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Relaxed U.S. trade policy with Cuba could mean huge economic upside for region’s farm producers

by Carolyn Orr ~ January 2015 ~ Stateline Midwest »
At a time when commodity prices are the lowest in years, agricultural producers have been looking for ways to increase demand. One answer to the market problem, it turns out, could be just 90 miles away from the U.S. border.
That is because agriculture — a major Midwestern strength — stands to be one of the biggest potential beneficiaries of President Obama’s plan to ease economic and trade restrictions with Cuba.
The island country has a population of 11 million people and imports 80 percent of its food, and for many years, political and agricultural leaders have recognized the potential value of the Cuban market. Back in 1999, for example, an Illinois delegation led by then-Gov. George Ryan went to Cuba and met with then-President Fidel Castro. One topic of conversation: the convenience and cost savings (compared to Cuba importing goods from other countries) associated with moving Illinois farm products by barge along the Mississippi River to the Gulf of Mexico for shipment to Havana.
Two years after Ryan’s visit, the sale of U.S. agricultural commodities began when the U.S. Congress approved food sales, though with tight restrictions. Those restrictions include a requirement that payments be in cash and made in advance (before shipping) through the use of third-party, nondomestic banks.
These rules add costs and have priced certain products, such as U.S. wheat, out of the Cuban market.
Even so, since 2003, the United States has been the top supplier of food to Cuba. Sales of U.S. agricultural products to Cuba peaked at more than $710 million in 2008, with chicken, soybeans, soy products and corn topping the list of products. But while poultry sales have remained strong, grain sales have fallen because countries such as Brazil have allowed their grain to be bought on credit.
A Texas A&M University study found that easing current trade restrictions would increase U.S. agricultural sales by $365 million annually. Most of that rise would be the result of more corn, soybeans and wheat going to Cuba.
These numbers, says Illinois Rep. Norine Hammond, helped lead the Illinois General Assembly to unanimously approve HR 185 in 2013. The resolution established a working group tasked with “improving Illinois business and trade exchanges with Cuba” and promoting a “more effective policy” between the United States and Cuba.
Paul Johnson, director of the group, says that “while the 11 million consumers in Cuba are relatively poor, liberalized rules for tourism and trade of their commodities should boost standards of living and demand.”
Take the potential of increasing demand for U.S. wheat, for example. Because of the cumbersome banking requirements, most of Cuba’s imported wheat comes from the European Union — more than 550,000 tons a year. If the rules are changed, European grain traders expect the United States to capture the entire wheat market. This would amount to 15 percent of the U.S. wheat crop.
Dry beans, peas, lentils and potatoes are also big parts of the Cuban diet. That creates opportunities for farmers in the northern tier of the Midwest as well.
President Obama’s new approach addresses the regulations, rather than the laws, governing Cuban sanctions. He has relaxed travel rules so that U.S. firms will be able to train businesses and farmers, and has begun the process of removing Cuba from the State Department’s list of sponsors of terrorism.
This, in turn, would remove a requirement that firms obtain a license from the Treasury Department to sell items to the Cuban government. Another expected change would allow the equipment used to produce food (rather than just food items themselves) to be sold to Cuba.
In addition, “cash in advance” will be redefined to mean “cash before title transfer,” thus allowing U.S. companies to extend credit to the Cuban government or individuals.

 

Article written by Carolyn Orr, CSG Midwest staff liaison for the Midwestern Legislative Conference Agriculture & Natural Resources Committee.