Boston, MA -- (SBWIRE) -- 01/26/2013 -- While the likelihood of a victory by opposition candidate Henrique Capriles Radonski in Venezuela's October 7 presidential election has increased in recent months, we still believe President Hugo Chavez is the most likely winner. Whatever the outcome of the election, making improvements to Venezuela's deep-seated economic and social problems will be extremely challenging. Venezuela's agricultural and agribusiness sectors remain crippled by a combination of rising input costs, spiralling inflation, poor management and infrastructure, and controlled farmgate prices. With the country increasingly reliant on imports to meet domestic demand, the outlook for the sector is poor. We hold to our forecast that the bolivar will be subject to devaluation following the election. While the overvaluation of the bolivar is exacerbating the problem of competition from imports, devaluation may add to the runaway inflation that is eroding producers' profitability.

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Key Forecasts

- Venezuela faces major political and economic uncertainty in the run-up to and immediate aftermath of the election. Although real GDP growth came in at 5.6% y-o-y in H112, we still expect a sharp slowdown in growth in the second half of the year, as the country's current growth model, which is driven by pre-electoral fiscal and monetary stimulus, is unsustainable. We forecast full-year GDP growth of 4.7% in 2012 and 2.6% in 2013. Consumer price inflation will remain elevated, forecast at 26.0% in 2012 and 20.0% in 2013, the highest level in Latin America. The operating environment will remain very precarious for foreign multinationals in the country.
- The lack of profitability is leading beef producers to leave the sector. The national cattle herd is forecast to shrink by 4.7% y-o-y in 2012 to 12.1mn head. We forecast that production will fall to 290,000 tonnes. This is a bigger fall than previously forecast, owing to producers leaving the sector liquidating their herds. We see production increasing to 297,000 tonnes in 2013. Policy changes after the presidential election could mean production increases further. We forecast production reaching 321,000 tonnes in 2016.
- After shooting up by 49.1% to 1.31mn bags in 2011 due to an increase in imports, we forecast that coffee consumption will increase only marginally in 2012 to reach 1.32mn bags. We forecast consumption remaining at a similar level in 2013. Through to 2016, we forecast demand growing by 4.5% on the high 2011 level to 1.36mn bags.

Key Trends And Developments

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