Ag sales to Cuba worth $230 million?

Byline: Dan Bryant

If U.S. agricultural trade with Cuba reaches a projected $230 million for 2003, the island republic 90 miles off Florida would be the 33rd largest market for American farm products, a quantum jump from $155 million in trade in 2002 and a transformation after four decades of embargo.

Pros and cons of expanded U.S. farm exports to Cuba were traced by John S. Kavulich II, president of the New York City-based U.S-Cuba Trade and Economic Council Inc., in a seminar during the recent 2003 World Ag Expo at Tulare.

The council, established in 1994, provides information for U.S. businesses about commercial, economic, and political relations with the Republic of Cuba. A private, not-for-profit corporation, it interfaces with U.S. agencies and foreign governments but accepts no U.S. government funding.

As with foreign trade in many instances, Kavulich noted, U.S. interests want to export to Cuba but not to the extent that doing so creates competitors in domestic or export markets.

Trade with the communist nation was banned by executive order of President John Kennedy in 1963 during the Cold War era, but mounting interest in resuming Cuban markets during the following 35 years led to a chain of developments that increased exports, Kavulich said.

Health care products

Among those was the precedent-setting executive order in 1999 by President Bill Clinton allowing sales of health care products through private organizations, but not to Cuban government entities.

The next year the Trade Sanctions Reform and Export Enhancement Act (TSREEA), was passed. It reauthorized direct sales of U.S. farm products to any Cuban buyer, governmental or private, although on a cash-only basis through export licenses issued by the U.S. Department of Commerce and Department of the Treasury.

Replenishment of losses of commodities in Cuba after the destruction of Hurricane Michele in November of 2001 saw delivery of 30,000 metric tons of corn from New Orleans. Subsequent shipments of poultry and grain brought the total to some $4.5 million in deliveries that year.

Although the Cubans said publicly at the time that would be the extent of purchases, Kuvalich said they continued to put out feelers about other products, while U.S. grain interests adroitly moved to expand shipments.

“The shipments of corn said a lot about how relationships can be established,” he said. “In a politically astute move, Archer Daniels Midland sourced the corn order not from a single point but from nine states whose governors, senators, and representatives favored trade with Cuba.”

Threatened challenge

Although the Bush administration attempted to covertly slow the sales by restricting shipping licenses, officials of the corn-producing states threatened to publicly challenge White House attempts to hinder sales of corn.

In a further demonstration of political savvy, ADM officials shipped the corn through New Orleans, the very port that lost 5,000 jobs when the original ban on exports to Cuba was imposed in 1963.

Cuba continued to buy U.S. exports, and by April of 2002, cash-sale shipments of corn, wheat, rice, soy, eggs, dairy, and other products – including Gallo wines, Sun-Maid raisins, and Foster Farms poultry from California – were flowing. They amounted to $155 million that year, and the U.S. became the single largest source of ag products for Cuba.

In September of 2002 more than 290 companies from California and 37 other states took part in the U.S. Agribusiness Exhibit, the first time the U.S. government allowed a trade show in Cuba for food and agriculture products.

During the exhibit, Cubans signed contracts for $92.5 million in U.S. farm products. A portion was delivered in 2002, but foreign exchange issues delayed arrivals of the balance into the third quarter of 2003 or later.

Sales projection

“The Cubans have projected sales for 2003 at $230 million, but we’ll have to see if it goes that high,” Kuvalich said.

The market for farm exports from all sources to Cuba, he said, was estimated by U.S. sources at $700 million for 2002, although Cuban statistics were more generous, setting the amount at $1 billion, which he said includes transportation and other costs added to the basic product costs.

Because of the cash-only conditions of trade, Kavulich said, “We can now say that Cuba is one of the safest export markets in the world for U.S. companies.”

But other nations extend much more liberal credit policies to Cuba, and those put the U.S. to disadvantage. Vietnam last year sent 275,000 metric tons of rice, with credit for 720 days. China shipped 216,000 metric tons, with terms of almost “when you have the money, send it,” he said.

The American Farm Bureau Federation, fearful that Cuba’s other food needs could be met by U.S. competitors, advocates a change in the cash-only provision of the TSREEA law, but Kavulich said, despite export opportunities in Cuba, U.S. exporters are against it, citing Cuba’s poor debt payment record.

The Cuban government, anxious to provide more food and medicines to its population, pressed for easing the credit prohibition of the present TSREEA law. U.S. exporters, wary of credit problems, countered with proposals to expand the range of exports to include ag and farmstead equipment.

Not self-sufficient

“The logic,” Kavulich explained, “was if we sell them seed, we could sell them tractors. If we sell them dairy cows, we could sell them milking machines. If we sell them commodities, we could sell them means to store those commodities. But that does not mean that the exporters want Cuba to be self-sufficient. They do not.

“However, Cuba is growing some agricultural products now. It exports substantial amounts of citrus, rice, and tobacco. To grow those products, Cuba imported about $50 million in farm equipment in 2002, which means that Cuba could rank in the top 30 purchasers of the ag and farmstead equipment export market.

“We (the council) have been working with the Farm Equipment Manufacturers Association, the Association of Export Manufacturers and the manufacturers themselves to expand the constituency of interest in exports to Cuba.”

He went on to say the Cuban American National Foundation, the largest organization of its type in the U.S. has agreed not to object to the plan, the Bush administration is considering it, and the council has reached out to both Republican and Democratic members of Congress.

Prefer executive order

He added that Case, New Holland, and Deere manufacture and assemble machinery in 14 states and give “a wide footprint” for congressional support.

Kavulich said they prefer an executive order to legislation to allow farm machinery and equipment exports, but the outcome remains to be seen.

A lingering barb in expanding Cuban exports is the recurrent position by both the Clinton and Bush administrations that trade legislation impairs the chief executive’s constitutionally given authority to conduct foreign policy. However, relaxation of that executive privilege has not been overlooked in presidential election politics, he said.

Thorny too in approaching bilateral trade is reluctance to create competition for American farmers. Cuba is a sugar producer, and although many of its sugar mills are in the process of shutting down due to poor prices, cane producers in Louisiana and Florida and sugar beet producers in California and North Dakota are not enthusiastic over prospects of another competitor. Cuba also grows oranges and grapefruit and producers in Florida and California don’t look kindly on opening doors to that competition.

Kavulich said while $155 million in trade in 2002 may seem modest, it placed Cuba as the 47th largest export market for U.S. ag products. In 2001 Cuba ranked 144th. If purchases reach $230 million this year, it will be 33rd.

“That’s rather impressive for a country with 11.2 million people. Again, that is at no risk, with cash-only sales.”

COPYRIGHT 2003 PRIMEDIA Business Magazines & Media Inc. All rights reserved.

COPYRIGHT 2003 Gale Group

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