We can add beer to our list of Venezuela’s economic casualties. One reason is the plunging price of oil.
This is the story…
On a macro level, the statistics are dismal. Inflation is projected at 500% this year while GDP will probably shrink by 8% after a 5.7% decline last year. The subsidies for gas, housing, medical care that an oil rich economy had supported are no longer affordable.
On a micro basis, attempts by the government to control inflation with price cap ceilings have resulted in shortages of most everyday items ranging from toilet paper and rice to pharmaceutical necessities and water. In addition, businesses, malls, and households have had to cope with regularly occurring electrical outages.
And now beer.
Venezuelans are big beer drinkers–#1 in a list of South American countries. The problem is they were using foreign exchange from oil sales to support their beer habit. When oil revenue plunged, the foreign exchange supply shrunk. Still all was okay because Venezuela’s big beer firm, Empresas Polar, said it would manufacture more beer at home. Now though they have announced they don’t even have enough dollars to pay for the malted barley imports they need. On April 29th, with foreign exchange having dried up, so too will their beer supply.
Our Bottom Line: Foreign Exchange
Venezuela has an official exchange rate, two that apply to individuals and businesses, and one for its black market. So, one dollar can equal 200 bolivars. But if the government wants to import food and medicine, the rate instead is approximately 6.3 and 13.5 bolivars to the dollar. Meanwhile the black market dollar rate is now close to 1000 bolivars.
The result? Creating perverse incentives, government currency control has totally distorted market signals.
No wonder it is impossible to get malt.