Considering Cuba: Opportunities and Challenges for Ag Input Suppliers
As Cuba struggles to increase agricultural production for domestic consumption, a lack of fertilizers and agrichemicals, among other things, is hindering its progress. It is anticipated that the country will gradually increase its use and import of these inputs, and opportunities for suppliers not based in the U.S. look to be strongest.
While U.S. firms have sold supplies of some of these products to the island, the cash sale terms that are required under U.S. law for sales to Cuba will likely continue to constrain the ability of U.S. firms to supply this market.
With over 15 million acres of arable land, a tropical/sub-tropical climate, some of the best soils of any tropical country in the world, and a long historical agricultural tradition, Cuba has very significant agricultural production potential.
This is why it was so stunning when, in 2007, Cuba’s government reported that it was importing over 80% of its food supply. Although the actual percentage has been debated by economists and analysts both within Cuba and from outside of the island, even the lowest estimates are still around 60%.
This situation is a function of many factors, not the least of which is the inherent inefficiencies of Cuba’s system of central planning and control since the 1959 Revolution.
However, perhaps the most important contributing factor is its heavy emphasis on sugar production for the better part of the past two centuries. Following the Cuban Revolution in 1959, the former Soviet Union offered to purchase all the sugar Cuba could export at preferential prices which, at times, were nearly 11 times as high as the world sugar price. Most of the agricultural inputs that it required were imported from the Soviet Union.
When the Soviet Union collapsed, Cuba lost this preferential market and, because of its inefficient production systems, it could not compete selling sugar at world market prices. At the same time, the government didn’t have the internal capital to shift these lands to production of food for domestic consumption, so the need for fertilizer and agrichemicals for agriculture declined significantly.
In the 1980s, Cuba had begun research on domestically-produced, natural fertilizers and biological inputs to substitute for synthetic fertilizers and agrichemicals. Following the loss of Soviet preferential trade relationships, this research took on an increasingly important role as a way to try to maintain agricultural production, although the data are not available to identify the degree to which those natural fertilizers and biocontrols may have replaced synthetic fertilizers and agrichemicals.
In 2000, U.S. Congress passed and President Clinton signed the Trade Sanctions Reform and Economic Enhancement Act (TSRA) that allowed, for the first time in 40 years, U.S. firms to sell food and medicine to Cuba. U.S. Commerce Department data show that Cuba has purchased $28.4 million worth of agrichemicals from U.S. suppliers since the TSRA was implemented. The table below shows the breakdown of sales.
Unlike the case of fertilizers, where Cuba’s purchases ceased after 2008, over 99% of U.S. agrichemical sales to Cuba have taken place since 2014. U.S. agrichemical sales were less than $180,000 in total from 2000 through 2007, as a mix of insecticides, pesticides, rodenticides and herbicides. From 2008 through 2013, Cuba did not purchase any agrichemicals from U.S. suppliers.
But in 2014, Cuba purchased $6.4 million worth of herbicides from the United States, and sales of these products very nearly doubled in 2015. Since 2015, however, U.S. sales have shown a steady and significant decline.
Cuban Imports of Agrichemicals from the United States: Values, 2000 through 2017
|2000 through 2007 total||2008 through 2013 total||2014||2015||2016||2017|
|Insecticides (code #380810 & 380891)||$37,749||0||0||0||0||0|
|Pesticides (code 2930904320, 2930904395 and 2933992350)||$61,236||0||0||0||0||0|
|Rodenticides (code #380890 & 380899)||$71,358||0||0||0||0||0|
|Herbicides, antisprouting products and plant-growth regulators (code #380893)||$8,991||0||$6,358,866||$12,595,190||$5,472,033||$3,783,094|
|Source: U.S. Department of Commerce, USA Trade database|
Although Cuba does not report the countries from which it imports fertilizers and agrichemicals, mirror data from the Global Trade Atlas database provides some indication of Cuba’s suppliers of these products. In the case of both fertilizers and agrichemicals, the vast majority of Cuban imports come from a broad range of countries in Latin America and the Caribbean. EU countries are regular, though relatively minor suppliers of these products to Cuba. Cuba also periodically imports fertilizers and agrichemicals from countries in Asia, Africa, and the Middle East.
In the case of both fertilizers and agrichemicals, the vast majority of Cuban imports come from a broad range of countries in Latin America and the Caribbean. EU countries are regular, though relatively minor suppliers of these products to Cuba. Cuba also periodically imports fertilizers and agrichemicals from countries in Asia, Africa, and the Middle East.
Sales of U.S. food and agricultural products, fertilizers and agrichemical inputs to Cuba face a number of challenges, the most notable of which is the cash sale requirement. The deterioration in U.S.-Cuban diplomatic relations over the past 18 months could be part of the reason for the recent declines in agrichemical sales to Cuba, although U.S. sales of food products to Cuba have shown slow but steady increases every year since 2015.
Several legislative initiatives have been proposed that would allow credit sales to Cuba, but none of them have gotten much traction in either the U.S. House of Representatives or the Senate to this point.
It is important to be aware that the Cuban government maintains complete control over fertilizer and agrichemical supplies. As a result, given the inefficiencies and unresponsiveness of Cuba’s system of central planning, farmers frequently complain that even the limited supplies of fertilizer and agrichemicals that are available aren’t delivered on time and therefore aren’t applied when they need to be to maximize productivity. Also, since the government controls the supply of all agricultural chemicals, it can provide preferential access to the limited supplies of these products to the few remaining State farms or other farming operations as it sees fit.
Furthermore, there are a number of foreign joint investments in agriculture in Cuba, and foreign investors undoubtedly are providing money to purchase some portion of the inputs that Cuba imports, in which case such supplies will be destined for the joint venture farms and operations. These foreign investors are likely purchasing from fertilizer and agrichemical suppliers in their home countries or other countries where they can obtain credit, rather than sourcing from U.S. suppliers and having to pay cash.
Clearly, there are many impediments to the smooth functioning of Cuba’s agricultural input markets. That said, Cuba’s command and control economy has one feature that may be beneficial for U.S. suppliers – there is a single Cuban government organization responsible for all fertilizer and agrichemical purchases from the United States, Empresa Cubana Importadora de Productos Químicos (QUIMIMPORT).
This is a distinct advantage for U.S. sellers since they have a single point of contact for potential sales in what could otherwise be an overwhelmingly complex bureaucracy.
Indeed, Cuba has made significant strides in the use of biological inputs in what is often referred to as “organic” agricultural production, although that term is sometimes used somewhat loosely in Cuba. Nevertheless, Cuba clearly has earned the recognition it sometimes receives as the largest experiment in the world in low-input agricultural production systems.
All of this puts Cuba in a unique and awkward position. One of the government’s oft-stated and high-priority goals is to increase its domestic food production to reduce the amount of money spent on food imports (which have been costing the government nearly $2 billion per year for the past few years).
Despite the progress Cuba has made with biological controls and low-input agricultural production systems, its yields for many horticultural crops remain at perhaps 20% to 25% of commercial U.S. yields. Judicious use of synthetic fertilizer and agrichemical inputs could rapidly and significantly increase Cuba’s yields and output of food for domestic consumption, thus lowering the amount that has to be spent to import food. However, to this point at least, Cuban policy makers have been reluctant to increase their purchases of these products.
Cuba represents a geographically close market that U.S. companies can supply with high-quality fertilizers and agrichemicals, rapid delivery and in relatively small economic order quantities.
As Cuba attempts to boost its production of food products for domestic consumption, it is anticipated the country will gradually increase its use and import of chemical inputs. However, the restrictive cash sale terms that are required for purchases from the United States, coupled with recent, heightened diplomatic tensions between the United States and Cuba are likely to represent challenges for U.S. firms to capitalize on these market opportunities.
Editor’s Note: William A. Messina, Jr. and Frederick S. Royce are with the University of Florida, Institute of Food and Agricultural Sciences (UF/IFAS). Messina is an agricultural economist specializing in agricultural trade, development and marketing issues. Royce is an agricultural engineer specializing in Cuban agriculture and cooperative farming systems. Both have been actively collaborating with faculty at the University of Havana and other universities and research institutes in Cuba since the mid-1990s, and UF/IFAS has the longest-running and most active program of collaborative research on agricultural, environmental, natural resource and marine science issues in Cuba of any U.S. academic institution.