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August 1, 2010
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No Cigar, But Close?

Despite enormous potential, Cuba remains a tough nut to crack for Kentucky exporters

By Larry Luxner

A Cuban tobacco farmer uses traditional techniques on his crop in this 2004 image.

Back in 2002, after a two-hour meeting in Havana with Fidel Castro, Kentucky’s then-Agriculture Commissioner Billy Ray Smith – in a rush of enthusiasm – predicted Cuba’s 11 million citizens would soon be eating Kentucky-raised buffalo steaks, washing them down with soft drinks bottled in the Bluegrass State and occasionally smoking cigarettes blended with Kentucky-grown burley tobacco.

“We feel like this is just the beginning of a mutually beneficial relationship between Kentucky and Cuba,” Smith said after signing a $7 million trade accord with Pedro Alvarez, chairman of Cuban state food purchasing agency Alimport. “The Cuban people need food products of all kinds, and Kentucky producers are looking for new markets. We are thrilled that the Kentucky Department of Agriculture was able to play a role in making this agreement a reality.”

The reality eight years later, though, is that Kentucky exports to Cuba don’t amount to a hill of frijoles – a consequence of bureaucratic obstacles on both sides of the Florida Strait, and Washington’s continuing prohibition against most U.S. travel to the communist island.

Recent action in Congress has created a buzz that long-time trade barriers could be coming down. For now, however, it remains hard to get there from here.
“Cuba’s not a target for us,” said John Waugh, vice-president of marketing at Louisville-based Phoenix Process Equipment Co., which manufactures water treatment systems. “We’d put many other priorities way ahead of Cuba, such as the U.S. domestic market, South America, Australia, Canada, Mexico and South Africa. In time, we might develop an interest, but right now, spending resources on Cuba wouldn’t be prudent.”

Since 1962, Cuba has been under U.S. government embargo, which squeezed off virtually all trade between the two countries and forced the Castro regime to import wheat from Canada, grapes from Chile and rice from Vietnam.

Then, in 2000, Hurricane Michelle devastated Cuba. In response, Congress passed a an embargo loophole known as the Trade Sanctions Reform and Export Enhancement Act. Under TSRA, U.S. companies may ship food and agricultural commodities to Cuba, provided they’re paid in cash up-front and transactions are not handled by U.S. banks.

Half a dozen commonwealth exporters attended a U.S. food exhibition in Havana in 2002, hoping to cash in on growing one-way trade to Cuba. And for six years, annual U.S. exports to Cuba skyrocketed – from $256.9 million in 2003 to $710 million in 2008 – dominated by basic commodities like poultry, corn, wheat, soybeans, pork, beans and turkey.

Last year, increasingly cash-strapped Cuba slashed U.S. food imports 26 percent to $528.5 million. Indications are they continue to fall. During the first five months of 2010, said the U.S. Commerce Department, food shipments to Cuba came to $182.3 million — a 35 percent drop from $278.2 million reported the same period in 2009.

LaGrange-based Northland Corp., which sells hardwood lumber, has pursued Cuban business without luck.

“I think there are some definite opportunities, but I tried pursuing some leads for a year and a half after the [2002] exhibition, and for whatever reason I wasn’t able to get anything done,” said Orn E. Gudmudsson Jr., Northland’s export manager. “But that has more to do with the cumbersome process in Cuba than a lack of interest. Personally, I don’t find the U.S. regulations that cumbersome. The complicated part is having to go through Alimport, which just adds another layer to the negotiations.”

Roger Quarles, president of the Burley Tobacco Growers Cooperative in Lexington, participated in the 2002 Kentucky trade mission. Despite the hype, he said, it amounted to nothing.

“Back when we did that trip, we were still under the old government price-support program that allowed us to sell tobacco at a discount,” he said. “We can no longer do that. We had hoped we could make subsidized sales to Cuba, but that’s gone, never to return.”

Quarles added that “there are plenty of opportunities for Kentucky to sell corn, soybeans and soft drinks to Cuba, but not tobacco. We have no information to support any hopes that we could directly export American leaf to Cuba.”

Mike Ammerman, vice-president of Farmers Tobacco Co. of Cynthiana, added, “They invited us to go, and then we found out we couldn’t sell our products down there. You could only sell tobacco in the raw form, not in the manufactured form.”

Another Kentucky businessman who was also part of the 2002 delegation said “we’re going nowhere,” despite seven years of pursuing trade deals with Alimport.

Kirk Williams, vice president of Glasgow-based Bluegrass Dairy & Food, said although “no one’s been able to make any progress” in trading with Cuba, “we’re excited if opportunity arises in the future for Kentucky farmers and food manufacturers.”

Recent action raises hope
There is hope for Kentucky exporters. Current legislation in Congress would remove the onerous restrictions that govern U.S. companies’ sales to Cuba. In late June, the House Agriculture Committee voted 25-20 to approve HR 4645, the Travel Restriction Reform and Export Enhancement Act. A bipartisan bill by U.S. Reps. Collin Peterson, D-Minn., and Jerry Moran, R-Kansas, it is backed by 140 groups, including the American Farm Bureau Federation, the U.S. Chamber of Commerce and Human Rights Watch.

“I am proud to say that today, the House Agriculture Committee took a courageous vote to end the short-sighted and failed policy that limits American agriculture’s access to the Cuban market,” Peterson said June 30. “An unprecedented coalition of agriculture, business, religious and social organizations have endorsed H.R. 4645, and today’s vote demonstrates that Congress is ready to change our nation’s approach on this issue.”

A March 2010 study by Texas A&M University showed that easing U.S. farm export restrictions to Cuba and lifting the travel ban would spark $365 million in sales of U.S. goods and create 6,000 new U.S. jobs, leading to an economic impact of $1.1 billion.

House ag panel passage of HR 4645 was “a huge move forward,” Lisa Simon, president of the Lexington-based National Tour Association, said. But supporters still face an uphill battle in getting it through both houses of Congress.

“We’ve called on Kentucky legislators locally and in Washington. We’ve been working hard to persuade them to be co-sponsors,” she said in late July, noting that NTA is specifically lobbying the Travel and Tourism Caucus headed by Rep. Sam Barr, D-Calif., as well as North Dakota Democrat Byron Dorgan in the Senate.

Yet it won’t be an easy sell. The U.S.-Cuba Democracy Political Action Committee has given $10.8 million to nearly 400 candidates and members of Congress, including more than $850,000 to 53 House Democrats who late last year sent a letter to House Speaker Nancy Pelosi opposing any change in U.S. policy toward Cuba, according to Public Campaign, a Washington nonprofit organization that focuses on campaign reform.

At least 18 House members – including some from farm districts – received campaign contributions from pro-embargo groups and switched their positions on Cuba, according to Public Campaign. One of them was U.S. Rep. Ed Whitfield, a Republican from Hopkinsville, Ky., who through June 2004 had voted to repeal the travel ban and make it easier to sell agricultural commodities to Cuba.

Embargo supporters have contributed $12,000 to Whitfield, and now he votes consistently to uphold Cuba sanctions. The congressman’s spokeswoman, Kristin Walker, recently told McClatchy Newspapers that the $12,000 her boss received from the anti-Castro PAC represents only 0.03 percent of all campaign funds raised over the past three election cycles.

“Obviously, U.S.-Cuban relations remain quite fluid and ever-changing,” Walker said. “It is pretty common practice for PACs to donate to candidates who have taken a similar position on a particular issue, so the fact that the congressman has received contributions from the U.S.-Cuba Democracy PAC is not out of the ordinary.”

Despite continuing opposition from lawmakers like Whitfield and especially those representing the powerful Cuban exile community in South Florida, Simon – whose NTA represents 700 tour operators in the United States and Canada – said the travel ban cannot endure forever. And once it’s lifted, she predicted, between 800,000 and 1 million Americans will visit Cuba the first year alone.

“The travel ban has not been an effective policy to change the regime in Cuba.
So why should we continue a policy that hasn’t worked?” she said. “Human rights organizations support the opening of travel to Cuba. They feel it will have a positive influence on the Cuban people, because they’ll be more exposed to Americans and democracy. It’s also going to help generate revenues and jobs for cruise-ship companies, airlines, travel agencies and hotel chains — and in this economy, that’s something we’re all interested in.”

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