January 26, 2015

Cuba could be open for business with the United States; and hopefully sooner than later

By Anjuli Doyle, Entira Associate

The news in mid-December of President Obama approving the United States’ move toward  “normalizing relations” with Cuba was met with applause from seed groups, grain merchandisers, livestock organizations—probably every sector of agriculture. After a longstanding economic embargo dating back a half century that stifled any kind of relations with the socialist island nation, the United States is now looking at the possibility of a sizeable new market opening up that’s basically right next door. By mid-January, the U.S. Treasury Department already had loosened trade restrictions with companies wanting to export telephone, computer and Internet technologies, and also opened the door for companies wanting to make investments in small businesses there. Momentum is building.

Smoother Sailing Ahead

The agriculture industry is peering southward at a very import-dependent Cuba. This could give U.S. farmers freedom to trade with a client that’s receptive and very close. It would make it easier for Cuban farmers to acquire much-needed agricultural products to support their operations. And it would give the 11 million consumers there a more logistically efficient and cost-effective source for their food supply. It’s a no-brainer. Good for us. Good for them.

There has been trade between the United States and Cuba in recent years, but it has been very limited and very cumbersome. Trading today requires interface with third-party banking institutions, which is just one impediment. Doing business with Cuba just hasn’t been worth the hassle and extra cost.

So, what if we didn’t have to jump through all those hoops? Which sector would benefit the most? That’s difficult to say. With the prospect of obstacles being cleared away, everyone is considering the possibilities.

If trade embargoes are lifted, some experts predict our wheat trade market with Cuba could grow to 90% of Cuba’s total wheat import market, which is nearly 550 million metric tons, from where it is today—which is zero. The EU stands to lose a market share valued at $150 million in wheat exports to Cuba, the majority of which comes from France. Even if the United States captured 50% of the Cuban export market—and that’s conservative by many estimates—it could mean big bucks for U.S. farmers. (Source: U.S. Wheat Associates)

This does have some in the EU worried, because they, too, understand it’s a “no-brainer.” Geographically, we’re an appealing exporter being just 90 miles offshore. The cost to ship wheat to Cuba from France is $20-25 per ton, but it’s only $6-7 per ton from the U.S. Gulf Coast. Kansas wheat is about 6,000 miles closer than French wheat.

Corn is one commodity that we’ve exported successfully since 2000—fluctuating over the years from as much as 100% of the Cuban import market and as little as 15%. That trend has moved downward lately, with U.S. corn exports to Cuba dropping from 800,000 metric tons in 2008 to 200,000 metric tons in 2013.

Many look to renewed relations as an opportunity to breathe new life into Cuban agriculture if U.S. agribusinesses have the chance to support them. Immediately after the news broke, the American Soybean Association said in a statement, “More important in today's announcement, however, are the implications for the Cuban people. While we have been able to sell our products in the country for decades, our Cuban customers were unable to secure the same financing and credit opportunities as other trade partners.”

For years, individual players explored Cuba and ways to work around the embargoes, but any opportunity discovered was generally short-lived or just completely unreachable. Now there’s hope some of those possibilities could see the light of day.

Still, while the United States is poised to procure a sizeable share of the Cuban export market, it’s not quite “imminent,” as approval from Congress is required before any benefits from embargo lifting can begin to take form.

And so the political talks begin. Every state, every trade organization, every business with ag ties seems to be talking about Cuba. They’re all asking the same question … “what could we do with Cuba?”

In a matter of weeks, coalitions and working groups have formed, bringing together leading agricultural players and policy influencers to generate momentum toward opening channels more clearly to Cuba. In one major effort, the American Farm Bureau Federation, the American Soybean Association and the National Corn Growers Association are joining forces with more than 30 other agricultural organizations to launch the U.S. Agriculture Coalition for Cuba. Regarding the Coalition for Cuba, NCGA President Chip Bowling issued the following statement:

“Cuba is not a level playing field for American farmers. It’s time we have a chance to better compete for Cuba’s business. NCGA has long supported normalized trade relations with Cuba, as part of our efforts to expand markets for U.S. corn and feed the world. We are proud to join this coalition. We will work closely with our fellow coalition members to advance a trade relationship with Cuba that is efficient, globally competitive, and benefits both nations.”

Has Cuba become a conversation topic in your organization? We’d like to hear about what your company is thinking as it pertains to the outcome of normalized trade relations with Cuba. Please take a couple of minutes to answer our questionnaire about Cuban Market Opportunities.

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At Entira, we look at the entire picture to bring you a realistic and comprehensive view of your business. As an unbiased, outside perspective, we can make practical recommendations based on existing facts, market conditions, and perceptions. Contact us if you’d like to learn more, or email me directly at adoyle@entira.net.