Venezuela's price control leaves no room for profits
Controls may bring regulated commodities supply down
The model the Venezuelan Executive Office used to regulate the price of basic commodities leaves behind the negotiations held with actors of the production and commercialization chain. It also seeks to set a ceiling to profits arising from the sales of those products in each of the links of the chain.
According to Food Minister Carlos Osorio, most essential basic commodities will be imposed a 3-5% profit margin.
Analysts from the food sector reckon that the aforesaid model –adopted by the National Superintendence of Fair Costs and Prices (Sundecop) a year ago- does not include the products' commercial dynamism. Such products are suffering a wide accumulated price gap.
"This is an attack against the market's competition and against economic freedom in general. Today producer prices are negative in products such as precooked flour and rice despite the recent adjustment. The methodology they have been implementing is confusing. Many producers trade their own products," an analyst said.
By keeping control throughout the commercialization chain, the industries and stores will further depend on the Government to set prices and profit margins.
It is also believed that time will tell what the impact of regulations on supply will be. This will depend on the steps taken on those commodities, "yet the control is on profits, which leads to distortions. If profits are below production costs, it will bring about distortion in businesses; only those products yielding more profits will be sold."
Translated by Jhean Cabrera
Cristian Fonseca, a businessman in La Candelaria district downtown Caracas, was doing the accounts in his small shop office on Sunday December 21, 2008. The Christmas shopping season kept him working late hours into the night. It was around 11 p.m. and his phone rang. A friend broke the bad news to him over the telephone.