United States and Cuba officials are wrapping up an historic set of meetings in Havana that will lead to increased economic opportunity for agricultural producers in both countries. Cuba and the US signed a Memorandum of Understanding yesterday. That agreement is aimed at supporting mutual advances in agricultural commerce, productivity, and food security. What does all of this mean for agricultural producers and agribusinesses in the US? I think we can look for increased exporting and importing opportunities, a chance to have a more open exchange of information about ag practices in the two countries, and in general, meaningful interaction between US and Cuban farmers.
One important offshoot of these meetings is that US federal check-off funds and marketing order programs may now be used to finance research, promotion, and marketing operations for the first time in Cuba. These dollars can help reinvigorate US commodity sales in Cuba. According to the USDA, the funds can be used to provide nutritional guidance, conduct plant waste research, provide US nutrition and environmental research findings to Cuban leaders, study water disinfectants, and conduct consumer tracking studies. The two countries will also exchange information on climate change resources that help producers cope with drought, heat stress, excessive moisture, longer growing seasons, and changes in crop pests. Likewise, certain US industry-funded health, science, nutrition and consumer-oriented research activities with Cuba now will be permitted.
US farmers are eager to access to Cuban markets. Cuba imports around 80 percent of its food from places like the EU, Brazil, Argentina, and Vietnam. US agricultural exports to Cuba have fallen to their lowest levels since 2002. The value of US exports fell below $200 million in 2015, according to the US Census Bureau’s Foreign Trade program.
My home state of Indiana sold no exports of any kind to Cuba last year, according to the US Department of Commerce. The top exporter to Cuba was Virginia, not a traditional agriculture powerhouse, which sold $41.6 million in goods, mostly soybeans and soybean meal. According to a recent article in the Indy Star, Virginia has been aggressively pursuing Cuban opportunities. The state’s port authority was the first US port operator to sign a cooperation agreement with Cuba.
The biggest obstacle to agricultural exports to Cuba right now is the difficulty in obtaining credit to facilitate transactions between the buyer and seller. This can squeeze US companies out of the market. The US must compete with EU and Latin American countries that do not impose such restrictions on credit. Current US law bars exporters from offering terms of credit, so food and ag products sold to Cuba must be bought on a cash-in-advance basis or through third-party guarantees from foreign banks. As part of the normalization of relations between the nations, “cash in advance” recently was redefined from “cash before shipment” to “cash before transfer of title to, and control of” the exported items, which will allow expanded financing of authorized trade with Cuba.
Despite these financial restrictions, opportunities await in Cuba. Under the Trade Sanctions Reform and Export Enhancement Act (2000), agricultural products have been among the few goods allowed to be exported to Cuba. US producers are taking advantage of that opportunity to the extent possible. But recent US market share has declined due to increased competition, especially from countries able to provide credit and financing to Cuban importers. According to the Hoosier Ag Today, representatives of the Indiana Farm Bureau, agribusinesses, and the Indiana Soybean Alliance witnessed a shortage of food on store shelves and rusted-out Russian tractors during a trip to Cuba last year. There is room for agricultural growth in Cuba. As credit options are made available, US farms may tap into the Cuban market for soybeans, corn, rice, poultry, equipment, and biofuels, while Cuban farms may provide more organic produce to the US.
I am interested to see what innovative financing tools will be developed to encourage Cuban/US trade. The first Cuban Bitcoin transaction occurred in the summer of 2015, but Bitcoin right now is limited by the lack of high speed WiFi internet in Cuba. Under recent regulatory changes, certain micro-financing projects and entrepreneurial business training, such as for agricultural operations, will be authorized. Will any of these changes be a solution to the credit problem between the US and Cuba?