Sugar shortages force Coca-Cola FEMSA to shut plant in Venezuela

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Coca-Cola FEMSA, the coke bottler in Venezuela said it was stopping production of sugar-sweetened beverages in the country due to shortage of sugar.

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

Venezuela is in the grip of the worst recession in decades as falling oil prices, which accounts for 95% of government revenue has pushed the country’s international reserves down to $12bn. The international Monetary Fund (IMF), said the economy contracted 5.7% in 2015 and is expected to shrink further by 8% this year. The rate of inflation is nearing 500% and is projected to reach 700% in the near future. Shortages and long lines to purchase basic food items are common sight in the oil-rich nation.

Coca-Cola isn’t the only company in Venezuela experiencing shortages of raw materials. Last month, Empresas Polar SA, Venezuela’s biggest brewer, stopped production due to lack of barley.

Ms. Tressler, the Coca-Cola spokeswoman, said “While this situation will impact the production of sugar-sweetened beverages in coming days, the production lines for zero-sugar beverages such as bottled water and Coca-Cola Light are not impacted and will continue operating normally,” she said, adding that the local offices and distribution centres will remain open.

Coca-Cola FEMSA SA is the world’s largest bottler of Coca-Cola products, and Latin America is the largest market for Coca-Cola with 29% of the company’s 1.9bn cans a day consumed in the region.

The bottler, which derives about 7% of its revenue in Venezuela, is a joint-venture partnership between Coca-Cola and Mexico’s FEMSA.

The sugar industry in Venezuela is beset by a combination of prize controls by the government, high cost of production, foreign exchange shortages, restrictive labor laws and a lack of basic raw materials such as fertilizer. The effect has been a drop in Venezuela’s sugarcane production. Many small farmers have abandoned sugarcane farming for more profitable crops that are not prize controlled and thus provide better income.

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