The Obama administration’s efforts to restore normal trading relationships with Cuba could have “enormous” benefits for U.S. farmers and agribusinesses that could use some new markets for their products now.
But, as is usually the case with complicated relationships, broadening trading opportunities with Cuba could also bring about consequences that may not have been anticipated when the relaxation of some restrictions was announced earlier this year.
That’s because trade – by definition – is a two-way street, and to actually be of benefit to American farmers and other agribusinesses the ships that carry their products to Cuban ports may need to be hauling Cuban sugarcane, rum, tobacco and other goods back to the U.S., a Latin American trade expert says.
“Normal trade relations refers to the situation when a country provides another with the same trade benefits that it provides any other country with which it has normal trade relations,” says Steven Zahniser, an agricultural economist with USDA’s Economic Research Service and a presenter for the University of Arkansas Food and Agribusiness Webinar series.
“The Helms-Burton Act of 1996, as I mentioned, requires Congressional action to make substantial changes to the embargo,” says Dr. Zahniser. “But one can imagine if Cuba and the U.S. had normal trade relations, you would have the short-term effects that the ban on agricultural imports would end.”
He says an International Trade Commission study shows this would have a potentially large short-term impact on U.S. agricultural sales to Cuba. “And then you would have longer term effects that would have U.S. agricultural exports growing both from additional economic growth in Cuba as reflected in household income and also the expansion of sectors that rely on imported agricultural products as inputs and reduced transaction costs.”
Ending the embargo
U.S. agricultural imports would grow, in part, because the 55-year-old trade embargo against Cuba had ended but “more importantly that Cuba has a chance to specialize and make better use of its resource endowments and acquired competitive advantages,” says Zahniser.
Most farmers have heard Cuba was a major buyer of U.S. rice and other agricultural commodities prior to the Cuban Revolution that brought Fidel Castro to power in 1959. What’s less well known is that Cuba shipped more products to the U.S. than it purchased.
“If you looked at the trade data for that period, during the last three years before the revolution successfully overthrew the Batista Government, U.S. agricultural exports to Cuba averaged about $139 million a year. And corresponding imports (by the U.S. from Cuba) averaged $408 million a year,” says Zahniser.
“If you valued that trade at commodity prices for the last three years, you would find that U.S. agricultural exports to Cuba would have a current value of about $600 million a year, and U.S. agricultural imports from Cuba would have a value of $2.2 billion a year.”
The reason why the numbers are proportionally higher for Cuba has to do with the commodity composition of that trade. The leading U.S. ag exports to Cuba were rice, lard, pork and wheat flour. Leading Cuban agricultural exports to the U.S. were cane sugar, molasses, tobacco and coffee. The bulk of those would be cane sugar with Cuba exporting 28 million metric tons annually to the United States.
In 2000, the Trade Sanctions Reform and Export Enhancement Act authorized U.S. exports of food, medicine and medical equipment to certain countries, including Cuba, for the first time since the trade embargo was put in place in 1960.
“But it does not provide a legal framework for the resumption of U.S agricultural imports from Cuba,” says Zahniser. “So, while the United States exports agricultural products to Cuba, Cuba is still not allowed to export agricultural products to the United States due to the embargo.”
The Cuban Liberty and Democratic Solidarity Act (more commonly known as the Helms-Burton Act) defines the conditions for suspending the embargo and ending it. Under the law, a transitional government would need to take power in Cuba. Following that, a freely-elected democratic government would need to take power for the embargo to end permanently – unless Congress took other action to modify the embargo.
Following passage of the Trade Sanctions Reform and Export Enhancement Act in 2000, Cuba initially was not enthusiastic about the idea of importing U.S. agricultural products because of the long period of animosity between the two countries.
“However, there's the old saying that bad weather has a way of bringing people together, and after Hurricane Michelle in 2001, there was a definite need in Cuba to import food,” Zahniser notes. “And the United States quickly reestablished itself as Cuba's leading supplier of agricultural imports.”
Looking at the last three calendar years, trade in agricultural products averaged $365 million per year with the leading commodities being chicken meat, corn, soybean meal and soybeans. “These were commodities that the United States has a comparative advantage in and exports to a lot of countries, not just Cuba, and a lot of countries in Latin America, such as Mexico, Colombia and countries in Central America.
One of the reasons U.S. commodity groups are interested in restoring normal trading relationships with Cuba is that U.S. exports to that country are in the process of declining. U.S. ag exports reached only $286 million in 2014, and for the first eight months of 2015, total exports are $118 million.
Other trade sources
Currently, Cuba's agricultural imports from all of the countries in the world are concentrated in grains, animal products and oilseeds. “As you gather all of those products together, they account for about 65 percent of Cuba's agricultural imports, and they are all things that the United States is very good at producing and exporting,” says Zahniser.
“For better, for worse, U.S. sales of agricultural products to Cuba are currently limited by credit and payment restrictions associated with the embargo. And this is one of the things that helps to explain why U.S. agricultural exports to Cuba have been declining.”
U.S. agricultural exports to Cuba rose gradually following the implementation of TSRA in 2000 and peaked around 2008 when Cuba faced weather problems again and commodity prices were high. After that, Cuba started to rely less on the United States for its total agricultural imports.
“In the long-term, the challenge for the two countries is to look for ways to provide more balanced opportunities for U.S.-Cuban agricultural trade and to sustain and build mutual confidence in emerging commercial relationship,” says Zahniser. “It remains to be seen whether the U.S. and Cuba will succeed in this task.”
To see a video of Dr. Zahniser’s presentation, visit https://www.youtube.com/watch?v=JqonNRStq2g&feature=youtu.be&noredirect=1