1i2?t2020 Venezuela Faces Shortages in Grocery Staples The New York Times 5hr .'Xu ork Elam; l'Vi'th Venezuelan Food Shortages, Some Blame Price Controls By William Noun-tart April 20. 201.2 CARACAS, Venezuela By 6:30 am, a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries. \"Whatever I can get,\" said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. \"You buy what they have\" Venezuela is one of the world's top oil producers at a time of soaring energy prices, yet shortages of staples like milk. meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition. Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil. The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese even quail eggs but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf. Asked where a shopper could get milk on a day when that. too, was out of stock, a manager said with sarcasm, \"At Chavez's house." At the heart of the debate is President Hugo Chavez's socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to nd. \"Venezuela is too rich a country to have this,\" Nery Reyes. 55, a restaurant worker. said outside a government-subsidized store in the workingclass Santa Rosalia neighborhood. \"I'm wasting my day here standing in line to buy one chicken and some rice.\" Venezuela was long one of the most prosperous countries in the region. with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities. But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chavez and his ministers say they are trying to eliminate. They blame unfettered capitalism for the country's economic ills and argue that controls are needed to keep prices in check in a country where ination rose to 216 percent last year, one of the highest rates in the world. They say companies cause shortages on purpose, holding products off the markct to push up prices. This month, the government required price cuts on fruit juice, toothpaste, disposablc diapers and more than a dozen other products. \"We are not asking them to lose money, just that they make money in a rational way, that they don't rob the people," Mr. Chavez said recently. But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a prot. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest. in January, according to a scarcity index compiled by the Central Bank of Venezuela. the difculty of nding basic goods on store shelves was at its worst level since 2|] 08. While that measure has eased considerably, many products can still be hard to come by. Datanalisis, a polling firm that regularly tracks scar-cities, said that powdered milk, a staple here, could not be found in 42 percent of the stores its researchers visited in early March. Liquid milk can be even harder to nd. Other products in short supply last month, according to Datanalisis, included beef, chicken, vegetable oil and sugar. The polling rm also says that the problem is most extreme in the government-subsidized stores that were created to provide affordable food to the poor. But with ination so crippling, many shoppers at those stores said the inconvenience was worth it. \"It's an enormous help,\" said Ana Lozano, 62, a retiree who takes in ironing to supplement hcr pension, who was waiting outside the Santa Rosalia grocery. \"That's why there's such a long line.\" The government appears keenly aware of the twin threats of shortages and ination as it prepares for the October election in which Mr. Chavez is seeking a new six-year term. The price controls have been defended in government advertisements and accompanied by repeated threats from Mr. Chavez to nationalize any company that cannot keep its products on the market. Vice President Elias Jaua has warned of a media campaign to frighten Venezuelans into hoarding, which would provoke artificial shortages. Government advertisements urge consumers not to succumb to panic buying, using a proverbial admonition: Bread for today is hunger for tomorrow. Francisco Rodriguez, an economist with Bank of America Merrill Lynch who studies the Venezuelan economy, said the g0vernment might scone some political points with the new round of price controls. But over time, he argued, they will spell trouble for the economy. \"In the medium to long term, this is going to be a disaster,\" Mr. Rodriguez said. The price controls also mean that products missing from store shelves usually show up on the black market at much higher prices, a Source of outrage for many. For government supporters, that is proof of speculation. Others say it is the consequence of a misguided policy. Emilio Ortiz, 52, a shop owner, said he could buy sugar and powdered milk from his distributors only once last year. He gets cooking oil once a month, but only about half of what he requests. He also said that profits were so low on controlled products that he must raise other prices to compensate. One of his customers asked it the store had Harina Pan, which is considered the quintessential local brand of our to use in making arepas, the signature corn cakes that are a staple of the Venezuelan diet. \"There isn't any," Mr. Ortiz said. It would be like an American store not having any Coca-Cola. The customer asked if other stores nearby carried it. \"You can't nd it," Mr. Ortiz said glumly. If there is one product that Venezuela should be able to produce in abundance it is coffee, a major crop here for centuries. Until 2009. Venezuela was a coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in production. Farmers and coffee roasters say the problem is simple: retail price controls keep prots close to or below what it costs farmers to grow and harvest the coffee. As a result, many do not invest in new plantings or fertilizer, or they cutback on the amount of land used to grow coffee. Making matters worse, the recent harvest was poor in many areas. A group representing sm all- to medium-size roasters said last month that there was no domestic coffee left on the wholesale market the earliest time of year that industry leaders could remember such supplies running out. The group announced a deal with the government to buy imported beans to keep coffee on store shelves. Similar problems have played out With other agricultural products under price controls. like lags in production and rising imports for beef. milk and corn. Waiting in line to buy chicken and other staples, Jenny Montero, 3t], recalled how she could not nd cooking oil last fall and had to switch from the fried food she prefers to soups and stews. \"It was good for me,\" she said drily. pushing her 14monthold daughter in a stroller. \"I lost several pounds.\" Chapter 2 Thinking like a economist Households -own the factors of production, sell/rent them to firms for income -buy and consume goods and services Firms -buy/hire factors of production use them to produce goods and services -sell goods and services Figure 1 The circular flow Revenue Markets for Spending G & S Goods & Services G & S sold bought Firms Households Factors of Labor, land production Markets for capital Factors of Wages, rent, Production Income profit Points on the PPF: possible Efficient: all resources are fully utilized Points under the PPF: possible Not efficient: some resources are underutilized Points above the PPF Not possible Shape of PPF Straight line: constant opportunity cost - Bowed outward: increasing opportunity cost Positive statements: descriptive (attempt to describe the world as it is) Normative statements: prescriptive (attempt to prescribe what we should do) Chapter 3 Interdependence and the gains from trade Absolute advantage- the ability to produce a good using fewer inputs than another producer Without trade, both countries produce and consume along their PPFs. With trade, each country specializes in the production of one good and trades it for another good, which allows it to consume above its PPF. Conclusion: trade makes both country better Comparative advantage- the ability to produce a good at a lower opportunity cost than another producerChapter 4 The market forces of supply and demand Law of demand When the price falls, the quantity demanded rises When the price of a good rises the quantity demanded of the good falls - Other things being equal, when the price of a good rises, the quantity demanded of the good falls (if this happens, the demand curve shifts) Increase in income leading to an increase in quantity/ an increase in demand (demand curve shifts to the right) Normal good Increase in income leading to a decrease in demand (Inferior good) Summary: Demand Summary: Supply Variable An change in this variable ... Variable An change in this variable ... Price of the good itself represents a movement leads to a change in quantity Price of the good itself represents a movement leads to a change in quantity along the demand curve demanded along the supply curve supplied Income shifts the demand curve leads to a change in demand Input prices shifts the supply curve leads to a change in supply Price of related goods shifts the demand curve leads to a change in demand Technology shifts the supply curve leads to a change in supply Tastes shifts the demand curve leads to a change in demand Expectations about shifts the supply curve leads to a change in supply future price Expectations about shifts the demand curve leads to a change in demand Number of sellers shifts the supply curve leads to a change in supply future income or price Number of buyers shifts the demand curve leads to a change in demand Law of supply When the price of a good rises, the quantity supplied of the good rises (the supply curve shifts) When the price falls, the quantity supplies falls EXAMPLE 1: A Shift in Demand EXAMPLE 2: A Shift in Supply EVENT TO BE ANALYZED EVENT: New technology Decrease in the price of gas. reduces cost of producing SUVs. STEP 1: Demand curve shifts STEP 1: Supply curve shifts because price of gas affects because event affects cost of demand for SUVs. (Why?) P production. STEP 2: Demand shifts right STEP 2: Supply shifts right because low gas price makes because event reduces cost, P SUVs more attractive. makes production more STEP 3: The shift causes an profitable at any given price. P2 X. increase in price and quantity of STEP 3: The shift causes price SUVS D2 to fall and quantity to rise. Q - Q Q Q2 21 Q2IEXAMPLE 3: A Shift in Both Supply and Demand EXAMPLE 3: A Shift in Both Supply and Demand EVENTS: Price of gas EVENTS: Price of gas declines AND new P declines AND new technology reduces S. S, 19'3""01093' Will-I093 production coals production coals p P _ STEP 1: com curves shin. 'P _ STEP 2: Both swam ' Liabl- STEP 3: a rises. but the STEP 3: (Prices. but the WW: 0'- D\" W- a a o It demand increases more ' 0' But it supply increases than supply. P rises. more than demand. P falls. I Chapter 5 Elasticity and its application Price elasticity of demand- measure the price sensitivity of buyers demand - 1. Use the midpoint method to calculate the percentage change in quantity demanded and value 0'st start value 0'an % change in Qd : midpoint ('de - 2. Use the midpoint method to calculate the percentage change in price end value of'P start value of P midpoint of P - 3. Use the Ed formula to calculate Ed %chan'ne in Qd Ed : % change in P : [it change in P Demand curve - Demand is elastic (price elasticity of demand > 1) - Demand is inelastic (price elasticity of demand 0 Complements: cross-price elasticity > 0 Variety of supply curves Supply is unit elastic (price of supply = 1) Supply is elastic (price of supply > 1) Supply is inelastic (price of supply