Agricultural Trade with Cuba in the Post-Castro Era

The ongoing health problems of the current 81 year-old President of Cuba Fidel Castro has raised optimism about the potential for U.S. agricultural trade with Cuba in the years ahead. The close proximity of Cuba puts the U.S. in a strong position to increase trade, but the more important issue is the economic policies of a post-Castro government.

Cuba is a relatively small market with a population of 11.4 מיליאָן מענטשן. For comparison, the island country of Taiwan has 22.9 מיליאָן מענטשן, Hong Kong has 6.9 million and Singapore has 4.5 מיליאָן. Its land area of 42,800 square miles is slightly smaller than Pennsylvania, which has a population of 12.4 מיליאָן. Cuba has a GDP of $1,500 per capita on an economic trade basis, but $3,500 on a purchasing power parity (PPP) basis because many goods and services are subsidized by the government. Again for comparison, Hong Kong’s GDP on a PPP basis is $34,000 and Singapore’s is $28,600. Three-fourths of the labor force is employed by the government. The economy is still recovering from a severe recession from 1989 צו 1993 caused by the withdrawal of subsidies by the former Soviet Union.

וועגן 28 percent of Cuba’s land is arable. Agriculture is 5.5 percent of GDP, but has 21 percent of the labor force, און 30 percent of the population lives in rural areas. Sugar production, once the mainstay of agriculture, has declined from 8 million tons in 1989 צו 1.5 million tons in 2006. Citrus production was promoted as an alternative to sugar and prospered during the 1970s and 1980s with large shipments to the Soviet Union and other Eastern European countries. Those exports collapsed with the ending of subsidies, and Cuba has been forced to ship products to the competitive EU markets.

Despite the general U.S. trade embargo against Cuba begun 45 יארן צוריק, cash sales of food are permitted under the Trade Sanctions Reform and Export Enhancement Act of 2000 and the FY 2001 agricultural appropriations act. Cuba imports food to provide a minimum diet for the people, and U.S. commodities are competitively priced with low transportation costs. The Food and Agriculture Organization of the UN (FAO) reports that malnutrition among children in Cuba is relatively low for a developing country at just under 5 פּראָצענט. וועגן 9 percent of women and 6 percent of men are considered to be chronically energy deficient, while 37 percent of women and 32 percent of men are overweight.

יו. עס. agricultural exports to Cuba were $343.2 million in fiscal year 2006. Just over half, $175.4 מיליאָן, were bulk commodities with course grains at $50.5 מיליאָן, rice $43.6 מיליאָן, קאַנסאַמשאַן פון פּאַלסיז איז אויך זייער הויך $43.3 מיליאָן, סויבינז $22.6 מיליאָן, and pulses $14.9 מיליאָן. The remaining amount was split between intermediate products at $84.3 million and consumer-oriented products at $83.5 מיליאָן. The intermediate products were dominated by soybean oil at $38.6 million and soybean meal at $30.4 מיליאָן. Poultry meat exports of $40 million accounted for almost half of the consumer-oriented products followed by dairy products at $24.2 million and red meat at $15.5 מיליאָן.

According to FAO data, total Cuban agricultural imports in 2004, the latest year available, were $927 מיליאָן. In fiscal year 2004 USDA data show the U.S. עקספּאָרטירט $400 million of agricultural products to Cuba, implying a market share of about 40 פּראָצענט. Total agricultural exports from Cuba in 2004 according to FAO were $620 מיליאָן, with sugar at $349 מיליאָן, cigars at $129 מיליאָן, alcoholic beverages at $33 מיליאָן, orange juice at $21 million and grapefruit juice at $17 מיליאָן.

If President Castro were no longer in power, but there were no changes in political and economic policies, יו. עס. agricultural exports to Cuba would change little, if any, with or without the embargo. Cuban incomes would remain too low for greater demand for food to develop.

If a new government reformed basic political structures and allowed freedoms similar to the U.S., but did not make economic policy reforms, the market for food would still not grow. Cuba has hard currency foreign debt estimated at $12 billion and does not qualify for lending by institutions like the World Bank because it defaulted on its debt in 1986. It is rated as a poor investment risk and has to pay double digit interest rates on borrowings.

There is economic hope if economic policy reforms are implemented. Nickel is the biggest export item estimated at $1.0 billion in 2005. Other export items include sugar, tobacco, fish, medical products, citrus and coffee.

The current government has discovered tourism as a major economic force for growth and source of hard currency to pay for imports. Tourist visits totaled 2.3 million in 2005 and generated over $2.0 billion in revenue. Also, funds transferred from Cubans living outside the country, mostly in the U.S., produce $600 million to $1.0 billion per year in hard currencies.

Despite the hard currency debt overhang, an economic policy based on economic freedom would attract outside capital to the country. New investments could rebuild the citrus industry, and the U.S. would become a major market for the output. The tourist industry would also attract new investments. These would be engines of economic growth that are necessary to increase incomes to improve the demand for food.

Increasing food demand to the level of other economically successful small nations will not be a quick process, but U.S. producers should not ignore the market. As small countries like Taiwan with U.S. agricultural imports of $2.4 billion per year have shown, economic growth increases demand for the quantity and variety of food and increases trade.