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A new era for U.S. agricultural trade with Cuba

Friday, April 24, 2015

For decades, U.S. farm groups have pushed for better access to agricultural markets in Cuba. Thanks to President Obama’s initiative announced last December, such an opportunity now seems achievable. His Administration has since taken steps that will make such transactions easier, though full normalization will require Congressional action.

Aside from Canada and Mexico, with whom the United States shares common borders, Cuba is the closest market geographically to the United States. Before the Cuban revolution in 1959, it was a market dominated by U.S. exporters. In 1957, U.S. agricultural exports to Cuba totaled nearly $500 million. No other exporter tallied more than $60 million.

After the embargo went into place in the early 1960s, interactions of almost any type ceased between the two countries for nearly four decades—except for heated rhetoric and accusations. In 2000, Congress passed the Trade Sanctions Reform and Export Enhancement Act (Title IX of P.L. 106-387) (TSREEA), intended to allow U.S. exports of food and medicine to Cuba under licensing and financing restrictions. This change drew little notice initially, as the value of agricultural exports to Cuba rose from a miniscule $26,000 in 2000 to a still negligible $4.6 million in 2001.

However, a massive Category 4 hurricane (Michelle) struck Cuba in November 2001, devastating the island nation’s agricultural sector. Due to the production shortfall, U.S. food and agricultural products began to flow to Cuba, starting at $139 million in 2002. The gains persisted until 2008 and peaking at $685 million, despite a 2005 decision by the Treasury Department to administratively re-define what was meant by the requirement of “payment in advance” from TSREEA. The change required that payments for transactions be completed before shipping, rather than the internationally-accepted norm that payments be made before title is transferred at the port of entry.

By 2014, U.S. agricultural exports to Cuba have fallen by nearly 60% since 2008, due both to the rule change on payment in advance and the general decline in global trade in the aftermath of the 2007-09 financial meltdown. With the President’s December 2014 announcement and subsequent policy changes announced in January, the conditions are in place for U.S.-Cuba agricultural trade to begin to regain its previous vigor. The changes include reversing the Bush administration determination on the timing of payments for exports to Cuba, easing the licensing process for permitted travel and trade under the Treasury Department, making it easier for Cuban-Americans to send funds to family members still in Cuba, and expanding the category of goods that can be shipped under TSREEA authority to include agricultural inputs, such as seeds and agricultural equipment.

Given the range of products that Cuba now imports and our geographic proximity to that market, there is no reason why the United States should not eventually recapture its position as the dominant exporter to Cuba. For the full potential to be realized  will require Congress to affirmatively repeal remaining trade and travel sanctions, which include restrictions on sales under credit terms, and the ban on travel for tourism purposes.

Economist Parr Rosson, Ph.D., of Texas A&M University, who has studied these issues extensively, estimates U.S. agricultural exports to Cuba could easily increase to $450 million annually under the new rules. With complete elimination of trade and travel sanctions, the U.S. International Trade Commission estimated in 2007 that the United States could realize total agricultural exports to Cuba of nearly $700 million annually.

As the President said in his December announcement, “These 50 years have shown that isolation does not work. It is time for a new approach.” That notion applies to U.S.-Cuba agricultural trade, as well as the rest of a very complicated relationship between neighboring countries.


Stephanie Mercier Stephanie Mercier (smercier@farmjournalfoundation.org)
Farm Journal Foundation @samara333

View more posts by Stephanie Mercier

The views and opinions expressed in AgChllenge2050 blog posts are solely the opinions of the authors, and not those of Farm Foundation, NFP.