Feast Or Famine
When the Trade Sanctions Reform and Export Enhancement Act (TSRA) was passed in 2000 during the last days of Bill Clinton’s presidency, Washington’s lawmakers enacted it as a humanitarian gesture toward the Marxist regime of Cuba—one of the last countries to adhere to that ideology and a survivor of the Soviet Bloc’s collapse. Chicago resident Paul Johnson, who was working toward a master’s degree at the University of Illinois that year, had no idea that those four letters, TSRA, would play a major role in his future.
Johnson studied international relations during his years at the University of Wisconsin-Madison and later became an unlikely addition to the ranks of major agribusiness players like Archer Daniel Midland (ADM), Louis Dreyfus Commodities and Cargill—all of which got a head start on him exporting food and agricultural commodities to an island that imported much of its food, both for its 11 million residents and the growing legion of foreign tourists, now totaling 3 million, mostly from Canada and western Europe.
These days, as a co-founder of the trade group U.S. Agriculture Coalition for Cuba (USACC), Johnson finds himself among a growing number of food producers and exporters advocating the total elimination of the ongoing U.S. trade embargo against Cuba. Why is he spearheading such efforts? The thriving food-trading firm Chicago Foods International, LLC that he launched in 2008 has just one market: Cuba.
“I had traveled to Cuba in 1995 and decided that I needed to return and learn more,” Johnson says, recalling his interest in that country. He witnessed the island’s first wave of foreign investment activities happening in Havana—from Spanish companies like Sol Meliá building luxury hotels and resorts, to Canadian entities such as Sherritt and Pebercan launching nickel mining and oil exploration ventures. By 1999, the Canadian presence in Cuba was so conspicuous that Labatt’s beer was found throughout the country’s resorts and supermarkets; Toronto pizza chain Pizza Nova established a beachhead at the Havana tourist enclave Marina Hemingway and set up more outlets in Cuba as demand grew from tourists. At that time, investors from various countries ranging from Spain to Monaco even started to build luxury condos in the diplomatic Miramar section of Havana.
“I did go back to Cuba to live there in 1999 to write a master’s thesis on the economic development of Havana,” Johnson says. “I spent a year researching my paper, learning Spanish and making important contacts in the business community. I returned to Cuba every year thereafter and actually decided to return to live in 2008. I went looking for business opportunities and returned after about six months determined to set up a food-export business. The time seemed right and the contacts that I had met years prior encouraged me to give it a shot.”
From the early to mid-2000s, the Cuban government, through its food-import buying agency Alimport, started ordering a variety of American agricultural goods—from dry beans produced in the Dakotas to soy beans from the Midwest, frozen chicken from Georgia, and Washington state apples. At one point, the Cubans even bought live heads of cattle from ranchers in Minnesota and Florida. “We have been doing business with Cuba for a long time,” says Yon Luque, export area manager at Koch Foods, Inc. of Park Ridge, Ill.—another agribusiness giant that took advantage of Cuba’s trade opening. “Last year , we averaged about $40 million [in exports to Cuba]. All the product that we ship is frozen; the majority is chicken leg quarters, and drumsticks, too.”
As word spread throughout the farm-belt states about the food and ag purchases that Cuba was making, Alimport CEO Pedro Alvarez was being courted by U.S. manufacturers vying for contracts and even politicians whose districts wanted in on that country’s business. One such lawmaker was then-Nebraska Gov. Dave Heineman, who first led a trade delegation to Havana in 2005 and netted $30 million for his state that year through sales of wheat, corn, beans and other agricultural products to the Cubans. “Cuba has been very, very good to our state,” he told CBS News in 2007. Between 2005 and 2007, Nebraska shipped a total of $70 million in food products to Havana.
A number of Cuba watchers noted that Alimport had its own reasons for buying American: to convince the politicians from the farm-belt states (which normally voted conservative in Congress) to get rid of the ongoing trade embargo against Havana altogether, that was estimated to cost Cuba billions of dollars a year. Alimport even tried to convince some of its U.S. suppliers to conduct their own anti-embargo lobbying efforts on Capitol Hill. “I would agree wholeheartedly that there’s a major PR element to the way they (Alimport) go about this,” Don Mason, director of Grower Services at the Iowa Corn Growers Association in Des Moines, told Gulf Shipper Magazine back in 2004. “They’re making use of the deals they’re signing for public relations purposes. I think it’s fairly obvious, and they’re not trying to hide it. But that doesn’t mean companies shouldn’t participate.”
A full year after TSRA became a reality in 2001, Cuban purchases of U.S. food initially tallied a trivial $4 million, only to make astronomical growth afterwards—peaking at $710 million in 2008. With Cuba being a proven food-export market by then, Johnson launched Chicago Foods International, LLC, whose location in the Windy City was a natural for food traders looking for both agricultural goods and pre-packaged supermarket-ready products. As is typical for American exporters trying to secure a deal with Alimport, he pitched his services to them in person.
“I went to the Havana Trade Fair (FIHAV) in 2008 with a bunch of products,” Johnson recalls. “That’s when I first met with Alimport. I did not get any contracts that first year but just kept at it. I returned to Cuba every three months and kept up my correspondence with them. When I returned for the Trade Fair in 2009, I secured my first contract and once I proved to them that I was reliable, contracts increased each year. That is until Cuba made a decision to start decreasing sales from the U.S.”
With 2008 being the best year for U.S. food exports to Havana, the tide eventually turned against America. When Fidel Castro was firmly in charge of the country before he fell seriously ill in 2006, the foreign investment climate on the island seemed more favorable. Major players and independent upstarts alike sought out trade opportunities in Cuba, whether they were based in Canada, the UK or diplomatically friendlier countries such as Russia, Vietnam or even Israel—whose entrepreneurs helped build the sleek Havana office complex “Miramar Trade Center.”
After Fidel’s brother Raúl officially assumed power in Havana in 2008, the Cubans gradually started to buy more food imports from others countries, such as Brazil. One reason was TSRA itself: U.S. food exporters could supply Cuba on the explicit condition that the country pay for its purchases upfront. Such terms suited American food producers just fine at the time; it significantly decreased the risk of doing business with a country that owns a notoriously poor credit history. But as Raúl Castro directed Alimport to conduct more business with diplomatically friendlier nations, Johnson and other U.S. food exporters saw trade opportunities with Havana dwindle.
The Cubans started expressing a preference for buying from countries like Brazil, Canada and others willing to provide for the island’s food needs on credit—something American exporters were prohibited by law from doing. In addition, Cuba observers say that by the late 2000s there was no significant movement in Washington to end the U.S. trade embargo against Cuba, even with the election of Democratic President Barack Obama, who expressed interest in eliminating the embargo as early as 2004, when he was still a state senator in Johnson’s home state of Illinois.
Raúl Castro’s preference for trading with diplomatic allies already had an adverse impact on certain American agricultural players such as rice growers. Even during the first half of the 2000s, trade group USA Rice Federation—a constant presence at the FIHAV trade show in Havana—had a hard time convincing the Cubans to switch from their Vietnamese rice suppliers who provided credit. Such prospects never improved under Raúl Castro from 2008 onward. “Anything that lowers the transaction costs helps make the U.S. more competitive against other origins,” said Marvin Lehrer, senior adviser for USA Rice Federation.
Raúl Castro also had special reason to accommodate Brazil: Its left-leaning president, Dilma Rousseff, financed the expansion of Mariel port and the construction of a nearby export-processing zone—a tab of more than $900 million that came mostly from Brazil’s state-run bank (BNDES). Adding to the cozy relationship, the Brazilians are also working on the island’s airports and running one of its sugar mills.
This explained Cuba’s preference for buying an increasing amount of food from the Brazilians: from frozen chicken to soybeans and even supermarket-ready, pre-packaged items like cookies—it was all purchased on credit. In combination with procurements from nations such as Spain, Canada and other Latin American countries, this helped show why U.S. food exports to Havana were cut by half in recent years, with 2013 totals barely reaching $350 million.
“The supermarket trade was changed as Alimport lost control of this, and buyers such as CIMEX began to buy directly from third countries,” says Jay Brickman, VP Cuba Service at Crowley Maritime Corp., the main shipper of U.S. foodstuffs destined for Havana. “Products such as Coke and Pepsi are in the market but they come from Mexico and Guatemala. In December, I did see some Kellogg products in the market. Some of that came from Mexico and still some U.S. product [comes] via Panama.”
One beneficiary of this trend is Chilean food trader Angel Domper Cavalla, whose firm TJP Internacional S.A. sells the Cubans packaged food items from his country, such as Carozzi brand pastas and Watt’s brand juice and nectars; he even sells American food items like Kraft macaroni and cheese, Campbell’s soups, and Spam canned meats. To be fair, Domper is not just any food trader—he’s been virtually married to the Cuban revolution. His ex-wife was Celia Guevara, the youngest daughter of Argentine revolutionary Che Guevara. Such connections don’t hurt, even in Marxist Cuba.
For a number of years, any hope U.S. food exporters had of supplying Cuban supermarkets with significant quantities of fruit juices were quashed because of another Chilean investor, Max Marambio, whose firm ING (International Network Group) was responsible for launching a lucrative joint venture with a Cuban entity. That partnership, known as Alimentos Rio Zaza, produced a line of Tropical Island brand fresh fruit juices found at most of the island’s supermarkets and some resorts. In effect, Tropical Island is Cuba’s answer to Tropicana.
Undaunted by such market conditions, Johnson recently rekindled his dream of penetrating the Cuban market with more American goods when President Obama announced that Washington would resume diplomatic relations with Cuba. Even though his initiative resulted in the Treasury Department easing trade terms with Havana—including the unprecedented step of letting U.S. banks deal directly with Cuba and even permitting American travelers’ use of their credit cards there—American businessmen are still unable to provide credit, something that a growing number of trade groups have been pushing for in the face of competition from Brazil and other nations.
“Next year, Cuba will import $2.149 billion in food,” says Johnson. “They will purchase more soy, chicken, wheat, and little else from the United States. They are not buying any corn, processed goods or rice from the U.S., either. Pork and beef sales should be fairly insignificant. But things could change as the political climate thaws. Increased tourism would be a big boost for exports and normalized trade relations will significantly boost sales of a wider range of products. It will take time and more patience, but the landscape and trajectory have quickened with recent political announcements by President Obama.”
Obama letting American banks conduct direct transactions with Cuban financial institutions should lower costs for that government. Before this, they had to rely on third-country banks like BNP Paribas in Paris to process payments over to U.S. exporters, lowering Alimport’s incentive to buy more from the USA. “My own experience with my last export to Cuba involved a letter of credit and funds payable from a bank in Paris,” says Renée Strickland, president of the Livestock Exporters Association of USA in Washington, D.C.
Strickland stands out in a trade long dominated by men, and at one time personally conducted cattle exports from Florida to Cuba. “It was all quite doable, but definitely slower and a little more cumbersome than if the letter of credit had been with a bank directly in Cuba,” she says. “That will definitely make trade easier.”
While the Brazilian financing the Port of Mariel’s expansion may ease that country’s exports to the Cubans, American shippers like Crowley are also increasingly dropping containers from the Southeastern U.S. there instead of the more capacity-limited Port of Havana. “The only two ports with trade between Cuba and U.S. to have any significant containerized volumes are Port Everglades and Jacksonville—both handled by Crowley,” says Jim Pyburn, director of Business Development at Port Everglades in Fort Lauderdale, Fla.
“When it comes to bulk, non-containerized shipments to Cuba, there are multiple ports that export to Cuba. The biggest ports (in metric tonnage) for shipping to Cuba include New Orleans, South Louisiana, Pascagoula, Norfolk and Mobile. Most common commodities being shipped bulk to Cuba from these ports are grains and flour products, soybeans and animal feeds.”
Johnson, as a co-founder of USACC, feels that it’s just a matter of time before the trade embargo against Cuba is fully lifted. “With our launch, we showed that this issue has bi-partisan support,” he says.
“We had a Republican senator and two Republican congressmen speak at our event. I think there is a divide amongst Republicans on this issue. It is going to be tough for (them) to turn their backs on this issue. They could face it head-on and take some credit in normalizing relations with Cuba, which is where I believe they will go. But between the U.S. ag community firmly in favor of ending the embargo, U.S. Chamber of Commerce pushing to end it, and the majority of America realizing that the embargo has failed us, there is little space to go but forward.”
For now, Obama’s December 2014 announcement expanded already pre-existing market opportunities for certain U.S. exporters looking to do business with Cuba, such as suppliers of lumber and building material, and distributors of cell phones and accessories, computers and software.
The entity that would be a major buyer of U.S. cell phones and accessories—the Cuban phone monopoly ETECSA—is unlikely to purchase from American exporters until the U.S. State Department removes Cuba from its list of “state sponsors of terrorism,” which legal observers say is not likely to happen until later in the year. That would then restore Cuba’s sovereign immunity in U.S. courts, enabling ETECSA to receive revenues from phone calls between the two countries that originated in America.
Such legal headaches are non-existent for prospective lumber and building-supply exporters. One firm taking this opening seriously is the Ft. Lauderdale, Fla.-based Gulf South Forest Products, Inc. Since wood is classified as “agricultural goods” under TSRA, that company has already begun to attend FIHAV and other Cuban trade shows.
Gulf South’s general manager Marcela Jimenez told CubaNews in 2013 that despite such efforts, her firm only generated $6 million in sales to Cuba, blaming credit-wielding competitors like Brazil, Chile and Honduras for the small total.
“We have not had any business in Cuba for over four years now,” Jimenez said at the time. “The contacts we made with Alimport have been replaced or have retired. Our licenses to do business there are still active, but due to payment restrictions we have not been successful in obtaining any new business.” If and when market conditions improve, Gulf South is ready to ship immediately from its 153,000-square-foot facility in Mobile, Ala.
Export-driven executives like Jimenez have another reason to thank Obama: hassle-free travel to Cuba. In January 2015, the U.S.
Treasury Department’s OFAC Division, which governs transactions involving Cuba and other sanctioned countries, announced that those visiting Cuba on export business and those who fall under 11 other categories of travelers—from conducting educational activities to providing material support for local self-employed entrepreneurs—can trek to Havana under what it calls a “general license,” meaning they will not have to apply for a (paper) license before going there. Hopefully, if the embargo against Cuba is lifted by the end of the Obama administration, such bureaucratic issues will be deemed moot.
The World Is His Orchard
Download the FREE Global Trade Magazine APP!