Will Price Controls Increase Supply or Scarcity in Cuba?
A meeting of private business owners with a Deputy Minister of Finance and Prices exposes tensions over new price caps.
By Glenda Boza Ibarra (El Toque)
HAVANA TIMES – A new regulation to control the price of six essential products sold by private entities in Cuba is about to come into effect, although approval has been delayed due to resistance from those who will be affected by its implementation.
The tensions were notable in a meeting held on June 28, 2024, between the Deputy Minister of Finance and Prices, Lourdes Rodriguez Ruiz, and a group of private entrepreneurs dedicated to selling these products. El Toque obtained access to the audio of the meeting.
In the nearly two-hour recording, the Deputy Minister discussed how the measure will be applied and the conditions considered to establish a “future” centralized price system that will start with chicken, oil, powdered milk, pasta, sausages, and powdered detergent.
“We need to regulate six items, not for a significant reduction in prices, but to contain those prices in the economy,” said Lourdes Rodriguez.
Although the Deputy Minister spoke of the need to increase production so that the market self-regulates with an increase in supply, she did not mention what the State will do to achieve this.
According to Rodriguez, regulating the price of the products will come with an exemption from import tariffs. “This would be for new imports, and that is why the proposed maximum retail prices are higher because they include the tariff,” she assured.
For calculating the price cap of the products, they took into account “the actual prices in the municipalities of the country for six months. The imports of 2023 were studied and defined with the prices of the first quarter of 2024,” explained the Deputy Minister.
The “methodology” was criticized during the meeting when several representatives of the private sector explained that prices vary from one day to another for various reasons, including the exchange rate at the national and international levels.
An entrepreneur added, “I will not pass the uncertainty on to the foreign supplier.”
The entrepreneur also noted that no one will offer a good price or delivery security if the buyer first tells them to wait and see how the price situation adjusts; if one day you buy a container and then tell the supplier to wait for government measures.
In response to the entrepreneurs’ concerns, the Deputy Minister reiterated that the meetings with the state sector were to establish the mechanisms with which the Government will work and acknowledged what seems like a trial-and-error (or improvisation) scenario. “We will regulate, and one day we will deregulate or regulate other products,” she specified.
Another Regulation on the Wrong Path
“From the outset, I can say there will be no milk, oil, or chicken,” said an entrepreneur at the meeting, making a quick calculation of the product costs.
According to him, if the daily dynamics for establishing prices do not take into account the gross sales tax payments for renting premises, etc., importing the products will lead to losses, and therefore, it will be the population that suffers the most from the shortage.
“At the prices you report, it is not profitable to do business right now, and we don’t even have intermediaries,” explained a partner of a small private company that does wholesale and retail sales.
However, the Deputy Minister replied, “The people requested it, and that is why we will cap prices at the State level.”
During the meeting, the entrepreneurs also questioned why prices are capped in the private sector and not in the State stores that sell in government issued magnetic dollar cards (MLC).
According to Lourdes Rodriguez, the MLC stores do have price caps, but their acquisition costs differ from those of private management.
“MLC stores today sell things more expensive than the capped prices,” responded an entrepreneur.
The Deputy Minister replied that MLC stores generally sell other types of products. However, the audience’s murmur did not seem to agree with the argument, as the reality is that MLC stores sell the same products as the private businesses at different prices and usually with a profit margin above 200%.
Another concern expressed by business owners and self-employed workers gathered with the Deputy Minister, in the audio accessed by El Toque, was whether the government considered the lack of liquidity in Cuban banks and the need to resort to the informal market to acquire the currencies used by the private sector in their imports.
Rodríguez responded, “We recognize the distortion in the exchange rate and are studying for a solution when conditions exist.”
Another issue highlighted by the entrepreneurs was the transportation cost for moving goods from the ports to the territories.
“We identified the problem, but it has no solution. We must come to a definition that contains the increase in transportation costs, and the most feasible is to use state transportation as a solution,” said Lourdes Rodríguez.
A Havana entrepreneur with warehouses in Camagüey said she pays a “high price” to private transporters because state ones lack fuel and tend not to transport for private individuals.
“State transportation costs me 19,000 or 20,000 pesos, but when I go to make the request, they say there is no fuel, there is a broken part, it is not possible. So, I have to go to the private transporter who charges me between 400,000 and 450,000 pesos.”
The entrepreneur asked that the details affecting importers and impacting price formation and business profitability be considered.
Problems Generating Confusion
From Monday, July 1, the price caps on six products sold by the private sector were expected to come into effect, according to several official pages of Government institutions and municipal entities.
Some bodies, such as the Inspection Office of Pinar del Rio and the government of Consolación del Sur, reported that the capped prices would not come into force on the announced date. Other pages that had communicated the new prices did not update the information.
Today it is known that the regulation was halted, pending further consultations with private sellers.
Communication problems and a lack of transparency, in addition to fragmented information only published in some territories, caused uncertainty among some entrepreneurs who, cautious of the changes, decided not to open their businesses until they had clarity on the price cap.
El Toque identified three main confusions through user comments and questions.
Confusion 1: The agreed prices effective from July 1 are for other food products
According to the Boyeros Administration Council on social media, new agreed prices came into effect from Monday, July 1, 2024, and the population could call to report violations in this regard.
However, the publication did not refer to the six protected products but to farm products with capped prices in several provinces for months (yucca, plantain, sweet potato, and other foods).
Confusion 2: The resolution in force Is about relations between private and state actors
The second point of Resolution 209/2024, published in the Official Gazette on June 27, 2024, states that “provincial councils and municipal administration councils are empowered to approve the maximum prices and tariffs of the goods and services they select, among those acquired by state entities from the private sector, considering the particularities of each territory.”
Some people have linked this part of the regulation to the information about the price cap on the six “protected” products and, therefore, believed that the application would come into effect on Monday, July 1, 2024.
However, in the audio of the meeting with private sector representatives, the Deputy Minister of Finance and Prices clarified that these are different matters. According to her, Resolution 209/2024 refers to state sector purchases from the private sector, not retail sales of the private sector.
“The price caps for chicken, oil, powdered detergent, sausage, powdered milk, and pasta will be included in another resolution and published before coming into effect,” she specified.
Rodriguez clarified that they are currently “in the discussion phase,” and the details will be known when the regulation is public.
Confusion 3: prices will de centralized
The tables with the capped prices by territories published by municipal administrations mostly differed. Although some matched the prices announced by Deputy Minister Lourdes Rodriguez, it could be assumed that local governments would have the power to establish them.
However, according to Rodriguez at the meeting, the capped prices will be centralized, even though “government policy is moving in the opposite direction.”
“The price regulation will be temporary because the price policy is to move towards decentralization,” affirmed the Deputy Minister.
Here is the audio tape of the meeting in Spanish:
We have several groups that ship from ont and Quebec. Price control will only work if set a level to cover at least our costs
Transport in Cuba is not available for containers because of fuel shortage. A container load 50 000 lbs of chicken went bad in May from the U S because hotels get diesel for generators ahead of diesel to to run the reefer unit because power shortage to run the electric cooling machine. Unless Cuba goes to Japan and hands over the country to them or a group from Holland Germany Japan and Canada maybe then we can save both the country and the people
CUBA has a great climate 70% of the workforce is very well trained and motivated to work if they have the resources they need. I hope Cuba doesn’t trust China or Russia because it could cause a war with United States.