Bloomberg News

Chavez Warns U.S. Consumer Giants Ahead of Price Regulation

February 05, 2012

(Updates with Procter & Gamble comment in 12th paragraph.)

Feb. 3 (Bloomberg) -- Venezuelan President Hugo Chavez said he will nationalize consumer goods companies, including “transnationals,” that fail to comply with price controls being prepared by the government.

The regulations may affect companies including Procter & Gamble Co., Colgate-Palmolive Co. and Johnson & Johnson. A study showed consumers are being overcharged for cleaning products and personal care items, Chavez said on state television yesterday during an event to celebrate his 13 years in power.

“We are getting ready to announce the new fair prices, and prices will go down,” Chavez said. “If a company doesn’t accept the new prices, we will nationalize it. We don’t have any problem doing that. Some of the companies to be affected are transnationals.”

Chavez, who is seeking to slow the region’s highest inflation rate of 27.6 percent, said in November that new regulations would set price caps on consumer goods to prevent companies from “ransacking the people.” The government immediately froze the price of 18 personal care items from toothpaste to toilet paper until “fair prices” could be set by regulators.

The announcement to set the new prices, which was originally expected on Jan. 15, has been delayed twice.

‘Straitjacket’

Venezuelan central bank director Armando Leon said in a Nov. 25 interview that trying to regulate all consumer prices may be an economic “straitjacket” and that enforcement of the law would require as many as 40,000 inspectors.

The implementation of the price law will probably focus on “highly visible packaged consumer goods,” Bank of America Corp. economist Francisco Rodriguez said in a Feb. 1 report.

Guidelines published in the nation’s Official Gazette last year require companies to register with the national price regulator and disclose their costs for production, distribution and sales. They also must provide information about local and international suppliers, raw materials and technological transfers.

Colgate, Avon Products Inc. and Clorox Co. depend on Venezuela for 5.2 percent, 4.1 percent and 2.1 percent of total sales, respectively, Ali Dibadj, a consumer analyst at Sanford C. Bernstein & Co. said in a November report.

‘Uncertainty’

Some retailers have stopped ordering new products due to the uncertainty over the final price to consumers, Jon Moeller, chief financial officer of Cincinnati-based Procter & Gamble said in a Jan. 27 teleconference.

“We’re facing some market-specific impacts, including government pricing interventions being made in Venezuela,” Moeller said. “Because of the uncertainty leading up to an eventual announcement, some retailers have stopped ordering for fear that they will end up with inventory that costs more than the price the new laws may allow them to sell those inventories at.”

Colgate-Palmolive isn’t expecting to be able to raise prices in Venezuela in 2012, Ian Cook, president of the New York-based company said in a Jan. 26 teleconference.

“The guidance that we are giving in terms of our approach in 2012 is, obviously, compliant with that government regulation with no pricing, no new pricing,” Cook said.

The announcement of new price regulations in November sparked panic purchases by consumers and led to shortages of everything from coffee to toilet paper.

Chavez threatened companies with nationalization after devaluing the bolivar for the first time in five years in 2010. He seized a joint venture retailer owned by France’s Casino Guichard Perrachon SA and Colombia’s Almacenes Exito SA for allegedly raising prices after the weakening of the currency.

“Some companies are threatening us and saying that price caps will create shortages, but I’ll nationalize all of it,” Chavez said yesterday. “It’s not something I want to do, but if they force me to do it, I will.”

--Editors: Philip Sanders, Richard Jarvie

To contact the reporters on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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