Cuba: Challenge Or Opportunity For Florida Agriculture?
March 21, 2016 
Vinales Valley in Cuba.
When President Obama announced that negotiations would begin to normalize diplomatic relations with Cuba in December 2014, there was mixed reaction in the U.S., with strong sentiments on both sides of whether or not this was an advisable decision. The reaction among the majority of American agriculture interests was generally indifferent. Even without diplomatic relations, and with the U.S. embargo of Cuba still in place, U.S. farms, ranches, and agricultural firms had already been selling food and agricultural products to Cuba for 15 years. These sales were being made following passage of the Trade Sanctions Reform and Export Enhancement Act (TSRA) in 2000, which allowed U.S. firms to sell food and medicine to Cuba for the first time since the early 1960s.
Despite being a country with tremendous resources and agricultural potential, Cuba still has to import up to 80% of its food according to reports from its Ministry of Agriculture. Following passage of the TSRA, many American farmers have been taking advantage of opportunities to export their crops to Cuba, and since 2001, U.S. firms have shipped more than $5 billion worth of food and agricultural products to Cuba. In fact, between 2002 and 2012, the U.S. was Cuba’s largest supplier of imported food products in every year but one.
Loading ...However, since 2012, U.S. food and agricultural exports to Cuba have fallen steadily. TSRA regulations require that Cuba pay cash for its purchases from the U.S., and Cuba has begun has begun buying from other countries that offer larger credit lines and extended terms.While some Florida firms have been exporting to Cuba, the equation here is different. With a similar climate to its neighbor only 90 miles away, Cuba could present a major competitive rival to the state if circumstances change and the central government relaxes controls to let freer markets rule.
William Messina, an agricultural economist with UF/IFAS, is part of a team of researchers that has been studying Cuba for more than 20 years and says it makes sense for Florida agriculture to take note of what is happening in Cuba.
“Our work and study certainly suggest that a lifting of the trade embargo with Cuba could have a larger impact on Florida than any other event in the history of our state,” Messina says. “Because Cuba is so close and grows many of the same crops in essentially the same seasons as Florida, I can’t think of anything — even NAFTA — that could have more effect on Florida agriculture. Some growers are concerned that it will create challenges, but others also see potential business opportunities.”
What The President Did And Didn’t Do
In discussing this issue, it is important to understand that President Obama was limited in the actions he took in regard to Cuba. The U.S. President has the authority by executive order to resume diplomatic relations with a country, which was done with Cuba in July of 2015.
But the potentially more dicey proposition for Florida growers — the lifting of the trade embargo, which would allow Cuba to export to the U.S. — requires U.S. House, Senate, and presidential approval since the embargo was codified into law by the Helms-Burton legislation, passed in 1996.
Significant Potential
Messina says that Cuba has significant agricultural potential. Its size alone surprises many; Cuba’s land mass is about ¾ the size of Florida, and is nearly as large as all the other Caribbean islands put together. And 70% of the country’s land is arable, with generally good soils.
Messina adds that Cuba has some water challenges, but they are similar to those Florida faces.
“It is even a longer and skinnier land mass, than peninsular Florida,” he says. “There are relatively few lakes and no long rivers in Cuba, so surface water is somewhat limited. And if you pump too much groundwater in coastal areas in Cuba, you can get saltwater intrusion. In Florida, agriculture reduces water use by using low-volume irrigation technology, but in Cuba, capital availability is limited so they generally do not have the money to invest in these types of systems.”
Cuba was once the third largest sugar producer in the world. Currently, Brazil is investing in the country’s sugar infrastructure.
Photo by Fred Royce
A look at the country’s past sugar production provides insight on just how productive the island can be. In the late 1980s, Cuba was the third largest producer of sugar in the world behind Brazil and India.
“But Brazil and India consume most of their sugar production domestically, which made Cuba the world largest sugar exporter,” Messina says. “It was driven by the Soviet Union paying very high prices for sugar imports from Cuba, which made expansion of the sugar industry a rational economic decision. In the late 1980s, the country produced 8.5 million metric tons of sugar. But following the loss of Soviet subsidies, by 2011, Cuba’s sugar production had plummeted to just a little more than 1 million tons, the lowest level in a century.”
The island nation’s population also is very educated, making for a capable labor force. According to the CIA World Factbook, Cuba has a literacy rate of 99.8%, compared to 99% in the U.S.
“They have good land and good labor, but what they are lacking is capital,” Messina says. “They also lack the flexibility to make good production decisions because of the government’s central planning. But, the people have a tremendous entrepreneurial spirit and understand markets, supply and demand, and incentives.”
Central Control
With so much agricultural potential, the fact that Cuba is so heavily reliant on food imports is illustrative of central planning’s crushing effect on productivity. The country long relied on subsidies and support from the Soviet Union. When its communist partner collapsed, challenges with the economic system were exposed.
“In January 1959, Castro marched into Havana,” Messina says. “In May of that year, he implemented the first agrarian reform law, which began to expropriate large farm holdings. Then in 1963, a second agrarian reform law was imposed and took more lands.”
Messina notes small farmers were not that impacted by the reform laws, but there were not that many small farmers. By the 1980s, about 85% of Cuban agricultural production was coming from huge state farms, the balance being provided by small landholders and the cooperative sector.
“I never did any work in the Soviet Union or Eastern Europe, so I have nothing to compare to, but the level of Cuba’s central control is stunning,” he says. “And, agricultural inputs are rigidly controlled by the government, with deliveries often delayed.”
Farmers in Cuba have to satisfy a government production quota, but anything they produce beyond their quota can be sold in agricultural markets, which were established beginning in 1994.
“Things are gradually changing in Cuba, but it is not clear how much these changes are helping the average Cuban,” Messina says. “For example, food prices have been rising far faster than wages creating some real problems for consumers. And, while it is not changing very fast, the government is trying to decentralize decision-making and control more toward the municipal level.”
Cuba’s citrus industry has been decimated by HLB. The country is only harvesting 12% of what it did in the late 1980s.
Photo by Fred Royce
Foreign Investment
Following the revolution, Cuba relied heavily on its ally the Soviet Union. The dissolution of the former Soviet Union left the country in the lurch. In an effort to lure foreign investment, the government continues to modify its foreign investment regulations and make reforms, but this process also is moving slowly.
“Even back when Fidel was in power, China was telling Cuba it was possible to relax economic control without losing control of political power,” Messina says. “Fidel’s response was, ‘No, we are different.’
“During the last Communist Party Congress in 2011, Cuba proposed a series of market-oriented reforms for agriculture. But, there is a lot of intransigence within the bureaucracy that is slowing reforms.”
According to Cuba’s finance minister Rodrigo Malmierca, the country needs to attract $2 billion to $2.5 billion in foreign investment per year to reach its own goal of 5% to 7% economic growth. Messina says this is a very ambitious goal. Currently, there are more than 4,500 firms from more than 100 countries doing business in Cuba.
Brazil, in particular, is cultivating its relationship with the island nation. In fact, Messina says Brazil could be a “game-changer” for Cuba. Brazil provided more than $680 million in financing to refurbish and expand the Cuban port at Mariel. It has invested $200 million to help improve Cuban agriculture and is offering Cuba credit for its purchases of agricultural products.
“In 2011, Brazil also invested in Cuba’s sugar industry, taking it from its production low of 1.1 million metric tons to 1.8 million tons in only four seasons,” Messina says. “That is a 60% increase in production. Sugar is the only agricultural commodity sector in Cuba showing significant growth, which illustrates how dramatically foreign investment can impact its agricultural sector.”
Messina also points out former British Prime Minister Margaret Thatcher’s quote: “Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”
Cuba ran out of the Soviet Union’s money and currently may be running out of Venezuela’s money. Could Brazil eventually be next in line?
Other obstacles to foreign investment remain including legal questions surrounding expropriated properties taken by the Cuban government. The U.S. Justice Department has a separate office of Cuban Claims, which holds more than 8,800 claims for properties expropriated by the Castro government with a total value of more than $1.9 billion (in 1960 dollars). Conversely, Cuba claims that the U.S. owes it more than $1 trillion dollars for damages caused by the embargo. Obviously, much needs to happen for these competing claims to be resolved.
Competitive Threats
While it is likely a long ways off if the trade embargo is lifted and Cuba lets free-market principles reign, should Florida growers be concerned? Messina says that he has spoken with Florida growers who feel this situation could create both challenges and potential business opportunities.
Sugar, citrus, vegetables, tropical fruit, ornamentals, and livestock are grown and raised in Cuba and could become a competitive concern down the road.
In addition, there are concerns surrounding the potential introduction of invasive pests into the state. John Hoblick, President of the Florida Farm Bureau, introduced a resolution during this year’s American Farm Bureau Convention for its trade committee to monitor and advise on trade progress in Cuba.
“We are not against trade with Cuba,” Hoblick says. “In the event that trade occurs, we want to be sure the proper protections are in place at our ports of entry. Our ports are so undermanned already, so we are concerned about one more avenue for potential invasive pests coming in.”
Messina adds Florida growers should be vigilant and monitor what is happening in Cuba. In fact, some growers have already begun investigating the potential of growing in Cuba.
“The farmers down there are chomping at the bit,” Messina says. “They are very well trained and knowledgeable. They know what to do. They just need to be able to access inputs and capital, and have more flexibility to respond to market forces.”
Vibrant Markets Reveal Potential
In the 1960s, the post-revolutionary government instituted a policy of heavily subsidized food sales. Families received a ration book, which they took to a ration store to buy food at very low prices. The system worked until the Soviet Union collapsed and the $6 billion to 8 billion it had been pumping into the Cuban economy disappeared. Today, the ration stores have few choices and often low-quality food.
In contrast, are the local agricultural markets, which the government allowed in 1994. In the markets, farmers are free to sell any produce they grow above their government quotas.
Photo by Fred Royce
One of the key elements of the markets is food purchases have to be made using Cuban pesos. Before these markets, it was common for growers to sell their surplus products on the black market for hard currency like the U.S. dollar. It created a problem because Cubans who do not receive remittances from family overseas, or hard-currency tips in the tourist sector, could not buy the food on the black market. This created a lot of divisions in Cuban society and was the cause of the last incident of civil unrest there when frustration over food shortages and the inability of the public to buy surplus agricultural production boiled over into the rafters crisis of 1994.
The government’s response was to open the agricultural markets so people could purchase the surplus product even if they didn’t have hard currency.
“These agricultural markets introduced the idea of incentives to the Cuban farmers,” says William Messina, an agricultural economist with UF/IFAS. “In these markets, free market prices rule creating an incentive to grow more and offer higher quality goods. They are very dynamic when compared to the ration stores.”
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