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A Tale of Two Shortages

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09/15/2009Doug French

Coffee beans can't be grown just anywhere. Most of the year must provide moderate sunshine and rainfall. Thus virtually all coffee in the world is produced within the coffee belt that lies between the Tropic of Cancer to the north and the Tropic of Capricorn to the south. Coffee's monetary value is said to be second only to oil among natural commodities. And for those who fuel up on Starbucks caffeine or the like, the price per gallon paid far exceeds what is spent filling your car's gas tank.

For generations of Americans, Colombia's Juan Valdez symbolized coffee production and Colombia is still the number two producer in the world behind Brazil. Located right next door to these coffee producing giants is Venezuela, a country that at one time rivaled Colombia in coffee production. And although blessed with the required porous soil and perfect climate, Venezuela now produces less than one percent of the world's coffee — not even enough to satisfy its own population.

After being one of the top coffee exporters early in the 20th century, Venezuela began importing java from Brazil last month, even though, as Benedict Mander reports for the Financial Times, "locals say it is no match for the local quality Arabica beans."

So despite having the best beans and the perfect conditions to grow them, Venezuela is almost out of the coffee business. One of the stock answers given is that after oil was discovered in 1960s and '70s coffee growing withered because the nation became South America's richest by pumping crude.

But coffee growing in Venezuela has always been dominated by family farms. It's not as if coffee farmers dug up their coffee plants and started drilling for oil.

Instead, the power of the Venezuelan government did the digging in the name of land reform — supposedly for the betterment of working people. "Land reform is a weapon aimed at the heart of the oligarchy," The Marxist wrote in 2006, "and from the inception of the new land programme, land owners, capitalists and their supporters in the national and international media have organised against the threat of agrarian change."

But change came when the Land Act was passed in December 2001, and since then the National Land Institute has distributed millions of acres of lands to peasant-owned cooperatives in the "war against the latifundia." The Venezuelan government's redistribution of land has, in the FT's words, "generated a climate of uncertainty that has damped investment."

So instead of planting beans, the land is left fallow or turned into pasture, reducing the supply and pushing up the price of coffee, right? Well no, because the government has imposed price ceilings at the retail level. So there is no incentive for farmers to grow beans and many roasters just closed up shop. What few coffee farms and roasters are left smuggle their product across the border to Colombia where the prices aren't controlled by President Hugo Chavez and are twice as high.

And while coffee prices are capped, the growers' costs are rising. Labor is hard to find at a reasonable wage, because "too many labourers live off government handouts and don't even bother working," one farm owner told the FT.

With his people clamoring for their caffeine fixes, Chavez has expropriated his country's two largest coffee roasters, Fama de América and Café Madrid, blaming these companies for the scarcity, claiming that the roasters were hoarding, speculating, and smuggling. "We've had enough of this. We must do the same with all companies that behave this way," says Chavez. "We are going to continue nationalizing monopolies to turn them into productive businesses in the hands of the workers, the people, the revolution."

Ludwig von Mises, however, points out in Human Action that

the effect of [the state's] interference is that people are prevented from using their knowledge and abilities, their labor and their material means of production in the way in which they would earn the highest returns and satisfy their needs as much as possible.

"Such interference," he adds, "makes people poorer and less satisfied."

Meanwhile, here in America, President Obama insists that all people need access to medical care, believing that healthcare "should be a right for every American."

There was a time not too long ago when America's healthcare was considered the best in the world and it was affordable to all. "Instead," as Gabriel E. Vidal wrote recently on Mises.org, "health costs reflect the distortions that government regulators have introduced through reimbursement mechanisms created by command-and-control bureaucracies at federal and state levels."

In a 2007 Democratic debate, Obama said, "My emphasis is on driving down the costs, taking on the insurance companies, making sure that they are limited in the ability to extract profits and deny coverage, and the drug companies have to do what's right by their patients instead of simply hoarding their profits."

"[The hills in Venezuela] used to be carpeted with coffee plants," a sad Don Luis Paparoni told the FT. "Now you'll scarcely find any." It will indeed be sad when quality healthcare becomes just as scarce in America.


Doug French

Douglas French is President Emeritus of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.