Welcome to Cuba

by JaySjerven
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Value of 2013 U.S. agricultural exports to Cuba

President Barack Obama’s Dec. 17 announcement that the United States will begin the process of normalizing diplomatic relations with Cuba was hailed by U.S. agricultural groups eager to increase sales to the island nation. President Obama said the United States will reestablish an embassy in Havana, probably at the site of the current U.S. Interest Section there. He also said certain trade restrictions that placed U.S. food exporters at a disadvantage vis-à-vis those of other exporting nations would be lifted.

The president did not remove the half-century-old embargo on trade with Cuba and does not have the authority to do so without congressional approval and action. But sales of U.S. food and medical products were exempted from the embargo when Congress passed and President Bill Clinton signed the Trade Sanction Reform and Export Enhancement Act of 2000.

After the act took effect, the United States became a major supplier of food to Cuba, which must import about three-fourths of its food requirements (estimates range from 65% to 80%).

The value of U.S. agricultural exports to Cuba peaked in 2008 at $710.1 million, according to the U.S.-Cuba Trade and Economic Council. But in most recent years, U.S. agricultural exports to Cuba declined as onerous terms applying to financing purchases of U.S. products encouraged Cuba to turn to other suppliers. This was especially the case for wheat and rice.

The U.S. Department of Agriculture indicated the United States sold 500,000 tonnes of wheat to Cuba in 2007-08, but the United States has sold no wheat to that nation since 2010-11. The European Union and Canada now control the wheat market in Cuba. The United States sold 186,000 tonnes of rice to Cuba in 2005-06 but has sold no rice to that nation for the last six years as Vietnam and Thailand became the principal rice suppliers.

U.S. grain trade groups pointed to unilateral restrictions on financial transactions for food products as a principal cause for losing market share in Cuba. Currently, U.S. agricultural exporters wishing to do business with Cuba may receive money upfront from the Cuban government buying agency before they may ship the product. Additionally, the money exchange must be handled by a third-party institution (a non-U.S. bank). The red tape, time delays and transaction costs effectively raise the price of U.S. wheat and rice exports above those of foreign competitors.

President Obama said U.S. banks and financial institutions now will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions. Also, the regulatory definition of the statutory term “cash in advance” will be revised to specify that it means “cash before transfer of title,” not before shipment. The administration said these measures will improve the speed, efficiency and oversight of authorized payments between the United States and Cuba.

At the same time, improvement may come more slowly than many wish, as some analysts noted Cuban financial institutions themselves would have to make significant changes to comply with post 9/11 banking laws aimed at preventing money laundering and support for terrorism.

The National Association of Wheat Growers (NAWG) and U.S. Wheat Associates (U.S.W.) applauded President Obama’s announcement.

“If Cuba resumes purchases of U.S. wheat, we believe our market share there could grow from its current level of zero to around 80% to 90%, as it is in other Caribbean nations,” said Alan Tracy, U.S.W. president.

“The changes to banking are very important because they will significantly reduce red tape and costs associated with doing business with Cuba,” said Betsy Ward, president and chief executive officer of the USA Rice Federation. Ms. Ward said her organization long has maintained that the “embargo was not on Cuba, as they could source rice and other products from around the world, but rather on the rice growers in the United States, whose own government cut them out of one of the world’s top markets, just 90 miles from our shores.”

In five of the past six years, frozen chicken has held the top spot for U.S. food exports to Cuba. The value of U.S. frozen chicken exports to Cuba was $144.4 million in 2013, accounting for 41% of the value of all U.S. food exports to Cuba in that year. In 2012, the value of frozen chicken to Cuba reached its peak at $154.9 million.

“The National Chicken Council and our members support the concept of free and fair trade,” the council said in a statement issued after the president’s address. “If the updated policy has the effect of boosting Cuba’s private sector, and therefore the wealth of its citizens, high-quality protein is usually the first to increase in demand. Because of our proximity, we would welcome the opportunity to provide more of our safe, wholesome and high-quality poultry to the Cuban people.”

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