When Raúl Castro assumed the presidency of the country in the wake of Fidel Castro's illness in 2016, one of the first priorities he established was to undertake a group of reforms to try to revitalize the agricultural sector.[i]
In 2007, the first measures were aimed at eliminating a series of obstacles that until then were a strong barrier to agricultural development. Among these measures, one of the most significant was the distribution of idle land in usufruct to individuals, cooperatives and non-agricultural state entities. The objective was to increase productive capacity, attract new labor force to the agricultural sector and transfer the investment costs to the non-state sector to start producing on formerly idle lands.
Other measures were also implemented to facilitate the sale of tools and supplies to the agricultural sector's labor force, creating specialized markets for the sale of these types of products. The government also settled outstanding debts that the agricultural procurement system had with producers and the procurement price was increased for products bought by the state.
These changes were positively received by the population. In 2008 Cuba had an agricultural area of 6,600,000 hectares of which about 1,800,000 hectares were considered to be idle lands. Over the period 2008-2011, some 1,313,396 hectares were given in usufruct to 146,816 individual usufructuaries, which accounted for 97% of the number of applications received by the Government through December 2011.[ii]
Most of the idle lands distributed in usufruct have been dedicated to livestock (53%), followed by various crops (25%), rice (8%) and other commodities such as coffee, tobacco, sugar cane and fruit trees. [iii] See Figure 1.
Cattle ranching; rice; various crops; other
Figure 1. Distribution by use of lands distributed in usufruct, 2008-2011
Source: Ministerio de Agricultura (MINAG)
At the beginning of these reforms, the lands in usufruct were granted for a term of 10 years with the possibility of being renewed for an equal period of time. In 2017, the term for the granting of the usufruct of land for all natural persons was extended to 20 years, extendable for an equal time period[i].
The distribution of land in usufruct continued to grow and by the end of 2016, 1,917,000 hectares had been distributed, representing 31% of the country's agricultural area[ii]. See Figure 2.
Figure 2. Area of lands distributed in usufruct, 2008-2016 (in hectares)
Source: Elaborated by the HCG Business Intelligence Unit based on information published in various national and international media, such as Granma, CUBADEBATE and EFE.
In 2016, land tenure by legal entities was dominated by businesses and farms, with 28% of the land, followed by Basic Agricultural Cooperatives (UBCs) with 24% and Credit and Services Cooperatives (CCSs) with 18%. See Figure 3.
Figure 3. Land tenure by legal persons, 2016
Source: Ministerio de Agricultura (MINAG)
In contrast, in that same year land tenure by natural persons was dominated by usufructuaries (287,107), who represented 68.36% of the total, followed by owners (98,797) were located for a 23.52% and the dispersed farmers (31,008) for a 7.38%. See Figure 4.
Figure 4. Land tenure by natural persons, 2016
Source: Ministerio de Agricultura (MINAG)
However, even with the growth of persons incorporated into the agricultural sector and the area of lands distributed in usufruct, agricultural production has not increased. The country continues to import 80% of the food it consumes at a cost of $ 2 billion a year. According to data from the Ministry of Agriculture, 60% of those agricultural foodstuffs bought abroad could be produced in the country.[i]
Despite the massive distribution of land, the cultivated area has decreased
According to the data published by the National Office of Statistics and Information (ONEI), the amount of cultivated land has decreased considerably in the last 6 years (2016-2011 period). Of all the agricultural product categories shown in Figure 5, the only ones with an increase in cultivated land were the cultivation of root vegetables (viandas) with 8.47% and of other fruits with 1%. The rest of the 8 product categories showed considerable decreases in the area of cultivated land. The most critical declines were in citrus products (-51.77%), cocoa (-19.04%), sugar (-13.94%), vegetables (-12.22%), cereals (-11.65%), beans (-11.65%) and tobacco (-9.86%). See Figure 5.
Figure 5. Area of cultivated land, 2011-2016
Source: Data from the Ministry of Agriculture, published by the National Office of Statistics and Information.
Note: * data in thousands of hectares (Mha)
It is noteworthy that with respect to most of the items shown in Table 5, the non-state sector is dominant in cultivated land, accounting for at least 87% for the private sector and 13% for the state sector for every product except for citrus where both sectors have 50% each. So, it can be said that the largest amount of land cultivated in the country is in the hands of the private sector.
The growth of agricultural production has been unstable
Meanwhile, agricultural production for the same period of time (2011-2016) showed unstable growth. Some product lines showed notable growth such as: sugarcane production (62.18%), cocoa (36.29%), root vegetables (25.42%), banana (21.69%) and other fruits (15.61%). More moderate growth was shown by vegetables (8.40%) and beans (2.68%). In contrast, three product lines showed decreases: citrus (-54.82%), tobacco (-1.01%) and cereals (-0.21%). See Figure 6.
Figure 6. Agricultural production, 2011-2016
Source: Data from the Ministry of Agriculture, published by the National Office of Statistics and Information.
Note: * data in millions of metric tons (MMt)
However, in 2016, production grew with respect to most of the products in Figure 6, except for tobacco and vegetables, which decreased by 19.59% and 1.01% respectively.
Undoubtedly, in the last 7 years, remarkable changes have been made in the agricultural sector. However, the performance of the sector has not taken off. There have been major setbacks in the private sector, for example with limitations on door-to-door sellers, the price cap on a group of agricultural products, the high prices on the sale of tools and inputs for farmers in the specialized markets for such sales and the high rate of crop losses in the field.
Recently, a report by MUNDOBAT, a Non-Governmental Development Organization (NGDO) based in the Basque Country collaborating with Cuban institutions, stated that 57% of the crops in the field were lost because they were not collected on time.[i] The most recent case was the loss of 2,600 tons of mangoes from the last harvest in the province of Guantánamo.[ii]
There are still many structural problems that constitute barriers that prevent accelerated and sustainable development of the agricultural sector. Among the main problems that exist today are the following:
- Limitations in productive activity due to the low prices at which the state forces private sector actors to sell their output to the state procurement body ACOPIO.
- Absence of a free market based on the laws of supply and demand.
- ACOPIO deficiencies in for the collection, storage and adequate distribution of products.
- Absence of a private wholesale distribution market.
- Lack of infrastructure to store and preserve agricultural products.
- Price controls by the state.
- Limitations on private distribution activity.
Does foreign investment change the dynamics in the agricultural sector?
Currently, Cuban agriculture illustrates a contradiction between those segments that in the last 20 years have been a failure in terms of performance and those that have been successful, which show that policies designed for their development are not consistent with the construction of an efficient and homogeneous system that allows the sustained development of their respective infrastructures. Undoubtedly, the barriers that exist today on the part of the state in its desire to control the commercialization and centralize the distribution of products constitute one of the main policy errors that have caused the debacle in Cuban agriculture.
However, a policy that has been positive and successful has been the one that has been applied to the tobacco industry. Within that industry there are two segments that are successful today: the export of cigars and the production of cigarettes for the local market and export.
The Cuban tobacco industry is fully regulated and directed by Grupo Empresarial TABACUBA, created in 2000. This group controls the production and commercialization of Cuban tobacco both in the domestic market and for export. Its corporate structure is comprised of 45 companies: 15 of them agricultural, 6 agro-business, 9 producing hand-rolled (Premium) cigars, 4 producing cigarettes, and 6 handling services and commercialization.
In addition, the group has 3 joint ventures (Habanos S.A.; Internacional Cubana de Tabaco S.A. and Brascuba S.A.), a mercantile company, and a research institute with 3 research stations. In all, the group runs 96 cigar-rolling factories, of which 46 are exclusively dedicated to producing cigars for export. Of these, 9 produce Premium cigars. TABACUBA has a factory for machine-made cigars for export and domestic sale, as well as a plant producing cigarettes for domestic and export sale. It also has an additional 4 factories whose production is only for the domestic market. In its cigar processing structure, the group has more than 250 sorting centers where tobacco leaf is classified by quality from “filler” leaf to “wrapper” leaf, 40 tobacco leaf treatment centers, and more than 60 stripping houses, where the inner stems and veins of the leaf are removed, depending on whether the leaf will be used as filler, binder or outside wrapper. On the agricultural side, more than 600 productive units participate in the group -- 20 of them state-run and the rest either cooperative- or privately-owned – that employ around 200,000 people.
What has been the key to success? Both segments (cigars and cigarettes) are managed by joint ventures with foreign transnationals, which are in charge of controlling investments, the introduction of modern technology, and distribution and marketing of the final product, in addition to being responsible for doing all the marketing of the design of products, brands and advertising.
The case of Habanos S.A.
Habanos S.A. is a joint venture owned by the Imperial Tobacco English consortium and the Cuban company TABACUBA. Habanos S.A., is the world leader in the sale of premium tobacco with 70% of the world market (excluding the United States market). See Figure 7.
Figure 7. Global sales distribution of premium tobacco, excluding the North American market, 2016
Source: Havana Consulting Group, based on the information gathered from press reports and data published by Habanos S.A.
The leadership position of Habanos S.A. is a function of the high quality of the 27 brands of cigars currently marketed by the company, its sophisticated distribution network and its well-appointed franchises around the world: the lavish CASA DEL HABANO, with its 152 stores present on all continents, and a new network of outlets, COHIBA ATMOSPHERE FRANCHAISE, already operating in 6 important cities across the globe.[i]
In the last 16 years, the company's sales have had a high growth, increasing from 231 million dollars in 2000 to 445 million dollars in 2016, undoubtedly a strong indicator that the company has had sustained growth in international markets. See Figure 8.
Figure 8. Sales of Habanos S.A. (millions of dollars), 2000-2016
Source: Havana Consulting Group, based on information gathered from press reports and data published by Habanos S.A.
Undoubtedly the performance success of this company starts from the harvest in the field and goes to the final commercialization of the products in specialized stores following the franchise format. The company has been able to create an excellent production-marketing cycle, in all its value chain from the hands of producer to those of the final consumer.
The case of BrasCuba S.A.
BrasCuba was created in April 1995, as a joint venture between the company TABACUBA of the Ministry of Agriculture and the Brazilian consortium Souza Cruz, which controls 80% of the cigarette market in Brazil.
BrasCuba has become the leading company in the commercialization of cigarettes in the Cuban market, where its brands are present in more than 7,000 points of sale in all the units of the retail chains that operate in the country.
The company has its own distribution system that allows it to have the Cuban market fully supplied throughout the year.
Currently the demand of Brascuba S.A. products is greater than its productive capacity. The company has to grow to be able to face new international markets and continue to satisfy those already existing, plus national demand.
The company currently produces 3.8 billion cigarettes a year in a growing market. For this reason, investments worth 100 million dollars have been made to increase production in the Mariel Special Development Zone (ZEDM), which is expected to be about 8 billion once when the new factory begins to produce.
Its product portfolio is made up of exquisite brands such as Popular, Cohiba, H Upmann, Vega, H Upmann Selecto, Lucky Strike and Hollywood, which have different varieties and formats. All of them are sold in dozens of nations and have been distinguished, mostly, with Gold Medals for Quality. Such is its success, that in the last nine years it has broken its own record of production and commercialization.
But, Brascuba has not only taken the pulse of the market with its offers of brands with a strong flavor of Cuban black tobacco. The version of the Popular fresco, well regarded in the Cuban market, has also been successful, so much that domestic demand has grown a lot in recent years due to the growth of purchasing power and the increase in tourism. In addition, the version of the brand Cohiba Predilecto (40% of black tobacco) for export and a new version launched on the Cohiba White market has been successful too.
From its creation, BRASCUBA has exported cigarettes to 58 countries in four continents through 110 customers. Currently, its products are sold in markets as diverse as Spain, Brazil, Mexico, Russia, Japan, Hong Kong, Egypt, South Africa and Dubai, among others. In the last two decades the profits contributed by the export of cigarettes for both TABACUBA and Souza Cruz has been more than 50 million dollars.
Unquestionably, the company has been successful in the current context of the Cuban market. It has managed to become a leader in the domestic market, export its products to dozens of countries, create its own distribution system, assume responsibility for production, the introduction of modern technology, marketing and advertising of its brands, and investing in doubling production.
Conclusions
Within today's Cuban agriculture there are systems that differ in their structural schemes of work and their results. Even though most of the cultivated land is in the hands of non-state actors, there are very strong barriers that prevent development in most of the segments that make up the agricultural sector.
After 7 years of reforms in the agriculture sector, the Cuban state continues to spend around 2 billion dollars to import food, a clear signal that the measures adopted so far in the reforms are insufficient.
However, in the current model of Cuban agriculture, where there is presence of foreign investment, the results are different in the segments where it does not exist. This experience dates back 20 years. It is striking that the methods applied to the tobacco industry have not been replicated in other segments within the same Cuban agricultural sector.
Despite the distribution of more than 1.97 million hectares of land to usufructuaries in the last 9 years, most of these new farmers do not feel ownership of the output they produce. The rules imposed by the government to regulate production, distribution and marketing of the products they produce are not designed to create a market driven by free supply and demand. There are also no credit opportunities that allow an update of the technology in cultivation techniques, or the possibility that the natural persons of the existing non-state sector may associate with foreign companies.
Therefore, until these bottlenecks are resolved, Cuban agriculture will remain bogged down in its inefficiency and primitive strategies. Meanwhile, at least there is the alternative of trying to replicate in other agricultural sectors the successful formula that the tobacco industry has used. Why the Cuban government has not done it so far is a great mystery.
References
[i] Morales, Emilio. “USA, the forbidden apple of Habanos S.A., waiting for the big bite”. THCG Business Report. August No. 4, 2017. THCG and Tech LLC.
[i] MUNDOBAT. “Articulación e Integración de la producción agropecuaria de bases campesinas y cooperativas, para mejorar la eficiencia de la cadena de valor y el abastecimiento de alimentos en Cuba”. Mayo 2017. http://www.mundubat.org/tdr-evaluacion-en-cuba-del-proyecto-articulacion-e-integracion-de-la-produccion-agropecuaria-de-bases-campesinas-y-cooperativas-para-mejorar-la-eficiencia-de-la-cadena-de-valor-y-el-abastecimi/
[ii] Cuba Labaut , Julio César. “La ineficiencia se “come” los mangos en Guantánamo”. CUBADEBATE. Julio 2017. http://www.cubadebate.cu/especiales/2017/07/17/la-pudricion-se-come-los-mangos-en-guantanamo-video/#.Wghr2LpFw0s
[i] EFE. “Cuba planea un precio máximo a productos agrícolas para frenar el encarecimiento”. Enero 2016. https://www.efe.com/efe/america/economia/cuba-planea-un-precio-maximo-a-productos-agricolas-para-frenar-el-encarecimiento/20000011-2820398
[i] Doimeadios Gerrero, Dianet. “Cuba modifica política para la entrega de tierras en usufructo”. CUBADEBATE. Agosto 2017. https://mail.yahoo.com/d/folders/1
[ii] Puig Meneses, Yaima. “Analizó Consejo de Ministros el desempeño de la economía en el primer semestre del año”. Granma. Junio 2017. http://www.granma.cu/cuba/2017-06-29/analizo-consejo-de-ministros-el-desempeno-de-la-economia-en-el-primer-semestre-del-ano-29-06-2017-23-06-48
[i] Perez-Lopez, Jorge. “Cuban agriculture continues to lag”. THCG Business Report. June No. 3, 2016. THCG and Tech LLC.
[ii] EFE. “Gobierno cubano entregó 1,3 millones hectáreas tierras ociosas en usufructo”. Octubre 2011. Investing.com. https://es.investing.com/news/noticias-forex/gobierno-cubano-entreg%C3%B3-1,3-millones-hect%C3%A1reas-tierras-ociosas-en-usufructo-110720
[iii] CUBADEBATE. “Entregado en usufructo el 63 por ciento de las tierras ociosas en Cuba”. Abril 2011. http://www.cubadebate.cu/noticias/2011/04/17/entregado-en-usufructo-el-63-por-ciento-de-las-tierras-ociosas-en-cuba/#.WgcWdbpFw0s
