In Depth March 11, 2010, 11:00AM EST

A Food Fight for Hugo Chavez

With his popularity sagging, Venezuela's fiery President is seizing supermarkets from owners. But can he keep stores stocked?

By Geri Smith

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An Exito supermarket: Sales are off since the government takeover in January Isaac Urrutia/Reuters

Caracas - It's 10 a.m., and tempers are already flaring at the Cada supermarket in Caracas' San Bernardino neighborhood. The store has just taken delivery of two pallets of 4- and 11-pound sacks of sugar. With dozens of shoppers swarming around him, Rigoberto Fernández tries to pass out the bags one by one. The clerk hands a smaller one to a gray-haired woman, but she flings it back. "How dare you tell me I can't have one of the larger bags?" she screams. The sack splits open, spilling sugar everywhere.

Within 10 minutes, the shipment has vanished. "I am so fed up with these food shortages," Fernández mutters as he sweeps up the mess. "People get desperate and start behaving like animals."

Venezuelan President Hugo Chávez's response to the food shortages: find a scapegoat, in this case supermarket owners. On Jan. 17, the mercurial leader expropriated six Exito stores, controlled by France's Groupe Casino. A month later he seized Cada, another Casino chain, with 35 supermarkets and eight distribution centers.

El Presidente's efforts to transform his country into a Cuban-style socialist state are sputtering. With its vast oil wealth, Venezuela shouldn't suffer from shortages, yet inefficient farms, government takeovers of supermarkets, and a 50% currency devaluation in January have thrown the food supply into disarray. That's bad news for Chávez, whose anti-capitalist message and ceaseless drive to undermine U.S. influence in Latin America have made him Washington's biggest headache in the region. Chávez's approval rating among Venezuelans has dropped to about 45% from 70% three years ago.

Supplying low-cost food to the poor has been a centerpiece of Chávez's presidency. He has expropriated food processors, stores, and more than 6 million acres of farms and ranches, convinced that the government can feed Venezuela better than the private sector does. Under state ownership, though, production has suffered. From 1999 to 2008, per capita, sugar cane was off by 8%, fruit declined by 25%, and beef production dropped by 38%, according to Carlos Machado, an expert in agriculture at the Institute of Higher Administrative Studies, a business school in Caracas. "The cooperatives have failed and our cattle ranching has been decimated," Machado says.

While Chávez was flush with oil profits, it was easy to take up the slack with purchases of chicken from Brazil, beef from Argentina, and powdered milk from New Zealand. Food imports jumped from $1.3 billion in 1999, when Chávez took office, to $7.5 billion in 2008—about 70% of what Venezuelans eat. But falling crude oil prices and last year's 3.3% contraction of the economy left Chávez with less money to buy food abroad, or to prop up poorly run state farms and food processors. Government officials "think they know how to run businesses, but they just run them into the ground, just like they're running the country into the ground," says 47-year-old homemaker Antonia Rangel, one of the shoppers who managed to get a bag of sugar at the Cada store.

"SOCIALIST MEGASTORES"

A new consumer protection law, which went into effect on Feb. 1, allows Chávez to expropriate virtually any company if he deems it to be in the national interest. Exito's alleged misdeed: raising food prices following the January devaluation (though two months later, on Mar. 9, the government authorized stores to boost prices on some basic goods by as much as 35%). Chávez wants to transform the chain's outlets into what he calls "socialist megastores" that sell food, appliances, and clothing with virtually no markup. "The measure is one further step in the Venezuelan state's policy of transforming capitalism into socialism," Chávez declared on his weekly Hello President TV show. Exito's parent and the government haven't disclosed any details on compensation.

The supermarket seizures have alarmed grocers, but few are willing to speak publicly for fear of more harassment. "This is one of the worst times we've ever lived through," says the CEO of a major supermarket chain. "We live in constant fear that we could be shut down or taken over by the government."