U.S.-Cuba Agricultural Trade: History, Current Status, and Future - - PowerPoint PPT Presentation

U.S.-Cuba Agricultural Trade: History, Current Status, and Future Potential

Steven Zahniser and Nathan Childs USDA Economic Research Service

Webinar hosted by the University of Arkansas Cooperative Extension Service Little Rock, AR, and Washington, DC, October 28, 2015 Based in part on the ERS special outlook report written by:

Steven Zahniser, Bryce Cooke, Jerry Cessna, Nathan Childs, David Harvey, Mildred Haley, Michael McConnell, and Carlos Arnade

Views expressed are those of the author and should not be attributed to the Economic Research Service, USDA, or

• ther entities participating in this research.

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• Annual averages for FYs 1956-58:

– U.S. agricultural exports to Cuba = $139 million – U.S. agricultural imports from Cuba = $408 million

• Annual averages for FYs 1956-58, valued at commodity

prices for 2012-14:

– U.S. agricultural exports to Cuba = $600 million – U.S. agricultural imports from Cuba = $2.2 billion

• Leading U.S. agricultural exports to Cuba:

– Rice, lard, pork, wheat flour

• Leading Cuban agricultural exports to the United States:

– Cane sugar (about 2.8 million metric tons per year), molasses, tobacco, coffee

U.S.-Cuba agricultural trade before 1959 was substantial

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• Trade Sanctions Reform and Export Enhancement Act (TSRA) of 2000

– Authorizes U.S. exports of food, medicine, and medical equipment to certain countries, including Cuba – Does not provide a legal framework for the resumption of U.S. agricultural imports from Cuba – Cuban Liberty and Democratic Solidarity Act of 1996 defines conditions for suspending the embargo (transitional government takes power in Cuba) and ending it (freely elected democratic government takes power)

• Following Hurricane Michelle in 2001, United States quickly establishes

itself as Cuba’s leading supplier of agricultural imports

• U.S. agricultural exports to Cuba:

– Annual average, 2012-14 = $365 million – Leading commodities: chicken meat, corn, soybean meal, soybeans – U.S. exports are declining: Only $286 million in 2014 – January-August: $118 million for 2015, versus $223 million for 2014

Relaxation of embargo in 2000 allowed U.S. agricultural exports to Cuba to resume

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Cuba’s agricultural imports from the world during 2012-14 were concentrated in grains, animal products, and oilseeds

Nonfat dried milk 10% Chicken meat 11% Wheat 13% Corn 12% Rice 10% Soybeans 4% Soybean oil 5% Other products 35%

Source: Export data

• f national

governments, as cited by Global Trade Information Services.

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U.S. sales limited by credit and payment restrictions associated with embargo

5 140 248 384 346 321 431 685 525 349 353 459 350 286 217 193 224 149 154 153 165 176 149 246 338 348 369 434 57 37 23 58 103 141 171 330 166 288 385 377 326 340 310 279 257 379 516 455 620 885 473 618 710 504 812 820 500 1,000 1,500 2,000 2,500 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Millions of dollars Calendar year United States European Union Brazil Rest of world

Upward trend Imports include: wheat from EU; corn, rice, soybeans, soy products, poultry meat from Brazil; rice from Vietnam; and nonfat dried milk from New Zealand

Sources: USDA/FAS, and export data of national governments, as cited by Global Trade Information Services.

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China and the European Union are the leading buyers of Cuban agricultural exports

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91 96 88 111 121 195 128 189 166 229 303 280 226 211 154 137 142 157 103 104 119 100 103 85 118 173 247 146 420 281 171 173 48 30 53 68 58 45 38 36 13 51 46 53 43 50 26 46 18 67 25 21 61 76 44 74 100 200 300 400 500 600 700 800 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Millions of dollars China and Hong Kong European Union Russia Rest of world

Source: Import data of national governments, as cited by Global Trade Information Services.

Main exports: Cane sugar (about 90 percent), honey Fluctuates with fortunes

• f sugar exports

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Cuba’s role as a sugar producer and exporter greatly diminished after the dissolution of the Soviet Union

1 2 3 4 5 6 7 8 9 1959/60 1961/62 1963/64 1965/66 1967/68 1969/70 1971/72 1973/74 1975/76 1977/78 1979/80 1981/82 1983/84 1985/86 1987/88 1989/90 1991/92 1993/94 1995/96 1997/98 1999/2000 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 Millions of metric tons Marketing year Production Exports

Source: USDA/FAS.

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Cuba’s sugar exports by destination, 2000-14

500 1,000 1,500 2,000 2,500 3,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Metric tons (thousands) China European Union Russia Rest of world

Source: Import data of national governments, as cited by Global Trade Information Services.

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• Cuban exports, 2012-14 average:

– Total: $17 million (about 6,000 MT)

• Mostly to Germany: $12 million (about 4,000 MT)
• “Artisanal” honey:
• Year-round, warm climate permits honey production in different parts of Cuba

throughout the year

• Free from chemical residues, as certified by a German lab
• Cuban origin also emphasized in marketing
• Mixed economy approach
• Most producers organized in some type of cooperative (Credit and Service

Cooperatives, Basic Units of Cooperative Production, Agricultural Production Cooperatives)

• Output sold to the state-owned APICUBA
• Still a luxury good for most Cubans

Cuban Natural Honey

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• Annual per capita consumption, broiler meat: 21 kg in Cuba versus 47 kg in United States
• Mixed economy approach to production (state firms, associations, family production)
• State firms’ share of egg production is larger than its share of the of overall poultry stock
• Government institutions (Institute of Poultry Research includes a National Poultry Genetic Bank)
• March 2015: 17 officials from state-run egg distribution company sentenced 5-15 years each for

misappropriating more than 8 million eggs in 2012 and selling them on the black market

• June 2015: Suspension of poultry imports from U.S. due to concerns about avian influenza

Cuban Poultry Sector: Emphasis on Eggs over Meat?

2008 2009 2010 2011 2012 2013 2014

Egg production Billions Cuba, total (ONE) 2.3 2.4 2.4 2.6 2.5 2.7

• State poultry firms

1.9 1.9 1.9 2.0 1.9 2.0

• State poultry firms, share (%)

81 77 78 75 76 75

• U.S., total (NASS)

90.2 90.7 91.8 92.5 94.4 97.6 99.8 Arkansas (NASS) 3.2 3.0 3.0 3.0 3.0 3.0 3.0 Stock of birds, end of year Millions Cuba, total (ONE) 29.2 30.8 31.0 33.7 30.2 32.4

• State poultry firms

12.6 13.3 13.4 14.5 13.0 14.3

• State poultry firms, share (%)

43 43 43 43 43 44

• U.S., total (FAOSTAT)

2,295.0 2,180.2 2,207.1 2,187.5 2,190.3 2,164.3

• Broiler production

Thousands of metric tons Cuba, total (PSD) 33 33 34 35 35 32 34 U.S., total (PSD) 16,561 15,935 16,563 16,694 16,621 16,976 17,299 Arkansas (using share reported by NASS) 2,095 1,929 2,001 1,952 1,927 2,003 2,025 Sources: Cuba, National Statistical and Information Office (ONE); USDA-FAS; USDA-NASS; and FAO.

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Cuba’s agriculture-related exports have increased dramatically over the past 15 years

50 100 150 200 250 300 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Millions of dollars Ethanol (HS 2207) Cigars and cigarettes (HS 2402) Rum and tafia (HS 220840)

Source: Import data

• f national

governments, as cited by Global Trade Information Services.

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• Executive Actions announced in December 2014 and September 2015

could lead to a more normal economic relationship with Cuba

• Some of these actions may facilitate U.S. agricultural exports to Cuba:
• Revised definition of “cash-in-advance” reduces Cuba’s need to use third-country

financial institutions when paying for U.S. agricultural products

• Higher ceilings on remittances to Cubans other than close relatives could increase

Cuban disposable income as well as the capital available for business investments

• Allowing sales of agricultural equipment to small farmers could motivate additional

imports of agricultural products: for instance, equipment sales to poultry producers could lead to increased feedstuff imports

• Relaxed travel restrictions, development of telecommunications sector, and ability

to establish a physical presence in Cuba (i.e., an office or warehouse) could strengthen Cuban ties with the U.S. agribusiness and academic sectors and facilitate business travel to Cuba

• Actions do not provide legal framework for:
• Resumption of Cuban agricultural exports to the United States
• Use of credit and financing to leverage U.S. agricultural exports to Cuba

U.S.-Cuba Possible Future

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Possible Effects of Normal Trade Relations

• Two countries enjoy normal trade relations (NTR), formerly referred to as

most-favored-nation (MFN) status, when each country provides the other with the same trade benefits that it provides any other country with which it has NTR.

• Helms-Burton Act requires congressional action to make substantial

changes to the embargo, but if NTR established:

• Short-term effects:
• Ban on agricultural imports from Cuba ends
• USITC (2007) study suggests potentially large short-run effects on U.S.

agricultural exports to Cuba, in neighborhood of $330 million per year

• Long-term effects:
• U.S. agricultural export growth from :
• Additional economic growth in Cuba, as reflected in household income

and expansion of sectors that rely on intermediate and final agricultural products as inputs (tourism, restaurants, food services, livestock production, and food manufacturing)

• Reduced transaction costs
• U.S. agricultural import growth from:
• Further specialization in Cuba due to its resource endowments and

acquired comparative advantages

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• U.S. share of Cuba’s agricultural imports would likely rise above its

current level of 20 percent

• Dominican Republic obtains about 45 percent of its agricultural

imports from the United States

• U.S. would likely export a broader range of agricultural products
• Likely to re-capture a large share of Cuba’s rice market, as well as
• ther markets that U.S. served in the early 2000s, such as wheat,

nonfat dried milk, and dried beans

• Initiate exports of intermediate and higher-value, consumer-
• riented products, some oriented toward tourism and food services
• U.S. imports agricultural products from Cuba; perhaps tropical fruit,

vegetables, and tobacco, and maybe sugar, depending on U.S. policy

• Long-term challenge: To provide more balanced opportunities for U.S.-

Cuba agricultural trade and to build U.S. and Cuban confidence in the emerging commercial relationship

Might a “Normal” Agricultural Trading Relationship with Cuba Look Like the Dominican Republic?

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Part II: U.S. Rice and the Cuban Market

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The Cuban Rice Market

• Before World War II, Cuba was the largest rice

importer in the Western Hemisphere, taking half of all shipments to the region.

• Per capita consumption is estimated at 50-60 kilograms

in the 1920’s and 1930’s, making rice the food staple.

• Imports accounted for around 90 percent of derived use

in this period, a very high share for a country with such a high per capita use.

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The Cuban Rice Market

• Southeast Asia supplied the bulk of Cuba’s rice imports

until 1935…

• …when the United states became an important, though

not dominant, supplier.

• Virtually no Asian rice was shipped to Cuba during

WWII, imports were nearly all from the Western Hemisphere, and Cuba boosted production during the emergency.

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The Cuban Rice Market

• In the late 1940s, Cuba took three-fourths of the

Western Hemisphere’s annual imports of rice…

• …with Cuba’s imports rising after 1945 and Western

Hemisphere rice imports smaller than Pre-War levels for several years after WWII.

• In the late 1940s, imports accounted for about 75

percent of Cuba’s rice consumption, higher than today’s share but below pre-war levels.

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Cuba was the largest rice importer in the Western Hemisphere

1 2 3 4 5 6 7 8 9 10

• AVG. 1936-40

1946 1947 1948 CUBA Rest of Western Hemisphere 1/

• MIL. CWT

1/ Primarily Bolivia, Trinidad, and Venezuela. Source: The Production and Marketing of Rice, Norman Efferson, 1952, pp. 286-287.

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The Cuban Rice Market

• Cuba is the most populated country in the Caribbean, with a

population now estimated at 11.3 million.

• The Dominican Republic is second at 10.8 million closely followed

by Haiti with 10.5 million.

• Currently, Cuba is the largest consumer of rice in the Caribbean,

with consumption estimated at 900,000 tons a year, compared with 550,000 tons for the Dominican Republic and 490,000 tons for Haiti.

• Cuba is the second largest producer of rice in the region,

producing about 20 percent less than the Dominican Republic, the region’s largest producer.

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The Cuban Rice Market

• Currently, Cuba is the largest rice import market in the Caribbean,

taking 400,000-500,000 tons a year, down from 600,000-to- 700,000+ tons from 2003/04-2010/11.

• Cuba now accounts for almost half of the Caribbean’s rice imports.
• Haiti is the second largest rice importer in the Caribbean.
• Together, these two countries account for about 90 percent of

Caribbean rice imports.

• Imports currently account for a little more than half of Cuba’s

annual rice consumption, down from 60-70 percent during 2003/04-2010/11 and well below the late 1940s’ level of 75 percent.

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Cuba’s rice imports are below the record high reached a decade ago, but rising

0% 20% 40% 60% 80% 100% 100 200 300 400 500 600 700 800 80/81 85/86 90/91 95/96 00/01 05/06 00/1014/15

Imports Share of use

2015/16 are forecasts. Source: Production, Supply, and Distribution database, Foreign Agricultural Service, USDA, http://www.fas.usda.gov/psd.

1 ,0 0 0 TONS Percent

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The Cuban Rice Market

• Vietnam is currently the largest supplier of rice to Cuba,

accounting for more than 70 percent of annual shipments.

• Brazil is the next largest supplier…
• …with Argentina occasionally supplying rice to Cuba.
• The U.S. regularly shipped rice to Cuba 2002-08; Uruguay in

2007.

• Prior to 2003, China regularly supplied rice to Cuba. China’s last

shipment was in 2007.

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Vietnam is the largest source of Cuba’s rice imports

100 200 300 400 500 600 700 800

2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14.0 15

VIETNAM 1/ BRAZIL UNITED STATES ARGENTINA OTHER 2/ 1,000 TONS

Calendar years. Product-weight. 1/ Vietnam’s exports estimated by subtracting from total imports shipments from all other known sources. 2/Primarily China. Source: For Argentina, Brazil, Uruguay, and the United States, Global Trade Atlas. Vietnam’s shipments estimated based on total imports minus shipments from known sources.

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The Cuban Rice Market

• Based on FAO data, Cubans consume almost 64 kilograms of

rice a year, accounting for 20 percent of total daily calories, the largest share of any commodity for Cuban consumers.

• This is highest per capita rice consumption in the Western

Hemisphere.

• Per capita use for Costa Rica, Haiti, and the Dominican

Republic is estimated at 49 kg, with 44 kg estimated for Nicaragua.

• However, at about 23 percent, rice accounts for a larger share
• f Haiti’s daily calories.

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Rice accounted for 20 percent of daily calories intake in Cuba in 2011

Rice Sugar and sweetners Animal Products Fruits Vegetables Starchy Roots Vegatable Oils Other

Source: FAO Food Balance Sheet; FAOSTA.

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The Cuban Rice Market

• Cuba’s rice field yields remain well below record highs and

exhibit no long-term growth.

• Yields were almost 15 percent higher 1980/81-1985/86 than

current levels.

• Cuban rice farmers have problems with soil quality, inputs, and

water control.

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Cuba’s rice production and field yields remain below record

1 2 3 4 5 100 200 300 400 500 600 80/81 85/86 90/91 95/96 02/03 07/0811/1215/16

Production Field Yield

2015/16 are forecasts. Source: Production, Supply, and Distribution database, Foreign Agricultural Service, USDA, http://www.fas.usda.gov/psd.

1 ,0 0 0 TONS TONS/ HA.

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The Cuban Rice Market

• Cuba’s yields averaged 2.8 tons per hectare during 2009/10-

2013/14…

• …compared with 4.7 tons for the Dominican Republic, 4.4 tons

for Nicaragua, and 3.5 tons for Costa Rica.

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The Cuban Rice Market: Continued

• Rice area in Cuba is currently at 215,000 hectares.
• Down from the record of 233,000 hectares in 1996/97.
• Rice area can vary substantially year-to-year, mostly due to

weather.

• The Government of Cuba wants to expand rice area and

production and is receiving assistance from Brazil and Vietnam.

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Cuba’s rice area is below record and exhibits much year-to-year variation

50 100 150 200 250 100 200 300 400 500 600 60/61 70/71 80/81 90/91 00/01 10/11 15/16

Production Area

2015/16 are forecasts. Source: Production, Supply, and Distribution database, Foreign Agricultural Service, USDA, http://www.fas.usda.gov/psd.

1 ,0 0 0 TONS 1 ,0 0 0 Ha.

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U.S.-Cuba Rice Trade History

• The U.S, supplied little rice to Cuba prior to 1935,

with Siam (Thailand) the number one supplier and British India (Burma) and French Indo-China (Vietnam) supplying most of the remainder.

• U.S. rice exports to Cuba expanded 1935-40 due

to a tariff agreement that favored the U.S. over

• ther suppliers.
• The U.S. was the largest supplier to Cuba after

1938 and by 1940 the U.S. supplied more than half of Cuba’s rice imports.

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U.S.-Cuba Rice Trade History

• U.S. became the dominant supplier of rice to

Cuba during WWII when traditional suppliers in Southeast Asia could not ship to the Western Hemisphere.

• South America provided small amounts of

rice to Cuba in WWII.

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U.S.-Cuba Rice Trade History

• The U.S. retained this dominant position after

WWII, despite having higher prices than the recovering Asian competitors.

• Cubans have a strong preference for high

quality which favors U.S. suppliers.

35

U.S.-Cuba Rice Trade History

• In the 1950s, Cuba typically accounted for more

than half of annual U.S. long-grain commercial rice exports and for more than one-third of all U.S. commercial rice exports.

• Cuba’s share of U.S. exports was even higher in

the 1940s, typically 50-80 percent.

• Cuba typically took one fourth of the total U.S. rice

crop and about half the southern long-grain crop. (Norman Efferson, 1952)

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U.S.-Cuba Rice Trade History

• Nearly all U.S. sales to Cuba were long-grain

milled-rice from the South.

• If the U.S. exported the same amount (tons)
• f rice today as the U.S. shipped in the late

1950s, Cuba would be the 7th largest U.S. market.

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Cuba imported primarily rough and milled rice from the United States

50,000 100,000 150,000 200,000

2000 01 02 03 04 05 06 07 08

MILLED ROUGH BROWN

CALENDAR YEAR TONS

Product-weight. Source: Bureau of the Census, U.S. Department of Commerce.

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The U.S. Rice Market

• The U.S. is currently the 5th largest rice exporting country,

supplying about 8 percent of global shipments of 42-43 million tons a year.

• Although global trade is increasing, the U.S. share of global trade

is declining.

• The U.S. exports about half its crop each year, with long-grain

typically 70 percent of shipments.

• Rough-rice is about one-third of U.S. exports.

39

The U.S. Rice Market

• Latin America is largest global market for U.S. rice, taking more

than half of all U.S. exports and more than 70 percent of Southern long-grain shipments.

• Most U.S. shipments to Latin America are long-grain rough-rice

(unmilled), with Haiti and Colombia being the major milled rice markets for U.S. long-grain rice in Latin America.

• The U.S. is currently not price competitive in the substantial

Southeast Asian import market, sells little to South Asia, and has lost much market share in Sub-Saharan Africa—currently the world’s largest import market.

40

The U.S. Rice Market

• Virtually all U.S. sales to East Asia are California medium- and

short-grain purchased as part of WTO agreements.

• The U.S. faces strong competition in the Middle East from Asian

suppliers, with U.S. sales to major global rice importers Iraq and Iran volatile.

• While once a 250,000-ton-plus U.S. market, U.S. exports to the EU

remain around 60,000 tons with little growth.

• Thus U.S. sales to a more than 500,000-ton nearby rice market in

the Caribbean would benefit the U.S. rice industry.

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U.S. Advantages in the Cuban Market

• Shipping times of less than 2 days from the Gulf compared with

more than 30 days for Asian suppliers.

• The U.S. can ship rice in small tonnages compared with Asian

shipments of more than 25,000 tons.

• This reduces storage needs and financial outlays.

42

U.S. Advantages in the Cuban Market

• U.S. rice can enter smaller ports on the north coast closer to

consumers than limited deep water harbors that require further inland movement.

• Cubans have a long history of preferring the higher quality U.S.

rice over lower-priced Asian rice.

• The U.S. sells rough-, brown-, and milled-rice. Vietnam exports
• nly milled rice.

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U.S. Disadvantages in the Cuban Market

• Current U.S. prices exceed Vietnam’s prices for similar grades of

rice by more than $200 per ton.

• U.S. rice price quotes are currently above Brazil’s price. The U.S.

has typically been quite price competitive with Brazil.

• The Government of Vietnam can offer long-term credit to Cuba for

rice purchases at favorable interest rates.

• Growth in U.S. trade with Cuba is tied to improved overall political

relations between the two countries.

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Steven Zahniser and Nathan Childs

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Thank you!

Steven Zahniser (zahniser@ers.usda.gov) and Nathan Childs (nchilds@ers.usda.gov) ERS website: www.ers.usda.gov U.S.-Cuba Agricultural Trade: Past, Present, and Possible Future: http://www.ers.usda.gov/publications/aes-outlook-for-us-agricultural-trade/aes-87.aspx

Steven Zahniser and Nathan Childs