Why is food getting cheaper in Venezuela, but only in dollars?

The dollar prices of food have become cheaper throughout the year in one of the most important cities in Venezuela, Maracaibo. It is a curious phenomenon in a country in an economic crisis for a decade, with multiple explanations, according to experts consulted.

The Chamber of Commerce of Maracaibo monitors each month the cost of 45 meals for a family of 5 members in the city, one of the most populated. In December, when the dollar exchange rate skyrocketed, it was worth $514.

This year, this basic family basket has only lowered its cost in that city in the west of the country: in January, it cost 507 dollars; $486 in February, $469 in March and April, $462 in May, and $451 in June. In those 6 months, there are 63 fewer dollars.

Products such as milk, cheese and eggs lowered their prices by 3% between May and June, on average, according to those studies. Coffee and tea reduced prices by 6%, as well as fats and oils (-0.3%) and cereals (-0.4%).

Some foods increased their prices, such as meat and fish, which increased by 1%, or fruits and vegetables, which rose 12% in those 30 days.

The price reduction is only observed in dollars, since the food basket has continued to increase monthly in its expression in bolivars.

This can be explained by looking at the exchange rate: 1 dollar cost 19 bolivars in January and, in mid-June, it already exceeds 28 bolivars. Since the end of 2018, when the government decriminalized the use of the dollar, markets and supermarkets began to publish their prices in US currency.

Demand and the border

The average of the prices of the 45 products evaluated each month decreased, however, due to 2 factors, explains the voice of america the president of that chamber, Alessandro Nanino, from the headquarters of his organization, in Maracaibo.

“The first is the little demand there is (for products). People do not have money and that forces the merchant to lower their (profit) margins, to lower their prices in the hope of maintaining sales volumes that allow them to cover their operating costs and keep the doors open”, he assures.

Consecomercio, the Venezuelan merchants association, said last month that sales in the sector contracted 21% in Caracas during the first 5 months of the year and specified that the situation in the interior of the country was much worse.

The border economy is the second explanation for the reduction in food prices in Maracaibo, the capital of Zulia, a western region that borders Colombia.

“It is the competition of products that enter, often through smuggling, without complying with the legal regime” for their importation, Nanino told the VOA.

This situation is also observed in the eastern and southern regions of Venezuela across the border with Brazil, he explains.

The entry of products with lower quality standards implies lower prices and merchants must adapt to them, says Nanino.

Deflation in progress

The general reduction in the family food basket in cities like Maracaibo is part of a “deflation” in dollars, that is, negative inflation, he explained to the VOA the economist and researcher Aldo Contreras. It is something unprecedented, he remarks.

“It is the opposite phenomenon to what has been happening in the Venezuelan economy in the last 20 years. We see a cumulative deflation in the first semester of minus 0.66%”, especially palpable in shops and supermarkets, he comments.

The drop in food consumption and, therefore, in sales has forced that sector to “reinvent itself,” observes the former president of the Táchira economists’ union.

“They have had to apply strategies to maintain business, lowering their prices, working to find a break-even point (of their accounts) or a point of loss in order to save the business, so that it reaches 2024,” he says.

Another reason for this reduction in food prices in dollars is paradoxical: the high inflation of months ago slowed down consumption, according to experts.

Venezuela has one of the highest inflation rates in the world. Between 2018 and 2022, it experienced a process of hyperinflation, even.

The Central Bank of Venezuela, which does not usually publish figures frequently, indicated in June that inflation for the first semester had been 108.4%.

Between June 2022 and June 2023, prices have increased by 429%, according to the independent Venezuelan Finance Observatory.

Gustavo Machado, economist and teacher, confirms that the “upward pressure” of prices between the end of 2022 and the beginning of 2023 caused “a brake” on demand.

“The slowdown in inflation in recent months has as its fundamental cause the limitations of consumers to purchase products as a result of their real income,” he says.

Seasonality is another key that mentions the voice of america. The harvest seasons of certain fruits would favor better prices, he points out.

Excess inventory

Giorgio Cunto, economist and researcher at the Ecoanalítica firm, mentions that companies accumulated inventories since last year because Venezuelan consumption was expected to continue growing due to the economic “rebound” of 2022.

“The slowdown”, as specialists like Cunto call the slowdown in these improvements last year, surprised merchants with excess inventory.

“Many of these inventories cannot be rotated with the speed that these firms had. Already at the extreme of how much longer they can keep them is when offers begin to be seen to try to mobilize them and open spaces for new (products) and adapt them to current consumption levels ”he says to the VOA.

What Cunto explains is a business strategy similar to the hot potato game, as it is called in Venezuela: it is better to sell the products at a loss instead of having them expire even in the hands of the merchant.

full shelves

The growth of prices during the last half of last year was “hyper stimulated by the macro devaluation” of the Venezuelan bolivar in August and November, says the president of the Datanálisis firm, Luis Vicente León.

Only in August, the dollar went from costing just over 5 bolivars to more than 8 bolivars. It happened then that prices rose so much that they “exceeded the buying capacity frontier of conventional Venezuelans,” diagnoses León.

The average retailer continues to run the risk of being left with “full shelves and cash flow problems” if they do not apply offers while trying to “hold on” for as long as possible the price increase on certain products, such as food, values ​​​​the analyst, from Caracas.

These reductions are not necessarily good news for businessmen, clarifies Nanino, president of the Maracaibo Chamber of Commerce, for his part.

The spokesman fears that it is the prelude to a worse scenario for some of his affiliates, while his organization’s surveys show that 6 out of 10 merchants in the city expect the situation to improve in the current quarter.

“Basically, stores are in clearance mode” of products, between sales and other sales strategies, he says. “And then what comes is the closure.”

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