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Food insecurity continues to be driven by limited household purchasing power

  • Remote Monitoring Report
  • Venezuela
  • June 2023
Food insecurity continues to be driven by limited household purchasing power

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  • Key Messages
  • Current and Projected Anomalies
  • Projected outlook through January 2024
  • Key Messages
    • Most Venezuelan households have several sources of income, both in local currency (VED) and in dollars (USD). The value of these income sources, coupled with recent increases in government social protection program benefits, are generally sufficient to satisfy a household’s minimum kilocalorie requirements. However, poor households continue to face financial limitations on the quality and diversity of their diet due to high food and non-food prices, driving Stressed (IPC Phase 2) acute food insecurity outcomes at the state-level through at least January 2024.

    • Access to food is constrained by limited purchasing power, especially for very poor households whose only source of income is in local currency (VED) – such as public sector workers and retirees – and who do not have access to monthly social protection program benefits or international remittances. These households are most likely experiencing food consumption gaps or use negative coping strategies to meet their basic food needs, and they are assessed to face Crisis (IPC Phase 3) outcomes until at least January. However, the number of households in this phase is expected to decrease based on increases in income and, therefore, improved access to food driven by the government's increase to the Cesta Ticket, the Bono Contra la Guerra Económica (Economic Crisis Benefit) and seasonal double salary payments between October and January. While the majority of these households are in urban and peri-urban areas of the country, there are important concentrations in the Zulia region and in and around the Capital District, although they are estimated to comprise less than 20 percent of the state-level population.

    • In May, the monthly cost of purchasing sufficient food (2,100 kilocalories per person per day) in VED and USD remained stable compared to last month. However, the cost increased when compared to May 2022, demonstrating the persistent financial constraints on access to food, especially for households that receive most or all of their income in VED. While households will see income gains in the coming months, and while this is expected to partially compensate for higher food prices, the depreciation of the local currency, general inflation, and exchange rate fluctuations will continue to prevent more significant improvements in purchasing power among very poor households.

    • In May, the depreciation of the VED against the USD was 6.5 percent – resulting from increased public spending associated with the increase in the value of the Cesta Ticket and the Bono Contra la Guerra Económica – after remaining stable in April and March. However, the volatility of the exchange rate has slowed down due to the greater availability of foreign currency from oil exports. Nevertheless, the loss in the value of the local currency and the rise in inflation are expected to continue, especially between October and January, driven by the seasonal increase in public spending at the end of the year.e of VED is expected with the seasonal increase in public spending, especially from October to January.


    Current and Projected Anomalies
    AreaCurrent anomaliesProjected anomalies
    Domestic
    • Local maize and rice production continues to recover as economic conditions and investment have improved. In addition, conditions have been favorable for crop growth despite erratic rainfall in production areas.
    • In June, the exchange rate was stable due to the increased availability of foreign exchange in the foreign exchange market and the collection of non-oil taxes paid in VED.
    • There was a recent increase in monthly benefits. The Bono Contra la Guerra Económica for retirees and public workers increased by 8 percent between May and June. The Cesta Ticket, distributed to all workers, reached 40 USD in May 2023, representing a 2,122 percent increase from March 2022.
    • Síntesis Financiera reports an increase in monthly inflation to 6.8 percent in May, due to higher public spending. Year-on-year inflation was 438 percent.
    • In May, prices of foodstuffs such as rice, eggs and pasta remained stable in VED and USD compared to the previous month, while taro root, pumpkin, beef, vegetables and vegetable oil increased during the same period. However, all prices remain significantly higher in comparison to 2022 and before the start of the economic crisis in 2013/2014, especially in VED.
    • The cost of 2,100 minimum kilocalories (based on a simple diet of staple cereals and oil) in VED and USD remained stable compared to last month, but it continues to increase compared to 2022.
    • Due to the arrival of El Niño conditions, below-average rainfall and above-average temperatures are expected over most of the country until January. However, reductions in national crop production are not expected to be significant thanks to available irrigation systems. However, producers will not have the ability to increase their level of production with respect to last year due to rains as well as a reduction in fuel availability.
    • The harvest will replenish both market supply and household stocks among producers. The main maize and secondary rice crops are expected to be higher than the five-year average. While rice and maize imports are expected to decline due to increased domestic production, imported volumes of other cereals and vegetable oil are expected to be above 2022 and the five-year average.
    • The loss in the value of the local currency is expected to slow down compared to 2022 from June to September, due to the Central Bank's interventions in the foreign exchange market, Chevron's active participation in the sale of foreign currency, and the stability of foreign currency inflows from oil sales. A reduction in the value of VED is expected with the seasonal increase in public spending, especially from October to January.
    • The monthly inflation rate is projected to remain below 10 percent from July to September but will tend to increase between October and January based on the increase in public spending associated with the payment of double salaries and the Sistema de la Patria bonuses. Monthly inflation is projected to stay be below 20 percent from October to January, however. Year-on-year inflation will likely remain high, although below 2022 levels and below 400 percent.
    • Although the government normally imposes a seasonal and annual increase in the minimum wage and the Social Protection System, it does not plan to do so for the rest of the year due to the increase in the Cesta Ticket and the Bono Contra la Guerra Económica. As a result, benefits and income are expected to remain stable and will only increase seasonally between October and January.

     


    Projected outlook through January 2024

    Domestic and imported food supply: Food availability is expected to remain stable, with markets well supplied. Rice and maize production have improved relative to 2022 and the five-year average, although it remains below 2013 (the pre-economic-crisis baseline year). This is anticipated to result in improved food consumption, the sale of surplus grain at the household level, and a relative reduction in imports of maize and rice to meet domestic demand. However, 60 percent of the food supply typically depends on official and unofficial imports. Import demand is expected to peak during the lean season between July and September, when rural households, in addition to urban households, increasingly purchase their food from the market, mainly imported products and some less preferred substitute foods (rather than maize or rice). With respect to wheat and pasta, imports are expected to grow compared to 2022 due to a better price for imported products and the closure of the largest mill in Venezuela.

    By October, domestic harvests will contribute to market supplies. While El Niño conditions – bringing below-average rainfall, above-average temperatures, and low humidity – could affect production upon small-scale farmers who depend on rainfed production, overall, domestic production levels are not expected to be significantly affected as large producers have access to irrigation infrastructure.

    Macroeconomic context: For several years, declining oil revenues and deteriorating macroeconomic conditions have limited the government's ability to import food, maintain infrastructure, and invest in public services. However, Venezuela's oil production has relatively increased in recent months, reaching the highest value recorded since April 2022 as of May 2023, according to OPEC. While it represents double the production values of 2020, it is still 68 percent below the production reported in 2013.

    The relative improvement in the foreign exchange supply resulting from increased oil production activity did moderate the gradual loss in value of the VED against the USD in the first quarter of 2023. Annual inflation stabilized between March and May 2023, while monthly inflation has decelerated since the beginning of 2023 (Figure 1). Nevertheless, the expansion of public spending and the fragility of the economic recovery will continue to drive elevated inflation rates, even though the pace of inflation has slowed compared to last year. Month-on-month inflation is expected to remain below 10 percent until September and below 20 percent between October and January, and year-on-year inflation is expected to remain below 400 percent. Inflation of food and non-food items will continue to negatively affect the ability of households to cover their basic needs, particularly among poorer households whose wages are paid in local currency. 

    Figure 1

    Monthly and annual inflation rate, May 2022 – December 2023
    Las tasas de inflacion anual y mensual estan estabilizando y cayeran hasta finales del ano cuando aumentaran de nuevo.

    *The projected rate may be reviewed after the publication of official data.

    Source: Central Bank of Venezuela and Síntesis Financiera

    Food prices: Food prices in VED show more significant increases compared to costs in USD. The cost of food (such as cornmeal, rice, pasta, lentils, sugar, mayonnaise, tuna, milk, and beans) in VED and USD remained stable in May compared to the previous month. However, when compared to May 2022, the prices of these goods increased in VED by up to 520 percent, mainly due to the devaluation of the currency. In stark contrast, prices in USD reported minor increases of up to 18 percent. The behavior of inflation and exchange rate fluctuations will define price increases in the outlook period, and moderate increases in food prices are expected both in VED and, to a lesser extent, in USD. During the lean season, the availability of locally produced substitutes is likely to help people cope with price increases, particularly in rural areas. During the end-of-year holidays, seasonal price increases are expected due to increased consumer demand but offset by increased purchasing power.

    Sources of income and social protection programs: The poorest households depend on their wages (paid in VED) and on the delivery of vouchers through the Sistema de la Patria. Remittances received by the middle and upper middle class also contribute to a lesser extent to poor and very poor households, helping improve the demand for employment, which has a direct impact on these groups. In May, the Venezuelan government increased the amount of the Cesta Ticket and the Bono Contra la Guerra Económica, rather than making a direct increase to the minimum wage, which remains at 130 VED (4.90 USD). However, between October and January, public and private sector workers typically receive double salary payments, and this is expected to seasonally improve access to food and boost the economy, which in turn has an impact on the informal sector.

    Among the benefits of the Sistema de la Patria, there are between eight and 12 programs to which the poor and the poorest households can apply. Among the most relevant are the Bono Contra la Guerra Económica, the amount of which increased by eight percent between May and June for public sector workers and retirees. Similar increases are expected in the following months, but uncertainty remains as to the manner of indexation and the exact increases. In addition, workers' salaries in Venezuela are complemented by the Cesta Ticket, which is an additional benefit established by law in 1998 and received by both private and public sector workers. In May, the government decreed an increase to 1,000 VED (approximately 38.00 USD) per month for all workers, which is expected to improve the ability of households to cover the cost of their minimum kilocalories needs, directly reduce food consumption deficits and diversify their diet. According to key informants, payment of the Cesta Ticket has already started, and it will be adjusted to the fluctuations in the VED according to the exchange rate of the Central Bank of Venezuela.

    By the end of 2022, 86 percent of the population reported receiving Local Supply and Production Committees (CLAP) boxes, and similar coverage is expected through January. Currently, key informants in the Capital District confirm the monthly CLAP distribution contains 2 kg of pasta, 1 kg of rice, 4 kg of maize flour, 250 grams of "nutrichicha" (a formula fortified with calcium, iron, vitamins, and zinc), 1 can of sardines, 1 kg of beans, 1 can of mortadella, and 900 grams of vegetable oil. In the east, it arrives every 3 months, containing maize flour, rice, oil, sugar, different grains (beans or lentils), sardines, "nutrichicha," and powdered milk. The content of the CLAP may vary but is estimated to cover approximately 20 percent of a household’s minimum caloric requirements. This benefit will remain stable until November, while in December, households will receive a double benefit that usually contains additional animal protein and ingredients for Christmas meals.

    Projected food security outcomes: In the predominantly urban context of Venezuela, the unofficial dollarization of the Venezuelan economy continued to support better access to and consumption of food for most households, as they generate at least part of their income in USD and almost half of the retail transactions in the country are made in USD. Meanwhile, although VED inflation continues, the loss of the VED's value against the USD has slowed due to the supply of foreign exchange, thereby improving economic conditions in Venezuela, even though they remain fragile. In the coming months, seasonal income growth is expected to partially offset the impact of inflation, although inflation will continue to restrict purchasing power. Households whose income comes from the private sector do not benefit from the Bono Contra la Guerra Económica, but they are included in the increase of the Cesta Ticket, benefiting the stability of their salaries in USD.

    In addition, rice and maize harvests will help supply the local market from August onwards, despite the arrival of the El Niño phenomenon. Together, benefits, CLAP (especially in urban areas), wages, and remittances are expected to cover the cost of basic food needs among poor rural and urban households, leading to Stressed (IPC Phase 2) acute food insecurity outcomes at the state level. However, a subset of the population will likely face moderate food consumption gaps consistent with Crisis (IPC Phase 4) outcomes). These are households receiving wages in VED and without access to the social protection system and remittances, especially in the Capital District and the Zulia region.

    Between October and January, most rural and urban households employed in the private or public sector will receive double wages, which will improve purchasing power. The recent output of maize, rice and vegetable harvests will also continue to improve market supply and food availability in rural areas. During this period, remittance inflows and social programs increase seasonally, further supporting Stressed (IPC Phase 2) outcomes. Still, seasonal improvements will only slightly benefit poor households that receive their wages in VED (the value of which will continue to deteriorate with inflation) and have no other sources of income and no access to the monthly CLAP distribution. This population will likely continue to face Crisis (IPC Phase 3) outcomes through January.

    Recommended citation: FEWS NET. Venezuela Remote Monitoring Report June 2023: Food insecurity continues to be driven by limited household purchasing power, 2023.

    In remote monitoring, a coordinator typically works from a nearby regional office. Relying on partners for data, the coordinator uses scenario development to conduct analysis and produce monthly reports. As less data may be available, remote monitoring reports may have less detail than those from countries with FEWS NET offices. Learn more about our work here.

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