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Cuba seeks foreign investment in neglected coffee industry
The Tea & Coffee Trade Journal / August 1995

By Larry Luxner

Cuba -- which for years has built its economy around sugar, nickel and citrus exports -- could one day supply Maxwell House, Folger's and Nestle with coffee, if and when the United States lifts its trade embargo against the Communist nation.

At a recent conference in New York entitled "Preparing for Prosperity in the New Cuba," U.S. executives and top Cuban officials gathered to discuss the island's prospects for economic development, as well as a foreign-investment law now under consideration that would allow investors to own up to 100% of a joint venture, and could even let foreign companies choose their Cuban employees and pay them directly in U.S. dollars.

The last provision, however, is subject to intense debate within Cuba because it would create a two-tier economy in which some Cubans working for foreign companies would earn dollar incomes worth far more than those of other Cubans working for state companies and earning pesos.

Currently, foreigners may own up to 49% of joint ventures, and must hire workers through state employment agencies. The companies pay their workers' salaries in dollars to the agencies, which pay the employees in pesos and pocket the difference. Recent such ventures include France's Pernod Ricard Group, which teamed up with Cuba's Ron & Licores S.A. in November 1993 to market and distribute Cuban rum worldwide, and at least a dozen Spanish and Canadian hotel chains which have hotel construction ventures with Cubanacan and other government tourist agencies.

"Under the new law, the foreign partner could have 100%, and companies would be able to hire employees directly, without going through Cubalse or any government agency. But we have to avoid creating social problems," said Ismael Sene, a top official of Cuba's Ministry of Foreign Investment, interviewed during the New York conference.

In the past 13 months, Sene revealed, his office has received visits from 212 U.S. companies interested in making investments in Cuba -- including eight of the top 15 Fortune 500 firms. But he refused to identify the companies for fear of causing friction between them and the Miami-based Cuban exile community, which strongly opposes any U.S. or foreign investment in Cuba until the Castro regime is overthrown.

In the agribusiness sector, the exiles don't have much to worry about for the moment. Foreign investment is limited to citrus -- where Israeli, Chilean, Greek and British firms have invested more than $50 million to improve the quality of Cuban oranges and grapefruits -- and, to a lesser extent, tobacco. Foreign investment has still yet to make a difference for Cuba's struggling sugar industry, which this year is bracing for its smallest crop in 50 years. Yet things could change rapidly with a warming of U.S.-Cuban ties.

"Agriculture is the key to the Cuban economy," said William Messina, executive coordinator of the University of Florida's International Agricultural Trade and Development Center. "Tourism is growing by leaps and bounds, but it still represents only 10% of the economy."

Messina said three recent developments offer short-term hope for Cuba's agribusiness future, even without a lifting of the U.S. embargo: the October 1994 decision to abolish state farms in favor of smaller cooperatives, the long-awaited reopening of farmers' markets, and the welcoming of foreign investment into all sectors of agribusiness, including the once-sacred sugar industry.

"Farmers markets are designed to allow farmers to sell surplus, over and above their quotas," said Messina. "But we understand that the quotas are not being met. So we don't know if that's really an increase, or just a reshuffling of production."

On Cuba's overall potential, he said, "we know the embargo won't last forever, and there's a very good possibility that once the embargo is lifted, it will have more of an impact on U.S. agriculture than all the nations of the Caribbean Basin Initiative."

In the coffee sector, however, foreign investment is almost non-existent, and most of Cuba's production remains in the hands of three state entities: the Cooperativa de Producción Agraria (CPA), the Cooperativa de Caña y Servicios (CCS) and the Unidades Basicas de Producción Cooperativa (UBPC).

As of August 1994, according to government statistics, about 361,000 acres of Cuban farmland were dedicated to coffee, of which state-run farms account for 26%, the CPA 18%, the CCS 31% and the UBPC 25%.

Coffee was introduced into Cuba in the early 19th century by French planters fleeing from Haiti and by others who emigrated from Louisiana, bringing with them coffee seeds from their homeland. By 1790, Cuba was already exporting 185,000 quintales a year to Spain. By 1827, there were 2,067 coffee plantations in production. By 1877, this number had dropped to 192, partly because of the battle for independence against Spain. But by 1895, production was once again up, and in that year, 153,800 quintales were exported.

Today, Cuba's coffee plantations are located mainly in three regions. In western Cuba, coffee grows in the Guaniguanico mountain range in Pinar del Río province. In central Cuba, plantations can be found in the Guamuhaya mountains extending over the provinces of Villa Clara, Cienfuegos and Sancti Spîritus. In the eastern region -- the most important -- coffee is found in the Sierra Maestra, in the provinces of Santiago de Cuba and Granma, and in the high altitudes of the Sagua-Baracoa range that extends through the provinces of Guantánamo and Holguín.

Cuban coffees are classified as Crystal Mountain, Extraturquino, Turquino, Altura, Montaña, Cumbre, Serrano superior, Serrano corriente and Caracolillo (oval-shaped). The finest of these is Crystal Mountain, which is now being sold on the Japanese market.

Although Cuba has shipped up to 12,000 tons of coffee annually in the past, total exports in 1994 came to just 9,200 tons, according to the state agency Cubaexport, which handles such trade. The main reason for the export decline has been the need to maintain supplies for domestic consumption. According to Cubaexport, this is guaranteed in part by mixing the local producted with the imported type, Robusta, which sells on the world market for considerably less than the Arabica variety that Cuba reserves for export.

In addition to Cubaexport, two other marketing firms are involved in the Cuban coffee trade: Kave-Coffee, which markets the Cubita brand within Cuba for sale to foreign tourists and in hard-currency stores, and Hola, which has been known in the Cuban market for many years.

"There is no doubt that an expansion of sales of Cuban coffee on the international market will act as a stimulus to its cultivation and production," according to the government publication Business Tips on Cuba. "Another incentive could be external financing of coffee production to facilitate acquisition of fertilizers, fuels, herbicides and provisions. Cuba possesses the modern technology necessary to guarantee the agricultural and industrial processing of its coffee for export."

At the moment, Japan and France account for 70-80% of Cuba's coffee exports. Cubita may soon also find its way into Canada, if entrepreneur Thomas Hinds has his way.

"Coffee is hot," Hinds told the monthly newsletter CubaNews recently. He said that since opening his storefront office last year, he's sold 15 tons of Cuban coffee from his small shop in midtown Toronto. Hinds, who has experience in the Cuban tobacco industry and has exclusive Canadian distribution rights to Cubita, sells the coffee in one-pound, half-pound and one-kilo bags. What he really wants to do, however, is turn his showroom into a sit-down Cubita cafe, like the ones in Old Havana.

Unfortunately, such a business deal would be unthinkable in the United States at the moment, given the U.S. trade embargo against Cuba enacted 33 years ago by President Kennedy. It may become even more of an impossibility if a bill proposed by Sen. Jesse Helms (R-North Carolina) becomes law -- as many Cuba-watchers expect it to in one form or another.

This so-called Helms bill would pose a "substantial obstacle" to normalization of relations between the United States and Cuba, warns New York attorney Michael Krinsky, who is considered an expert on Cuban legal issues.

"It's a wide-ranging bill that attempts to hurt Cuba and internationalize the embargo," he said. "At its core is the expropriation of property owned by Cubans in the early days of the revolution. For those people, the Helms bill would establish the possibility of bringing lawsuits in U.S. courts against any person who trafficks in their expropriated property. This would include investing in a business, buying the property or buying or selling in goods produced in expropriated factories."

That means a Cuban exile now living in Miami could, for instance, use the U.S. court system to sue any person -- American or otherwise -- who invested in Cuban coffee land. By the same token, a company like Lone Star Cement of Connecticut would be within its rights to sue the Mexican conglomerate Cemex -- which recently bought a controlling interest in a Lone Star cement factory that was confiscated by the Cuban government in 1960.

Krinsky said that even if the Clinton administration drops the embargo -- and even if Fidel Castro were overthrown tomorrow -- normal relations following passage of the Helms bill would still be impossible until all claims between former Cuban citizens and the Cuban government were settled. That would essentially involve "a reversal of the revolution and a return to the state of affairs in 1958, something the Cuban government is not prepared to do."

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