ESTABLISHMENT of normal trade relations with Cuba is likely to have both short-term and long-term effects on U.S.-Cuba agricultural trade, according to a new U.S. Department of Agriculture report.

The USDA Economic Research Service report — "U.S.-Cuba Agricultural Trade: Past, Present & Possible Future" — discusses the potential to foster additional growth in U.S.-Cuba agricultural trade, with the possibility of establishing a more normal economic relationship with Cuba.

Prior to the Cuban Revolution of 1959, bilateral agricultural trade between Cuba and the U.S. featured large volumes of products. In 2000, the U.S. economic embargo on Cuba was loosened to allow exports of agricultural products to Cuba. As a result, the U.S. soon became Cuba's leading supplier of imported agricultural products.

However, the prohibitions on issuing credit to Cuba remained in place, which gave other exporting countries a competitive advantage in the Cuban market and led to the U.S. slipping to Cuba's second-place supplier in 2013. By 2014, the U.S. had slipped further to third place.

U.S. agricultural exports to Cuba averaged $365 million per year during 2012-14 (Figure). Exports are heavily concentrated in four basic commodities: Chicken meat, corn, soybean meal and soybeans accounted for 84% of total exports by value during this period.

Cuba's total agricultural imports have been trending upward over the past decade, increasing 94% between 2004 and 2014. The value of these imports was unusually large in 2008 — $2.1 billion —  due partly to high commodity prices.

The unit values of each of the top five U.S. agricultural exports to Cuba — fresh or frozen chicken, corn, wheat, soybeans and soybean meal — increased by at least 67% between 2006 and 2008.

The report points out that, if a more normal economic relationship between the two countries was in place, Cuba could resume exporting agricultural products to the U.S., while U.S. agricultural exporters would be able to develop commercial ties in Cuba that approximate their business relationships in other parts of the world.

Restrictions on terms of payment and financing are a major inhibitor of U.S. agricultural exports to Cuba. Executive actions announced in December 2014 are a small step toward establishing normal trade relations between Cuba and the U.S.

Even the short-term effects of establishing normal trade relations with Cuba are potentially large for U.S. agricultural exports, the report says.

Partial equilibrium models suggest that if all U.S. financing and travel restrictions had been eliminated in 2006, U.S. agricultural exports to Cuba would have increased from $321 million to roughly $550 million.

However, the authors of the cited study cautioned against summing the partial equilibrium results for each commodity to obtain the total effect of removing restrictions, since their models do not take into account cross-commodity substitutions.

A separate analysis by Rosson et al. (2010) using an input/output model indicated that U.S. exports to Cuba would have increased by as much as $365 million per year if U.S. financing and travel restrictions were removed, including some $327 million in additional agricultural exports, as defined by USDA.

"Over the long term, fostering growth in U.S.-Cuba agricultural trade hinges on building a founda­tion for a two-way relationship in trade and investment and then creating the trust to sustain that relationship," the USDA report states. "For agricultural trade, that foundation does not yet exist as of now. Over the next 15 years, the challenge will be to provide more balanced opportunities for U.S.-Cuba agricultural trade and to continue to build U.S. and Cuban confidence in the emerging commercial relationship."

Volume:87 Issue:d2