By Amaury Valdivia (El Toque)
HAVANA TIMES – Cattle breeders in Camaguey haven’t been paid over 270 million regular Cuban pesos (approx. US $11.1 million, owed them since 2013. This is the amount they should have been paid for their sales to the province’s dairy company, which, according to a resolution passed in 2012, is obliged to pay them 0.10 CUC (Convertible peso) for every liter of milk that is destined to be sold in hard-currency stores.
A confusing bureaucratic scheme, comprised of agricultural companies, cooperatives and the Ministry of Agriculture’s local representative, is responsible for ensuring that farmers receive this money. At least in theory.
Things are different in practice, as a recent report published by the local newspaper Adelante proves. The sum owed for milk in “hard-currency” withheld in this financial limbo, amounts to 11.3 million CUC (the official exchange rate for the private sector being 24 CUP for 1 CUC, so 271.2 million CUP) at the time of this investigation. This isn’t being paid to producers for reasons such as a regulation from the Cuban Central Bank which obliges agricultural cooperatives to solely operate with accounts in regular pesos (CUP).
When asked about the matter, first vice-minister of Agriculture, Idael Perez Brito, only said that “the current policy is not to open accounts in CUC because the country is moving towards currency unification.”
I’m sure this phenomenon extends to other provinces. Bearing in mind the fact that Camaguey produces somewhere between 20-30% of national milk production, if we compare amounts, we can say that Cuban farmers (on the whole) are due over 700 million CUP, just for milk.
When producing less is better business
In early 2019, new taxes for the agricultural sector came into effect. Ever since January, idle land and profits of Credit and Services Cooperatives are also subject to these taxes; plus, individual non-sugar producing farmers need to present an annual declaration of their income with a sworn declaration.
It took many by surprise as some tax charges that had been “frozen” since 2012, were now coming into force. Farmers’ uneasiness was even more justified because of the implications these new taxes would have on the already damned pig-farming sector. However, during an interview with Cubadebate in May, the vice-minister of Finances and Prices, Vladimir Regueiro Ale, said that such disagreement stemmed from “relative matters (….) Taxes aren’t being charged for every pig that wasn’t born, wasn’t fattened or handed over; these applied rates are based on production and commercialization.”
In other words, food shortages (especially meat and dairy products) that have been rampant since 2018, isn’t enough for the government to reconsider the relevance of such a measure.
Explaining the payments that pig-rearers would have to assume, the official highlighted the fact that this would be between 10-45% of “taxable income”, calculated after discounting a “minimum exemption” of 10,500 CUP and expenses equal to 70% of total revenue. Seems fair right…
But economist and university professor Pedro Monreal is less optimistic. “(Cubadebate’s) article includes an interesting graph (… which) indicates that total taxes amount to 14.9%. You’d think this was a low tax rate, but the problem lies in the fact that it has been built on a poor indicator, as the total of tax paid is based on the gross income, which doesn’t make any sense.”
Still taking the vice-minister of Finance and Prices’ example of pig-farming, a producer who sells a thousand pigs to the State (around 90.9 tons) would earn 1,954,465 Cuban pesos in gross income. “Assuming that the total cost was the same as the “deductible” expense shown in the graph (1,368,181 pesos) the net income would be 586,364 pesos (… and with this, they would pay) three components of tax burden,” the academic explained.
In this situation, Cubadebate’s own estimate raises the amount of tax to 290,650 CUP; that is to say, 49.5% of net income.
“What extraordinary thing would have to happen for a pig farmer to be motivated to produce when they have to hand over 50% of their net income to the State,” Monreal wonders.
As if that wasn’t enough, the tax “scale” (you pay more, the more you make) doesn’t contribute to encouraging growth within the sector either. The owners of the largest pig-farmers are obliged to take on a much higher tax burden than their fellow pig farmers who have less animals.
Taking a look at the figures, Monreal lays out the limit after which you’d inevitably end up paying “a confiscatory tax rate.” “Pig #78” is the limit: “tax rates shoot up afterwards (they multiply 7.5 times), and instead of paying 20,000 pesos in tax for 77 pigs, you’d have to pay 147,000 pesos for 78 pigs.”
Is it worth growing as a business then?
Hands (and solutions) in shortage
The island’s rural population is declining and ageing every day. Between the 1982 and 2012 census, the rural population went from 30.03% (2,981,000 inhabitants) to 23.11% (2,597,000). Almost 90% of this descent relates to the census group aged 15-39 years old, which figured at approximately 911,000 individuals up until 2012.
The lack of a work force in farming and stockbreeding (being one of the largest employers, with 783,000 workers on its payroll) is a formidable challenge. Dealing with it successfully would mean having a stable fuel supply that would be able to sustain the mechanization of farm work, when alternatives such as animal traction would only work on a small-scale, or in very specific regions or with specific crops, such as coffee in Oriente, tobacco in Sancti Spiritus and Pinar del Rio.
However, State policy has taken another path. In fact, after Decree-Law 259 was promulgated (in 2008), news features became common, highlighting the cases of land-leaseholders who had razed their plots to the ground with a machete. The idea has entered the spotlight again recently, as the result of problems with fuel imports.
Finding your way amidst these confusing bureaucratic procedures that mark the land granting process, getting them in a condition so they can produce and reap profits that award this effort, supposes such a gigantic effort that many have ended up throwing in the towel. According to economist and professor emeritus at the University of Pittsburgh, Carmelo Mesa-Lago, the number of leaseholders of state-owned idle land “dropped from 312,752 in 2014 to 274,635 in 2017”, in spite of new dispositions promulgated in 2012 (Decree-Law 300) which improved conditions of plot assignments agreed in 2008.
However, things didn’t get better in 2018, when it was expected that only 155,000 lease contracts would exist, which led to the decree of the third law in a 10-year period (Decree-Law 365) to increase the extension of land being assigned, and how long individual and legal person contracts would last.
In an article published in December 2018, Mesa-Lago included in his list of causes of this problem: “the inefficient property system, ACOPIO (Cuba’s State purchasing entity), circulation and incentives,” things that the new dispositions wouldn’t change in any way.
Contrary to what has been laid out in official discourse, academic Pedro Monreal also says that solutions won’t be found just because “the State company assumes leadership again”, but rather in “facilitating conditions for the leaders in national food supply (the private sector) [… This] would seem to be the quickest and most effective way to increase national supplies at agro-markets in the short-term, especially in agricultural lines.”
But these aren’t concessions that the Government is willing to grant. Its latest strategies for this sector rather point towards a return to “nationalization”, at the expense of “privatizing” initiatives that have been tried and tested in the past decade.
The so-called Production Centers are the paradigmatic example of this, a “national program for the differentiated assignment of resources” that was put into practice in late 2015 and has really kicked off in the past year.
Its principles were ratified by first vice-president Salvador Valdes Mesa, on Saturday July 13th 2019, during a televised meeting in the Artemisa province. Normally, these centers are set up in areas where a work force and water supply are guaranteed, as well as fertile soil and easy access. All the crops that pass through this center are destined to be sold to the state-run ACOPIO system.
Up until now, these centers haven’t reaped the fruits the designers expected they would in any province. Work visits by President Diaz-Canel and his team of ministers have verified this. If you look at the history of centers such as Hermanos Barcon, in Pinar del Rio, and El Hoyo, in Camaguey, you see that they don’t meet the expectations that founded their conception two or three years ago.
Not even having figures that prove the steady abandonment of arable land (between 2002 and 2016, cultivated land fell from 3.5 million hectares to 2.9 million) and the insufficient growth of the farming sector (which has only had a rickety growth rate of 1.8% on average between 2007-2017) is enough to amend state policy regarding Cuba’s agriculture. And while they follow the route they’ve traced; we shouldn’t hope for any miracles at stands in agro-markets or on Cuban families’ dinner tables.