% and 8.8% respectively. 1/ Such wage increases are in fact intimately associated with price control policy. At the time of the original price freeze the Government also announced economy-wide wage increases ranging from 25% to 5%, depending on wage level. The combination of wage increases and price freezes was intended to improve the distribution of income without at the same time seriously affecting industrial profit- ability. However, as inflation proceeded during 1975 and into 1976, accom- panied by increasing money wages and a continued price freeze imposed on selected products, the impact on profitability of certain firms has undoubt- edly become more severe than was anticipated when this policy was initiated. 39. A second policy area involves labor legislation for industrial workers. In Venezuela, as in other Latin American countries, a long tradition of wage and welfare policies has helped ensure that a share of the gains from industrialization accrues to workers. Perhaps the most important development in recent labor policy, insofar as impact on industrial growth is concerned, involves not wage increases but severance benefits. Previously the Labor Code had provided for severance pay in the amount of half a month for each year of seniority only if the worker had been discharged for reasons beyond his control. The Code revision introduced in 1974 provided this benefit in cases where the worker voluntarily resigned. 2/ Furthermore, the new Law Against Unjustified Dismissal (Ley contra Despidos Injustificados) provided double indemnification in cases where the worker was discharged without proven cause. This provision has provoked strong criticism from management, since the law also provided that cause would have to be proven to a tripartite tribunal which includes trade union representation. In such a situation, management argues, cause can hardly ever be proven and as a result the prospect of being discharged has become sufficiently attractive to undermine factory discipline. The statistical manifestation of this changed attitude lies in an increasing rate of absenteeism, which before the law typically ran at 3-4% and had risen to about 6-8% toward the end of 1975. A few firms have demonstrated, however, that appropriate incentives can be built into collective bargaining contracts so as to avoid this absenteeism problem, which presently afflicts most Venezuelan industrial firms. Moreover, the connection between changes in the absenteeism rate and changes in output and labor productivity is not apparent and generally not known even by management itself. To take an 1/ Direccion General de Estadistica, indicadores Socioeconomicos y de Coyuntura, No. 2, June 1975, p. 70. 2/ Ley del Trabajo, Gazeta Oficial, No. 1656 Extraordinario, 4 June 1974, Article 37. - 88 - extreme example, some firms have excess workers on the payroll after having purchased new labor-saving equipment; in such cases increasing absenteeism has had no effect on either output or productivity. 40. The third policy area having impact on industrial growth concerns the role of state enterprise in industrial development. Historically, state enterprises have played a minor role in Venezuelan industry. Their beginning dates only from the mid-1950s. In 1955, the Government began construction of a major steel plant on the banks of the Orinoco. Production was initiated in 1962 and the operation subsequently reorganized to its present identity: the CVG Sidururgica del Orinoco (SIDOR). SIDOR endured production and finan- cial problems in its initial years, but after a major reorganization in 1967 the company has recorded operating profits in every subsequent year. 41. In 1956, the Instituto Venezolano de Petroquimica (IVP) began construction of the country's first petrochemical complex, at Moron. Construc- tion was completed in 1963, but in the years that followed various production problems kept output far below capacity levels. The larger Tablazo complex went into production in the early 1970s but has also sustained continuing production problems. As a result, the IVP has found it impossible to produce and market a substantial export surplus over and above domestic requirements for fertilizers and basic chemicals. 42. In 1960 the Government entered into a 50:50 joint venture with Reynolds Aluminum to form Aluminio del Caroni (ALCASA), dedicated primarily to aluminum refining, but with some associated manufacture of finished products. Production began on a small scale in 1967, capacity was expanded steadily in subsequent years, and profits have been generated every year since 1970. 43. These three enterprises form the nucleus of Venezuela's sector of state-owned basic industries. In 1971 they contributed approximately 50% of gross value of chemical and basic metal production, but this represented only 3% of total industrial production. 1/ These sectors may, however, be expected to assume an increasingly important role in Venezuelan industry during coming years. The process of industrial diversification described earlier involves increasing the size of all intermediate and capital goods industries relative to the consumer goods industries which formed the first stages of import substitution. Moreover, the Government has for some time planned to reorient Venezuela's industrial structure towards a specialization in these particular basic industries. The policy has been advanced by the formation and encourage- ment of these very state enterprises. Its continuation is seen in the massive expansion of steel aluminum, and petrochemical production anticipated in The National Development Plan for 1976-1980. 1/ Company reports for 1971 show total revenues of Bs 107.2 million, 521 million, and 87.2 million for IVP, SIDOR and ALCASA respectively. The Encuesta Industrial (1971, Vol. 1, pp. 187-189) shows gross value of production to be Bs 246 million, 973 million and 155 million for basic chemicals and fertilizers (3511 and 3512), basic iron and steel (371) and basic non-ferrous metals (372) respectively. Total gross value of production for all industry was Bs 24,301 million. - 89 - 44. Beyond the vision that industrial development should involve rapid expansion of these basic industries, additional reasons exist for the Govern- ment's decision to entrust this expansion primarily to state enterprise, rather than to the private sector. Two basic themes may be discerned from policy statements on the matter. The first concerns pricing policy and acceptable profit rates. State enterprises, it is asserted, could be made to accept lower profit rates than those required by private investors, and could, therefore, charge less than would a private company. By this view, state enterprise could better undertake import substitution of intermediate products, a process often opposed by consumer goods industries, whose profits are highly dependent on the price of the intermediate goods which they buy. 45. A second and more important reason concerns scale of operation. Basic industries earmarked for expansion by state enterprise are among those in which economies of scale are greatest, and where opportunity for generating competition among private companies is least likely. Some indication of the scale factor is found in Table 17 which ranks Venezuela's industries according to total net fixed assets per establishment. These averages are calculated only for large firms having more than 100 employees. While some heterogeniety remains in this size category, much has been eliminated by excluding establish- ments with 100 or fewer employees. 1/ The averages do not permit an exact size ranking of individual establishments, but the table does demonstrate that in 1971 the state enterprises dwarfed all establishments in the private sector except for the petroleum refineries, now nationalized. SIDOR reported net fixed assets of Bs 1,872 million, IVP between Bs 550 and 600 million, and ALCASA Bs 142 million. It seems likely that, aside from the petroleum refineries, only one or two private establishments, in cement and perhaps also in glass, exceeded Bs 50 million and none exceeded Bs 100 million. 46. Two important arguments for state enterprise derive from this scale factor. First, the capital requirements are in some cases so great that the Venezuelan private sector would find it very difficult to mobilize such amounts. Many foreign enterprises could, of course, and in fact did in the petroleum refineries, but such concentrations of foreign economic power proved to be politically unacceptable. This leads to the second and more important argument for state enterprise which more generally concerns the concentration of economic power. By virtue of their size and of their key position as suppliers to a wide range of other industries, basic industries have been viewed as potentially too powerful to become vested in private hands, whether national or foreign. As state enterprises, it is felt, they would be more responsive to the public will. 47. The expansion of state enterprises in basic sectors has generated both positive and negative effects on investment incentives in the private 1/ Average total net fixed assets for the 453 establishments with more than 100 employees was Bs 17,660,000 in 1971. The comparable figures for all 6,401 industrial establishments in the country was Bs 1,552,000. - 90 - Table 17: SECTORS RANKED BY AVERAGE SIZE OF ESTABLISHMENT (Thousands of Bolivares) Total Net Fixed Assets Four-Digit National Averages per Establishment with Number of Rank Industry more than 100 employees Establishments 1 3511 Basic Chemicals 197,840 3 2 3710 Iron-Steel 179,536 11 3 3530 Petroleum Refining 179,347 10 4 3720 Non-Ferrous Metals 49,926 3 5 3692 Cement 37,130 8 6 3620 Glass 26,822 4 7 3551 Rubber Tires 26,060 4 8 3118 Sugar Refining 24,447 12 9 3610 Clay Products 22,061 3 10 3140 Tobacco 19,905 3 11 3133 Breweries 19,360 8 12 3412 Paper and Cardboard Containers 17,906 11 All Industry 17,660 453 Selected Three-Digit Regional Averages Industry Region 371 Iron-Steel Guayana 1,872,255 1 353 Petroleum Refining West-Central 706,524 2 372 Non-Ferrous Metals Guayana 142,633 1 369 Non-Metallic Minerals North-East 57,109 1 314 Tobacco Central 35,484 1 351 Industrial Chemicals Capital 9,337 1/ 4 1/ 1/ These four establishments include two of the three basic chemicals establishments in the nation, i.e. the two which are not IVP. Therefore, the IVP assets figure must range between Bs 556,172,000 and 593,520,000. (197,840 x 3 equals 593,520. This figure minus 9,337 x 4 equals 556,172) Source: CORDIPLAN, Tercera Encuesta Industrial, Vol I, Tables 2, 21; Tercera Encuesta Industrial; Resutados Regionales (7 Vols). - 91 - sector. The positive effects have been created partly by the maintenance of low input prices to private producers of final goods and partly by the ex- pansion of demand for final goods through the multiplier effects of govern- ment investment in state enterprises. The negative effects have been caused by the absence of clear guidelines regarding the scope of industry considered basic. Lacking such guidelines, private investors have naturally been dis- couraged somewhat from contemplating investment in any sector for which future exclusive reservation for state enterprise remained even a remote possibility. These uncertainties were most keenly felt at the time that a major private sector initiative in petrochemicals was disapproved by the Government after substantial delay. Most recently, however, the Government has made special efforts to define very carefully the scope of production reserved for state enterprise in both petrochemicals and steel. Private sector groups are hope- ful that similar delineation will be established in other borderline industries such as aluminum and cement. IV. THE IMPACT OF GOVERNMENT POLICIES 48. From the previous section, it may be seen that the pursuit of mul- tiple policy goals results in certain contradictions regarding the promotion of industrial development. In some sectors price control has substantially reduced profitability and has, therefore, diminished incentives to undertake further investment for capacity expansion. In a few sectors, problems in the delineation of the area restricted to state enterprise have introduced uncertainty which is potentially discouraging to private investment. And in all sectors, labor policies, to the extent that they have raised wages and reduced labor productivity, have tended to reduce profit margins. Neverthe- less, the strong pace of industrial expansion stands as a reminder to the fact that on balance government policy has strongly promoted industrial development. Despite various policies which in the pursuit of other goals tend to raise risks and lower returns, the industrial policies of a directly promotional nature have more than compensated. Indeed, it will be argued below that the incentives to industrial expansion are probably too generous. 49. The nature of the impact of promotional policies on profit rates and the incentive to invest may be better appreciated through a summary of the means by which the policies are generally applied. The process begins in a given sector with the decision to undertake national production in partial substitution of imports. The decision may result from the initiative either of a private group or of the Ministerio de Fomento, which continually searches out new possibilities for import substitution and advertises them to the private sector. Once a proposal for import substituting production is approved by the Ministry, the Government becomes committed to providing a certain degree of tariff protection. Generally this means increasing the relevant tariff rates from something less than 10% to something more than 50%. Formerly this tariff increase was made upon approval of the project. - 92 - In the last few years, however, increasing concern over production efficiency has caused the Ministry to delay granting tariff protection until after the new firm is in operation and has demonstrated acceptable standards of efficiency, product quality and price. It is very unusual, however, ulti- mately to deny tariff protection for failure to meet such standards. 50. Once tariff protection is raised against competing imports, such protection is, of course, available to any firm wishing to produce the import substituting product. However, two additional policy instruments, exonerations on imported inputs and access to government credit, are administered on a case-by-case basis individually for each firm. When three or four companies have initiated production and completely eliminated imports of the equivalent product, additional latecomer firms desiring to enter the new industry are often denied the government support of exonerations and credit. Faced with such discouragement, a large firm possessing a diversified product line will tend to move into some other sector in which the Government is exercizing active promotional efforts. 51. Such a policy system may serve to economize on scarce capital resources by ensuring that old equipment is not written off too rapidly by the too-rapid introduction of new capital equipment. However, it also has a powerful and unappreciated impact on the structure of competition. By administering policy on a firm-by-firm basis, the Government in fact limits the number of firms in each industry. Other firms outside of Venezuela are unable to offer a competitive challenge because of prohibitive import tariffs. Other firms attempting to build productive facilities within Venezuela are unable to offer a competitive challenge because of denial of equal access to facilitating governmental programs. As a result, the market structure of most Venezuelan industries may be characterized as consisting of remark- ably well entrenched oligopolies, with barriers to entry erected by govern- ment policy. Since these oligopolies are generally organized into trade associations, and since most firms are located in a handful of cities linked by excellent transportation and communications facilities, and since Vene- zuela has a limited tradition of anti-monopoly legislation, it seems very likely that industrial firms generally participate in tacit, if not overt, cooperation with regard to price setting. 52. That the Government is concerned about the monopolistic aspects of the Venezuelan economy is demonstrated by recent initiatives toward the enactment of anti-monopoly legislation. Legislative proposals were an- nounced by the Government in May 1975 and favorably reported on in July by the Permanent Economic Commission of the Congress. Apparently the political momentum has diminished since that date, however. In any event, the limited success of anti-trust policy in a country as large as the Unites States, after nearly a century of concerted governmental effort, raises serious doubts about similar policies in a country like Venezuela, where the market is so much smaller and the imperatives of economies of scale more likely to provide sharp limits both to the number of firms in any given industry and to the prospects for promoting competition. While smallness, among other factors, thus sharply limits the prospects for promoting competition among - 93 - domestic producers, it also presents opportunity, since a small economy is generally an open economy, where potential imports could provide competition for virtually every line of national production. Apparently, then, the most effective means of promoting competition was not considered in the Govern- ment's anti-monopoly proposals. It seems fair to conclude that this was the case because import competion is generally considered too effective a source of competition. That is, it is often feared that unrestricted import competition would drive national producers out of business. What should be at issue, however, is not the present degree of protection versus no protection at all, but rather the degree of protection. 53. It seems generally agreed that monopoly is a problem to the extent that it creates an undesired distribution of income. It is not desired to the extent that the consumer pays too much and that profit rates are too high. It seems reasonable to suppose, therefore, that the objectLves of anti-monopoly policy could be met just as well by a policy of tariff pro- tection which pays close attention to the profit rates made possible by that protection. 54. At present profit margins play virtually no role in the formulation of industrial policy. Government officials recognize this situation as a deficiency in present policy implementation caused partly by the lack of a more exact formulation of the objectives of industrial policy and partly by the lack of trained personnel who could develop and monitor the requisite data reporting system. A first step toward incorporating the profit rate factor into industrial policy is to measure profit rates presently earned in the various sectors of Venezuelan industry. The level of profit rates would cast light on the seriousness of the monopoly problem. The structure of profit rates would cast light on the differentLal impact of government policy on the structure of Venezuelan industry. The analysis of profit rates is, therefore, the principal concern of the next section of this report. The data base is shaky and the results must, therefore, be considered tenta- tive. It is important to make a first attempt, however, partly to suggest a methodological approach and partly to make cautious conclusions on the basis of admittedly fragile statistics. V. THE LEVEL AND STRUCTURE OF PROFIT RATES 55. Fortunately, both the quality and quantity of industrial statistics is very good in Venezuela. Unfortunately, to use those statistics for ana- lyzing profit rates is to place greatest emphasis on their weakest component. An understanding of the limitations of available profits statistics is of sufficient importance to warrant an analysis of alternative sources; this is presented in the Annex to this report. The conclusion of that analysis is that the most useful estimates are those of the 1971 Encuesta Industrial, reproduced in columns 1-3 of Table 18. To summarize the results in a few numbers, after-tax profits as a percent of net worth are estimated to have averaged 19% in 1971. This is nearly double the equivalent rate in the United States, of between 10% and 12%. This 19% figure consisted of before-tax - 94 - Table 18: PROFITS AND PROFIT RATES (Millions of Bolivares) Industry Net Before Net After- Reve- Net Before Revenues Tax Profits Tax Profits nues Tax Profits 1971 1971 as Percent 1974 1974 (1) (2) of Net Worth (4) (5) (3) 311 Food Processing 4,178 426 25 6,826 1,280 312 Animal Feed, Other Food 704 38 22 1,131 163 313 Beverages 1,307 405 81 1,920 940 314 Tobacco 509 38 22 745 186 321 Textiles 1,262 184 22 2,536 670 322 Wearing Apparel 897 171 78 1 ,560 281 323 Leather Products 148 11 18 273 60 324 Footwear 329 22 25 436 67 331 Wood Products 293 20 12 436 85 332 Furniture 371 49 45 577 100 341 Paper 868 174 34 1,419 306 342 Graphic Arts 490 66 24 929 279 351 Industrial Chemicals 350 15 2 590 153 352 Paints, Pharm., Cosmetics 1,290 209 55 2,123 743 353 Petroleum Refining 4,443 176 6 13,980 2,087 354 Petrcleum Derivatives 28 2 16 92 42 355 Rubber Products 470 100 19 690 220 356 Plastic Products 284 30 16 931 238 361 Clay Products 102 22 18 46 7 362 Glass 246 77 49 372 136 369 Cement, Other Nonmetallic 660 26 4 1,044 248 371 Iron - Steel 973 137 5 2,265 342 372 Non-Ferrous Metals 155 19 8 390 100 381 Metal Products 1,025 177 32 1,978 467 382 Machinery 202 25 29 676 209 383 Electrical Machinery 696 1 21 22 1,133 320 384 Automotive 1,809 170 45 3,797 909 385 Photo/Optical 21 4 35 49 17 390 Miscellaneous 191 31 66 236 68 Total 24,301 2,945 19 49,179 10,717 Total (excl. 353,371,372) 18,730 2,613 28 32,544 8,188 Sources: Encuesta Industrial, 1971 and 1974. - 95 - profi.ts of Bs 2,945 million reduced by an average tax rate of 28% to after-tax profits of Bs 2,117 million, and then divided by an estimated total net worth of Bs 11,430 million. If total depreciation charges of Bs 957 million are added to profits, this would give a total cash flow of Bs 3,074 mi.llion and a gross after-tax profit rate of 27%. This means that the average payback period for investment in Venezuelan industry was somewhat less than 4 years. 56. Column 3 of Table 18 shows that profit rates have varied widely among the various sectors of Venezuelan industry. Five industries fell below the 10% level, in each case because of a special circumstance. In three of these industries profits were low because of the presence of a state enter- prise in fi.nancial difficulty. The industrial chemicals sector (351) is dominated by the Insti.tuto Venezolano de PetroquLmica, long a problem enter- prise afflicted with chronic deficits. Iron and steel (371) consists princi- pally of SIDOR, which made losses in the 1960s but pulled into the black during the 1970s. The largest enterprise in non-ferrous metals (372) is ALCASA, a joint venture between the Venezuelan Government and Reynolds Aluminum. Low but positive profits earned by these enterprises should not be interpreted as pri.ma facie evidence of inefficient management. Rather it indicates that the Government chose to go ahead with projects which never held the prospect of earning the profit rates characteristic of other sectors within Venezuelan industry. 57. In the case of the petroleum refi.ning sector (353), its profits are governed entirely by transfer pri.cing decisions relating to both its in- puts and outputs. These prices are set in such a way as to yield a low return on investments in refining. As for the miscellaneous nonmetallic minerals sector (369), its low profit derives from the cement industry, which in 1971 recorded a loss equal to 8% of total net fixed assets. However, the industry's depreciation charges were very high, 31% of reproducible assets in the single year of 1971, suggesting that recorded depreciation was probably substantially higher than true economic depreciation. Adding in the depreciation gives a gross after-tax profit rate of 27%, which is exactly the average rate for all Venezuelan industry. 58. The conclusion of this analysis, subject to the caveats regarding statistical reliability which are elaborated in the Annex to this report, is that industrial profit rates are very high indeed in Venezuela. When petrol- eum refi.ning and the state enterprise-dominated basic metals industries are removed from the total, the average industrial profit rate, net of deprecia- tion and of taxes, rises from 19% to 28%. This figure more accurately re- flects what the private sector, of both national and foreign ownership, is able to earn through industrial investment. It explains why foreign companies in Venezuela have expressed more concern about the 14% limit on profits repatriation, established in Decision 24 of the Andean Group, than have foreign companies operating in other countries of the region. The conclusion is inescapable: The monopoly problem is as serious in Venezuela as it is anywhere in the world. - 96 - 59. Venezuelan industrial development has reached a point where the traditional strategy of import substitution must be replaced or complemented by one emphasizing industrial specialization and export development. The exigencies of Andean Group integration require this change; so does the pros- pect of a diminished role for the petroleum sector in coming decades. That the Government has recognized the need to follow new lines in industrial policy is shown by its efforts at export promotion and in the specialization implicit in industrial develpment plans; greatest emphasis is given to natural-resource-using industries -- steel, aluminum, petrochemicals -- to forward linkages from those basic industries (metal-using industries, ship- building), and to high-income consumer goods (automobiles, other consumer durables). The specializations which are being chosen at the present time held such great importance for Venezuela's future, as to suggest the need to carefully identify the industrial sectors in which Venezuela's comparative advantage lies. One approach to this problem is presented in statistics which begin on Table 19. The caveat stated previously with regard to profit rate statistics should be repeated: the statistical basis of this present section cannot be accepted with sufficient confidence to warrant concluding that this report surely pinpoints the location of Venezuelan industrial comparative advantage. However, the report will serve as a check on Vene- zuelan assumptions about the matter, and also indicate a method by which more accurate estimates can be made in the future. 60. The approach used for this assessment is to reorder industrial sectors as the profit rate ranking would have been if government protection had been uniform to all sectors. This discrimination-free profit rate rank- ing reflects industrial comparative advantage only if a number of assumptions hold, the most important being the absence of distortions in the prices of domestic inputs and factors of production. 1/ These conditions are in fact not fully met. For example, resource-using state enterprises sometimes pay subsidized rates for inputs, e.g., electricity sales to steel and aluminum plants, natural gas sales to the petrochemical industry. In the case of distortions in factor prices, perhaps the most serious concerns management. The productivity of management varies much more widely than do managerial salaries. As a result, profit rates may diverge between industries simply because the firms in one industry are well managed and the firms in another 1/ These assumptions assure that the social gain from pursuing a parti- cular line of production are reflected in the profits earned in that production, and are not distributed to input producers and factors of production as payments in excess of their social opportunity costs. - 97 - industry are poorly managed. This factor may acquire particular importance in the case of large state enterprises which dominate their respective sectors. 1/ 61. The particular discrimination-free profit rate ranking to be calculated is one associated with no tariffs at all. The calculation of what profits would be without tariffs requires an additional assumption: that any tariff adjustment would cause an equivalent shift in domestic industrial prices. This assumption may be expressed another way: that there is no excess protection in the Venezuelan tariff structure. The procedure, then, is first to calculate average nominal tariffs on inputs and outputs for each sector, and then to use these average tariff rates to estimate the gross value of production and cost of local purchases at world prices. These calculations are found in Tables 19 and 20. 62. The basic compilation underlying Table 19 was undertaken by the Instituto de Comercio Exterior, which used an input output table prepared by the Secretariat of the Junta del Acuerdo de Cartagena to calculate effec- tive tariff rates for 360 different sectors. For purposes of this study, it was necessary to reweight the various tariff rates and allocate them within the three-digit SIC classification. The same was done for value- added shares reported in the Andean input output table. In Table 19 they are compared to Venezuelan estimates from the 1971 Encuesta Industrial. In general, the Venezuelan value added share is about 10 percentage points higher than the estimates. 1/ In addition, long run supply curves should be assumed horizontal, so that unit cost is not affected by scale of operation. Otherwise the discrimination-free profit ranking would not be independent of the particular structure determined by present government policy. It seems reasonable to assume that rents are not related to scale and that, therefore, long run cost curves do not rise. It is more likely that, if they were not horizontal, they would decline because of economies of scale. Thus some industries which appear inefficient by a discrimination-free profit ranking might become efficient at a higher scale of operation. While this contingency should be kept in mind, it would appear highly risky to plan for major expansion of such indus- tries in the near future, since the achievement of efficiency would require major penetration of export markets. Another consequence of the assumption of horizontal supply curves is that it rules out the possibility that changes in the actual structure of production would affect profit rankings through changing relative factor prices. Other- wise, to give an example, the boiler industry might expand and thereby raise the relative wage of welders, thereby lowering the relative profit rate of all industries which required large numbers of welders. These various assumptions should be tested in a more carefully done study, but they appear of secondary importance compared to the magnitude of distor- tions created by differential tariff protection. - 98 - Table 19: AVERAGE NOMINAL AND EFFECTIVE PROTECTION, 1975 Nominal Nominal Input Output Effective Valuti aauea &h-re Protection Protection Protection Encuesta inf- Industries tj tn te Andean dustrial 1971 (: ) (9 31 l) 311 Food Processing 120 133 180 .223 .370 312 Animal Feed, Other Food 47 53 70 .254 .274 313 Beverages 115 163 222 .497 .695 314 Tobacco 63 86 110 .487 .293 321 Textiles 141 171 234 .319 .553 322 Wearing Apparel 1 120 163 .320 .51 323 Leather Products 18 24 Z9 .540 .432 324 Footwear 79 104 141 *405 .4Z2 331 Wood Products 65 77 103 .319 .1451 332 Furnitire 123 15? 207 .345 .496 3141 Paper 79 101 137 .380 .472 342 Graphic Arts 36 49 61 .511 .571 351 Indastrial Chemicals 28 37 48 .433 .48o 352 Paints, Pharm., Cosmetics 43 42 40 .344 .625 353 Petroleun Refining 38 43 57 .270 .177 354 Petroleum Derivatives 58 65 88 .40 .*464 355 Rubber Products 50 73 97 .491 .545 356 Plastic Products 88 115 155 .400 .507 361 Clay Products L40 62 82 .523 .735 362 Glass 143 86 116 .588 .6B7 369 Cement, Other Nonmetallic 39 56 76 .456 .603 371 Iron - Steel 18 23 30 .*43o .504t 372 Non-ferrous Metals 39 49 66 *370 .523 381 Metal Products 31 36 46 .347 .520 382 Machinery 414 51 66 .327 .550 383 Electric Machinery 51 60 7B .339 .503 384 Automotive 87 99 134 .261 .386 385 Photo/Optical so 7 5 .334 .6147 390 Miscellaneous 145 55 72 .373 .545 Total 73 87 115 .331 .426 Total(excl. 353) 80 97 129 .345 .482 Source: Nominal and effective protection frov. average tariff calculations made by Instituto de Comercio Exterior hased on 360-sector inputt outpit table prepared tecretariat of tiC Juinta diel cicurdo de Cartagena. Ntoninal protection calculated. as cimpl½ average of proiTcts incluidcd in each sector. Effective protection - calculat,Qtl on 1aisds of n-aa,nal tariffn in slipplying sectors. Avcragcs conrali- dated to sfour-riigit T.IC clan-.ification uiing as vcights the valuc of proeiuction reportci at -evu-n-uigir levyd in I'irccci6n Gener;ad e Estadistica, EnstacA,'tJc:,: In1n;4Icriu 1' 'e',. Viirtclr conlsoLiCataion to throe-dir-it ls!vc lsing i a giltu the guroL4; vai2F5e oL ]J1'ooltCfl in CORDIPLAN, Tercera Encuesta Industrial (19-71). Table 20: 1971 PROFITS IN THE ABSENCE OF 1975 EXONERATIONS AND PROTECTION £1) (2) C3) C4) LA )6) 8) (8) 22) Gross valve of National inputs Imported inputs Industries production (Purchases minus (Purchases minus Actual Domestic World change in inventories) change in inventories) Profits Profits without Profits without prices prices Domestic World Domestic Domestic _exonerations protection prices prices prices with- prices out exoneration with (7)-[(5)-(6)] (7)-[(l)-(2)]+[(3)-(4)] exoneration Pd Pd/1+tn Pd Pd/i+ti Pd(l+.15) Pd 311 Food Processing 4,178 1,793 2,336 1,062 351 305 426 iu - 685 312 Animal Feed, Other Food 704 460 343 233 204 177 38 11 - 96 313 Beverages 1,307 488 281 131 110 96 405 391 - 264 314 Tobac^O 509 274 336 206 15 13 38 36 - 67 321 Textiles 1,262 466 377 156 187 163 184 160 - 391 '22 Wearing Apparel 897 408 364 182 67 58 171 162 - 136 323 Leather Products 148 119 52 44 32 28 11 7 - 10 324 Footwear 329 161 171 95 25 22 22 19 - 70 331 Wood Products 293 166 139 84 17 15 20 18 - 52 332 Furniture 371 147 164 73 15 13 49 47 - 84 341 Paper 868 432 254 142 217 189 174 146 150 342 CrapTic Arts 490 329 98 72 115 100 66 51 - 69 351 Indu:strial Chemicals 350 256 65 51 120 104 15 -1 - 65 352 Paints, Pharm., Cosmetics 1,290 909 246 172 251 218 209 176 - 98 354 Petroleum Derivatives 28 17 9 6 5 4 2 1 - 6 355 Pubber Products 470 272 83 55 133 116 100 83 - 70 356 Plastic Products 284 132 50 27 93 81 30 18 - 99 361 Clay Products 102 63 6 4 18 16 22 20 - 15 3u2 Glass 246 132 36 25 33 29 77 73 - 26 369 Cement, Other Nonmecallic 660 423 193 139 29 25 26 22 - 157 371 lorn - Steel 973 791 231 196 235 204 137 1C6 - 10 372 Nan1r-ferrous Metals 155 104 35 25 37 32 19 14 - 22 381 MeStal Products 1,025 754 274 209 231 201 177 147 - 29 232 Machinery 202 134 50 35 48 42 25 19 - 28 3r3 Electrical Machinery 696 435 147 97 212 184 121 93 - 90 384 Auromotive 1,809 909 428 229 873 759 170 56 - 531 385 Photo/Optical 21 19 4 2 3 3 4 4 + 4 390 Miscellaneous 191 123 49 34 4 35 31 26 - 22 TOTAL (excl. 353) 19,858 10,716 6,821 3,786 3,717 3,232 2,769 2,284 _ 3,338 Sources: Table 18. Also CORDIPLAN, Encuestalndustrial. Petroleum refining (353) is excluded from this table, since in an export sector the domestic prices is a world price. I - 100 - 63. Effective protection is calculated from the usual formula: t - 72 Natural gas liquids (natural gasoline, condensate and LPG) separate from the crude oil stream; r they are assumed to be supplied to internal market. /3 In barrels per calendar day. > 7i Excludes LPG and greases. x 75 Excludes bunkers. Source: Ministry of Mines and Hydrocarbons, 1974-75, Bank estimate, 1976-85. Table 6: PROJECTED SALES PRICES OF VENEZUELAN CRUDE OILS AND REFINED PRODUCTS IN EXPORT AND INTERNAL MARKETS, 1973-85 1973 1974 1975 1976 1977 1978 1979 1980 1985 (in 1974-$) Crude Oils Arabian Light f.o.b. Ras Tanura 3.30 9.77 9.36 9.44 9.50 9.50 9.50 9.50 9.50 Venezuelan freight advantage 1.53 1.20 1.00 0.80 0.80 0.80 0.75 0.70 0.60 Indicated average quality differential -0.48 -0.57 -0.73 -1.14 -0.90 -0.70 -0.60 -0.50 -0.45 Venezuelan crude oil price 4.35 10.40 9.63 9.10 9.40 9.60 9.65 9.70 9.65 (in current-$) Arabian Light f.o.b. Ras Tanura 2.70 9.77 10.71 11.51 12.56 13.56 14.57 15.60 21.88 Venezuelan freight advantage 1.25 1.20 1.15 0.98 1.06 1.14 1.15 1.15 1.38 Indicated quality differential -0.39 -0.57 -0.83 -1.39 -1.19 -1.00 -0.92 -0.80 -1.06 Venezuelan crude oil price 3.56 10.40 11.03 11.10 12.43 13.70 14.80 15.95 22.20 Venezuelan Oil Export Prices Crude oil 3.56 10.40 11.03 11.10 12.43 13.70 14.80 15.95 22.20 Refined products 4.57 11.19 11.85 11.10 12.63 14.10 15.30 16.60 23.20 Average: Crude and products 3.89 10.68 11.19 11.10 12.51 13.88 15.03 16.25 22.70 if Sources: Ministry of Mines and Hydrocarbons Mkemoria y Cuenta, for years 1973-75. Bank estimate for 1976-85. ' D I X Table 7: FREIGHT TO PHILADELPHIA FROM SAUDI ARABIA AND VENEZITJFLA. Cape of Good Hope Suez Canal Good Hope out/ Trans-shipment via both ways both ways Suez Canal back Curacao or Bahamas Worldscale Reference Tariff (1976) (US$ per barrel) Voyage: Ras Tanura-Philadelphia 2.19 2.19 1.61 1.90 1.94 + 0.40 Add Canal/Trans-shipment Charges - - 0.27 0.12 0.20 Punta Cardon-Philadelphia 0.45 0.45 0.45 0.45 0.45 Tanker Size ('000 d.w.t.) Ras Tanura-Philadelphia 80 250 80 120 250/80 Punta Cardon-Philadelphia 80 80 80 80 80 Freight at AFRA for May 1976 (Worldscale) Worldscale rate W77 W50 W77 w58 W50/70 (US$ per barrel) Ras Tanura-Philadelphia 1.69 1.10 1.51 1.22 1.48 Punta Cardon-Philadelphia 0.35 0.35 0.35 0.35 0.35 Venezuelan freight advantage 7T1I3 0.75 1.16 _ 7 1.13 Freight at 3-5 Year Charger Rates (Worldscale) Worldscale rate W70 W35 W70 w50 W35/70 (US$ per barrel) Ras Tdnura-Philadelphia 1.53 0.77 1.40 1.07 1.16 Punta Cardon-Philadelphia 0.32 0.32 0.32 0.32 0.32 Venezuelan freight advantage 1.21 0.45 1.08 0.75 0.84 Note: Actual freight rates are negotiated in relation to Worldscale reference tariff. Examples shown here are (a) the Average Freight Rate Assessment (AFRA) (for different sizes of tankers and weighted by different durations of charter), published monthly by the London Tanker Brokers' Panel and (b) 3-5 year charter rates. Suez Canal dues and Caribbean trans-shipment charges are fixed and not subject to escalation with freight rates. Source: Bank staff estimate. > I- x Table 8: INCOME STATEMENT OF THE VENEZUELAN OIL SECTOR, 1965-1976 (Millions of Bs) 1976 1965 1970 1971 1972 1973 1974 1975 Bank est. Gross revenue Export sales at realized prices Crude oil 7,106 6,931 8,403 8,132 11,586 28,191 24,889 Refined products 3,038 3,531 4,272 4,219 6,746 16,762 10,196 Natural gas liquids - 87 140 222 452 119 700 TT10,T 10,549 12,815 12,573 18,784 45,072 35,785 32,100 Internal Sales Crude 1 1 4 9 35 - 194 - Refined products 537 706 756 826 852 912 1,152 1,250 Gas (natural gas liquids) 43 128 145 158 184 245 179 250 581 835 905 993 1,071 1,157 1,525 1,500 Other income 110 64 76 112 125 334 114 200 Total: at realized prices 10,835 11,448 13,796 13,678 19,980 46,563 37,424 33,800 Less: costs wages and salaries 1,055 1,084 1,100 1, 153 1,296 1,494 1,614 1,600 depreciation and amortization 899 1,044 1,160 1,104 1,075 1,050 9440 1,150 losses or retirement of assets 66 26 51 36 4 24 - technical support fees - - - - - - - 600 other operating costs 1,189 1,382 1,720 1,780 1,917 1,989 3,909 2,400 royalties 2,574 2,869 2,828 2,752 3,653 9,821 7,770 7,640 various taxes 22 34 37 29 29 32 38 - transfer to PETROVEN - _ - - - - - 2.040 Total costs 5,805 6,439 6,896 6,854 7,974 14,410 14,271 15, 430 Net taxable income 5,030 5,009 6,900 6,824 12,006 32,153 23,153 18,370 Income tax 2,392 3,270 4,653 5,558 9,341 29,867 21,305 17, 970 Net profit after tax 2,638 1,739 2,247 1,266 2,665 2,286 1,848 400 Source: Ministry of Mines and Hydrocarbons, 1965-1975; r Bank staff estimate, 1976. @ Table 9: PROJECTED INCOME STATEMENTS OF THE VENEZUELAN OIL SECTOR, 1977-1985 (millions of Bs) 1977 1978 1979 1980 1985 Gross revenue Exports - crude oil 21,850 21,500 22,530 23,596 29,130 products (including NGL) 13,880 17,700 19,210 20.774 27,520 Subtotal - exports 35,730 39,200 41,740 44,370 56,650 Internal Sales Refined products 1,540 1,820 2,120 2,510 5,900 Gas Other income 100 110 120 130 200 Total revenue 37,370 41,130 43,980 47,010 62,750 1 Less: costs wages and salaries 1,650 1,780 1,900 2,040 2,850 depreciation and amortization 1,200 1,290 1,400 1,480 2,o50 technical support fees 700 700 700 700 700 other operating costs 2,650 2,850 3,060 3,270 4,600 royalties 8,530 9,220 9,880 10,600 14,780 transfer to PETROVEN 2,260 2,530 2,700 2,890 3,780 Total costs 16,990 18,370 19,640 20,980 28,760 Net taxable income: at realised prices 20,380 22,670 24,340 26,030 33,990 Income tax 192650 21,980 23,500 25,130 32,740 Net profit after tax 730 780 900 1,250 Source: Bank staff estimates. Appendix - 153 - Table 10: REGULAR PNErROEUM TAXES ACCRUING AND COLLECTED BURING 1965-76 1/ Unit 1965 1 97) 1271 17972 1973 197T 1975 1976 ROIALTIES Output: Liquid hydrocarbons (iilJion cu. mters) 201.53 215.18 205.95 192.05 200.50 177.55 140.59 128.02 Gas subject to tax n n4.55 4.88 4.86 4.39 4.62 4.15 3.33 2.65 Reference prices: Liquid hydrocarbons (C5$ per barrel) 2.63 2.75 2.84 3.14 4.41 11.87 12.17 13.00 Liquid hydrocarbons (Bs per cu. meter) 72.72 76.09 78.47 84.97 116.97 313.64 321.56 Gas subject to tax * n43.52 67.86 69.08 83.85 116.71 526.36 583.90 Royalty rates: Liquid hydrocarbons (S) 17.29 17.24 17.21 16.77 16.68 17.06 ) 16.55 16.67 Gas subject to tax (%) 15.16 15.78 16.46 16.40 17.10 18.55 ) 14.70 14.70 Royalty: Liquid hydrocarbons (Bs Million) 2,534 2,822 2,781 2,736 3,913 9,500 7,484 7,405 Gas I t 30 52 55 60 92 321 286 235 Exchange rate (BS per US$) 4.40 4.40 4.397 4.30 4.213 4.20 4.20 4.25 (Millions of Bolivares) Accrual basis Income tax 2,323 3,270 4,653 5,558 9,341 29,750 21,305 17,970 Royalties - oil 2,534 2,822 2,781 2,736 3,913 9,500 7,484 7,405 -gas 30 52 55 60 92 321 286 235 Surface tax 16 12 12 12 11 11 11 10 Customs duties 23 25 26 22 26 57 20 20 Others 11 18 19 23 6 2 10 - Total: regular petroleum taxes 4,937 6,200 7,546 8,411 13,389 39,642 29,115 25,640 Collection basis Income tax year of accrual 1,875 3,347 4,019 6,252 23,734 18,705 14,376 year after accrual 904 1,388 1,058 1,539 3,089 6,016 2,600 final oart (509) (394) (659) (814) definitive adjustment (381) (994) (399) (725) Tax arrears 58 25 34 10 - - - Less: new oetroleum investment - - - - - -1,8914 -232 Sub total: income tax collection 2,188 2,844 4,770 5,091 7,801 26,822 22,827 16,744 Royalties 2,515 2,850 2,857 2,782 3,369 9,615 8,462 7,003 Surface tax 16 14 12 11 11 12 10 10 Customs duties 23 25 26 22 26 57 27 20 Others 10 18 19 34 14 2 1 - Total: regular petroleum taxes 4,752 5,751 7,684 7,940 11,221 36,508 31,327 23,777 Government exchange profits 75 93 117 82 89 ^364 831 135 Total: petroleum taxes and exchange profits 4,827 5,8h4 7,801 8,022 11,310 36,872 32,158 23,912 1/ Bank staff estimates. Table II: PROJECTED REGULAR PETROLEUM TAXES ACCRUING AND COLLECTED DURING 1976-1985 (millions of bolivares) 1976 1977 1978 1979 1980 1985 Accrual basis: Income tax 17,970 19,650 21,980 23,500 25,130 32,740 Royalties - oil and gas 7,640 8,530 9,220 9,880 10,600 14,780 Minor taxes and customs duties 30 43 46 54 60 100 Total: regular petroleum taxes 25,640 28,223 31,246 33,434 35,790 47,620 Collection basis: Income tax: year of accrual 14,376 15,720 17,584 18,800 20,100 26,190 year after accrual 2,600 3,594 3,930 4,396 4,700 6,240 Less: new petroleum investment -232 -232 - - - - Subtotal: income tax 16,744 19,082 21,514 23,196 24,800 32,430 Royalties 7,003 8,475 9,160 9,820 10,540 14,780 Minor taxes 30 43 46 54 60 100 Total: regular petroleum taxes 23,912 27,600 30,720 33,070 35,400 47,310 Source: Bank staff estimates. x Table 12: BALANCE SHEET OF VENEZUELAN OIL SECTOR, 1965-75 (BEs million) 1965 1970 1971 1972 1973 1974 1975 Assets 11,319 11,352 11,970 12,161 15,263 19,526 17,344 Current assets 3,156 3,118 3.763 3.909 6.596 92993 8.821 Stocks 771 808 989 824 785 1,505 2,471 Oil (349) (375) (448) (349) (326) (527) (1,005) Materials (403) (430) (537) (471) (457) (976) (1,051) Other (19) (3) (4) (4) (2) (2) (415) Cash 134 118 196 182 267 226 215 Accounts receivable 2,228 2 180 2,312 2,736 5,386 8,170 5,394 Other 23 12 266 167 158 92 201 Investments 437 273 265 197 236 546 356 n Net fixed assets 1/ 7 553 7,461 7,434 7,334 7,334 7,799 7,409 Deferred charges 124 457 468 522 757 725 664 Others 49 43 40 199 340 463 634 Liabilities 2,838 4,072 4,292 5,114 7,480 12,046 8,221 Current liabilities 1,735 3,245 3,263 3,653 5,753 10,561 6,853 Fixed liabilities 453 54 222 451 516 492 571 Reserves 639 764 792 997 1,194 972 566 Deferred credits 11 9 15 13 17 21 231 Capital 8,481 7,280 7,7047 7,783 7,480 92123 Preferred shares 142 93 160 150 163 81 - Common shares 3,631 2,761 2,553 2,119 3,545 2,757 4,457 Capital reserves 23 10 19 24 46 52 514 Head office contributions 1,578 237 184 -146 -1,944 350 995 $ Surplus earnings 3,107 4,179 4,762 4,900 5,973 4,240 3,157 1/ For details see Appendix Table 13. Source: Ministry of Mines and Hydrocarbons. Table 13: ACCUMULATED INVESTMENT IN FIXED ASSETS, 1965-75 (Bs millions) Accumuilated investment in fixed assets 1965 1970 1971 1972 1973 1974 1975 (end-year) Gross investment Production 14,707 16,441 16,383 17,082 17,738 18,792 18,815 Transport 2,109 2,445 2,517 2,583 2,722 2,826 3,020 Refining 2,315 3,586 3,654 3,865 3,893 3,909 3,958 Marketing 240 300 294 305 303 294 258 Others 971 875 884 900 909 951 851 Total 20,342 23,647 23,732 24,735 25,565 26,772 26,902 Less: Reserves 12,789 16,186 16,298 17,401 18,231 18,973 19,493 Net Investment Production 5,486 4,790 4,642 4,652 4,743 5,223 4,855 Transport 954 916 955 928 1,030 1,046 1,176 Refineries 675 1,342 1,332 1,284 1,135 1,094 1,031 Marketing 121 115 105 92 76 65 54 Others 317 298 400 378 350 371 293 Total 7,553 7,461 7,434 7,334 7,334 7,799 7,409 Average net fixed assets ~~~~(mid-year) Average net fixed assets 7,665 7,411 7,447 7,384 7,334 7,567 7,6o4 Net profit after taxes: at reported prices 2,638 1,739 2,247 1,266 2,665 2,286 1,848 at reference/fiscal export 2,717 2,174 3,206 3,801 5,820 18,822 13,645 prices Dividends 2,254 1,523 1,386 1,061 1,358 1,447 n.a. (percent) Return on net fixed assets: at reported prices 34.4 23.5 30.2 17.2 36.3 30.2 24.3 at reference/fiscal export 35.4 29.3 43.1 51.5 79.4 248.7 179.5 prices Source: Ministry of Mines and Hydrocarbons. Table 14: SOURCE AND APPLICATION OF FUNDS FOR VENEZUELAN OIL SECTOR, 1965-75 (Bs million) 1965 1970 1971 1972 1973 1974 1975 1971-75 total Application of Funds Net investment in fixed assets Productions 718 943 945 758 829 1,506 1,353 Transport 41 107 134 67 201 163 334 Refining 29 216 170 131 47 113 50 Marketing 12 20 11 7 5 15 50 Others 25 8 27 37 39 163 80 Total 825 1,294 1,287 1,000 1,121 1,960 1,881 7,249 Increase in working capital 250 -486 608 -346 510 -1,286 1,996e 1,482e Financial investments 41 16 27 23 40 334 -190e 2,341e Dividends 2,254 1,523 1,386 1,061 1,358 1,447 n.a. 5,252e Advance payments and deferred charges -24 69 38 58 236 - -271e 61 Other payments - - - - 151 253 171e 575 Total 3,346 2,416 3,346 1,796 3,416 2,708 3,587 14,853 Source of Funds Net profit after tax 2,638 1,739 2,247 1,266 2,665 2,286 1,848 10,312 Depreciation and retirement of assets 965 1,070 1,211 1,140 1,079 1,074 940 5,444 Increase in long-term debt 85 28 195 268 238 -32 Net contributions from head offices -416 -581 -670 -656 -669 527 799e -903e Share issues less retirements 26 -33 255 -250 69 -1,664 Other sources 48 193 108 28 34 517 Total 3,346 2,416 3,346 1,796 3,416 2,708 3,587 14,853 t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Note: e = Bank estimate Source: Ministry of Mines and Hydrocarbons - n ~- ~ . l