Maduro seizes Kellogg factory

The state of Venezuela has seized a Kellogg factory after the company announced that it is shutting down operations in the country. The Venezuelan economy is currently facing a crisis, with inflation expected to reach 13,000% this year.

Background

The Republic of Venezuela is located in northwest South America. The country stretches across over 900,000 square kilometres. It is bordered by the Caribbean Sea in the north, and Columbia, Guyana, and Brazil in the west, east, and south respectively. Venezuela was colonised by Spain in 1522 and became the first Spanish territory to declare independence from the empire in 1811. Venezuela suffered political turmoil and autocracy, remaining dominated by regional military rule until the mid-20th century.

In the early 20th century, Venezuela discovered oil and has since become the world's largest known oil reserve and one of the leading exporters of oil. Despite having the world’s largest oil deposits, many Venezuelans live in abject poverty.

Nicolas Maduro took office in 2013. Under his rule, there has been a rise in inflation and a shortage of basic goods. A drop in oil prices has added to the administration’s problems. The nation’s economy has become increasingly unstable and there if hyperinflation in the region. The IMF has estimated that the Venezuelan economy will see a reduction of 15% this year, while inflation will reach 13,000%. As of 2017, the country had only $10 billion in reserves and debt of $120 billion. The country is undergoing a refugee crisis with thousands of citizens fleeing conditions of rapidly declining economic, health, and safety conditions. Read more on Venezuela’s refugee crisis here.

Due to the current regime’s lack of regard for democratic process, the country has multiple sanctions imposed on it by the EU and United States. Earlier this year, Venezuelan President Maduro launched a cryptocurrency “Crypto” to circumvent sanctions imposed by the US government. Read more here.

Kellogg

Kellogg’s is an American food manufacturing company established in 1906. Headquartered in Battle Creek Michigan, the company was founded by Will Keith Kellogg and originally sold corn flakes cereal. Today, the company manufactures several ready-to-eat cereals and convenience foods. Kellogg’s products are sold in over 180 countries worldwide. It employs approximately 33,000 people. Its net income for the first quarter of 2018 was $444 million.

Analysis

Earlier this month, Kellogg announced that it would be shutting down operations in Venezuela, putting approximately 400 workers out of jobs. “The current economic and social deterioration in the country has… prompted the company to discontinue operations,” Kellogg said in a statement. “Kellogg continues to be committed to Latin America and we look forward to resuming operations in Venezuela in the future, as soon as the conditions of the country allow it.”

Consequently, it was announced that the state had handed the factory over to workers to resume production. "We've begun judicial proceedings against the business leaders of Kellogg's because their exit is unconstitutional," President Nicolás Maduro told supporters. "I've taken the decision to deliver the company to the workers in order that they can continue producing for the people." Venezuela is currently facing a crisis of food shortage. According to one study, 93% of the population can’t afford to buy enough food.

The Venezuelan government has previously taken over plants owned by Kimberly-Clark and Clorox Co. after they closed operations. General Motors, General Mills, and Harvest Natural Resources are other corporations that have left the country.

Maduro, who is standing for re-election later this month, claims that an “economic war” is being waged against Venezuela. He blames the United States and multinational corporations. Since 2014, there have been recurrent protests against the Maduro government. Detractors blame the current administration’s economic policies for the economic crisis. Since 2017, these protests have increased amongst calls for fresh elections to remove the United Socialist Party (PSUV) from power.

Elections, which were scheduled to take place in December this year, have been brought forward to May. Top opposition leaders are banned from running, leading to fears that the country is spiralling towards dictatorship under Maduro. The UNHCR has spoken against human rights violations in Venezuela and said that the upcoming polls are not credible. EU, Organisation of American States, and countries such as the US and Columbia, have also called the upcoming elections undemocratic.

Assessment

Our assessment is that Kellogg’s departure from Venezuela is symptomatic of a larger problem. Unavailability of raw materials, strict governmental controls and policies, and a failing economy have discouraged business in the region. As stated previously, we also believe that the failure of the political system, hyperinflation, and food shortages have led to a humanitarian crisis in the region.