AZCUBA: Sugar for Growth?

Daisy Valera

HAVANA TIMES — It would seem the issue of Cuba’s sugar industry is caught up in an endless process marked by intermittent stages of silence and controversy. As of the close of November last year, with the start of the 2013-2014 harvest, we appear to be entering a boisterous, propagandistic period.

Officials of course kept quiet in 2010, when the production of the sweetener reached an all-time low. There’s also been no mention of the fact Cuba has had to import sugar from countries like Colombia to cover the island’s minimal internal demand of around 9,000 tons of the product.

Luckily, the catastrophic harvest of 1970, which promised to amass 10 million tons of sugar (when it was known the country’s sugar refineries had an overall processing capacity of only 7.5 million), is a bitter memory that imposes quotas of moderation on official pronouncements.

Though the times of massive mobilizations are apparently behind us, the government has not yet renounced its triumphalist publicity: some days ago, Cuba’s official newspaper Granma trumpeted that the Argeo Martinez sugar mill in Guantanamo had achieved an industrial yield (sugar per cane) of 10.80, surpassing the planned 8.49 and evincing an upward trend.

It also does not seem accidental that Havana’s Ruben Martinez Villena Gallery should be holding a nostalgic exhibition titled Azucar (“sugar”) from January 15 through February, displaying propaganda posters from the 70s and 80s. In the posters, we read such phrases as “Leave no stem on the sugarcane, leave no sugarcane on the stem” or “Sugar for Growth.”

AZCUBA, the Cuban company directly subordinate to the Council of Ministers which replaced the Ministry of Sugar (MINAZ) in 2011, is being called on to lift sugarcane output and raw sugar production off the ground.

To ensure the economic sustainability of the industry, once the country’s locomotive, officials are now laying their bets on its diversification and its potential for energy generation and ethanol production.

Even if it manages to develop such projects successfully, AZCUBA will still be facing significant obstacles.

During the sugar industry re-sizing of 2003, Cuba dismantled or sold as scrap metal half of the 110 mills that were still in operation in the year 2000. Today, there are only 49 in operation, most of them using obsolete equipment and machinery.

The destruction of these mill complexes condemned thousands of workers and farmers, many with decades of experience in the industry, to a permanent “dead time.” Now, re-inserting a great many of these workers (many of whom are currently employed in other sectors) into the industry becomes nearly indispensible.

In addition, Cuba’s current sugarcane yield barely exceeds that of 40 tons per hectare, while the international average is approximately 60 tons per hectare. Given the poor quality of Cuba’s cultivable lands (in 2009, Ministry of Agriculture experts reported that more than 70 % of these lands had low fertility levels), it does not seem that this situation will improve in the short term.

Then there’s the money paid cane growers per pound of raw sugar for export made from their harvests: a mere 2 cents the pound, when the international average is over 16. Such remuneration, needless to say, does not even remotely meet expectations.

The goal set for this year’s harvest is 1.8 million tons of sugar, a figure that would have been a joke 30 years ago (and could well prove unreachable today).

The management of AZCUBA does, at least, appear to understand that the overhaul of a few trucks used to take sugarcane to the mills or the purchase of some harvesters are very shy measures.

AZCUBA, born of Cuba’s recent economic reforms, is a company leaning towards the privatization of the sector, in ways that would have been unthinkable for its predecessor, the Ministry of Sugar. Currently, it is renting out the Cienfuegos’ 5 de septiembre complex to Odebrecht, a Brazilian conglomerate.

If such a trend continues, it may soon make it impossible for the official discourse to continue to refer to the fact that, before 1959, 34 percent of the sugar mills in the country were owned by foreign companies.

21 thoughts on “AZCUBA: Sugar for Growth?

  • It doesn’t matter as long as the offer grows faster than the demand as is the case. The fact is that sugar as commodity has lost 2/3 of their value since 1959 and that even without all the mismanagement from their leadership it would play a relatively minor role in their economy today.

    Also, I’ve never said that Cuba’s economic failure was caused by the loss value of sugar. Their failure was exclusively caused by the parasitic economical dependency on the eastern block and their collapse.

    What I explicitly said is that the lack of development in the industry was a side effect of said dependency and made things even worse, because everyone else learned to live with their lower margins by improving efficiency and lowering costs, while for Cuba was a BIG, instant shock and with their obsolete technology they were in no condition to react quickly enough, even with their arbitrarily low man-power costs

  • The current glut of sugar on the world market is a recent development of the last 2 years. Prior to that the demand had grown substantially for the past decade, and quite steadily over the past 50 years. Other small producers (Australia, Thailand) were able to increase their productivity and lower their costs by investing in new technology and by carefully managing their cane fields. Cuba failed in both those counts.

    The large growth in sugar production and consumption over the past 50 years is proof that the price of sugar, (which would have affected everybody) is not a key factor in Cuba’s failure.

    In constant dollars, adjusted for inflation, Cuba’s 2008 gross domestic product was 5% of its 1958 GDP 50 years earlier. There is a reason for such a spectacular collapse in national wealth and it has nothing to do with the price of sugar.

  • I just stumbled across this quote confirming your last comment. In a speech on September 28, 1966, Fidel Castro directly denounced scrutiny of the government’s sugar industry policies where economic and financial analysis fell under the suspicion of carrying seeds of disloyalty:
    “A financier, a pure economist, a metaphysician of the Revolution, would have said: “Careful! Don’t lower those rentals by one cent, because financially, because economically, because pesos more, pesos less.” Those persons have a peso sign in the head and want the people also to have a peso sign in the head and in the heart. And if we want a people that get rid of the peso sign in the mind and the heart, then we must also have men who free their thought of the peso sign”
    (Cuba Socialista, No. 62, October 1966).

  • Why are your comments about MY comments and not about the topic? BTW, I am more of a California middle-of-the-road Christ

  • Moses, why do all of your comments sound like a Oklahoma right wing christ worshiper wing nut or a Florida Batista Cuban?

  • Oops, in my previous post the price for 1959 was .085 USD per pound, not .085 cents (actually all prices in the post are in fractions of USD), Sorry about that

  • No, Griffin your numbers are wrong. I already made a post going back all the way to 1959 but for some reason didn’t made it here (I guess because of the links)

    Basically, starting from the current market price of .15 the pound and start deducting the value from inflation all the way to 1959 using a 3% inflation rate for simplicity, you get the following progression:

    2013: .15
    2003: .11
    1993: .08
    1983: .06
    1973: .04
    1963: .03

    1959: 0.0289

    Taking in account that the market price of sugar in 1959 was .085 cents the pound (according to the study I linked in my previous post), it means that since 1959, sugar as commodity lost 2/3 of its value.

    In other words, you have to sell 200% more sugar than you did in 1959 to get roughly obtain the same benefit and if you bothered to check, the world is already producing more sugar than it needs, ergo increasing your production levels is not going to help.

  • The average inflation rate for the US dollar since 1985 has been 2.78%. The price of sugar in the mid-1980s averaged around 5 cents per pound. In 2011, the price peaked at 29.74 cents, an increase well above the inflation rate. The value of sugar (price in constant dollars) was still increasing, not declining. The price of sugar has declined to about 15 cents today, but that’s still above the average inflation rate since1985. During the same period, world wide demand for sugar has continued to grow. Smart sugar producers capitalized on growing demand by increasing the amount of sugar they grow and export, while lowering costs. Cuba failed to lower costs and failed to increase production output.

    If one looks at the shorter period since 2001, when Cuba shut down half their mills and refineries, the price (and value) has increased dramatically.

    The bottom line is, over the past 55 years, Cuba has failed to make any significant capital investment in their sugar industry. Their one big project, the 10 Million Tonne Zafra, represented a huge labour investment, but it was an economic disaster.

    I don’t think you can find any comparable example of a nation squandering a valuable resource so thoroughly as Cuba has done with their sugar industry. This is what happens when ideology overrides economic common sense.

  • No Griffin. You simply lack understanding of basic economics, thats all. If you need to analyze the value of a commodity over time, you HAVE to adjust for inflation otherwise it becomes an exercise in futility. The market PRICE has been going up, but the VALUE has been in downwards spiral for decades.

    Also, don;t mix subjects and claim I’m dancing in circles. I replied to a specific point from Moses unrelated to market value (in this case, I explained WHY they didn’t care about the international market or for that matter increasing production),

    I’m certainly not moving any goalposts, we are discussing historical facts and as far as I can see there is no goal anywhere

  • That report refers to a recent development. Sugar prices have always been quite volatile. Are you saying this recent shift is the cause of Cuba’s 54 year run of stupid sugar production practices? That’s ridiculous!

    The fact remains the price has trended upwards for the past 50 years, the complete opposite of what you said. Therefore, based as it is on completely wrong assumptions, your explanation is nonsense.

    So admit you goofed and move on, dude. Don’t grab a shovel and keep digging.

  • It’s so cute the way you constantly move the goal posts!

    You started off claiming that the price of sugar has been steadily declining for the past 50 years. Moses & I point out that in fact, the price has been trending upward. Quite a bit in the past decade, in fact. You ignore that and claim you didn’t say what you did say.

    So go ahead and dance your circles, move your goal posts and blather on. You have nothing to say, but you say it so nicely.

    Countries and corporations are indeed different beasts. For one thing, a corporation cannot keep an island of 11 million people captive for 54 years, screwing up every bloody thing they put their hand to, and still keep in business. Only a Marxist dictatorship with a steady stream of gullible foreigners can manage a feat like that.

  • Of course, but that happens quite often and is not specific to Cuba of for that matter to countries in general. Case in point: Kodak had a monopoly of film cameras and their researchers were the first to develop a digital camera. The people in charge saw digital as a threat to their core services, so they did nothing with the technology until Canon, Nikon and others came with their own DSLRs and literally ate their business,

    The same has happened in the past or is happening now with other big names, like IBM, RIM, Microsoft, etc., some of them recovered, other shifted business elsewhere, yet others had to fill for bankruptcy.

    Sure, countries and corporation are different beasts, but when the country depends heavily in a single industry the similarities are uncanny, and the people in charge tends to react in the same way.

  • In other words, Cuba’s economic relationship with COMECON was based on unsustainable and mistaken assumptions which doomed Cuba’s economy to failure from the beginning. Any business which operates over time with the policy that it will never bother to reinvest in its productive capacity is a business just waiting to fail. We can see this attitude in all aspects of the Cuban economy, drum sugar, to transportation to infrastructure and housing. Don’t build anything new, don’t repair anything that breaks, just live with it until it all collapses in ruins around you.

  • I did nor did such thing, I explicitly mentioned mismanagement and other issues, I just did not point to the Castros specifically since only the eldest brother (Ramon, I believe is his name) has anything relevant to do with agriculture and Fidel only meddled once (albeit with long term negative consequences).

    But thats irrelevant, your argument is naive in the sense that you assume that Cuba would have to be competitive the world market and that was not the case. The deal they had with the COMECOM give them preferential prices, to the point that increasing production above contractual obligations with the COMECOM was simply not worth the effort.

    Of course, hindsight is always 20/20 and had they successfully established themselves in the world market, the the fall of the eastern block would have become a mere annoyance instead of the catastrophe it was, but the bottom line is that if they had tried to increase their production levels the COMECOM would have adjusted the sugar price and that was against Cuba’s best interest

    Bottom line is: the Cuban government had no incentive whatsoever to increase sugar production or invest in the modernization of their industry and doing either would have risked a large cut into their massive profits.

  • You are quite mistaken about the price of sugar. The current bid is 15.22 cents per pound. It hasn’t been below 5 cents per pound since 1985. World wide sugar consumption continues to grow as China, India and other emerging industrial nations add to total demand.

    While sugar produced from sugar beets has grown to compete with cane sugar, in recent years nutritionists have identified cane sugar as a healthier form of the sweetener. You can find “organic cane sugar” selling for premium prices in shops in Canada, the US and Europe. Another market Cuba has failed to capitalize on.

    Allow me to share a curious anecdote: While touring a sugar mill in Matanzas province, I asked if they had any sugar to sell? “No”, I was told, “but you can get it at a dollar store.” They had a busload of eager Canadian tourists, but it never occurred to them to sell a single souvenir bag of sugar. How about molasses? The tour guide for the sugar mill had no idea what I was talking about! How can you work at a sugar mill and not know what molasses is? The business mentality has been literally beaten out of many Cubans.

    The only innovation in the Cuban sugar industry has been to hide smuggled weapons under sack of sugar hidden in a North Korean freighter.

    Cuban made a number of mistakes which resulted in the devastation of their sugar industry. The Ten Million Tonne harvest was the biggest disaster. Cuban economist knew it was a huge mistake which would only glut the market and collapse the price. Agriculture experts knew it would destroy productive farms growing necessary crops. But Fidel decided Ten Million Tonnes! and nobody could say no to him.

    Another one of Fidel’s bad ideas was to introduce a new variety of cane, unsuited to Cuba’s soil. Poor water management practices has increased the salinity level in Cuban fields, further reducing Cuban agricultural productivity.

    Cuban labor is very cheap, so why can’t Cuba compete at today’s high sugar prices? Because they failed to direct sufficient resources into modernizing the sugar mills. Like the rest of the island, they let it run down to ruin. The accumulated wealth of the richest island in the Caribbean has been bled dry by those idiots.

  • I stand corrected.

  • AC, actually the price of sugar has been fairly stable at around $0.15 per pound for the last few months. But the point you make is still valid that Cuba can not produce sugar at a profit for less than that price. Worse yet, Cuba is unable to reach the average ton yield per hectare. Where you appear willing to give the Castros a free pass is their role in the decline of this productivity. Sugar was king in Cuba. Had Fidel continued to focus available resources on maintaining and modernizing his sugar mills and in the purchase and maintenance of farming implements, he could have remained competitive in the world markets. Given the scale of production, I have no doubt Cuban sugar was destined to be eclipsed by Brazil, India and China but to lose position to Pakistan takes effort. The marketplace didn’t help, but Cuba lost sugar because Fidel screwed up….again.

  • BTW, if I recall correctly, Cuba has never been the world leader in raw sugar production, just raw sugar exports. India has been traditionally the #1 in raw production for centuries and it was only displaced from than position relatively recently by Brazil.

  • Sure thing, but you are ignoring the elephant in the room: sugar has steadily lost its market value in the las 50 years. The causes are many, from commercial extraction of sugar from different crops, to the creation of artificial sweeteners and more importantly, the shift in perception abut sugar consumption in first world countries.

    Whatever the cause, sugar is currently worth about 5 cents the pound in the international markets and it has been like that for decades.. adjust that number for inflation and is easy to realize that is not possible for Cuba to be competitive at their current technology level; to put it blandly, the cost of producing sugar for them is greater than the benefits of selling that sugar in the market.

    Add to that the mismanagement, the lack of pesticides, herbicides and fertilizers, the catastrophic fall in levels of mechanization during the beginning of the special period resulting in a significant increment in labor intensity compared to the competition and you will inexorably get to the current situation.

    What you saw is not poetic justice, is just basic economics: for them is cheaper to import sugar than produce it themselves and the only reason they have not totally scrapped the industry is because of the political cost of such decision (both in the acceptance of a colossal failure and in the massive layoffs it WILL cause)

    So, instead of accepting the inevitable, they choose to subsidize the sector bogging down the rest of the economy and scale down the production to keep the damage at moderate levels. Thats sad, but in practice is pretty much the only thing they can do within the political constrains mentioned before, since actually solving the issue require heavy investment in technology for both the sugar industry and agriculture and/or shifting their efforts towards the commercialization of derivatives instead of raw sugar (that also requires heavy investment), and as you know they simply can’t afford it.

  • Cuba was once the WORLD leader in raw sugar production. it is indisputable that on Fidel’s watch, Cuba went from respected sugar exporter to what was reported in this post, a sugar importer. While production levels rise and fall all the time in a variety of industries (steel production in Britain, cars in the US), these changes are usually due to increased international competition, falling wholesale prices, increasing production costs and a variety of other external factors (demand for the product, wars, obsolescence, etc.). With regards to sugar and Cuba, the death of the sugar industry is wholly Fidel Castro’s fault. By his own admission, he ordered the closure of 60% of all sugar refineries in Cuba. He used the millions of Soviet rubles he received from his Soviet bloc trading partners to fund the failed expansion of Socialism throughout Africa and Latin America instead of reinvesting in the modernization of the sugar production infrastructure in Cuba. The list of Castro missteps in Cuban sugar is chapter one in the handbook on “How to destroy your country’s #1 cash crop”. I have mentioned this before in previous comments but It was poetic justice when I saw in the ‘Havana Libre’ Hotel printed on those tiny sugar packets that are left on the tables ‘Hecho en Mexico’.

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