Liberalizing trade with Cuba, as proposed in Arkansas Congressman Rick Crawford’s bill — H.R. 3687, the Cuba Agricultural Exports Act —would have a positive impact on U.S. agriculture, say farmers, key Extension economists, agricultural lenders, and representatives of commodity organizations, all witnesses at a recent House Agriculture Committee hearing on American agricultural trade with Cuba.
Opponents of more liberalized trade point to the inefficiencies and unreliability of the Cuban government, and to the possibility of food products being used as political fodder in the communist nation.
Under a more liberalized trade policy, including the potential to sell to Cuba on other than a cash basis, ag exports would rise significantly, says Dr. Luis Ribera, associate professor and Extension economist in the Agricultural Economics Department at Texas A&M.
“U.S. exports to Cuba would be expected to rise by $271.2 million a year, requiring an additional $561.9 million in business activity, for a total economic impact of $833.1 million, and supporting 4,478 new jobs,” says Ribera, who also serves as director of the Center for North American Studies (CNAS) and program director for International Projects for the Agricultural and Food Policy Center (AFPC) at College Station.
Mauricio Claver-Carone, executive director of Cuba Democracy Advocates, is a critic. “Financing agricultural transactions with Cuba is not about assisting small and mid-size farmers on the island, but about financing a monopoly of the Castro regime,” he says.
House Agriculture Committee Chairman Mike Conaway, R-Texas, supports and is a co-sponsor of H.R. 3687, but expresses deep reservations about lifting the embargo.
“I believe there lies an opportunity—albeit a rather narrow one—to make changes that will positively benefit both agricultural producers here at home while contributing to economic growth in Cuba,” he said in opening remarks at the hearing.
“To that end, our colleague and General Farm Commodities and Risk Management Subcommittee Chairman Rick Crawford (R-Ark.) authored H.R. 3687, which lifts the financing restrictions under the Trade Sanctions Reform and Export Enhancement Act, while providing for both market promotion and U.S. agribusiness investment under strict safeguards. The committee was involved in the development of that bill, and both Ranking Member Collin Peterson (D-Minn.) and I are co-sponsors.
“While I am very hopeful that we can find a path forward on expanding agricultural trade with Cuba, I remain firmly opposed to lifting the embargo or restrictions on travel,” Conaway said.
TOO LITTLE IN RETURN
“We are dealing with a regime that cares about little more than insuring its own perpetuity and prosperity. That being said, I think we all look forward to the day when the United States enjoys full, normalized relations with Cuba.”
He said President Obama’s December 2014 announcement of a move toward a more normal trade relationship with Cuba included “his intention to modify the cash-in-advance provisions to require payment before transfer of title — among other changes. While that move was generally applauded, I and many of my colleagues believe the U.S. secured too little in return for the litany of other concessions made to the brutal regime that continues to remain in power.”
Rep. Peterson says he believes long-term benefits to U.S agriculture will be significant. “I am a long-time supporter of expanding trade with Cuba. Some of those who were here when I was chairman may remember that we passed legislation that would expand U.S. agricultural exports and allow Americans to travel to Cuba more freely. Unfortunately, that legislation died when it went to the Foreign Affairs Committee.
“The Obama administration has taken steps to ease both trade and travel restrictions. This is a good step, but there is still more work that we can do to open this market to American agricultural products. I would like to see the embargo lifted, but am doubtful that it’s politically possible to do so now.”
Luis Ribera says 15 years of research through the Center for North American Studies (CNAS), of which he is director, shows advantages of Cuba trade.
“In general, we find that exports create jobs, and exports to Cuba are no exception. For every $73,600 in U.S. food and agricultural exports to Cuba, one job is created in the U.S., along with another $170,000 in economic activity to support those additional exports.”
He says Cuba has the potential to become a major market for U.S. agricultural exports, mostly corn, wheat, soybeans, and rice early on, with other value-added products to follow.
“U.S. export potential could exceed the record $709 million set in 2008,” Ribera says. “With a more open economy, less regulation by both governments, strong tourism and remittances, U.S. food and agricultural exports have the potential to exceed $1.2 billion annually within five years. While much of that additional export volume may be consumed by international visitors, a growing share will also make its way into the Cuban populace, spurring additional demand for food, and creating a larger potential market for U.S exports.”
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From a farmer’s perspective, opening up trade with Cuba could be a boon, especially in a period of low commodity prices.
Mark Isbell, a fourth generation Arkansas rice farmer, believes the Cuban market holds great promise for U.S. farmers. “We are continually looking for new markets, like Cuba, to maintain a profitable industry,” Isbell says. “At the same time, our markets are threatened by widespread and excessive government supports for rice producers in key advanced developing countries like Brazil, India, Thailand, and Vietnam, that distort global markets.
“The obstacles we currently face in selling our rice to Cuba are not logistical. They have nothing to do with our product’s quality or our ability to compete in the global marketplace. The obstacles we face in selling our rice to Cuba are statutory obstacles. With your help,” he told the committee, “these obstacles can be overcome.
“Given the opportunity, Cubans will buy our rice. However, as a cash-deficient economy, they need flexibility in attaining credit to purchase our products; globally, everyone has offered it to them except the U.S. The question is not if Cuba will buy American rice, or even how they will buy American rice. The question is, when will we as a country let them buy American rice.
That can only be answered by Congress, he said. “The answer lies with you, the members of this committee and your colleagues in Congress. It’s something that is broken, and it’s something that you can fix.”
U.S. GRAIN INDUSTRY
The U.S. grain industry also sees advantages to improved trade opportunities with Cuba.
Matt Gibson, vice president and general manager of Bunge North America – Grain Unit, testifying on behalf of the North American Export Grain Association, said American grain farmers would like the freedom to trade into markets that appreciate the quality and reliability of U.S. agriculture.
“Cubans would like to buy high-quality ingredients at a competitive price. The U.S. has both productivity and logistical advantages in meeting Cuba’s needs. When our two sets of customers’ views are aligned, we must position ourselves to meet their needs.”
In the past five years, Cuba has imported no U.S. wheat or rice. Financing restrictions, he says, is cited as the most significant reason for the decline in U.S. ag exports to Cuba.
“The Dominican Republic bears many similarities to Cuba in terms of population and per-capita income level. Between 2013 and 2015, the Dominican Republic imported $1.3 billion worth of agricultural products from the United States. During this same time, Cuba imported only $262 million from the U.S. –$1 billion to the U.S. agriculture industry left on the table due to the financing restrictions under which we must currently operate.”
Instead of securing grains from a nearby source, “Cuba is buying wheat from the EU and Canada; corn from Argentina and Brazil; rice from Vietnam; soybean oil from Brazil; animal feed from Argentina and Mexico; and pulses(a type of legume which produces a grain seed in a pod where the dried seed is harvested) from China.
“These countries are able to compete and win in a market where we should be exceptionally competitive due to quality, proximity and time of delivery. While Cuba may never be a trading partner to the scale of Mexico or Canada, tangible effects would benefit the agriculture industry.”
AG LENDER PERSPECTIVE
Karen Lowe, senior vice president and division manager of agriculture export finance for CoBank, one of the nation’s largest private providers of credit to agriculture and other rural industries, says H.R. 3687 would expand an export market just 90 miles off the U.S. mainland.
“My division provides export financing for companies shipping agricultural commodities and food products to markets all over the world,” she told the committee. CoBank is a member of the Farm Credit System and also is the funding bank for affiliated Farm Credit associations serving approximately 75,000 farmers and ranchers around the country.
She says H.R. 3687 would “repeal restrictions on export financing for ag shipments to Cuba. In this time of low prices, that would help expand a market just 90 miles from Florida.
“As the members of this committee well realize, we are in an extended period of low prices on most agricultural commodities. This harsh reality makes every market — no matter the size — important to help move the crop and support prices. At the same time, sovereign risk in many emerging markets is increasing due to economic and geopolitical risk factors, which increases exporters’ need for payment risk mitigation as well as the need for financing.
A number of additional issues need to be addressed, Lowe says, “including a lack of transparency in the Cuban banking system, questions of repayment ability, contract enforceability, even the establishment of a non-government import entity. All of these challenges will need to be addressed going forward to completely open the flow of trade between our countries.
“CoBank strongly believes that every effort should be made to expand markets. That will help us further realize the world-leading production capabilities of U.S. farmers and ranchers, as well as further solidifying our position as the premier provider of food, fiber, and nutrition to a growing world population. We think H.R. 3687 is a good idea.”
DOWNSIDE OF EASING
Mauricio Claver-Carone insists that under the current Castro-controlled government, lifting the embargo and easing credit restrictions would be a mistake. He lists several downsides to liberalized trade concessions already made to Cuba, including:
- Political arrests have intensified.
- A new Cuban migration crisis has unfolded.
- Castro’s military monopolies are displacing "self-employed" workers.
- Internet "connectivity ranking" has dropped.
- Religious freedom violations have increased tenfold.
- Democracy’s regional foes have been emboldened.
“Of course, those who understand how the Castro regime operates are not surprised — for it has long used agricultural sales as a tool of political influence,” he says.
Luis Ribera says even with a more liberal trade policy, U.S. agriculture will face stiff competition from other exporters. “Competition for the Cuban food market is keen” he says. “The U.S. share of the Cuban market has been declining for several years, and continues to fall in 2016. Many U.S. competitors in the Cuban market offer some form of credit terms to Empresa Comercializadora de Alimentos (ALIMPORT), through which all food and agricultural imports are required to enter the country.
“U.S. firms are precluded from doing so, and also face an added constraint of being required to offer only cash-in-advance sales, or cash against documents. U.S. exporters cannot use letters of credit to facilitate sales and manage risk, raising the cost of U.S. products and making them less competitive relative to Spain, Canada, Brazil, China, and Vietnam.
“Improving the cost and time constraints necessary to process payment for U.S. exports to Cuba would have positive economic impacts in terms of increased exports and economic activity. Consistent, transparent, and facilitative policies related to export finance for U.S. exports to Cuba would have positive economic impacts on U.S. exports and the U.S. economy,” Ribera says.