Cuba has market potential for Minnesota

Cuba has market potential for Minnesota
Article by: TOM MEERSMAN and MIKE HUGHLETT , Star Tribune staff writers
Updated: January 3, 2015 - 6:19 PM
The island nation needs what Minnesota is selling.

Fairmont farmer Lawrence Sukalski remembers standing in Havana harbor in
2002 only a few months after Hurricane Michelle had devastated much of Cuba.

"I was one of three farmers that was with Cargill to witness the first
U.S. grain in 40 years to come to the shores," he said.

Sukalski, who grows corn and soybeans in southern Minnesota's Martin
County, said he was pleased at the time to help people in desperate need
of food, and he's equally happy that the U.S. is now moving toward
normalizing relations with Cuba.

"Without question, this is going to be an opportunity for us to move our
grains and our oils and probably some pork and beef," he said.

The easing of economic and travel restrictions with Cuba could mean a
significant bump in export sales for Minnesota farmers and
agribusinesses. Food is one of the few products that has been exported
to Cuba during the past decade, and the window will likely open wider
during the next few years.

"Our top crops are corn and soybeans, and those are the top import items
for Cuba," said Su Ye, chief economist with the Minnesota Department of
Agriculture. Ye said that Minnesota exported about $26 million in
agricultural products to Cuba in 2012, and projected about $20 million
for 2013.

Exports to Cuba have varied year to year, sometimes considerably, since
federal law in 2001 allowed U.S. agricultural products to be exported
there on a limited basis.

Cargill was one of the first companies that began selling food to Cuba,
but a cumbersome payment system has been an obstacle, said Devry
Boughner Vorwerk, Cargill's director of international business relations.

Cuban importers must prepay in full or use a letter of credit from a
third country, since U.S. banks are not allowed to finance agriculture
sales to Cuba. President Obama's executive order signed in mid-December
will remove some of those barriers, she said, but not all of them.

"We don't believe we can get on an equal footing with our competitors
with the executive order," Vorwerk said. "It can only take the industry
so far."

Additional changes in financing rules and lifting the trade embargo will
also be needed, she said.

A $20 million boost

Cargill and more than 25 other companies and associations will publicly
launch the U.S. Agriculture Coalition for Cuba this week. It's been in
the works for much of the past year, Vorwerk said, with the goal of
creating a sustained and viable market for ag products in Cuba.

U.S. Agriculture Secretary Tom Vilsack said last month that
re-establishing relations with Cuba will streamline ways for Cuba to buy
more American agricultural products, and that should benefit several states.

"Predictions are all over the place, but I think a conservative estimate
is that [easier financing] would add $20 million in sales from
Minnesota," said Ye. "It will not happen right away, but gradually it
will reach that level."

Dave Torgerson, executive director of the Minnesota Association of Wheat
Growers, said Cuba is one of the largest wheat markets in the Caribbean,
much of it once purchased from the U.S.

"It's a big deal," Torgerson said of further opening the Cuba market,
especially since the U.S. has a huge transportation advantage. "Out of
the Gulf, you can load ships and it wouldn't be too long of a haul," he
said.

However, retaking some of that market from competitors in South America
and Asia may not be easy, said William Messina, agricultural economist
at the University of Florida. In 2014, Cuba will import about $300
million worth of U.S. food products, he said, the lowest level in a
decade. The main reason for the decline, Messina said, is more
aggressive trading from other countries that offer easier credit and
financing.

Argentina and Brazil have become strong competitors, he said, and Brazil
is investing about $680 million to finance a major redevelopment in the
Cuban port of Mariel.

"They ponied up some very serious money," Messina said, in addition to
recent investments in Cuba's sugar industry.

Farmers have edge

Until 2009, Cuba was importing a lot of rice from the U.S., he said, but
that trade has mostly dried up as Cuba found cheaper rice and more
favorable credit terms from Thailand and Vietnam.

Doug Peterson, President of the Minnesota Farmers Union, does not
downplay the difficulty of changing financial, legal and bureaucratic
rules in both the U.S. and Cuba to facilitate more trade. But Peterson
noted that agriculture has something of a head start compared to other
sectors.

"There's been a lot of trade missions to Cuba in the past," he said.
"The ground rules or the contacts for a lot of agricultural businesses
have already been established."

Former Gov. Jesse Ventura led one of those trade missions in 2002. It
was the year after trade rules between the U.S. and Cuba were partly
liberalized, and Cuba began increasing its food purchases from the U.S.,
mostly in corn, soybeans, wheat and rice.

Those exports peaked at nearly $700 million in 2008, but have dropped to
less than half of that in recent years, much of it corn, soybeans and
frozen chicken.

Vorwerk said easier financing and an end to the embargo will not only be
good for ag exports in the short term, but should lead to Cuban economic
development in the longer term that will increase many forms of trade
with the U.S.

She is optimistic that Congress will take action to lift the trade
embargo, despite the emotional debate that surrounds the issue.

"I know Congress has a lot on its plate," she said. "But we believe the
[Cuba] story will start telling itself."

Ye said that for all the excitement about future trade, Cuba is a small
country of 11.3 million people, about twice the population of Minnesota.
And it's a poor country, with limited purchasing power, she said.

"There is market potential, yes," she said. "But the size is still small."

To illustrate, Ye noted that in 2008, the peak year for Minnesota
agricultural exports to Cuba, the trade was valued at slightly more than
$30 million, compared to $700 million in state ag exports that year to
Mexico.

"It's a modest market," said Vorwerk, referring to Cuba's population.
"But it's important and it's close, so it's a natural market."

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