Sanctions: USW struggles with U.S. rules to develop wheat market in Cuba
Testimony offered by
Nelson Denlinger, Vice President, U.S. Wheat Associates
on behalf of
U.S. Wheat Associates
Wheat Export Trade Education Committee
U.S. International Trade Commission
September 19, 2000
Last year President Clinton announced an easing of export restrictions to Cuba. There is a major catch, however. The sanctions, which are stipulated by law, do not allow products to be sold to the Cuban government. The five flour mills in Cuba are owned by the government. Ergo, no U.S. wheat can be sold into Cuba.
U.S. State Department officials explain that the Cuban government must transition to private ownership in order to allow shipments of wheat and other agricultural commodities into Cuba. Cuban officials, on the other hand, indicate they have no intention of changing their system and, indeed, have developed plans to build four new flour mills under the current ownership system.
It should be noted that selling to government buyers is not usually a problem. In fact, our two largest wheat customers -- Japan and Egypt -- have government buyers. But because of this restriction for Cuba, the situation, for U.S. wheat, is a stalemate.
Total Cuban wheat and flour imports, according to the most recent USDA figures, are estimated at 950,000 metric tons. This volume is well below the levels of the late 1980s -- before the collapse of the former Soviet Union -- when wheat imports reached 1.4 million tons. Cuban per capita consumption of wheat flour in the 80s went as high as 50 kg/person but, since economic conditions have deteriorated, consumption has dropped to an estimated 35 kg/person. Bread is rationed.
U.S. wheat has had no share in the market since Dwight Eisenhower was President. In 1959, when U.S. wheat was exported to 59 countries, Cuba was our 13th largest customer, importing 129,000 tons.
Our competitors have benefited far too long from the embargo. Canada dominated the wheat trade with Cuba during the late 1980s and early 1990s, with exports reaching as high as one million tons. Canada now has a market share of generally 5 to 10%, and the Canadian Department of Foreign Affairs and International Trade reports that their wheat exports to Cuba totaled C$43 million for the last three years.
For the last 8 to 10 years, wheat and flour has been supplied largely by France, Italy, and Spain, with France being the largest supplier. Argentina has also had a small piece of the market.
U.S. Wheat Associates experts have been to Cuba five times in the last in two years. We are not going there with some "pie in the sky" dreams. Through a series of private meetings and a marketing seminar, we know that potential wheat buyers in Cuba want to know as much as possible about U.S. wheat, and so we continue to familiarize the Cubans with the traits, qualities and marketing system for U.S. wheat.
Why do we think Cuba would buy wheat from the U.S.? As we've seen so clearly in Iran and other sanctioned countries, countries don't automatically import from the U.S. just because we ease sanctions and allow them to buy our agricultural products. Cuba will buy from us because it makes sense for Cuba.
First, as sanctioned countries around the world have experienced, our competitors modify their wheat sales programs to take advantage of U.S. sanctions, reaping higher prices in the sanctioned countries because of the reduced competition.
Second, most particularly for Cuba, the U.S. holds a distinct comparative advantage because of geographical proximity. Much shorter shipping times would allow for "just in time" inventory management programs, and U.S. ocean freight rates are estimated at around half of wheat cargoes coming from Europe. In fact, the European Union really cannot be competitive in this market without the blatant use of export subsidies, as is evidenced by the fact that the Europeans are really not competitive in the Latin American and Caribbean wheat markets.
We don't expect overwhelming sales as soon as sanctions are lifted. When U.S. congressional approval is finally given, and when the U.S. can start exporting wheat to Cuba, there will still be obstacles in financing, logistics, infrastructure, distribution and familiarity with the U.S. marketing system.
- A U.S. - Cuban phytosanitary protocol agreement would need to be signed. Unlike many other countries, it appears that Cuba does not use phytosanitary standards as artificial trade barriers. Nevertheless, they do have reasonable food safety standards that must be satisfied. In anticipation of the eventual easing of the embargo, U.S. agriculture should lay the necessary groundwork for establishing a U.S. - Cuban phytosanitary protocol agreement dealing with plant health, pest, and quarantine issues in general and, of course, specifically related to wheat.
- As we've seen from congressional debate, there may be issues dealing with payment if U.S. banks are not allowed to engage in transactions. Nor do export credits from the U.S. seem likely, at least in the beginning of this relationship. If Congress acquiesces to the anti-trade faction, unconventional trade financing arrangements will need to be examined in order to facilitate trade with a country that is cash-strapped for foreign exchange.
- Shipping restrictions, which currently prohibit any ship that has landed in Cuba from returning and docking at a U.S. port for six months after leaving Cuba, will have to be lifted.
What kind of a wheat market are we looking at?
The Cuban livestock sector cannot access U.S. feed grain, so imports of feed wheat are unusually high. Estimates of wheat used for feed vary widely, with analysts' estimates ranging from 350,000 tons to almost 500,000 tons per year. This would imply wheat consumption for humans at 450,000 tons to 600,000 tons. Once U.S. - Cuba trade is normalized, most if not all of the feed wheat will likely be replaced with U.S. feed grains, particularly corn and milo. But there will still be growth in the wheat market: we can expect increased wheat consumption for human use once the Cuban economy is rejuvenated.
There will be tremendous opportunities in the food industry, which has been stalled since the late 1980's. European companies in particular have indicated interest in joint ventures with ice cream, bottled water, cooking oil, soy processing, and breakfast cereals. Certainly other opportunities exist in the flour milling sector where the industry needs additional investment in order to modernize the wheat milling segment of the Cuban food industry.
Can we do anything, now, in the Cuban market?
Humanitarian donations of flour to Cuba have been facilitated by U.S. Wheat Associates and its member wheat states. In December 1998, 20 tons of wheat flour milled in the Caribbean from wheat donated by U.S. farmers was shipped to the Catholic Church’s charity Caritas, and a similar humanitarian shipment was shipped earlier in that year.
Since U.S. law permits sales to non governmental entities, we have discussed some creative ideas with three humanitarian organizations doing great work in Cuba: the National Council of Churches, the World Food Program (WFP) of the United Nations, and CARITAS (Catholic Relief Services). Unfortunately for the U.S. wheat industry, while all three organizations have previous experience in importing wheat, especially during periods of natural disasters, this is not their primary mission, nor do they have the resources to dedicate to wheat imports.
So USW is left with only one option -- to prepare for the day that the U.S. Congress allows us to sell wheat to buyers in Cuba.
Earlier this year, USW conducted a marketing seminar at the Cuban Ministry of Foreign Trade. It was well attended by Cuban wheat and food industry executives and provided a good background on how to better understand the U.S. wheat marketing system, and the functionality and utilization of U.S. wheats. We've also met with the Ministry of Foreign Trade, ALIMPORT (the grain buying agency), the Ministry of Foreign Investments (responsible for issuing import licenses), and the Ministry of Food, which handles the flour milling, bakeries, pasta manufacturing, and cookie and cracker production.
In short, we are are trying to establish what, for any other country, would be normal market development activities. Unfortunately, we are not able to do that as fully as we normally would. Just recently, the U.S. State Deparment turned down our request to sponsor a young Cuban miller for training at ESLAMO, the highly regarded milling school in Puerto Cabello, Venezuela. We have sponsored training for millers from dozens of countries, to introduce them to the advantages of using U.S. wheat, but this request was denied because the miller was a government employee.
We look forward to the day when normal trade relations -- and normal market development activities -- are permitted.