Millions experience food insecurity due to macroeconomic factors

• In Venezuela, the recent economic growth and informal dollarization have favored stable income and improved purchasing power for households that receive their wages in dollars (USD). However, structural macroeconomic challenges, such as generally low income and modest increases in USD prices, are putting pressure on household budgets. Given this context, most Venezuelan households are likely to experience acute food insecurity (IPC Phase 2) through September 2023. These households will be forced to use coping strategies to cover their food needs, such as reducing the quality or diversity of their diet or using savings or taking on loans.

• Millions of households receive their salary in local currency, the bolivar digital (VED), and thus have very weak purchasing power; for some, this is exacerbated by limited access to the social protection system and a lack of international remittances. As overall inflation remains significantly high due to the continued depreciation of the local currency, income for these pockets of the population is insufficient to cover constant price increases. This results in the use of unsustainable coping strategies or consumption gaps, causing these households to be in Crisis (IPC Phase 3) throughout the outlook period. These households are spread throughout the country in urban and peri-urban areas, with some concentrated populations likely around the capital and in the Zulia region; however, these populations will not be a sufficient percentage to change the departmental-level area classification.

• Access to food in recent years for most Venezuelans has been constrained due to the depreciation of the local currency, significantly high inflation, and a reduction in economic activity and employment opportunities. During 2022, average monthly inflation and average year-on-year inflation were at 12 and 221 percent, respectively; while, in the first quarter of this year, they were at 17 and 395 percent, respectively. Through September, monthly and year-on-year inflation are expected to be higher than in 2022 due to the continued depreciation of the local currency. However, they will remain below 15 percent and 400 percent, respectively, and a return to hyperinflation is not expected in 2023.

• Although increases in food prices in local and foreign currency are expected to be moderate, the cost of the basic food basket will rise faster starting in July during the crop growing season and the lean season in rural areas, even though most food is imported. However, the pace of increases will be lower for prices in USD due to the volatility of the local currency. With an almost entirely urban population, income received in USD and remittances are expected to be stable throughout the outlook period. Meanwhile, access to food for households earning in local currency will improve slightly in the face of an expected increase in the minimum wage between June and September.

Livelihood context: Given that almost 90 percent of the Venezuelan population has predominantly urban livelihoods, a large share of households relies heavily on market purchase as a source of food. Food availability in Venezuelan markets depends on imports and, to a lesser extent, on local production. However, producer households in rural areas, especially in Guárico, Cojedes, Portuguesa, and Barinas, are partially supplied by own-production during the year. The dietary pattern is strongly based on rice, maize flour, pasta, and oil, using ocumo, ahuyama, and cassava as substitutes. Chicken and eggs are the most common sources of protein.

Domestic and imported food supply: Harvests from domestic production are in two cycles, between February and May, and from September onwards. In 2023, USDA estimates indicate that the 2022 maize harvest was 36 percent higher compared to 2021, while the 2023 crop will increase 34 percent compared to 2022. On the other hand, the ongoing rice crop will increase by 11 percent compared to the same period in 2022. This trend is due to an expansion in production area and an improvement in yields. This increase in output was attained through incentives based on better sale prices and access to inputs, such as better seeds, and credit from non-governmental actors. Nevertheless, expected volumes are 31 and 26 percent below the figures reported in 2013 ¹ for rice and yellow maize, respectively.

Between July and September, the onset of the El Niño phenomenon is expected, bringing lower rainfall accumulations and higher temperatures, especially in northern areas. However, the development and yields of staple grains and cash crops are not expected to be negatively affected due to the widespread use of irrigation in affected areas. However, despite the relative increase in domestic production, the government and the private sector will still have to import food such as rice and yellow maize to meet domestic demand, mainly from Mexico, Brazil, the United States, and Guyana, according to COMTRADE. Modest increases in local production are expected to decrease imports by 17 and 9 percent for rice and maize, respectively. Imports occur throughout the year, but seasonal increases occur between March and April, and in September. Substitutes such as cassava, ocumo, and ahuyama will begin to be harvested in July, when their seasonal availability increases in markets. Similarly, animal protein production will be stable compared to the beginning of the year. Consequently, food availability for this outlook period will be stable, with markets well supplied.

Macroeconomic context: Since 2014, Venezuela has experienced reductions in government revenues, local currency depreciation, runaway inflation, and a reduction in productivity that affected job creation, all of which limits household purchasing power. Because of the loss of the value of the local currency, the digital bolivar (VED), an informal dollarization was established in recent years to preserve purchasing power and facilitate commercial transactions. Under this system, there are groups of the population that receive their income exclusively in one of the two currencies. In addition, market prices are in both currencies, although the majority of the population makes purchases using USD. For those who receive their salaries in VED, they have to exchange them into USD first, losing value in the exchange. Almost half of the transactions in metropolitan areas are made in USD. During the outlook period, inflation is expected to continue to rise in VED, because of the continued depreciation. However, the slowdown in VED depreciation will mean a moderation in the increase of overall inflation and prices in VED, while prices in USD will only slightly increase. Because of this price difference, households that receive their salaries in USD will not feel the impact of VED inflation and will maintain stable purchasing power. In spite of the lack of data on inflation in March from the Central Bank of Venezuela (BCV), Síntesis Financiera estimates a 4.5 percent monthly inflation rate, while year-on-year inflation is at 393 percent. In recent weeks, inflation has slowed down due to a contraction in demand with drops in sales volumes; in this context, companies are inhibited from increasing prices at the cost of reduced profit margins.

Food prices: Due to prevailing macroeconomic conditions in the country, prices of staple food basket products in VED show significant variations in short periods of time, evidenced by an average monthly inflation rate of 12 percent in 2022 and 17 percent in the first quarter of 2023. The cost of a simple diet, which includes grains such as rice, maize flour, and pasta, with substitutes such as tubers and oil, increased between February and March by five and six percent in USD and VED, respectively, reaching 112 USD and 2,755 VED (Figure 1). The cost of the diversified diet that includes cereals, oil, tubers (ocumo, and cassava), vegetables, and protein (chicken, canned tuna, and eggs), was 246 USD and 6,128 VED in March, representing stability with respect to the previous month.

During the outlook period, food prices are expected to rise in both USD and VED, but price variations will be moderate in USD and more extreme in VED due to the depreciation of the VED. The expected behavior of inflation will result in higher food prices throughout the projection period due to the loss of value of the local currency. Although the supply of grains between April and June tends to increase due to higher volumes from local harvests and higher imports, it will only moderately slow the pace of price increases during this period, especially in VED. Starting in July, during the crop growing season and the lean season in rural areas, prices will increase more significantly, also affecting the preference for chicken protein and eggs. Substitute food prices will see seasonal improvement due to their availability between June and September.  

Household income sources: Venezuelan households' access to food is a determining factor in their food security and is characterized by the fluctuation of the local currency and the distribution of vouchers, through the social protection system and salary adjustments. Currently, income is stable and comprises the salary, which represents 80 percent of the total, and the social protection system and remittances, which together make up the remaining 20 percent. Sources of employment play a role in differentiating household purchasing power, given the disparity in prices for both currencies. The majority of those with jobs work in the formal private sector (28 percent) or in the informal economy (57 percent), and earn their wages in USD, while the public sector (which employs approximately 21 percent of those working) typically pays in VED. Households receiving wages in VED are generally public workers and retirees who receive a maximum of almost 2,500 VED per month, equivalent to 100 USD. In comparison, in the private sector, the average minimum wage is 170 USD per month, but for those working in the informal economy, their wages tend to vary from month to month. Remittances also make up a large part of income, but generally, wealthier households are the ones that receive them, in larger amounts and with greater frequency. Not all migrants, especially the poor and very poor, are able to send remittances back to Venezuela. Nevertheless, remittances help stimulate the local economy.

Social protection programs: The social protection system in Venezuela is comprised of two branches: Sistema la Patria vouchers, which are monthly vouchers in VED whose value ranges between 4 and 15 USD, and the CLAP (Comités Locales de Abastecimiento y Producción), which are food boxes delivered directly to Venezuelan households on a monthly or bimonthly basis, with a subsidized cost of only 25 VED. Distributions are according to the household composition (whether they include students, retirees, and/or infants, among others), and are directly linked to the government's public spending capacity. In the case of vouchers, households with higher income are generally more informed about the various vouchers and programs and, therefore, end up receiving more. Conversely, poor and very poor households generally apply to fewer programs and consequently receive fewer vouchers. The CLAP delivered in March included yellow maize, rice, sugar, canned sardines, pasta, ground coffee, and a fortified flour called Nutrichicha, and covered between 13 and 20 percent of the caloric needs of an average three-person household. In recent years, the coverage of bimonthly distributions has declined slightly, while that of monthly distributions has increased slightly. Currently, it is estimated that approximately 35 percent of households in Venezuela receive monthly distributions, 50 percent receive the boxes every two months, and the rest do not receive CLAP.

Projected food security outcomes: Due to the dollarization of the economy and improvements resulting from long-term price stability in USD, households earning in USD have seen an increase in their access to food in recent years. For April to May, food and voucher distributions by the social protection system and wages are expected to be stable and remittances will remain above average, while moderate increases in USD prices are expected. Thus, the majority of rural and urban households, who are employed in the private or informal sector with access to USD pay, remittances, and social programs, will experience Stressed (IPC Phase 2) food insecurity. The most affected will be those employed in the informal economy with variable wages. These improvements will not be enough to prevent them from using coping strategies such as spending their savings, buying cheaper food, or accumulating loans to cover their food and other essential needs. Nonetheless, urban and peri-urban households receiving their wages in VED will face steadily rising prices and a monthly VED inflation rate below 15 percent, with a stable income worth less and less each month. The continued loss of the value of the VED against the USD will also force more households to convert their VED to USD for food expenditures, but their purchasing power will remain very weak. In addition, a proportion of these food insecure, vulnerable households do not have remittances and/or receive no or very few vouchers and CLAP boxes. This combination of factors is resulting in the presence of pockets of the population, dispersed throughout the country, in Crisis (IPC Phase 3) occurs, who will experience consumption gaps or who will resort to other unsustainable coping strategies. To cover these gaps, these households accumulate atypical debts, deplete savings, or even migrate. The results of a survey funded by international donors indicated that there are significant concentrations of these households around the capital and in the Zulia region, but the very limited information suggests that the proportion of these households is not sufficient to change the area-level food insecurity phase classification to Crisis (IPC Phase 3).

The June to September period coincides with the lean season in rural areas and seasonal increases in food prices. Despite a relative increase in domestic agricultural production this year, the upcoming harvest will not cover domestic demand; however, imports are likely to offset the difference. Prices, including food prices, are expected to report more moderate increases, and monthly inflation is expected to remain below 10 percent, although overall inflation will continue its upward trend. The expected increase in the minimum wage in VED will improve income for households receiving it in the local currency. This will partially mitigate the negative impacts of the upward trends in food prices for these households. At the same time, USD wages will remain stable so that households earning in USD will not see a negative impact on their purchasing power. In addition, above-average remittances and stable social protection system programs, both vouchers and CLAP, will support access to staple foods. However, inflation will continue its upward trend, negatively affecting the purchasing power of Venezuelans earning in VED. In addition, the high dependence on imports and the high expenditure on food in the household economy make households that receive their salaries in VED vulnerable to food price increases. As a result, most urban and rural households will continue to be Stressed (IPC Phase 2). The exception continues to be households that receive wages in VED, that do not receive bonuses, receive CLAP every two months, and do not receive remittances, especially in the aforementioned areas, resulting in Crisis (IPC Phase 3) outcomes for these households through September.

Recommended Citation: FEWS NET. Venezuela Remote Monitoring Report, April 2023: Millions experience food insecurity due to macroeconomic factors, 2023.