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Coca-Cola Suspends Production in Venezuela Due to Sugar Scarcity

May 23, 2016
The company is talking with suppliers, government authorities and others to work on a solution.

Coca-Cola Co. (IW 500/29) is halting production of sugar-sweetened beverages in Venezuela as the company’s namesake soda pop becomes the latest victim of a lack of raw materials in the cash-strapped country.

The iconic drink is the latest to join a group of basic products becoming scarce in a country beset by currency controls, goods shortages and the world’s highest inflation rate. Kraft Heinz Co. and Clorox Co. have also had to interrupt operations in Venezuela, where it’s now common for citizens to wait in long lines for household items such as deodorant, toilet paper and medicine.

“Sugar suppliers in Venezuela have informed us that they will temporarily cease operations,” Kerry Tressler, a Coca-Cola spokeswoman, said in an e-mail. The company is talking with suppliers, government authorities and others to work on a solution.

Venezuela is experiencing the worst recession in decades as the falling price of oil, which accounts for about 95% of foreign currency earnings, pushes international reserves to a 13-year low of $12 billion. The economy contracted 5.7% in 2015 and is expected to shrink an additional 8% this year, according to the International Monetary Fund. The inflation rate is projected to climb to almost 500%.

Military Exercise

Rising political and economic tensions are gripping Venezuela, with the country holding the biggest military exercise in its history this weekend as the opposition pushes for a recall referendum on President Nicolas Maduro. The opposition has pledged further demonstrations nationwide to pressure Venezuela’s electoral board to process a petition to activate the referendum. Maduro’s critics accuse the government of stalling to avoid early elections.

Price controls, rising costs and a lack of foreign exchange have resulted in a drop of sugar-cane production in the country, according to a 2015 report from the U.S. Agriculture Department.

“The state monopolizes decisions to grant fixed dollars to import sugar raw material, since it is a regulated product,” said Luis Marin, president of the Industrial Chamber of Lara state, where four sugar-processing plants are located. “Venezuela has always imported, but there has been a major increase in the last couple of years.”

Coca-Cola said the production of beverages without sugar, including bottled water and Coca-Cola Light, isn’t affected. Coca-Cola Femsa SAB, the distributor of the company’s products in Venezuela, declined to comment.

Last month, Empresas Polar SA, Venezuela’s biggest brewer, said it would be forced to stop making beer because it can’t get the foreign currency it needs to purchase malted barley.

By Andrea Navarro and Jennifer Kaplan

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Licensed content from Bloomberg, copyright 2016.

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