“Venezuela’s Collapse is the Worst Outside of War in Decades, Economists Say.”
That not-so-cheery headline appeared in the New York Times last month. It was accompanied by a post-apocalyptic photograph that showed men pushing shopping carts past piles of debris looking for anything salvageable. Black smoke billowed upward in the distance.
The Times story—as well as many others of late—have painted a picture of what seems to be unprecedented chaos in Venezuela—ten million percent inflation, empty grocery store shelves (the Times: “butchers have stopped selling meat cuts in favor of offal, fat shavings and cow hooves”), rampant kidnappings, and fearless gangs terrorizing neighborhoods. Earlier this year it was uncertain who was president.
Yet, none of this mayhem is entirely unprecedented. Venezuela has been periodically subject to spasms of upheaval, notably in the long years of rebellion, when a succession of revolutionaries sought to overthrow Spanish rule.
And through all the travails, including recent ones, businesses have kept producing and exporting. That includes Hacienda Santa Teresa, which was founded in 1796 and has been producing rum since 1830. “There’s a resilience by going back seeing what other generations had to go through,” says Alberto Vollmer, Santa Teresa’s CEO and fifth-generation owner. “But being used to it doesn’t mean that it’s easy.”
So how does a company with 600 employees and a well-regarded premium rum sustain itself amid the chaos?
Very carefully, and, in Santa Teresa’s case, by looking outward rather than hunkering down and focusing inward.
Venezuela’s economic well-being has been tied to oil for more than a century. That’s both a blessing and a curse. It’s difficult to do business when oil prices are booming, and it’s difficult when they’re going bust.
When oil is soaring, Venezuela’s currency tends to rise on international currency markets, which makes it harder for local manufacturers to export their goods. What’s more, it also makes it harder to sell domestically. “With the oil boom, you have a country that gets resource rich and starts importing all sorts of stuff,” says Vollmer. “And local products suffer.”
A booming economy from high oil prices also means that the government can invest lavishly in social programs. When oil prices cycle downward the funding evaporates, programs are slashed, and unrest rises.
Among the shoals that Vollmer has had to navigate is hyperinflation. Under Hugo Chavez, and his successor, Nicolas Maduro, the government has printed money to cover shortfalls from falling oil prices. The result? Ten million percent inflation last year and the destabilization of currency on the international markets. “You had to raise prices one or two times a week,” Vollmer says.
Vollmer says that in some ways Santa Teresa has been lucky—he’s avoided dealing with a lot of imports by having most of what he needs to produce rum available locally. The sugar used is wholly grown in Venezuela, much of it on their own 980-acre plantation. About 90 percent of the bottles they use are produced domestically, as are most of the corks and labels. “One of the things that we did was to put together a logistics center, just to make sure we wouldn’t run out of products,” Vollmer says. “It was almost like a shock absorber.”
More vexing than importing was exporting. Santa Teresa had sought insulate itself from the vagaries of the domestic economy starting in 1996, when it first rolled out its 1796 Santa Teresa Solera Rum, made with a blend of rums between four and 35 years old. This rich super-premium sipping rum was expressly designed for the export market. Rum fans soon sought it out.
Yet, exporting proved problematic owing to the government’s restrictions on currency exchange. Vollmer’s international customers paid in dollars, which was a boon in some ways, and not in others. “For a while it was illegal to have dollars [in Venezuela],” he says. “And if you had them you had to sell them at the official exchange rate.” This was at a rate far below the black-market rate, and for a couple of years Santa Teresa exported rum at a loss.
The problem eased in 2016, when the government let the foreign exchange rate fluctuate. “For the first time in many years the official exchange rate is similar to the real exchange rate,” Vollmer says.
To curb the impact of hyperinflation, the government established price controls on basic goods under the Chavez administration, which led to shortages, empty store shelves, and a thriving black market. “You freeze the price of toilet paper and it disappears,” Vollmer says. All this meant trouble for Vollmer’s employees, who struggled to maintain an acceptable standard of living. “It’s a big reason that people left the country,” he says. He estimates that about 80 percent of those who left were driven away “because buying capacity had diminished radically.”
Vollmer says that prior to Chavez, his community was relatively placid, “everyone got along and knew each other and had something in common.” With Chavez stoking the strident side of populism, Venezuelan society grew polarized. “Suddenly, it became a very complicated country,” he says. His company strove to be neutral, but Vollmer discovered that was nearly impossible. “Both sides of the polarization spectrum want you on their side, and if you’re neutral you’re on neither.”
In 2000, 450 families swarmed Hacienda Santa Teresa, and demanded the land for housing. Vollmer saw that he had two options, both bad: concede to their demands and encouraging more occupations; or fight back, and do so without the support of the police or the army. So, Vollmer took a third route: negotiation, mostly dealing with a former associate of Chavez in the army who was among the leaders.
It worked. “We turned that invasion into a housing project,” Vollmer says. “When you start working with your adversary, you realize you have things common, and mutual respect kicks in. This land invasion turned into something that was almost a case study—we turned misfortune into fortune.” He also hired the ringleader to work for the company.
Vollmer took much the same approach three years later, when gang members robbed a distillery security guard. When caught, three of the robbers were offered a deal: go to jail or make amends by working at the distillery. They chose to work, and soon asked if the other gang members might be allowed to participate.
“Then we realized we were in the middle of a gang war, and so we recruited [their adversaries] and worked with them separately,” Vollmer says. “One day we put them both in a room and said this was enough, and convinced them to make peace.”
That success got noticed. Six other gangs approached Vollmer and wanted to get involved. This led to creating Project Alcatraz, in which gang members are educated and put to work. They also played rugby—Vollmer loved the sport, and thought it a good way to encourage teamwork, camaraderie and humility. Teams were formed; rugby has now spread from five teams to more than 700 across Venezuela. Crime and homicide rates in areas involved with Project Alcatraz have dropped sharply, Vollmer says.
Vollmer’s experience brings to mind that well-worn if specious statement that the Chinese character for crisis and opportunity are one in the same. “At the end our goal is how can we have well-being in our community, how can we as a company be a tool for well-being though employment and community development. We don’t want enemies in the future,” Vollmer says. “We want allies.”
In the early 19th century, the Spanish general Jose Tomas Boves raided the homestead of one of Vollmer’s ancestors, taking with them an eight-year-old girl. Someone eventually bought her freedom; she was the only one in her family to survive to upheaval. She later married a German immigrant named Gustav Julius Vollmer, and the two worked hard to revive her family’s estate, becoming prominent sugar and rum producers in the process.
Her ordeal, Vollmer says, puts his own trials in perspective. “You can’t be the guy who ducks out,” Vollmer says.
