As cost of Venezuelan goods go up, Colombian smugglers feel the pinch

Venezuela recently raised the price of chicken, rice, and sugar. Could its cheaper-than-water gasoline be next? Colombian fuel smugglers hope not.

On the outskirts of town, the cab driver swings onto a narrow dirt road, pulls up to a nondescript cinder-block house and honks twice. A man emerges and peers both ways down the desolate street before opening a tall gate and ushering the car in.

The reason for the caution is stacked in a corner of the yard in plastic tubs — about 200 gallons of dirt cheap Venezuelan gasoline.

Venezuela raised the price of chicken, rice, and sugar last week as it hopes to steady the economy and stem the flow of contraband goods to Colombia, which it says soaks up about 40 percent of its national products.

The price hike, which also came with a 30 percent minimum wage increase, is reviving speculation that gasoline might be next on the list.

In Venezuela, gasoline really is cheaper than water. A gallon of 95 octane fuel costs just 5 cents — a liter of bottled water, by comparison, is more than a dollar. The socialist government prides itself on sitting atop the world’s largest crude reserves and cheap gas is practically considered a birthright. But it’s also sinking the economy. Rafael Ramírez, the head of the state-owned PDVSA oil company, recently said that gas subsidies costs the country $12.5 billion a year.

In Colombia, the gasoline is just the most blatant example of how Venezuelan goods fuel a thriving black market worth billions and that experts warn is playing a role in the global money-laundering trade.

Contraband along the 1,274-mile shared border is as old as the national boundary itself, and towns along the frontier are virtually built on the commerce.

But high-volume filling stations selling Venezuelan gasoline along Colombia’s Atlantic coast almost five hours from the border offer a glimpse of how pervasive the Venezuelan trade is.

In his office in downtown Bogotá, Juan Ricardo Ortega, the head of the DIAN customs and tax department, says it’s difficult to quantify the problem.

Colombia seized $12 million in contraband goods from Venezuela last year, but that figure both underestimates the street value of the merchandise and represents a fraction of what makes it across the border. Studies suggest that contraband fuel, rice, and palm oil alone represent about a $1.5 billion hole in the nation’s economy, Mr. Ortega says. Others have pegged total Venezuelan contraband at about $6 billion a year.

Price limits

It’s not surprising, says Ortega. In its efforts to control inflation and please the masses, Venezuela has slapped price limits on everything from shampoo to automobiles. Venezuelan goods are often five times cheaper than in Colombia, and for gasoline that difference is even greater. While a gallon costs 5 cents in Venezuela, it costs $4.36 on this side of the border.

“When you talk about Venezuelan contraband, you’re talking about everything,” Ortega says. In the border town of Cúcuta alone, “everyday we see 200,000 motorcycles [carrying Venezuelan goods] crossing the border several times, they’re like ants. And if you add it up, that would cause a great impact anywhere.”

The list of seized items in 2013 provides a glimpse of Colombia’s hunger for Venezuelan goods: $80,000 in milk and dairy products, $673,000 in rice, $138,000 in beer. But there are also pens, scrap metal, combs, photocopiers, medical supplies, motorcycles, and bulldozers.

Authorities also stopped more than 2,000 vehicles carrying gasoline, diesel and other fuels, including entire tankers full of gas.

If the contraband trade is hurting Colombian business, it’s also fueling Venezuelan unrest. President Nicolás Maduro blames Colombian smuggling for the empty shelves and price speculation that has saddled Venezuela with the hemisphere’s highest inflation at 57 percent.

The government has been trying to plug the flow with beefed up security and making users of state-run grocery stores register to prevent hoarding and re-selling.

In March, President Maduro replaced the head of customs, José David Cabello, the brother of National Assembly President Diosdado Cabello, who is considered one of the most powerful men in the country. Some have proposed drastic measures, such as closing the frontier after dark, to try to dissuade the bribing of border guards.

The country has also opened up new mechanisms for buying the bolivar, which has helped calm the currency markets. Just a few months ago, bolivares were selling at about 80 to the dollar, now they fetch about 50. That 38 percent change makes Venezuelan goods more expensive in Colombia.

There are signs the tactics are working. The central market of Santa Marta on Colombia’s Atlantic coast is almost 175 miles from the border with Venezuela. But the vendors here say they feel Caracas’ policy changes in their bottom line.

A few months ago, the market was full of powdered milk, flour for making arepas, and cooking oil from the neighboring country, vendors say. But with the bolivar reevaluation, Colombian brands are competitive again.

Deep in the market, Julia had a stall full of Venezuelan ketchup, baby formula, and mayonnaise. She didn’t want to give her last name because it’s illegal to sell contraband goods.

“We’re not making as much money as we used to, all the businesses are hurting,” she says. She says her suppliers were complaining about stricter border controls and that had increased prices. “I’m thinking about opening up a seafood stand instead,” she says.

While the price differential between the countries explains part of the trade, it doesn’t explain it all, Ortega says . There are also signs that contraband — not just from Venezuela but from Panama and South America — is being used to launder drug money.

Money laundering?

As the United States and Europe have cracked down on the movement of cash, the drug trade has turned to merchandise to move wealth, he says. Currently, about 60 percent of all the clothing entering Colombia is contraband and much of it is part of the money laundering trade, he said. The practice is particularly destructive because the launderers aren’t worried about making a profit on the clothes, rather they just want to move money undetected, he says.

“In Colombia [clothes] are being sold at ridiculous prices, often times for less than the value of the cotton in them,” he says. “People who are in the business legally are going bankrupt.”

Venezuelan fuel is also part of that chain, he says. There are indications that Mexico’s Sinaloa drug cartel and Colombian guerrillas and gangs are benefiting from the fuel-smuggling scheme. And Colombian drug labs are using subsidized Venezuelan gasoline and cement to turn coca into cocaine.

“Fernando,” the owner of the illegal gasoline station in Santa Marta, agreed to talk as long as his name wasn’t used. He sells the fuel for $4 a gallon, only slightly below Colombian pump prices, but clients prefer it because it’s higher octane levels make it last longer, he says.

Fernando has also been feeling the Venezuelan squeeze lately. He used to be supplied by school buses stacked with canisters of gasoline. But now, the trade is less conspicuous. The latest trend is Ford F150 pickup trucks with double fuel tanks that can deliver about 54 gallons to the station per trip.

He said that as long as there are profits to be made on Venezuelan gasoline, it will keep seeping over the border.

“How long have they tried to stop Colombia from exporting cocaine?” he asks. “If they can’t stop drugs, how are they going to stop gasoline?”

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