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With Venezuelan hyperinflation, multinationals buck price controls

Reuters  |  VALENCIA, Venezuela/CARACAS 

By and Corina Pons

VALENCIA, Venezuela/CARACAS (Reuters) - When Colgate-Palmolive Co's Venezuelan unit in January raised the of laundry detergent to keep up with inflation that hit 85 percent the month before, it drew a swift rebuke from the government of Nicolas Maduro, which demanded a nearly 90 percent cut.

control agency ordered a reduction of the of a one-liter container of Vel Rosa detergent to the equivalent of $0.16 from $1.40, according to union leaders and company employees.

In response, Colgate shut the plant that produces it, according to a Feb. 2 letter to seen by Reuters, saying that operations would be unsustainable on those terms.

When it resumed production a week later after a meeting with Sundde, the results were precisely the opposite of what authorities had sought: Colgate had halved its standard container size for Vel Rosa and was selling it for the equivalent of $0.83, the sources said - effectively raising the by 19 percent.

The incident highlights how multinational companies in have become more aggressive in pushing back against the socialist government's demands that they sell goods at below production costs as the country struggles under hyperinflation and deepening recession.

Similar pricing disputes since the start of the year have involved companies including Nestle and Mexican bottler and retailer Femsa, according to company employees, as Maduro seeks to stem annual inflation that has unofficially topped 4,000 percent. The disputes threaten to worsen long-running tensions between the government and the multinationals, and illustrate the difficulty of maintaining a presence in in the hopes of a big rebound under a future government.

Thousands of companies across the country have slowed production and at least 20 percent have stopped operating for lack of raw materials or customers, according to the most recent survey by industry association

Foreign companies, betting on the possibility of an eventual recovery, are maintaining minimal operations with skeleton workforces that in some cases show up only to eat at company cafeterias.

Colgate and did not respond to requests for comment.


Venezuela's controls have created tensions with foreign companies since their 2003 introduction by late Hugo Chavez, but in those days most disputes were resolved quietly through discrete increases to compensate for inflation.

Maduro, facing uncontrolled inflation, began the year by ordering supermarkets to roll prices back to December levels, a demand reinforced by inspectors.

Around the same time, Nestle announced that its plant that produces a snack known as compote - pureed fruit such as apple, pear or peach mixed with cereal - stopped operating for lack of raw materials.

Union leaders say Nestle has chosen not to import raw materials because it is under orders to sell compote for a quarter of what it had typically fetched in supermarkets.

The plant remains closed.

"Nestle always complies with local laws, and is respecting the pricing regulations in all our operations," Nestle wrote in statement in response to questions. "We are determined to maintain our operations in the country and to continue to support the local communities where we operate."

Mexico's Femsa, which bottles and distributes in Venezuela, was ordered by to stop increasing soft drink prices - even though they have not been historically covered by controls, according to two union members who asked not to be identified.

"The company would not accept regulations on the of soft drinks," said one of the sources. "They said they would shut down if the prices were regulated."

instead agreed to stop increasing the of bottled water, which is covered by regulations, while it continues to raise soft drink prices, the sources said.

did not respond to a request for comment.

(Additional reporting and writing by Brian Ellsworth; Editing by and Steve Orlofsky)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, March 08 2018. 14:08 IST