Herd mentality

vacas2(1)“I’m telling you man, we Venezuelans are the best managers in the world.”

My buddy Diógenes is sitting across a miniature sized table from me. We are sipping (what I think is) coffee in a noisy Maracaibo panadería. The buzz from the air conditioner is so loud we’re forced to practically scream – I still think that’s the reason why caraqueños say maracuchos are so loud.

Diógenes is telling me about his life as a cattle farmer in Bolivarian Venezuela. We are not being terribly quiet, which makes me kind of nervous, but the cashier is distracted with her Blackberry. She couldn’t care less – she’s probably heard it all before.

“In Japan…and Luxembourg…y en las mollejas aquellas,” he continues, “when the interest rates go up by one percent, people jump out of buildings and plunge knives into their stomachs. Here…? When you consider las vergas we have to deal with here, and how we are able to adapt and go with it…I’m telling you man, if you run a business in Venezuela, you can run it anywhere.”

I ask him what the main obstacle to his business is.

He doesn’t hesitate: “it has to be the permits to be able to take each animal to the slaughterhouse.”

Wait, I ask him, each animal needs a permit?!

“Yeah. The government instituted this policy that every head of cattle that goes to the slaughterhouse has to have paperwork by which the government approves it for human consumption. They say it’s because they want to eliminate foot-and-mouth disease … which is difficult to do if the government is constantly importing live cattle from Brazil or Nicaragua, places where the disease is rife.”

It’s a classic case of undoing with your feet what you’re trying to do with your hands.

“The permit has three parts. The trickiest part is the vaccine – the government has to make sure all your cattle has been properly vaccinated, and any animal taken to the slaughterhouse has to have that paper. The problem is that the government is the only one who can import the vaccine, and it’s been unavailable for months!”

“So, wait,” I ask him. “You’re telling me you haven’t killed a cow in months?!”

“Yeah right,” he smirks at me. “As if I’m gonna pay attention to the government. We’ve been pleading with them to give us the permits or give us the vaccines. What do you want, I tell them … for people to now have meat in the markets at all? You know what’s happening with chicken. Do they want people to simply have no protein at all?”

“At one point,” Diógenes says, “I simply said ‘screw it’ and headed to the slaughterhouse with no permits. In my pocket I had 500 BsF for the Guardia Nacional, 500 BsF for the guy in the slaughter house, and an extra 500 BsFs, just in case. It’s either that … or no business at all.”

I tell him that’s mighty dangerous. He tells me it’s the only way to do business and sell meat.

He goes on talking … about how the informal markets are the only places where he can make a buck, about how they are controlled by the military, about how official prices have been frozen for years, about how individual meat sellers know how to get around the controls, and about the multiple shakedowns he faces all along the chain of production. The details are new to me, yet it all sounds so very familiar at the same time.

“Take a step back,” I ask him. “Why put yourself through it?”

Diógenes is clearly conflicted about what the regime has done to him. I’ve known him since we were kids, and he’s a principled, honest man. His family has owned the farm outside La Villa del Rosario for generations.

“Well, I’ve bought myself an insurance policy, thanks to Chávez.”

I ask him about that. Insurance against chavismo? Maybe I need some of that.

“No, no, it’s not the type of insurance you’re thinking of.”

“A few months ago, I got a call from the bank,” he says. “Because my family has owned the farm for years, our papers are clean, so we’re in less danger of being expropriated than other farms. The government is forcing banks to provide loans for agriculture, and with the uncertainty in the market, banks are having a hard time coming up with people to lend to. The guy from the bank even offered me money to give me the loan.”

“I took out a huge loan on the farm, and quickly changed it in the black market. Sure, I used some of the money and invested … the minimum. The rest? It’s overseas. That way, if Maduro o un revergo de esos comes to expropriate me, they can take the farm. El peo es entre el gobierno y los bancos – it becomes a problem between the government and the banks.”

That would be rough, I tell him. Maracaibo is rife with stories of farmers who have gone to places like Panama and Costa Rica, only to find farming there a completely different ballgame. Many do not succeed.

“I know,” he tells me. “If I have to leave, I’m done with farming. I’ll use the money and open some sort of business. Thankfully, my wife had our babies in the US, so they’re Americans. And if what we think will happen ends up happening, well … I’ll just have to start over. Forget the whole thing.”

He reminds me of his car, the one we rode here in. It was broken into a few days ago, with the burglars taking the entire dashboard, the headrests, and the airbags … all in the space of ten minutes.

“The things that are happening are beyond comprehension. It’s my kids’ future … that’s the only thing I care about. The farm? The future? It might as well be gone.”

He looks down at his coffee, thinking of his father, who died much too soon of a heart attack, of all the hours he spent making the farm what it used to be, what it once promised to be. Dreams that, someday soon, may well be dashed.

47 thoughts on “Herd mentality

  1. One thing about the vaccines, a lot of times the government simply skips quality control on those and issues them to whatever farmer is lucky enough to get their hands on them, then you’ll have a case like my dad’s friend who agreed to enter a “cooperativa” and got his pigs (He’s a pig farmer, duh) vaccinated, only to see 90% of them die of an allergic reaction to the vaccines. That was 6 years ago or so, needless to say he had to close down the farm and now has to be supported financially by his son.

  2. Friends who grew up in Bulgaria, Hungary, or Czechoslovakia tell me that a standard practice was to make it impossible to comply with all the rules. The expectation was that everyone would then have a dark secret, which made everyone potentially prosecutable. The only way to survive was by keeping your mouth shut, to avoid The Investigation, which would surely turn something up.

    • They have already done that with the exchange controls.
      Most businesses that deal in anything imported have to break the rules or not stay open.

    • The Investigation — a la criolla, por supuesto — is the reason that I’m kinda nervous for Diógenes, based on the information you provide here, Juan. I don’t think it would be too difficult for the government to track him down.

        • Un ganadero zuliano que no cumple todas las normas locas que inventó Jaua para joderles la vida…you just narrowed it down to EVERY CATTLE RANCHER IN ZULIA STATE!

          • Cattle rancher whose first name is Diógenes, whose “family has owned the farm outside La Villa del Rosario for generations”, who has taken “out a huge loan on the farm”, whose wife delivered their “babies in the US, so they’re Americans”, and one or two other details that, together, would be a no-brainer for a KGB-trained investigator.

            Or am I getting too paranoid? Or did I live too many years, hearing my dad, who had been jailed during Gómez’ dictatorship, automatically quiet his voice, anytime he spoke about politics ‘en la cuarta’.

  3. I love it when Juan reaches into his (sprawling, Maracucho simpático) network and comes back with stories like this. Writing about “regulatory overreach” in the abstract is never going to have the power of a story like this to make the reader taste the absurdity of the Permit Raj.

    Just keep stories like this in mind the next time you see some chavestoid official blame shortages on hoarding, or credit it as a marvellous advance of the revolutionary process as seen in rising demand from the poor.

    • Common sense tells us it’s a combination of all factors. It’s pretty hard to ignore rising consumption, imports and national production all at the same time.

      • What’s the worth of a gazillion bolívares fuertes when you cannot buy milk, flour, sugar or butter with them? Given that toilet paper is a no-show in some places, we might as well use our bolivar bills as substitute. They’ll about the same worth in the not so distant future, just like the peso cubano.

        What ever happened to all the state-owned companies that are supposed to provide the market with socialist coffee, sugar, corn flour and whatnot? Where are all the socialist products? Shouldn’t the socialist-based business model be already flooding all our houses with high quality, abundant and incredibly cheap food? Wasn’t that the WHOLE point when they forcibly expropriated them?

        And the food shortages and inflation are spreading all over the place:
        http://www.el-nacional.com/caracas/barrios-acabo-fiao_0_154186718.html

      • It’s just like Juan said: It’s a classic case of undoing with your feet what you’re trying to do with your hands.
        Government gives poor people money, but them it takes the money away via devaluation, inflation and scarcity. All of them are not a bourgueoise conspiracy, they are the consequence of poor economic policies.

        Get rid of Giordani and things might get better….

      • A-G-A-I-N! Rising consumption would be met by rising production or rising imports, or rising prices in a short time. Even in Venezuela. Can you get that past the Socialist propaganda flooding your head right now?

        And it’s sheer idiocy, to actually say that an increasing amount of currency following a diminishing amounts of goods can be a good thing. It’s an admission of FAILURE. EPIC FAIL!

      • This whole notion that rising demand is a reasonable explanation for shortages is just pure comedy, Yoyo – ahistorical, economically illiterate and just silly really. It’s not just that there’s no basis for it anywhere else in the world, including places where poverty is dropping considerably faster than in Venezuela, such as Brazil, Vietnam and China. It’s not just that there’s no historical precedent for it – the longest period of fast middle-class creation in Venezuelan history from 1936 to 1973 went off without serious shortages. It’s that it rests on a type of economic reasoning that doesn’t withstand any kind of scrutiny at all.

        You’ve often expressed disappointment on this forum that your ideas are not taken seriously and debated properly. If you want to know why, you really should start by examining this one.

        • I’m not saying its the only reason. But ignoring it outright reveals your blind bias against arguments that relieve the government of blame. If per capita consumption of affected goods had remained at 1999 levels, there would be no shortages.

          • And if expropriations of farmland, of Agri Businesses like Agroisleña, of manufacturing concerns remained at 1999 levels then we probably would not have shortages either, right?

          • You cannot ignore all three as they are interrelated. Any time you have rising consumption, you have two basic outcomes from the sell-side: either national production will increase to meet demand, or failing that, imports will increase to meet demand. (Alternately, if you have large already existing imports structured in, if increased national production outpaced growth in consumption, it would crowd out imports thereby reducing them.) Nominally, national production is a long-term fix while imports are a short-term fix, because it is generally advantageous for a producer to meet the demand domestically given lower transportation costs, time to market, lack of tariffs, etc. This does exclude comparative advantage/specialization, if for no other reason than there’s generally always some sort of national production of a product, otherwise it is all imports.

            In any event, there is a net result in the interim as production generally lags behind demand (due to new entrants to the market as it becomes more profitable or more market space is created with lower cost entry points: equilibrium price increases slightly until the demand is met (between imports and production). As prices rise, demand is dampened…if you’ve taken a basic economics class, you’ve seen the S-D charts, and this makes sense. A few other issues also exist, but the most important is that when imports increase dramatically, you tend to run into a balance of trade issue via current accounts eventually becoming a deficit…this puts pressure on the currency which impacts imports and creates inflationary pressure. In theory, as the currency weakens, this should be more advantageous to domestic producers since their cost of production remains within the currency whereas importers and the scenario should begin to reverse itself somewhat.

            There’s a problem here specific to Venezuela however which kind of twists this whole paradigm. Can you guess what it is?

            If you haven’t already, it comes down to the government being overly involved in all aspects of regular trade and fiscal development mechanisms. Price ceilings crowd out local producers, not only because they are set at a national level, but they fail to take in local conditions and costs of production. Currency controls make it impossible to acquire dollars through regular channels and this stymies imports to make up the gap created by the dearth of local production. Subsidized products at lower prices mean the gap in cost of goods sold and market price is made up by the government which is relying largely on imports at this point. Currency is fixed and available in insufficient quantities through a wholely insufficient government construct, completely ignoring macroeconomic realities which gives rise to the black market and the dolar paralelo.

            Consumption may be up, but this should still spike the prices to equilibrize at a substantially higher point and lower demand accordingly…but it doesn’t. Why? Because between the price fixing, the need for a black market for any sort of private entity trade, the crowded-out and uncompetitive domestic production, the bottom of the barrel imports at subsidized prices and their decline (in both quantity AND quality) due to unsustainability, and weakened currency, you have unmet demand.

            Unmet demand is just a fancy way economists have of saying “shortages” without having to stand in line to buy one stick of butter. (Note: that sounds more optimistic than the dismal science typically allows.)

            So, is there any entity, of any sort, within Venezuela that could have such wide-ranging policy effects that cause all of the above? Anything or anyone at all? Bueller? Bueller? It isn’t as if we’ve seen a concentration of power in any given entity these last few years, is it?

            The sad thing is that Venezuela’s sole export (let us call it what it really is) has been excellent at masking these growing problems (particularly in its current account/balance of trade ledgers) because its capitalist market price has been so high.

            Now THAT is irony: a “socialist” government relying entirely on a capitalist market to survive.

          • Who said we blame the government alone? We blame a broken system, in part continued, in part created by the present government.

        • Notice that Toro doesn’t actually make an argument to disprove anything. He simply calls Yoyo’s argument “ahistorical” and “silly”, but then gives no explanation of why. Typical of Toro’s vapid nonsense.

      • What national production yoyo? Where is it?

        My business makes packaging for among other things, food.

        Used to be that MERCAL and PDVAL contracted with us and other manufacturers to produce packaging for rice, sugar, flour, beans etc.

        The orders are waayyyyyyy down or non existent. You can’t package this stuff in air, so where is all the food coming from?

        Aja, baliame esa pues…….

      • Its not just rising consumption, its AN EXPLOSION in consumption, as the food consumption statistics clearly show.

        http://www.fedeagro.org/consumo/default.asp

        Toro says this is “ahistorical” and “silly” but then compares it to a 40 year period of gradual growth in consumption as proof that consumption growth doesn’t create shortages. Talk about “ahistorical” and “silly”.

        Venezuelan food consumption has grown by about 50 percent PER CAPITA over the last decade, and then you have to add a 30 percent growth in total population on top of that.

        Of course this creates all kinds of supply problems, not only because domestic production cannot grow as fast as consumption, but also because of all sorts of bottlenecks and issues with ramping up imports so quickly. For example, the nation’s ports are not adequate for handling such a rapid increase in imports.

        Toro says poverty is dropping faster in other places like Brazil and China, which is not only false, but it doesn’t even matter. What matters is how fast consumption is rising, and it has VERY CLEARLY risen much faster in Venezuela over the last decade:

        https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&strail=false&bcs=d&nselm=h&met_y=ne_con_prvt_pc_kd&scale_y=lin&ind_y=false&rdim=region&idim=country:VEN:CHN:BRA&ifdim=region&hl=en&dl=en&ind=false&q=venezuela+gdp

        • I find it hard to reply to such complete and utter tosh without getting angry so I’ll just igonre get a clue and yoyo. Even if there were a 200 percent increase in consumption and a 100 percent increase in population there is still no reason to excuse such shortages even WITHOUT the huge increase in oil revenue…producing food isn’t very difficult, especially in a fertile country. Get a clue, you really need to get a fucking clue! I suggest you look up tales of Soviet cement and cement bag production. And look up Che’s sugar production disaster…it may give a hint as to where Venezuela’s problem lies

  4. Quick summary: Lourdes Ortega stands accused of inciting unrest with her tweets (there is also mention of an accusation of impersonating a government official, by that they might mean that she released statements regarding the government in an unauthorized way… not sure)

  5. The specific tweet that caused the bruhaha says simply: “I don’t know but he [Chavez] has been turned into a wax figure”

  6. Great history, I enjoyed reading the maracucho slang!! Kafka’s must be learning with Venezuela! The jewel of the crown would be that the vaccines are cuban (and as expected non reactives!)

  7. This piece brings home the fact that the agricultural succeses trumpeted by the regimes statistics are fake or heavily doctored . You cant have the statistics that the MAT publishes with all the problems and barriers mentioned in this article . There is a Fedeagro presentation of March 2012 by Antonio Pestana (“Comportamiento de la Agricultura en los ultimos años y los factores que inciden en los resultados”) that gives a lie to the official production figures and points out to the many difficulties that producers face because of governamental neglect or mismanagement or its confiscation of productive lands.
    example . ” Las cifras del MAT estan divorciadas de la realidad , las diferencias entre el MAT y Fedeagro son significativas, el MAT sobrestima en el 2011 la produccion de : maiz en un 40%…,arroz en un 31%……, caña de azucar en un 36%……….cafe en un 109% …..sorgo en un 526% ” , he points out that they dont publish statistics but have their estimates based on data they collect from multiple sources . This stands to reason, their prices are set at the whim of the Regime , if they publish statistics that put a lie to those of the regimes they are exposed to all kind of reprisals . the presentation is full of detailed graphs showing how the Government manipulates statistics and the many barriers they face to maximize their production , they specially complain of how the government subsidises prices by buying products which they can produce locally but which they prefer to buy abroad benefiting foreign producers ( I wager there are other transaction costs in the import of food which profit people with good links to the powers that be) .

  8. It’s a great post, and part of why Caracas Chronicles is so indispensable. INSERT HERE: prior rants about the shallow reporting, in which Venezuelans are only allowed to fall into two stereotypes: (1) humble Chavista, or (2) rich anti-Chavista.

  9. Funny, it’s not the first time I hear that of “I’m telling you man, if you run a business in Venezuela, you can run it anywhere.”
    I wonder if some people really think this is true. As you very well say at the end, “…who have gone to places like Panama and Costa Rica, only to find farming there a completely different ballgame. Many do not succeed.”
    The ballgame is that in other places – or in many of – is that you have to play by the rules, and many simply don’t know how to do that. The infamous “vivismo criollo” is so deep into their systems that they don’t succeed, or they end up in jail.

    • I have always thought of the “run a business in Vnzla=succeed everywhere else” a spin-off of the Broken Window fallacy. That is, businessmen are devoting much of their efforts developing a skill that cannot be used anywhere else. The key here is the opportunity cost of developing that skill: what would be of Diogenes’ business if he didn’t have to use his brain power to charm/pay off the NG? Could it be possible that that brain power would be invested in things like innovation or diversification?

      You can make this argument for many other cases in the Venezuelan economy: what would be of the young men (and yes, they are mostly men) fresh out of reputable colleges in Venezuela that decided to become “permuteros”? Certainly they are making a lot of money now, but the skills that they are developing might very well be worthless on relatively sound economy. Those young men could have been learning actual finance, or started productive businesses, or simple have become outstanding managers in reputable firms. Instead… well, they’re rich… but they may not be able to contribute to as much to a “normal” economy -if a normal economy ever comes back.

      But then again, they’re so rich they might not have to.

      • I have some close friends working inside two big mass consumer marketing companies with business inside and outside Venezuela and they tell me an incredible tale , they say that according to the international managers they work with , even if Venezuela is the most difficult place in which to do business compared to almost any other latin american country, they usually do better here than they do elsewhere . Perhaps something to do with the crazed consumerist culture that oil wealth has created among Venezuelans , even the poorest of them . Ive seen many poor people spend their last cent in making absolutely frivolous purchases they can hardly afford !! Marx commodity fetichism is alive and well among marginalized venezuelans.

        • I think that has more to do with the very high barriers of entry and the lack of competition that allows for huge profits. Also many foreign companies they do their accounting at the official rate, in which the result is massive earning ins dollars but that they never materialize because the government doesn’t sell foreign currency to these companies.

          When the currency is devalued, these company make huge losses, and in reality their are a lot less profitable than they account for.

  10. In many articles I read, one complain that always comes up is that prices have been frozen for many, many years so I cannot make a profit. I moved to Venezuela 2 1/2 years ago. Beef was at ~BsF. 40/kg, now I pay BsF. 95/kg for the same product. That’s a 137.5% increase. The same applies to many other products which prices are controlled.

  11. I’m reading Einstein’s bio and maybe because i want to justify my decision to finally leave demasiado- although i must clarify that in my case it was for love, i got married in december- my northirish husband looooves caracas, it’s mountains and it’s people, so we had thought of living there and in US -where he came escaping the IRA violence 30 years ago- for a few months. einstein left his beloved house, and beloved sailing boat and beloved sons and beloved europe when he realized he couldn’t express himself ( in every way) freely enough. The time had come to leave.
    my father was born in rumania, where my grandfather had a very big forest lumber latifund -which nowadays is an urbanized community- he escaped the commies and the nazis to find peace, work and freedom in Venezuela. he died at 93 sad that his country (su patria nueva) was losing those characteristics. so i understand diógenes becuase there comes a time where the “circus acts” one has to engage to preserve livelihood are not justified anymore.

  12. Excellent article. These generalized phenomena of exploding private-sector productivity obstruction and criminalization are the reason that it is useless to only look at macro-numbers to understand the chavista economy and its failure.

  13. Great piece. Add to that the necessity of paying a large vacuna for something that is not disease related, in many parts of the country.

  14. “Herd Mentality” <<< … A nice pun*, a definite like.

    [*pun, also called paronomasia, suggests two or more meanings, by exploiting multiple meanings of words] (and/or situations)

  15. One of the consequences of the increasing informality regarding things such as beef and slaughterhouses are iffy sanitary conditions and inspection protocols. This Sunday I purchased some beef in the Maracay Mercado Libre. There was no electricity on this occasion so I had no opportunity to inspect it properly in the darkness, but at home my wife and I detected dozens of small white globules within the meat. First time ever, but they seemed like Taenia cysts as far as we could tell. The missus threw it out promptly. Maybe it was something else, but the way things are, with plummeting quality standards in almost anything, we decided to take no chances. The days of consuming rare or medium rare are gone, except for the more adventurous or foolhardy.

Comments are closed.