Cracks in the Cuban Embargo

Jan. 12, 2015

With U.S. food companies and agriculture groups standing up for normalized trade relations, Cuba could emerge as an attractive market for processed foods.

The dust had barely settled from President Obama’s Dec. 18 announcement of a policy shift in U.S.-Cuba relationships when the U.S. Agriculture Coalition for Cuba (USACC) kicked up a Latin storm Jan. 8 with its call for normalized trade relations with the Caribbean island-nation.

Within days, several organizations had joined USACC, with inquiries from food processors likely to boost membership beyond the current count of 38, according to Paul Johnson, vice chairman of USACC, along with Devry Boughner Vorwerk, director-international business relations at Cargill Inc. Smithfield Foods also is a coalition member.

The U.S.’s Cuba trade embargo began in 1963, and Congress passed legislation in 1996 making the ban permanent. But cracks began to appear as early as 2000 with passage of the Trade Sanctions Reform and Export Enhancement Act, which opened the market to food and medicine exports. Last year, that represented $300 million in business for U.S. firms, according to Johnson, who also is president of Chicago Foods International LLC, a logistics supplier formed in 2008 to facilitate the sale, marketing and distribution of U.S.-made products in Cuba. Canned foods, peanut butter and RTE cereal are among the 150 finished goods that Johnson’s firm currently exports.

This year, Cuba has budgeted $2.14 billion for food imports, but U.S. suppliers are receiving a declining portion of the pie because European companies are able to offer credit, while U.S. sales are cash-only. Johnson is lobbying U.S. senators to craft bipartisan legislation that would open the door to financial credits for U.S. exports. He’s also putting together a “learning journey” to Cuba in the coming months to “put farmers and politicians together.” He’s soliciting support from state agricultural departments and farm groups for the initiative, as well.

“We are pushing for a complete end of the embargo,” Johnson says, including eliminating restrictions on travel and immigration. But food—both packaged goods and bulk commodities such as rice, wheat, soybeans and frozen chicken—are the group’s primary focus. “There’s a lot of momentum,” he adds. “We’ve already seen bipartisan support.”

A gradual normalization of relations with Cuba is likely, with changes occurring in fits and starts, but Johnson is optimistic momentum will build in the next few years. He expects U.S.-Cuba relations to be a hot button issue in 2016 presidential campaigns, and support in agricultural states like Iowa will pose a risk for candidates advocating a continuation of current policies. When Raul Castro’s current term of president end in 2018, he will be 87, making a changing in the old guard likely.

Johnson was a founder of the Illinois Cuba Working Group, which organized a trip to the island in November and represents a continuation of the state’s efforts to open Cuba to soybeans and other agricultural product that trace to 1999, when former Gov. George Ryan organized a trade mission there. “A lot came from that encounter,” says Johnson. “Illinois really leveraged it to push for passage of the Trade Sanctions Reform Act.” The USACC was patterned after the state group when it was founded in May 2014.

Cuba has a population of 11 million, approximately the same as Illinois, and it imports an estimated 80 percent of the foods consumed. With a middle class starting to emerge and the prospects for more American tourists increasing, Johnson foresees a receptive market for U.S.-made food products. The country has the potential to be the top export market for U.S. rice, which hasn’t been exported to Cuba since 2008.

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