U.S. – Cuba Trade Relationship

Closer economic ties between Cuba and the U.S. are to be welcomed, especially as global trading patterns are evolving and becoming much more multilateral. In December 2014, the United States announced that it would re-establish diplomatic relations with Cuba and implement executive actions intended to ease the trade and travel restrictions currently in place. On April 11, 2015, Presidents Barack Obama and Raul Castro shook hands at the Summit of the Americas in Panama, marking the first meeting between a U.S. and Cuban head of state since the two countries severed their ties in 1961.

Despite Cuba’s long stagnation and isolation from the global economy, the potential trade opportunities go both ways. For the Cubans, the most important thing is getting the embargo lifted. The U.S. economic embargo against Cuba established at the peak of the Cold War in the early 1960s, when the Cuban Missile Crisis brought the world to the brink of a nuclear war, the embargo bars most Americans from traveling to, or trading with, the island. Cuba Trade Act of 2015 would allow U.S. businesses in the private sector to trade with Cuba without restrictions.

Over the past year, both the United States and Cuban governments have made significant progress towards normalizing relations. Cuba was removed from the U.S. list of state sponsors of terrorism; the U.S. reopened its embassy in Havana, the Cubans did the same in Washington, and the U.S. implemented a number of new rules to ease restrictions on American firms doing business on the island. But Congress needs to act to remove the travel and trade restrictions still held in place by the embargo. The most recent poll showed 73% of the American people, including 59% of Republicans favor ending the trade embargo.

Cuba used to be a cash-only trip for Americans. But the first U.S.-issued debit card is now approved for use, a MasterCard issued by Florida-based Stonegate Bank. The country also has a surprisingly robust biotechnology industry that makes a number of vaccines not now available in the United States. New York-based Roswell Park Cancer Institute signed an agreement to bring a lung cancer vaccine to the U.S. for clinical trials. Miami-based Carnival Cruise Line, the largest passenger cruise ship company in the world, will begin to include Cuba as a Port of Call in May 2016. This will be the first American cruise company to visit Cuba since the 1960 trade embargo. The trips will be through Carnival’s new brand, Fathom.

As the U.S. Foreign Agricultural Service reported in June 2015, Cuba, with a population of just over 11 million, imports close to 80 percent of its food needs. It has been legal to export some U.S. agricultural products and medical supplies to Cuba since 2000. U.S. agricultural exports to Cuba totaled $300 million in FY 2014, comprising 16 percent of Cuba’s $1.9 billion in agricultural imports. U.S. exports included $148 million of poultry meat, making Cuba the eighth-largest export market for U.S. poultry. U.S. soybean meal shipments were the second-largest category, totaling $75 million in FY 2014.

Trade Sanctions Reform and Export Enhancement Act (TSRA) was implemented in 2000, the United States has exported nearly $5 billion worth of agricultural products to Cuba. Recently, however, U.S. market share has declined due to increased competition, especially from countries able to provide export credits to the Cuban import authorities. The United States is now Cuba’s third-largest supplier, after the European Union and Brazil. But with the normalization of relations between the U.S. and Cuba now underway, potential reforms could help support U.S. competitiveness, increase total U.S. agricultural export value, improve U.S. market share, and benefit both U.S. exporters and Cuban consumers.

According to the USDA Economic Research, during 1956-58, Cuba was the ninth leading destination for U.S. agricultural exports and the second leading supplier of U.S. agricultural imports. U.S. agricultural exports to Cuba were dominated by rice, lard, pork, and wheat flour, and on the import side by cane sugar, molasses, tobacco, and coffee. But following the Cuban revolution, the U.S. imposed an extensive economic embargo on Cuba and completely suspended trade and other commercial relations with the Cuba.

Cuba’s diversification away from U.S. rice imports represents the loss of a lucrative export opportunity for U.S. rice growers, since Cuba has the highest per capita rice consumption of any country in the Western Hemisphere. Annual per capita rice supply (milled equivalent) is about 61 kilograms in Cuba, 49 kilograms in Costa Rica and the Dominican Republic, 44 kilograms in Nicaragua, and 7 kilograms in the United States, according to Food Balance Sheets for 2011-13 from the Food and Agriculture Organization of the United Nations (2015). With establishment of a more normal trading relationship between Cuba and the United States, the U.S. rice industry would be likely again to sell rice to Cuba and may be able to regain a large share of Cuba’s import market, but only if U.S. suppliers are able to provide competitive terms of credit.

For U.S. imports, Cuba’s current agricultural exports to the world might be indicative of the coun- try’s initial ability to export agricultural products to the United States. Sugar and tobacco currently account for about 70 percent of Cuba’s agricultural exports to the world, but it is not known whether future U.S. sugar policy would allow for significant imports from Cuba. A more normal trading relationship with Cuba would likely result in the establishment of some U.S. sugar imports from Cuba. Sugar currently accounts for about 90 percent of Cuba’s total agricultural exports, but U.S. sugar policy might inhibit Cuba’s ability to export sugar to the United States.

Tourism, one of Cuba’s top industries, will also play an important role in agricultural import demand. According to official Cuban statistics, nearly 3 million international tourists visited Cuba in 2014, up from 2.8 million in 2013, boosting demand for high-quality food and also creating local jobs. Outside of the sugar industry, Cuban agricultural production is stagnant, with a production shortfall covered by nearly $1.9 billion in agricultural imports in FY 2014.

For U.S. exports, a more normal agricultural trading relationship between the United States and Cuba might resemble the current relationship between the United States and the Dominican Republic. As large countries in the Caribbean, Cuba and the Dominican Republic are similar in many ways. The populations are similar (11.1 million for Cuba versus 10.5 million for the Dominican Republic, per capita incomes about $10,200 for Cuba in 2010 and $12,800 for the Dominican Republic in 2014 in terms of purchasing power parity. The U.S. has huge structural advantages in exporting to Cuba. Chief among them is location. The U.S. is less than 100 miles away, meaning lower shipping costs and transit times, especially when compared to current top competitors, the EU and Brazil.

Establishing a more normal trading relationship with Cuba, either through executive action or more profound legislative changes, is likely to have a positive influence on U.S.-Cuba agricultural trade. Cuba Agricultural Exports Act would allow for U.S. investment in privately owned Cuban agriculture businesses. The U.S.-Cuba relationship is ever-evolving and Cuba represents an attractive market for U.S. investors. Increasing trade, travel and investment in Cuba will not only open new markets and create jobs in both countries, but promote human rights and better hemispheric relations.