The island country of Cuba with 11.4 million people and a per capita GDP of $3,900 per year continues to receive substantial attention from U.S. government officials and agricultural groups. The Senate Finance Committee had asked the International Trade Commission to investigate the impact of removing the current U.S. regulations on financing agricultural products sales to Cuba and restrictions on travel to Cuba by U.S. citizens. The report is titled “U.S. Agricultural Sales to Cuba: Certain Economic Effects of U.S. Restrictions.”

Despite the overall economic embargo by the U.S. government, Cuba is allowed to buy food for cash under the Trade Sanctions Reform and Export Enhancement Act of 2000. Like many underdeveloped countries, agriculture accounts for only 5 percent of the nations total output, but employs 20 percent of the workforce and does not produce enough food for the people.

Tourism and agricultural imports are linked because tourism was not promoted until the early 1990s when aid from the former Soviet Union was reduced. Because Cuba has limited foreign exchange and does not have access to U.S. credit, tourism, Cuban-American family travel and dollar remittances play important roles in financing food imports. Tourist visitors grew from about 370,000 per year in the early 1990s to 2.3 million in 2005, and Cuba became the third largest tourist destination in the Caribbean after the Dominican Republic and Puerto Rico. Tourism declined in 2006 to 2.2 million due, in part, to an 8 percent upward revaluation of the convertible Cuban peso in 2005 that made Cuba more expensive relative to other Caribbean destinations. Canadians and Europeans make up a majority of visitors, and the U.S. is the sixth largest source of visitors at 171,000 in 2005. Those were primarily Cuban Americans visiting family.

Cuban agricultural imports were valued at $1 billion in 2006, about 18 percent of total merchandise imports. Imports are a combination of Cuban staples like rice and beans and products not suited to its tropical climate like wheat, course grains and animal products. Cuba now imports almost 60 percent of its consumption of rice and corn. The growth in imports was partly caused by a combination of severe drought in 2003–05 and two hurricanes in 2004 and one in 2005. Imports fell slightly in 2006 after Cuba built up adequate food reserves.

Meat imports, mostly lower priced poultry products, grew by 180 percent in value terms between 2000 and 2006 and now account for 15 percent of agricultural imports. Dairy product imports, mostly milk powders, account for 14 percent of the value of agricultural imports. The milk powder is reconstituted and given to children as part of a food ration provided by the government. Most of the dairy products come from New Zealand and the EU. Cuba is now a net importer of sugar after having once been one of the world’s largest exporters. It continues to fulfill long-term sugar export contracts to countries like China. Cuba opened a soybean processing plant in 2001-02 and now imports 130,000 metric tons per year.

In 2006 the U.S. accounted for about one-third of Cuba’s agricultural imports, the EU and Brazil another third, and the rest of the world the final third. Bulk commodities were the major imports from the U.S. led by wheat ($51 million), corn ($43 million), rice ($40 million), soybeans ($32 million), and beans, peas, and lentils ($20 million). Processed products included poultry meat ($44 million), soybean meal ($27 million), soybean oil ($21 million), pork ($13 million), and powdered milk ($13 million).

The United States generally has lower costs of delivery than most other countries because of the proximity of the U.S. ports to Cuba and marketing efficiencies. A Cuban official estimated the advantage to be about 20 percent. Cuba’s lack of storage capacity and rail and truck delivery problems have made U.S. exporters “just-in-time” delivery another advantage.

On the issues of food import financing restrictions and travel limits, the USITC concluded, “Eliminating financing restrictions on U.S. agricultural exports would likely have a larger impact on U.S. agricultural sales than lifting the travel restrictions on U.S. citizens. This is because most imported food from the United States consists of bulk commodities sold to Cubans, rather than foods that are sold to tourists.”

The Commission estimated that the financing restrictions increased the costs of purchasing U.S. products by 2.5-10 percent depending on the product, and U.S. exports would increase to between one-half and two-thirds of the market from the current one-third if the restrictions were removed. The largest gains in sales would likely be in fresh fruits and vegetables, milk powder, processed foods, wheat and dry beans. If only the travel restrictions were removed, increased sales would occur in processed foods, poultry, beef, pork and fish for the tourist trade.

If the travel restrictions were removed, U.S. residents traveling to Cuba would be expected to increase to between 554,000 and 1.1 million per year. Some of those would displace current visitors, and net additional tourists would increase by 226,000 to 538,000.

Changes in agricultural export financing regulations and ending travel restrictions would help increase U.S. agricultural trade to Cuba, but they would only change demand for U.S. products at the margin as the report shows. Cuba needs internal economic policy reforms that would increase economic growth and improve personal incomes. Short of that, the market will remain limited with an uncertain future.