Agricultural trade between the US and Cuba took a positive turn this year. But will it be short-lived? Monica Dobie looks at the winners – and losers – of the new US/Cuban entente and depicts an uncertain future for many stakeholders.
Go deeper with GlobalData
Fidel Castro has been busy dealing with Americans lately. However, the revolutionary has not been slamming US greed and capitalism in his familiar army fatigues and with cigar in tow. Instead, donning a suit and tie, he has been schmoozing US food industry executives with lavish receptions.
Even more bizarre is the fact that this new cuddly side of Castro and his enticing pitch are actually getting results.
According to the New York-based US-Cuba Trade and Economic Council, Cuba will rank 46th of 228 countries for buying agricultural exports from the United States in 2002, compared with 144th in 2001 and 228th in 2000.
So what it is that has spurred on this new relationship?
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataIn 2000, the US Trade Sanctions Reform and Export Enhancement Act allowed for the direct commercial export of food and agricultural products from the United States to Cuba on a cash up-front basis only. For two years, American food producers sold small amounts of product to Cuba, mainly because companies doubted Cuba had the money or will to buy.
Storm-assisted improvements
It was Hurricane Michelle, the strongest hurricane to hit Cuba since 1952, which ravaged the country on 4 November 2001, which played a crucial role in creating the present economic relationship.
The devastation prompted US aid to Cuba in the form of food and medicines but Fidel Castro refused to accept the goods without payment, which sounds bull-headed, but actually represented a softening of his position. Previously he had maintained that Cuba would not allow US food into his Caribbean island at all, unless the trade embargo was lifted in its entirety.
After the first order was paid for and delivered, more orders came in droves and the contracts have not since subsided.
Politics still paramount
“There remains a substantial political component to making the purchases” |
“There was and remains a substantial political component to making the purchases […] but US companies are delivering a higher quality product on a more timely basis and in some cases at less cost [than other existing exporters],” said John S. Kavulich II, president of the US-Cuba Trade and Economic Council.
To facilitate the process further, the first ever US Food & Agribusiness Exhibition, authorised – pinch yourselves – by the United States Department of Treasury’s Office of Foreign Assets Control (OFAC), was held in Havana from 26-30 September of this year.
ADM sponsored the US/Cuba food fair
The food fair was primarily sponsored by Archer Daniels Midland Company, an Illinois-based food giant, and included 288 exhibitors (companies, trade organisations, and state departments of agriculture) from 33 American states.
During and immediately following the exhibition, more than 70 companies from 23 states and Puerto Rico, signed contracts and agreements to deliver food products and agricultural products valued at approximately US$92m, of which approximately 43% was scheduled for delivery in 2002 and approximately 57% scheduled for delivery from January 2003 through March 2003.
The larger contracts were for the following food products:
- Yellow soybeans, crude soy oil and refined soy oil – US$19.05m
- Rough rice – US$6.29m
- Corn – US$3.9m
- Rice – US$3.5m
- Chicken leg quarters, chicken backs, necks and drumsticks – US$3.9m
Finally, on 8 October 2002, PWN Exhibicon International LLC applied to OFAC for a license to conduct another US Food & Agribusiness Exhibition in Havana in January 2004. The government of Cuba has already agreed to host this second fair.
Future looks bright…
“As soon as they found the US, they dumped Canada, without a blink, overnight” |
Kavulich said American food producers stand to cash in if Cuba can keep paying up and if Fidel Castro sees evidence of the trade embargo being loosened further in the New Year, then Kavulich predicts that they probably will.
“If the Cuban government sees progress being made, as they define it, in terms of expanding the commercial and economic relationship between both countries, then Cuba will continue to buy at the same levels as 2002,” he said.
… for suppliers in the US, at least
So good news for the US food industry, but with the Cuba-held hard currency being somewhat limited, other countries who used to enjoy access to the Cuban market, without having to fight the Americans, have now lost business; especially the US’ northern neighbour Canada.
This has proved particularly galling for some Canadian companies, particularly as Cuba has profited for years from good relations with Ottawa, despite hostility from Washington.
Micheal Thomas, president of Montreal-based MTD Trading International – which once sold about 75% of Cuban chicken imports from Canada – was damaged by Hurricane Michelle and we are not talking about a sunk container vessel.
“As soon as they found the United States, they dumped Canada immediately, without a blink, overnight,” he told just-food.com. “It would have been fine if they’d paid all their debt but they didn’t do that. At the time it was up to ten million dollars in debt, now I’m still owed half a million a year later.”
Canadian producers losing out
Thomas, like many other Canadian executives, no longer deals with Cuba. He said Cuba stopped or slowed down payments last November dramatically to Canadian companies and used that saved money to pay for US products.
“Companies like ourselves extended a huge credit to Cuba, 10 or 15 million dollars of credit at any one time […] anybody else dealing with Cuba looks at this current set up with the States and laughs because all of this new found wealth from nowhere. Cuba does not have the financial resources long term to pay for product up front. It’s short lived. The US will start to see cancelled orders,” he predicted.
“It’s short lived. The US will start to see cancelled orders” |
In response, John Kavulich said that with US exports, there are savings to Cuba in transport costs, price reductions of up to 30% on some goods compared to the former competitors, and better time constraints, all of which strengthens Cuba’s buying power.
Doubts over the long-term outlook
|
But what if Fidel Castro is disappointed by progress on the embargo next year, with right wing anti-trade enthusiasts gaining the upper hand? It depends who you ask.
“Many times people wait for the Cuban economy to implode and it doesn’t because they’re always able to find an outlet,” said Kavulich.”
“They’ll revisit their old friends and I don’t think their old friends are going to be there,” predicted Thomas.
