U.S. Wheat Organizations Join Coalition to Re-Establish Trade Relations with Cuba
January 09, 2015
WASHINGTON, D.C. — U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) are pleased to be founding members of the U.S. Agricultural Coalition for Cuba (USACC). The organizations are encouraged by President Obama’s efforts to renew diplomatic relations with Cuba. However, it is unclear if these actions alone will be enough to restore the Cuban wheat market for U.S. farmers. That is why they share USACC’s mission to re-establish Cuba as a market for U.S. food and agricultural exports.
Cuba, which does not grow wheat commercially, is the largest wheat market in the Caribbean, purchasing almost all of its wheat from the European Union and Canada. In the recent past, Cuba has imported more than 16.3 million bushels (445,000 metric tons) of wheat in a single year from the United States, sales that today would represent a value of nearly $123 million. However, under current rules set by the Treasury Department’s Office of Foreign Assets Control, the United States can only export agricultural products to Cuba through the use of third-party, foreign banks, which makes facilitating trade burdensome and often more expensive for Cuba. Partly as a result, Cuba has not purchased U.S. wheat since 2011.
“U.S. wheat farmers are excited about the prospect of exporting more wheat to Cuba,” says NAWG President Paul Penner, a wheat farmer from Hillsboro, KS. “NAWG has long supported strengthened trade relations with Cuba and see this as a historic step in that direction.”
“The U.S. wheat industry applauds these efforts to normalize trade relations, which take concrete steps away from a policy approach towards Cuba that has accomplished little,” said USW President Alan Tracy. “If U.S. trade with Cuba can increasingly respond to economics rather than politics, we believe our wheat market share there will eventually grow from its current level of zero to around 80 to 90 percent, as it is in other Caribbean nations. We have a natural competitive advantage over other suppliers.”
USW is the industry’s market development organization working in more than 100 countries. Its mission is to “develop, maintain, and expand international markets to enhance the profitability of U.S. wheat farmers.” The activities of USW are made possible by producer checkoff dollars managed by 19 state wheat commissions and through cost-share funding provided by USDA’s Foreign Agricultural Service. For more information, visit www.uswheat.org or contact your state wheat commission.
The National Association of Wheat Growers was founded more than 60 years ago by producers who wanted to work together for the common good of the industry. Today, NAWG works with its 22 affiliated state associations and many coalition partners on issues as diverse as federal farm policy, environmental regulation, the future commercialization of biotechnology in wheat and uniting the wheat industry around common goals.
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Fact Sheet: Wheat Trade with Cuba
The current situation:
The United States has imposed an economic, commercial and financial embargo on Cuba since 1962. The Trade Sanctions Reform Act (TSRA) of 2001 opened exports of U.S. agricultural products, including wheat, but travel and financing restrictions compound the regulatory difficulties of trading with Cuba. Unilateral sanctions negatively impact the export potential for U.S. wheat producers in the Cuban market, the largest in the Caribbean, while competitors in the European Union and Canada freely sell wheat to Cuba.
Source: USDA PSD Online
1 metric ton = 36.74 bushels
U.S. policies restrict the U.S. wheat industry by:
· Implementing financing restrictions that require payment from third-party banks and cash in advance of shipment;
· Imposing travel restrictions and licensing requirements on U.S. exporters;
· Restricting travel by Cuban officials to the United States;
· Creating a negative relationship between the United States and Cuba that is not conducive to business;
· Denying access to critical credit tools that facilitate exports;
· Imposing a six-month waiting period on vessels leaving Cuba before allowing reentry to U.S. ports.
Potential for U.S. wheat exports:
Cuba represents substantial potential for U.S. wheat farmers. Cuba’s 11 million people consumed an average of nearly 30 million bushels of wheat per year over the past 10 years. USDA’s Foreign Agricultural Service lists Cuba as the largest importer of wheat and wheat products in the Caribbean.
Cuba’s proximity, as well as historical and cultural ties should make it a natural trading partner for the United States. Instead, Europe and Canada currently control a substantial portion of the Cuban market. In neighboring Caribbean markets, U.S. wheat has maintained an 80 percent market share over the last decade, while peaking near 50 percent of the Cuban market seven years ago before collapsing to nothing since 2011. This gives the United States a market share of zero percent while the Europeans account for approximately two-thirds of Cuba’s imports and Canada exports most of the remaining share.
In 2005, the Treasury Department’s Office of Foreign Assets Control (OFAC), the agency charged with enforcing sanctions, amended U.S. regulations, forcing Cuba to obtain and present letters of credit from a third-party, foreign bank. The amendment forced U.S. exporters to receive payment only from a third-party bank, rather than through direct payment from Alimport, the Cuban food importer. As a result, the cost of buying U.S. wheat increased due to this excessive and unnecessary administrative burden. In the same amendment, OFAC modified the definition of payment of “cash in advance,” to require payment before a shipment leaves the port in the U.S. rather than before the title changes hands at the shipment’s destination. This rule is unique to our exports to Cuba, removes the ability of Alimport officials to inspect cargo before payment and is not the practice with any of Cuba’s other trading partners.
Additionally, the United States cannot provide credit backing since Cuba is a designated state sponsor of terrorism. While this is not relevant under the 2005 regulations, revisions to the regulations proposed by the President could make this an impediment to further exports. The inability to offer credit and financing is a major constraint to increasing U.S. exports to Cuba.
December 2014 announcement:
The U.S. wheat industry supports the President’s decision to ease financing restrictions on agricultural trade with Cuba, among other steps that will hopefully lead to a more conducive business environment. While regulations implementing the executive announcement have not been written, the wheat industry believes that the proposed changes to requirements for export transactions will create better export opportunities. Specifically, allowing U.S. financial institutions to open correspondent accounts in Cuba and changing the regulatory definition of “cash in advance” to mean “cash before transfer of title” could allow much more efficient execution of these transactions. The President also proposed reviewing Cuba’s status as a designated state sponsor of terrorism, which could help facilitate access to export credit programs.
However, while the wheat industry is hopeful, it is unclear if these actions alone will be enough to restore the Cuban wheat market for U.S. producers.
U.S. wheat industry position:
The U.S. wheat industry supports easing travel restrictions, permanently overturning the 2005 regulatory changes and increasing access to credit and USDA commercial loan programs. A level playing field with Canada and Europe is critical for U.S. wheat farmers to fully realize their export potential to Cuba. However, the larger political implications of the embargo and its negative impact on the business environment between the U.S. and Cuba will likely preclude effective competition by U.S. wheat exporters even if these other changes are implemented. Thus, U.S. wheat farmers support ending the embargo entirely.