http://www.theglobeandmail.com/report-on-business/international-business/latin-american-business/in-venezuela-failing-economy-sours-a-chocolate-business/article16642351/In Venezuela, failing economy sours a chocolate business
By STEPHANIE NOLEN
Jorge Redmond's Chocolates El Rey is a globally successful operation but government intervention makes its future less tenable
Jorge Redmond's business is at capacity: Chocolates El Rey urgently needs new equipment if it is to go on being Venezuela's premium chocolate producer. Mr. Redmond, whose family has run this business in Caracas for more than 40 years, sourced new equipment abroad a year ago, and began the long process of securing U.S. dollars and permissions from the government's foreign exchange bureau to buy and import it.
He was getting close. Then, a few weeks ago, the Venezuelan government scrapped its foreign exchange system – in a half-hearted effort to tackle a raging black market that was trading dollars at 10 times the posted rate – and announced the creation of a new auction process. Now, Mr. Redmond is back at square one, with no idea if he will be able to make his purchase.
This is just business as unusual in the context of Venezuela's slow-motion economic implosion. Mr. Redmond, 65, has faced land invasion, the threat of expropriation, shortages of ingredients, wild inflation in the costs of all inputs, and an ever-more-complicated export process in the past few years. Over the past four years, 1,500 businesses have ceased operation, according to the country's Federation of Chambers of Commerce.
And yet Mr. Redmond is trying to expand – because in one of the darker ironies of Venezuela's current crisis, Chocolates El Rey is still making money. "We're not a cheap product," Mr. Redmond says. But consumption in Venezuela, of all kinds, has never been higher – among those who have got rich or stayed rich through this crisis, and even among the lowest-income groups, who benefited from vast state largesse under the 14-year government of the late president Hugo Chavez.
"Plus, it can't go on like this," Mr. Redmond adds.
The macroeconomic indicators would suggest that's true. Inflation is at 56 per cent and climbing fast. Government price controls on everything from staple foods to televisions have created repeated episodes of scarcity, pushing a cycle of panic-buying and more inflation. Anyone with access to dollars is living a perversely cheap life at the 10-to-1 value of the bolivar. And meanwhile, Mr. Chavez's successor, President Nicolas Maduro, draws further funds away from the limping national oil producer to bankroll more subsidy programs that are popular with his working-class base. It is a recipe for collapse.
But then, Mr. Redmond noted, he has been saying for a decade that things can't go on like this – then they do. In the meantime he is going to make more chocolate.
Chocolates El Rey produces 4,000 tonnes of cocoa products a year – everything from gold-foil-wrapped bars to the sticks of chocolate used in pain au chocolat. The firm employs 250 people, and for two years running has won the gold medal at the elite International Chocolate Award for its white chocolate (and a silver for the milk bar, too). Mr. Redmond wants the company to be globally known – today they export 25 to 30 per cent of their production to the United States, Europe and Japan, as well as other Latin American countries.
At the same time, he has been cultivating a domestic market, taking advantage of a middle-class consumer culture that has grown tremendously over the past few years. The company does "chocolate tastings," for example, at venues such as medical conventions. Press coverage of their international prizes has also boosted their domestic profile.
Yet keeping chocolate on Venezuela's increasingly bare shelves is a huge challenge. For one thing, raw materials are more scarce all the time. Up to now, the company has always succeeded in procuring them, at the 11th hour – so the production process has not yet been interrupted. "But we can't be choosy – we can't say, 'I don't like this milk, I want that milk.' We have to buy what's available.'"
The cost of cacao is going up daily, as producers try to earn a price that reflects the real value of the bolivar. A year ago, Mr. Redmond paid 25 bolivars per kilogram; today it's 150.
Once the chocolate is made, they have to get it to market. But in the course of the Chavista era, the levels of bureaucracy required to ship out a container has ballooned to 90 separate steps; 40 of those were added in the past six months. Mr. Redmond said he has had to add a whole department simply to manage this process, but it nevertheless goes wrong frequently, leaving shipments to slowly melt into a sodden mass on a dock.
Government troops have threatened to seize his business, Mr. Redmond said. And in 2004, Chocolates El Rey lost a 1,000-hectare farm, invaded and occupied by people who identified themselves as landless workers, in one of the "redistributions" championed by Mr. Chavez. Mr. Redmond said they cut down all the cacao and now grow corn there. While the company still officially owns the land, it isn't safe for any company employee to go there, he said.
Nevertheless he is pressing ahead with the expansion plans and wants to bring in the new equipment (nothing like it is made in Venezuela). But imports are a misery: Dollars are available either on the black market, which is illegal, or doled out by the government through a process that can take weeks, and they are more scarce all the time. No one, of course, trusts Venezuelan credit. "It used to be we could do things very freely with suppliers all over the world. Now they want a hefty down payment ... A Venezuelan asset at this point is a non-asset in the eyes of the outside world. It's unworkable, and unsustainable."
They have put in a huge generator to make up for shortages of electricity that occur with growing frequency since the government nationalized the producers. The business is also being hit hard by the brain drain affecting every sector from oil to soap operas: The most skilled people are leaving the country, or at least leaving firms like Chocolate El Rey to a job where they have access to dollars that they can change on the black market.
Mr. Redmond, however, is staying put. "Where would I go? What else would I do?" he asked, his voice cracking slightly with emotion. "I love this country. And we feel we can be part of the solution."
