Examples of shortages caused by price controls

Rubén — Sun, 26 Jul 2009 18:23:00 GMT

Economic theory predicts that if a government imposes a ceiling for the sales price of any good or service, usually set below the market price that would result from the interaction of competing suppliers and demanders, there will be shortages of goods because less sellers will be willing to sell at the lower price, while more buyers will try to buy at that lower price. The excess demand not being met by existing supply can be counted as the shortage quantity.

Today's Venezuela has become a textbook example of this Microeconomics axiom. A while ago at the supermarket I was unable to find any sugar or eggs. There is still some coffee on the shelves, but exogenous factors such as the lack of sufficient rain during 2009 and the unseasonably high producer cost of Colombian coffee beans, are only accelerating the alarm. Venezuela, the world's leading coffee exporter during the 19th century, will soon be importing coffee for domestic consumption.

There is a long list of items whose sales price is regulated by the government, often below manufacturer's input costs. Besides coffee, eggs, and sugar, the regulation mandates a maximum sales price for raw milk, powder milk, chicken, meat, rice, pork, corn and wheat flour, toilet paper and several other items. Most of the aforementioned goods have been on and off the shelves for extended periods of time, and the government has tried to solve the situation through urgent, isolated one-time operatives consisting of state-managed imports to be sold at a huge loss for taxpayers and for the state oil company. These imported goods are often of lower quality and even rotten at times. Such imports are often carried by ocean on containers from their source country without strictly following the usual procedure standards internationally set for such transportation. They are sold to the public later on, in non-hygienic conditions at state-owned stores. Customers there must spend hours waiting in queues to be serviced.

Many retail stores have been forced to close for a few days for attempting to sell domestically-produced goods above the regulation price. These retail stores claim that if they comply with the regulations they would be forced to sell at a loss. Many food processing factories are on their way of becoming nationalized, on the accusation of hoarding, as they refuse to sell their products to wholesalers below their input costs. This has resulted in many suppliers closing down production altogether and transfering it to neighboring countries. As a result, Venezuela's industrial capacity has shrunk by a significant percentage whose quantitative estimation widely varies among various sources. As capacity becomes structurally reduced, the classic textbook leftward shift of the aggregate supply curve for the Venezuelan economy takes place. This results in even less quantity supplied at a higher price, assuming aggregate demand is fixed. However, aggregate demand actually shifts simultaneously to the right (but perhaps to a lesser extent than the aggregate supply curve's leftward shift) due to extensive government transfer payments and due to the natural population rate of increase. The end result is one of the world's highest rates of inflation (though not as much as Zimbabwe's) in the twenty-first century so far.

It is in this context that those of us who still believe in our country's potential must deal on a daily basis to create and improve business conditions.

Rivero & Cooper, Inc. rroopstr

My proposal for business between Venezuela and the United States

Rubén — Wed, 15 Jul 2009 19:31:00 GMT

Dear English-speaking reader: We are very interested in your comments, points of view and disagreements. Your replies and propositions might actually change the scope of this proposal to the benefit of both of our countries. Please find below my translation of my view on future business possibilities between Venezuela and the United States, as I view them today before getting your input.

We can be contacted at http://www.riverocooper.com

Rivero & Cooper, Inc. is a company incorporated in Florida, USA, specialized in meeting the needs of Venezuelan companies that are interested in locating specific products and services anywhere in the world. In the medium run we intend to open branch offices in Brazil and Colombia in order to increase our capability of locating automotive and textiles that are needed by the Venezuelan consumer, and also in order to offer to Venezuelan exporters a friendly platform to access our main commercial partners in South America. The import, nationalization and distribution in Venezuelan territory is performed by one of our Venezuelan business partners such as Packaging Supplier, C. A.

We export from Venezuela petroleum derivate products, jet fuel, D2. Sales of scrap iron and scrap aluminum from different alloys, including transformers, normal steel, navy steel and wires. Financial consulting services: swaps, placements, account openings. Representation services before CADIVI and MILCO government agencies. Quick obtaining of licenses. Export and import agents. Customs consulting services and product research.

We import into Venezuela, quickly per our customers's request, all kinds of auto parts: engines, brakes, transmission, body and spare parts in general. We also import computer and audio cabling, semiconductors, tools and electronic components. For exporters we offer security seals and polymer bags.

Today's Venezuelan market urgently requires a greater supply of auto parts for all kinds of vehicles, in order to reduce the repair time of so many automobiles that are stranded for during months inside repair garages. Since many of these parts are unavailable in the United States because many car models differ from country to country, we intend to incorporate branch companies at the Federative Republic of Brazil and at the Republic of Colombia.

Rivero & Cooper, Inc. also commercializes intermediate goods used by the Venezuelan exporting industry for an adequate protection and identification of containers, and so facilitate to these exporting companies compliance with the international regulations concerning illicit traffic prevention. We further offer logistical support to Venezuelan enterprises for their export procedures from Venezuela and to their subsequent import and nationalization at the world markets.

Rivero & Cooper, Inc. has a leading ability to research and establish new international contacts, geared to our clients' specific requests, in order to distribute any product or service that is difficult to find in today's Venezuela. We also have a fast ability to translate documents and technical specifications between the Spanish and English languages.

IMPORTING AUTO PARTS INTO VENEZUELA:

Rivero & Cooper, Inc. locates original spare parts through a number of wholesalers, mainly in the United States and Colombia. Due to the United States incorporation of this business, we have the ability to obtain U.S. dollar financing and we perform foreign exchange conversion from and into the bolívar fuerte. Therefore our transactions and shipments are distinguished by their speed.

We work with a number of spare part suppliers in the United States and our research department is constantly looking for additional providers in order to always obtain competing additional quotes for the same product, with the goal of translating the savings into our final clients in Venezuela, all of whom are invoiced in bolívares fuertes through one of our Venezuelan business partners.

We specialize in all brands of Asian vehicles (Toyota, Lexus, Nissan, Mitsubishi, Mazda, Hyundai, Honda, etc.) and American ones (Ford, Chevrolet, Chrysler, Jeep, etc.). We can locate parts for a number of requirements, including brakes, body parts, engine parts, filters, pumps, alternators, and in general any specific part that the client's vehicle may require. Once we become able to consolidate operations in Brazil and Colombia, we will also provide service to the demand of parts for European car makes.

We request clients to supply us a listing of the auto parts that they wish us to find and import for them, including the VIN number of the vehicle's chassis and other specific details that may help us locate that part more quickly. We then make our best effort to provide them a doo-to-door quote, expressed in Venezuelan bolívares fuertes, within two or three days.

For small deliveries we perform the imports through a courier system. We can also combine various orders to bring them into the country inside containers. We have developed a close relationship with a reputable Venezuelan customs agent who will then take charge of the quick nationalization of the company, always complying with the pertaining legal regulations

YOUR IMPORTS AND EXPORTS INTO AND FROM VENEZUELA:

If you represent a U.S. company that is interested in expanding your business by investing in Venezuela, by all means we would like you to contact us. We have already set a complex legal infrastructure in order to start operations immediately. We are actively seeking financing in order to expedite the incorporation of our branch offices in Brazil and Colombia, so that you as a North American investor will shortly count on a family of businesses spannning the Western Hemisphere.

We envision a long term scenario where Venezuela can reclaim the status it used to enjoy as an exporter of quality coffee, quality chocolate and selected quality manufactured goods.

We envision a short term scenario where North American exporters regain confidence in the ability of entrepreneurial Venezuelans who have not fled the country, and who are eager to seek new business opportunities regardless of anyone's political spectrum.

During times of crises such as today's, those of us who actually hold their entrepreneurial spirit, will set the standards that will be followed by competitors during a future recovery. Specific articles on our world vision for the decade of the teens of the twenty-first century may be found at http://www.rroopstr.com

Thank you for your supporting Rivero & Cooper, Inc.

Rubén Rivero Capriles : Venezuela, coffee

Examples of shortages caused by price controls

My proposal for business between Venezuela and the United States