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Wineries Eye Cuban Export Potential
Wines & Vines / December 2002

By Larry Luxner

HAVANA -- Passing by the Southcorp Wines booth at last month's U.S. food show in Havana, Cuban President Fidel Castro -- clad in a dark-blue business suit rather than his usual military fatigues -- paused to sip a glass of Seven Peaks Cabernet Sauvignon.

"Fantastico," Castro told Ignacio Melero, Southcorp's Miami-based sales director for the Caribbean and Latin America.

Melero, interviewed later that day, said while Castro's enthusiastic reaction to the California varietal won't translate into immediate sales, the very idea that U.S. wineries may now export their products to Cuba for the first time in 42 years is encouragement enough.

"We don't have great expectations," he said. "But the fact that Fidel told us we have fantastic wine is a great testament. He really did like the wine."

Southcorp was among at least half a dozen wineries and U.S. liquor companies to participate in the U.S. Food & Agribusiness Exhibition, an unprecedented event that attracted 750 executives representing 288 companies to the sprawling Pabexpo convention center just outside Havana.

The Sept. 26-30 event represented the first display of American food products in Cuba since the 1959 revolution which brought Castro to power.

Castro attended the food expo on three separate days, tasting occasional samples of everything from raisins to soyburgers -- and generating intense publicity both in Cuba and the United States.

That's because, for the past 42 years, U.S. companies have been forbidden from doing any kind of business with Cuba, and the island has been off-limits to American tourists. This is a direct result of President Kennedy's long-standing trade and travel embargo against the Communist government -- a policy vigorously supported by Cuban exiles in Miami who are opposed to trading with what they call an oppressive regime.

But under the Trade Sanctions Reform and Export Enhancement Act (TSRA), passed in 2000, the Cuban government may now import U.S. food and agricultural commodities on a cash-only basis.

Since November 2001, when Hurricane Michelle devastated Cuba's agriculture industry, the Castro government has imported over $140 million worth of U.S. products through Alimport, a unit of Cuba's Ministry of Foreign Trade, after Castro initially declared that he "wouldn't buy a single grain of American rice."

Tony de Lio, vice-president of marketing and external affairs at Archer Daniels Midland, a $20 billion conglomerate based in Decatur, Ill., says the Cuban government has changed its tune dramatically in the last year or two.

"Clearly, Alimport has indicated that they're looking to sign as many new suppliers as possible," he said. "Their agenda is to get the broadest possible support of U.S. business behind further reform that will make trading easier."

Many U.S. luxury products are already being sold at hard-currency shops in Cuba -- having been imported by various government agencies -- but they generally arrive through third countries. And that often results in outdated products, higher costs and delayed delivery.

Under TSRA, food commodities may be exported directly to Cuba through Alimport, with payment made to U.S. companies via Paribas and other French banks. The way the law is written, those exports can include wine, beer, spirits and even lumber products.

"Wine is a food product, a byproduct of the grape," says Melero. "So anything that's sourced from the land is allowable in this fair" -- and permitted to be sold to Cuba.

Yet Southcorp said products like Seven Peaks -- which would sell here for at least $30 a bottle -- are way beyond the budgets of most ordinary Cubans, who earn the equivalent of $15 to $20 a month in relatively worthless pesos.

Rather, Southcorp's wines would be targeted at Canadian and British tourists.

"Our Penfold's and Rosemount brands are phenomenally successful in Canada and England, and those countries are a big source of tourism in Cuba," said Melero, estimating North American sales at over 5 million cases and European sales at over 7 million cases -- most of it in Great Britain.

"This would be totally tourist-driven, because of the price structure," said Melero, whose company also exports 55% of Australia's fine wine production. "But if it becomes a mainstay in the tourist industry, it will eventually trickle down to the domestic consumer."

For Laurence D. Pollack, CEO of Caravelle Wine Selections, the Cuba food show marked the first time his company had ever participated in an expo outside the United States.

Pollack, whose firm is based in Avon, Conn., represents two California wineries, Burgess Cellars and Girard; Burgess sells 25,000 cases a year in the United States, and Girard sells 10,000 cases. He spent most of the five-day event pouring glasses of Burgess Chardonnay, Burgess Merlo, Burgess Zinfandel and Girard Sauvignon Blanc.

"Our prices go from $15 to $40. In Cuba, our wines will probably be sold for the same price points," he said. "Our market is the hotels and fine wine shops. There are 89 hotels in the 4- and 5-star category, and we've been talking with Alimport for quite a long time. This could be an important market for us if Cuba opens up. Even now, we're establishing important relationships."

Helping wine exporters like Melero and Pollack is the fact that tropical Cuba never had much of a domestic wine industry to speak of.

"Our wine is bitter, but it's our wine," declared Cuban independence hero JosÚ MartÝ over 100 years ago -- in a patriotic refrain long associated with Cuba's defense of national values.

Nevertheless, Cuba's fledgling wine industry is looking to improve the quality of its products, both for domestic consumption and for export.

Isabel Centelles, subdirector of the state agency Formatur, said at a press conference in Havana that she's organizing courses, workshops, meetings and lectures -- all aimed at boosting the quality of Cuban wines. "We want to develop a wine culture here, and to do that, we need high-quality products to be available on the market," she said.

Yet industry experts interviewed at the Havana food show say Centelles is dreaming.

"Cuba could never develop a good wine, because they're not in a good climate," says Melero. "Cuba is good for sugar and rum, but grapes are the wrong crop for this latitude."

Adds Pollack: "Cuba is supposedly starting to make some wine. But you don't wind up just starting out and all of a sudden selling wine. The wines we're presenting here are all very premium wines."

Richard H. Moore, international director for California's E&J Gallo Winery, said his company -- the biggest winery in the world -- currently sells 61 million cases a year and exports to 92 countries. Cuba is not among them.

"My personal opinion is that Cuban market won't be too large. I don't think the locals can afford it. But there are two million tourists coming here every year, and it's growing by 20% annually," he said. "I think it's more a market of the future, maybe a container or two per year in the beginning."

Moore, who is based in Fort Lauderdale, Fla., said he expects Gallo will retail in Cuba from $6 for a bottle of Carlo Rossi up to $27 for a Sonoma Cabernet Sauvignon.

"Right now, you can buy other California wines here in Cuba," he said, noting that at the Hotel Nacional -- considered one of Cuba's finest luxury properties -- there are two racks of California wines in the hotel's wine shop.

Stephen J. Eisenhaure, an independent broker representing Stimson Lane -- which bottles Columbia Crest and Domaine Ste-Michelle -- also hopes to get a piece of the pie.

"We're very small. We're going after Cuba's 1.75-million tourist market, which is the same size as the Virgin Islands tourist market," said Eisenhaure, who said his wines retail in the United States for anywhere from $9 to $40. "So far, the reaction here has been good. It's difficult to judge who's tasting our wines. They'll taste anything you give them."

He added: "If I sell anything in the local market, it'll be a bonus. But the hotel and restaurant business is what I'm hoping for."

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