Agriculture as it Used to Be: Cuba’s Natural Crops have Massive Potential in Upscale Markets

By:  Colin Gaiser, Lynx Global Intelligence

 

When the United States relaxed travel restrictions to Cuba in 2015, it was an exciting moment for those of us who were always drawn to the island by photos of surreal, pastel-colored buildings and streets lined with classic cars. And Cuba is indeed an exciting place to visit — yet beyond the famous old city of Havana is a lush 110,000 km2 island, where 30 percent of land is used for agricultural production.

Cuba’s climate could hardly be better for agriculture — lying just south of the Tropic of Cancer, Cuba has a tropical climate with temperatures moderated by year-round northeastern trade winds. It also has a predictable, May-October rainy season. And while Cuba is historically better known for tobacco and sugar, the island also grows ample amounts of coffee, potatoes, rice, numerous tropical fruits, and citrus (the island is actually the world’s third-largest producer of grapefruit).

Organic and Sustainable

Unfortunately, a combination of Castro regime policies, lack of access to fuel and supplies after Soviet Union’s collapse, and the island’s economic and political isolation have made agricultural production relatively inefficient. A lack of fertilizer and modern agricultural technology hampers yields. And while the government has turned land over to independent farmers to lease, it still requires most of them to grow food for the state.

However, there is an upside: This unique situation left Cuba’s agriculture largely organic, dominated by small-scale farms (many in urban areas) that rely on more natural methods of production. With many Americans willing to pay a premium more for organic, sustainably sourced products, Cuban agricultural products could be very attractive to the upscale market.

Plus, there is reason to believe more economic liberalization is not far off. Raúl Castro is scheduled to hand over power to Miguel Díaz-Canel, his younger vice-president, in February 2018. Díaz-Canel supports increasing internet access (currently very spotty) as well as more economic openness, which is strongly endorsed by public opinion in both Cuba and the United States.

Brewing a New Market

Coffee, in particular, is a likely beneficiary of more economic openness. Despite a drop in overall production since the 1990s, it is one of the first Cuban agricultural products accessible to American citizens within the United States.

Swiss-based Nespresso is the first company to make Cuban coffee available to Americans. Though not on store shelves yet, for a limited time one could order their Cafecito de Cuba coffee pods online or over the phone. While this is just a small step toward providing Americans the experience of drinking Cuban coffee, the thawing relationship between the two countries makes one optimistic about the possibilities of coffee on the luxury market.

In the meantime, the president of Nespresso USA, Guillaume Le Cunff, has stressed that Nespresso is interested in developing a long-term arrangement to ensure a steady supply of Cuban coffee for U.S. customers. This project would also work to improve living conditions for Cuba’s farmers. Such a combination of a novel, high-quality product along with real corporate responsibility could strike a chord in the U.S. premium market.

A Bright Future

While the timetable is unclear, Cuba seems destined to liberalize and become more economically open to the rest of the world — and when this occurs, the challenge will be to maintain the sustainable, organic quality of Cuban agricultural products. This will not just be attractive to American consumers, but also necessary to maintain the magnificent environment and biodiversity of Cuba. Both the economic and social returns on investment could be huge for companies that take on this challenge.

 

 

Sources:

https://www.nytimes.com/2016/06/22/dining/cuba-us-organic-farming.html?_r=0

https://www.usatoday.com/story/news/world/2016/06/20/cuban-coffee-sold-in-united-states-nespresso-technoserve/86117020/

http://www.economist.com/news/americas/21719812-revolutionary-economy-neither-efficient-nor-fun-what-tourist-industry-reveals-about

https://www.entrepreneur.com/article/273135

 

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Why Cuba? The Race to Havana

Let the race to Havana begin with these economic insights.

By:  Tyson Guajardo, Lynx Global Intelligence

 

Under the Obama administration, the world witnessed the restoration of diplomatic relations between Cuba and the United States following decades of mutual antagonism.  Since this historic event, U.S. Citizens have seen their restrictions on travel to the Caribbean island come tumbling down.  Individuals who fall within 12 categories previously needed to apply for a special license to visit Cuba, but are now merely required to check a box on a form, committing not to engage solely in tourist activities during their stay.  Regular commercial airline flights, cruise, ships and ferries have also been recently authorized.  Although the trade embargo remains in place, this easing of US economic sanctions on the island provides numerous investment opportunities that few dared to dream of just a few years prior.  And while President Trump has threatened to undo almost all of Obama’s executive orders pertaining to Cuba, many experts see this as an unlikely move, as it would go against an increasingly one-sided public opinion and vast commercial interests.

It would be wise for many businesses in the United States (and anywhere else for that matter) to consider the possibilities of investment in Cuba, following its trend of economic liberalization: Since Raul Castro took over for Fidel in 2008, state regulations on private enterprise have steadily decreased.  This has opened a world of new markets for outsiders.  There are numerous prospects in the industries of tourism, agriculture, energy and manufactured goods.  Moreover, Cuba is abundant in highly skilled and educated workers.  Even more compelling is the strategic port location that the island provides for several other nations in the Caribbean and the southeastern United States.  And in 2018, Raul is scheduled to step down as president, which could lead to further economic restrictions being busted wide open under his successor.  Let the race to Havana begin with these economic insights:

Tourism

Cuba is hoping to build 21 new hotels in the Cienfuegos, Trinidad, Guardalavaca, Playa Santa Lucía and Covarrubias areas.  The state companies owning existing hotels are searching for new management contracts including 19 for new hotels and 14 for those already in business.  The government entity CubaGolf intends to “promote the island as a golf-holiday destination” and is already in negotiations with numerous foreign partners to establish joint ventures for the creation of tourism-golf condo complexes.  However, in exceptionally popular locations such as urban Havana and Varadero beaches, prospects are still mostly reserved for state owned enterprises.

Agriculture 

Most land is owned by the state with only 15 percent available to private farmers and another 7 percent for farmer cooperatives.  Despite this, Cuba is looking for joint ventures in cattle, pork, and poultry production; as well as in citrus, peanuts and shrimp farming.  Additionally, Cuba is open to a partner who would be willing and able to invest $10.3 million to create a “leading brand on the international level” of premium coffee grown in specific regions of the hills in Guantánamo Province.  Other opportunities will be available in greenhouses for vegetables, hog production, soy processing, confectionary facilities, and dry yeast production.  Unfortunately, sugar will remain with heavy restrictions, as well as tobacco/cigar industries and lobster fishing & processing.

Energy

While opportunities for joint ventures in petroleum extraction onshore and offshore will be available, Cuba’s goal is to raise the percentage of electricity produced from renewable sources from the current 4 percent to 24 percent by 2030.  This means that foreign investment in hydro, biomass and solar energy is in high demand (for wind farms, Cuba will allow 100% foreign ownership!).

Manufactures

Aluminum cans are in short supply as the firms Bucanero (InBev) and Los Portales (Nestlé) are the current primary clients tasked with producing 577 million of these in joint ventures.  In tech manufacturing, Cuba wants foreign investors to help produce desktop computers and tablets.  The current annual demand is only 75,000, but this is expected to grow to around 1 million in 10 years.

 

Source: Open for Business: Building the New Cuban Economy, Richard E. Feinberg