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Seasonally increased economic activity will improve food security during the year-end holidays

  • Remote Monitoring Report
  • Venezuela
  • October 2023
Seasonally increased economic activity will improve food security during the year-end holidays

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  • Key Messages
  • Projected outlook through May 2024
  • Key Messages
    • Dollarization of the Venezuelan economy has continued to strengthen the livelihoods and purchasing power of poor households, improving their access to food which is the most important component of food security in the country. Based on FEWS NET's analysis of average income versus the price of a basic cereal diet, households whose income sources are paid in USD can cover their minimum food needs albeit in a limited way and with little dietary diversity, reflecting Stressed (Phase 2, IPC) food security outcomes. These households are in urban and rural areas throughout the country, especially in Guárico, the Capital District, and states bordering Colombia, including Apure, Zulia and Táchira. 
    • While the highest area-level classification is Stressed (IPC Phase 2), millions of households are expected to be in Crisis (IPC Phase 3). Peri-urban and rural locations of the Capital District and areas bordering Colombia are of greatest concern. Two food insecurity trends are expected for the poorest households who are most affected by market shocks given that their income is paid in local currency (VED), they have sporadic access to social protection programs, and they do not receive international remittances. First, from October to January there will be a temporary reduction in the number of households in Crisis (IPC Phase 3), due to doubled wages, more regular and nutritious public assistance, and economic stimulation during the year-end holiday season. Second, from February, the number of households using Crisis-indicative coping strategies to cover their basic food requirements will increase again. 
    • Food availability in Venezuela is unlikely to be affected by the El Niño-related erratic rains and high temperatures. Food availability is more than 60 percent dependent on imports according to USDA. In addition, medium and large agriculture producers do not expect El Niño conditions to significantly impact domestic crop production, except for rice. However, smallholder farmers will continue to be the most affected. Lower crop yields will reduce the purchasing power of smallholder farmers. As a result, during the forecast period, new populations of rural smallholder farmers in Guárico and Apure are expected to experience food insecurity outcomes indicative of Crisis (IPC Phase 3). 
    • Venezuela is expected to experience economic growth of at least five percent in 2024 based on favorable international oil prices and the prospect of U.S. sanctions relief. However, there is uncertainty about whether the Venezuelan government will maintain the conditions for continued sanctions relief. If the Venezuelan government meets these conditions and the U.S. government further lifts sanctions or extends the relief period, then oil revenues, spending on social programs, and economic growth will be greater than currently anticipated. If this best-case scenario of sanctions relief occurs, there would be an additional improvement in food security conditions over the next six months.
    AreaCurrent anomaliesProjected anomalies
    • Accumulated rainfall since April has been 10-30 percent below average and temperatures have been above average across Venezuela due to effects of El Niño. Only crop yields of smallholder farmers are currently affected, especially in Guárico and Apure. Due to extensive irrigation systems, national production of corn, vegetables, and fruits was average in the main agricultural areas of Táchira, Zulia, Sucre, Portuguesa, and Anzoátegui. 
    • In September, VED and USD price fluctuations did not exceed 10 percent for corn flour, rice, pasta, eggs, and tuna, as well as some substitutes such as cassava and ocumo (taro root) compared to the previous month. 
    • Since April 2023, the cost of minimum dietary requirements (cereals and oil) in VED and USD have been stable month-to-month. This is an anomaly given their predictable price volatility in previous years. 
    • According to Síntesis Financiera, the September inflation rate reflected increases in transportation costs that occurred in August due to rising oil prices and public transportation fares in the Caracas Metropolitan Area. 
    • The cumulative inflation rate (December to September) has declined by at least a between 2021 and 2023, including the headline (from 844 to 163 percent), food (854 to 145 percent), and transportation (843 to 144 percent) inflation rates (2023 and forecast 2024 rates in Figure 2). 
    • Social protection system bonuses have been paid normally, due to an abnormally early 12 percent increase in public spending.  
    • While El Niño conditions are forecast to continue through spring 2024, this is a period with seasonally low rainfall; however, continually above-average temperatures are likely to impact surface water availability and soil moisture. Therefore, these weather anomalies will likely reduce national rice production and smallholder farmer yields in Guárico and Apure. However, according to USDA, corn production will grow by 20 percent between 2022/23 and 2023/24. 
    • USDA estimates that rice and wheat imports will grow by 21 percent and 40 percent, respectively, in the 2023/2024 commercial year compared to 2022/23. However, corn imports are down 11 percent, due to lower import demand from increased domestic production. 
    • No increase in the minimum wage is foreseen, which will moderate public spending, supporting a stable inflation rate despite the seasonal increase in public spending expected for the payment of double salaries and the Sistema de la Patria bonuses. The month-on-month inflation rate is expected to be between five and 18 percent from November 2023 to April 2024, below or close to the values reported during the same months in 2022/2023. Year-on-year inflation will be below 274 percent, higher than November to December 2022, but below the values reported between January and March 2023. 
    • The government established more robust controls across the Orinoco Mining Arc to reduce criminal networks involved in illegally exploiting mines. This could mean an increase in production of between 26 and 36 percent, expanding resources available for public spending on social protection programs. 
    • Social protection programs will tend to improve not only during the year-end holidays but also based on historical increases in spending before presidential elections. Although election dates have not yet been announced, they are expected in the second half of 2024. In the months before, social welfare distributions are expected to increase, even double, in frequency, quantity, and quality.
    • The temporary lifting of sanctions on Venezuelan natural gas, oil, and gold will likely contribute to domestic economic growth, increasing available public funds for expanded social protection programs during the election period. Although some sanctions relief has already been provided because of the commitment to upcoming elections, the full sanctions relief agreement is conditional, and the benefits may not materialize if the Venezuelan government does not adhere to the conditions closer to the elections. Moreover, apart from the immediate effect on social protection programs, it will take time for the improvement in government revenues to impact the overall economy and benefit the Venezuelan population. 

    Projected outlook through May 2024

    Supply of domestic and imported food: Formal and informal imports will continue to ensure sufficient food supplies. Formal imports of wheat and pasta are expected to increase. However, persistently low grain prices in the international market will contribute to the stability of import costs. During November and December, a seasonal improvement in the supply of local products is expected due to the maize, rice, and vegetable harvests, improving food availability in both rural and urban areas. Although below-average rainfall conditions and high temperatures will continue, national production will not be affected due to the operation of drip and pivot irrigation systems. The main cash crop areas of the Andes and Oriente are likely to record normal harvests, given the coverage of irrigation systems supplied by the Guanipa reservoir (Oriente) and ample springs (Andes). However, smallholder farmers in the Central Llanera area who grow crops without irrigation will continue to be affected, especially in Guárico and Apure states (Figure 1). As a result, smallholder farmers likely will not obtain income from the sale of surplus crops and their purchasing power will be limited. These effects will continue to be localized given that less than 15 percent of the Venezuelan population is rural.

    Figure 1

    States where smallholder production has been affected by below-average El Niño-related rainfall, October 2023
    Map of Venezuela as of October 2023 highlighting the Apure and Guarico states as those where smallholder farmers harvests have been affected by El Nino

    Source: FEWS NET

    Macroeconomic context and food prices: In September, the monthly headline (Figure 2) and food inflation rates increased by 9 and 8 percent, respectively; the Central Bank of Venezuela (BCV) attributed this to the progressive VED depreciation against the USD, increased public spending, and higher transportation costs due to fuel prices. The VED depreciated by 5 percent compared to the previous month despite the active intervention of the Central Bank of Venezuela in the exchange market. Although the government is attempting to include revenues from legalized gold mining in the Orinoco area, 95 percent of public spending funds come from oil revenues. However, in August and September, monthly oil production reflected slight declines of 2 and 3 percent, respectively, but remains 11 and 10 percent above the same months of 2022. According to OPEC reporting from secondary sources, September production was 733 thousand barrels per day. Through the end of 2023, oil demand is expected to increase which will help Venezuela to balance its exports. The Venezuelan government will also seek greater investment in its energy sector including direct channels with its trading partners, such as China, which will increase products and markets available for export.

    Food prices will continue to rise and limit access and purchasing power of the poorest households, especially in peri-urban areas where households do not have their own food sources and therefore depend exclusively on markets. Food prices in September remained above 2022 and the five-year averages in both VED and USD. A significant seasonal increase in prices in local currency and, to a lesser extent in USD, is expected due to the weakening of the local currency as a result of seasonally expanded government spending during the year-end. Prices of animal proteins and substitutes will be the highest at the end of the year due to increased seasonal demand. Prices of imported grains will continue to increase through December due to import costs and depreciation of the VED. From November 2023 to January 2024, a more accelerated increase in the month-on-month inflation rate is expected, which will not exceed 18 percent, while from February to April it will not exceed 10 percent. Following the inflationary trend, food prices in local currency will increase through March. According to Síntesis Financiera, monthly inflation is expected to peak in May 2024 at almost 19 percent, due to the anticipated presidential elections (Figure 2). However, the first half of 2024 could present more pronounced increases depending on when elections occur.

    Figure 2

    Monthly and annual inflation rates, January 2023 - May 2024*
    Graph showing historical (January-September 2023) and projected (October 2023-May 2024) annual and monthly inflation in Venezuela. Inflation generally declines from January-April 2023 but is forecast to increase again until November, see seasonal improvement until March 2024 before rising again from April until May 2024.

    *Projected rate may be revised upon release of official data. 

    Source: Central Bank of Venezuela and Síntesis Financiera

    Income sources and social protection programs: Most of the poorest households – who have sources of income in VED, have limited access to the Social Protection System, and do not receive remittances from abroad – will benefit from the seasonal increase in economic activity that typically occurs during the end of the year. Nevertheless, these households are more affected by rising food prices and the depreciation of the VED, which will continue to affect their purchasing power. 

    According to Ecoanalitica, as of May 2023, 65 percent of economically active Venezuelans generate monthly incomes of less than 100 USD. Total household income of 100 USD allows a Venezuelan household (with two income earners) to meet its basic food needs when supplemented with CLAP assistance. Thus, most poor households, especially when paid in USD, can maintain a minimal diet based on carbohydrates and fats. However, some poorer households – who only have one household income earner and/or are paid in VED – will have livelihood protection shortfalls each month, which will be aggravated by fluctuating prices.

    Incomes are expected to vary between the informal and formal economies, to some extent more than variations geographically across rural, urban, and peri-urban areas. Through May 2024, no increase in the minimum wage is expected according to Síntesis Financiera. However, a temporary increase is expected for households whose members have a formal source of income. Between November 2023 and January 2024, all workers in the formal sector will receive double wages according to law. Informal sector workers will not see the same wage increases but will benefit indirectly, albeit to a lesser extent, from the seasonal increase in economic activity. Despite the mechanization of the sugarcane industry in Venezuela, it is still a source of hired labor in rural areas. The increase in production expected in 2023/24, according to USDA, will improve income sources for the poorest households in Zulia, Lara, Táchira, Portuguesa, Maracay, Carabobo, Monagas, and Sucre. On the other hand, the continuous decrease in coffee production yields since 2014 has affected labor demand for the harvest that began in October, especially in Táchira, Lara, and the upper part of Mérida. Venezuela has 133 coffee-producing municipalities and more than 60,000 households registered with the Corporación Venezolana de Café

    The social protection system is expected to improve nationally, helping to maintain livelihoods for the poorest households. However, these improvements will be moderated by rising inflation, the loss in value of the VED, and rising food prices that will continue to affect the poorest households. Based on annual trends before May 1 each year, workers are expected to benefit from the possible increase in the Cesta Ticket by 50 percent (from 40 to 60 USD), and from the Bono de la Guerra Económica by 30 to 75 percent. In addition, the government adjusted its policy for the Cesta Ticket as of June 2023, fixing its value to USD to compensate for the impact of inflation on purchasing power. In September, the value increased to 1,312 VED for poor households paid in VED, an increase of 6 percent compared to August. In addition, a seasonal increase in the flow of remittances is expected to benefit these households. 

    The frequency and quantity of CLAP products will improve equally in urban and rural areas during November and December, increasing the poorest households’ access to daily kilocalories. However, CLAP will normalize as of January 2024 back to its monthly frequency for the Capital District and bimonthly frequency for the rest of the country. During the election campaign season – and leading up to the presidential elections expected to be held in the second half of 2024 – CLAP distributions are expected to improve again. 

    Projected food security outcomes: Between October and January, most poor households are projected to remain in Stressed (IPC Phase 2) food security conditions. Although households will continue to face financial constraints to their food access, the likelihood of food consumption gaps is low because seasonal macroeconomic developments and government spending will moderate some of these inflationary effects. Households whose members have a formal source of income, in the public or private sector, will receive double wages. In addition, a seasonal increase in the flow of remittances is expected. This will help boost the economy and improve purchasing power, both in the formal and informal sectors. The distribution of vouchers and CLAP, and the supply of the domestic corn and rice harvests, will also improve food availability and access. However, there will be localized pockets of the poorest households living in peri-urban areas and smallholder farmer communities, particularly in states bordering Colombia, that will have food consumption gaps, despite seasonal improvements, indicative of Crisis (IPC Phase 3) (Figure 3). 

    Despite improvements at the end of the year, between January and May, some of the poorest households will again transition from Stressed (IPC Phase 2) to experiencing Crisis (IPC Phase 3) food insecurity outcomes. During this period, remittance inflows and public spending will decline while local currency depreciation, inflation, and high food prices will continue to limit purchasing power. As a result, livelihood protection deficits will increase mainly for poorer households whose only source of income is in VED. These households will have food consumption shortfalls and will revert to coping strategies such as selling their assets, decreasing education and health expenditures, reducing the number and quality of meals, and migration. Households in Crisis (IPC Phase 3) will primarily be VED-paid laborers living in peri-urban areas, and states bordering Colombia, as well as smallholder farmers residing in Guárico and Apure affected by irregular rainfall, high temperatures, lack of access to irrigation systems, loans, and inputs (Figure 3). This forecast may be delayed depending on the date selected for elections and the benefits households may receive during the election campaign period. Poor households that have sources of income in USD will continue to experience Stressed (IPC Phase 2) food security conditions thanks to informal dollarization of the economy.

    Figure 3

    Profiles of households expected to face food insecurity Crisis (Phase 3, IPC) in the forecast period*
    Cash and produce infographics signifying the typical profile of households facing food insecurity of Crisis or worse during the outlook period, typically workers paid in VED and smallholder farmers

    * Given the diverse demographic and geographic characteristics of these households, they reside in most areas throughout the country. However, there are not enough households experiencing these conditions to classify a state or the Capital District at the Crisis level (IPC Phase 3).

    Source: FEWS NET

    Events that may change the scenario: It is possible that two other events may occur and further decrease the number of households in Crisis (IPC Phase 3) during the outlook period. First, if the Venezuelan government continues to comply with electoral conditions, the U.S. government may extend sanctions relief for the oil, gold, and gas sectors beyond the current six-month provisions. This would provide the Venezuelan government with new resources for the electoral campaign and the expansion of social protection programs. Second, if oil exports increase and influence Gross Domestic Product (GDP) expansion according to forecasts, the Venezuelan economy could grow by eight percent. This best-case scenario would boost the Venezuelan economy and expand available formal and informal employment as well as corresponding purchasing power for some of the poorest households, beyond what is currently projected.

    Recommended citation: FEWS NET. Venezuela Remote Monitoring Report October 2023: Seasonally increased economic activity will improve food security during the year-end holidays, 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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