Cuba to Eliminate Subsidies on Farm Inputs and Equipment

HAVANA TIMES – Inputs and equipment which are currently delivered to Cuban farmers at subsidized prices will begin to be sold “at market prices without subsidies”, said Vice President Marino Murillo Jorge before the Council  of Ministers on Friday.

According to a Granma newspaper report, Murillo said that “measures will be taken in order to avoid, where possible, the price increase affecting the general population.”

As part of the restructuring of the agricultural sector, the government will also allow producers to market their products and services according to market demand, once they meet after they fulfill their contracts for sales to the State.

The new form of marketing will begin as a pilot project in 2014 on the Isle of Youth, and may spread to the rest of the country.


12 thoughts on “Cuba to Eliminate Subsidies on Farm Inputs and Equipment

  • August 11, 2013 at 6:27 pm
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    then why isn’t it working in Jamaica Trinidad British Guiana ect, that is exactly what they were told to do by the imf. The capital cost of equipment is too expensive to compete with US SUBSIDIZED IMPORTED FOODS. Their answer economy of scale (farms too small to be econoomically viable)

  • June 9, 2013 at 11:11 am
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    No, that push from Fidel failed, they simply refused to hand over their lands and kept earning money legally. Also, notice that private farmers never had access to farming machinery (that was restricted to cooperatives), so they didn’t suffer a strong impact as consequence of the special period, while the prices of the produce increased tenfold.

    http://news.google.com/newspapers?nid=1734&dat=19840124&id=1OYbAAAAIBAJ&sjid=i1IEAAAAIBAJ&pg=6843,2531183

    Transportation is a different issue, during the special period the inability of the state to provide ready transportation made thousands of tonnes of produce literally rot either in the farms or in the distribution facilities, so they were forced to legalize distribution to farmers markets.

    They point you missed is that they have little incentive to increase production. For a starters the only way to increase production at their current technology level is to farm more land, but in order to do so they need to work more (either by themselves or by hiring helping hands) while the market prices are inversely proportional to the total production. So, either they enslave themselves to produce more or pay people to do so in order to sell at a lower price.

    The government can circumvent this by giving land to more people so they can produce by themselves, but is obvious that the bulk of such people have no clue about farming and probably not even know what hard labor means. As such, their yields are going to be significantly lower than traditional farmers, with a lot of lost harvests until they learn how to go about it properly.

    Back to the millionaire farmers, no is not an exaggeration. I’ve meet quite a few in my travels. Some used to hang out in the Lenin park facilities in the outskirts of Havana, and since the ban to Cubans renting hotels was lifted you can also find some of them in resorts around the country.

    Of course, the most idiosyncratic ones live far and away from civilization, mostly in wooden cabins without even electricity. They are almost universally well known for their hospitality towards strangers and their #1 complaint is typically that they wished they could put their money to use.

  • June 6, 2013 at 9:32 am
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    Thank you for you long and thoughtful discussion of the issues, free of insults and diatribes. It’s a pleasure debating with you, even when we don’t agree.

    In this case, I do agree with your analysis of the dual-currency conundrum. It was introduced to protect the Cuban people from the ravaging seduction of the US dollar, while enriching the coffers of the State. But the government has painted itself into a corner with the dual-currency which distorts the economy. If they move to quickly to eliminate it, there will be trouble. But if they wait too long to fix it, there will be even more trouble.

    I find it hard to believe there are millionaire farmers in Cuba. That report from 1984 is less than convincing and suggests a contemporary anti-kulak mood in the government at the time. Given the economic shocks of the Special Period, I can’t see how there would be even more of them today.

    Comfortable farmers, sure. But “millionaire” is an exaggeration. How can they make so much money if the transportation of food to market is in such a bad state, as you identified? If farming was so profitable, then Cuba would be growing much more food and importing less.

    Your ideas about how to establish a stable agricultural market are interesting and worthwhile. As you wrote, let’s hope “some stupid bureaucrat don’t screw it with ideology crap.”

  • June 5, 2013 at 3:14 pm
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    Your last paragraph is absolutely correct, Griffin. It’s what I’ve been saying these many months. The PCC need only look at the Denmark experience, beginning in the late 1800s.

    What the PCC does not yet comprehend is that, as long as state power is in hands of the vanguard party, privately owned farms, large or small–single-family owned or cooperatively owned by those who do the work–is “socialist” in essence.

    The ideological hang-up with the PCC is that they think that only state-owned land or enterprise is socialist in essence. In fact, any sort of ownership is socialist if it does not contradict the National Plan, and if it contributes to national wealth creation.

  • June 4, 2013 at 6:54 pm
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    Hmm.. I realize that it has been a while since we had this conversation, so probably is a good idea to explain the context. As I explained before, the CUP is ARTIFICIALLY devaluated respect to the CUC. There are two different conversion rates of 1:1 and 1:25 used in different contexts, but the bottom line is that the real rate should be somewhere in-between.

    There are basically three ways to remove the dual currency: introduce a new currency and provide fair conversion rates to the two existing currencies or keep one of the existing currencies and exchange all money in the other at a fair rate,

    The problem of course, is figure out the “fair rate” part. Basically, nobody have the faintest idea of what exchange value would make the conversions fair. And this is important, because if the value is skewed too much in one direction, the state will end paying the difference from its own pocket, while if the skew the value in the other direction, they will bankrupt a significant portion of the population.

    So their choices are basically getting it right, bankrupting the sate or bankrupting the people. This is a risky business and is understandable why they move so slowly to solve the issue.

    But there is a alternative way that albeit slower, should work perfectly fine and wont have any of the risks above mentioned.

    And is quite simple, really: they can fix the conversion rate between the CUP and CUC and gradually devaluate the CUP until its real value becomes 1:25, in which case they can remove one of the two currencies without risking mayhem. The preferred way to do so would be controlled increases of salary to state sector employees; that would cause a small increment in inflation and once the economy gets stabilized the cycle can be repeated until the desired effect is achieved.

    In that scenario, having an important sector like agriculture stabilized at market prices is important, since it can act as a thermometer to the rest of the society in order to measure the desired equilibrium point.

  • June 4, 2013 at 6:06 pm
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    Yes, there are millionaires and a lot of them. This is an outdated article from 1984 but is the only source I could find in a rush and will serve to give a general idea of the current situation:

    http://news.google.com/newspapers?nid=1899&dat=19840119&id=CI9GAAAAIBAJ&sjid=pvMMAAAAIBAJ&pg=3984,1906152

    In short, there were at least 60000 farmers owning an average of 100 acres each and they were reporting a yearly income of $30000 (roughly equivalent to $200000 USD of 1984) with some earning as much as $60000 or more plus other 70000 farmers working in cooperatives.

    And all that completely legal.

    Of course, after 1989 things shifted even more to their favor, so I’m fairly sure that both private and cooperative farmers made a buck in the turmoil of the special period but you can’t blame them. Specially when most of them usually support the local schools and hospitals by providing produce for free and without any obligation to do so whatsoever, making even harder to crack on them because they usually have the full support of their communities.

  • June 4, 2013 at 5:46 pm
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    The problem is not the amount of land they own, the problem is that the effort to farm it is proportional to the size and above certain threshold is simply not worthy, specially taking in account the low tech they use. The solution is to modernize the agriculture once again, but doing it in a sustainable way, anything else is doomed to failure because they don’t have an incentive to produce more of what they already do.

    Also, not all farmers are working in lands in usufruct, those are just newcomers, the traditional farmers already own their own land or are part of cooperatives. And as a rule, they tend to be filthy rich. There is nothing illicit about it, the state is their main partner and their accounting books have all the payment records.

  • June 4, 2013 at 5:33 pm
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    In that you are wrong. The farmers in Cuba and elsewhere in the world have to balance effort and profitability. specially in a low tech country like Cuba. In particular, they they lack the means to store the products in large scale and sell it when the market is more favorable, so they are forced to sell at any price.The more availability of a product, lower the price.

    That means that more production translates in more effort and less margins, ergo there is no incentive to increase yields over a certain threshold.

    The only way out is bring back technology to the field and is in the hands of the government to do so. Sell them heavy machinery so they don’t have to plow with the ox anymore sell them fertilizers and pesticides to maximize yield and they will naturally increase the production levels tenfold with a minimum effort.

    And no, they can’t simply translate the extra cost to the final product. In the end, the situation is the same, they HAVE to sell at any price or face the loss of the harvest. The difference is that in a mechanized agriculture they can apply economy of scale and work with less margin.

    And they will do so eagerly. The first group to upgrade their equipment will outsell the traditional farmers in a 10:1 ratio, with the highest commercial margins. Once this becomes the new standard there won’t be going back.

    And FYI, the government does not set the wages and prices to private farmers and cooperatives. As far as I know, the only agreement is that they have to sell a specific amount of the harvest to the government at a specific price, anything beyond that is to the farmer benefit. Specially now that they can sell fresh produce directly to the hotels.

    Back to your initial point, I never said that this will fix the double currency issue. For that they need to reevaluate their currency and the way of doing so is by increasing production and gradually resolve the conversion rates in favor of the CUP. And for that they need a baseline and farmer productivity freed from the dual madness is an excellent starting point. For starters, is a non-trivial portion of the economy of strategic importance to the country and one where there is already certain deregulation from the state. And as I mentioned before, farmers and cooperativists are relatively wealthy compared to the average citizen: well this is the perfect opportunity.

    Give them the tools they need to do better their job and profit from it. Then reboot your basic industry to provide them of the raw materials needed to increase yields and do so at a profit/. Nobody loses and you will have a sector in equilibrium, study that equilibrium and see how to extend it to the rest of the economy,

    And for ** sake, don’t forget to sell them whatever luxury items they want to buy with their hard earned money. That way they will be happier, other people will have a strong incentive to go back to the fields and they make a buck to finance their social programs.

    Is a win-win situation for everyone as long as some stupid bureaucrat don’t screw it with ideology crap.

  • June 4, 2013 at 9:29 am
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    Wait… there are millionaire farmers in Cuba? Who knew?

    Inflation won’t fix the dual currency problem. In fact, it’s making it worse as the value of the local peso continues to decline and products Cuban people need to survive become more and more expensive.

    Certainly, sustainable agriculture would be a wonderful innovation for the Cuban farmer. But it would have to be truly sustainable, in the economic sense, to actually work.

    This piecemeal approach by the regime, in which selected aspects of the market system are introduced, (removing state subsidies) while the the government maintains control of others, (the state still sets wages & prices), will only further the distortion in the Cuban economy.

    To really revolutionize Cuban agriculture, the Cuban government should get out of it entirely. Turn ownership of the land and equipment to the farmers, in either small family owned farms or larger farmer owned and controlled co-operatives ( yes, Grady). Let the farmers set their prices and make their own business decisions. Once again, the Cuban farmer will feed their nation.

  • June 4, 2013 at 8:46 am
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    AC, I agree with your logic here. However, in practice, independent Cuban farmers are limited in the amount of farmland they can ‘own’ in usufruct, thus limiting outcomes. Furthermore, Cuba still maintains a counterlogical law on the books which discourages successful businesses and farms. It is called ‘illicit enrichment’ and in practice it is applied to those businesses and farms that enjoy more than normal success. The prevailing assumption is that if you are doing very well, you must be doing something illegal and the burden of proof is on the business to prove otherwise.

  • June 3, 2013 at 6:40 pm
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    Moses, farmers are one of the few sectors in Cuba that can become millionaires legally and do so often. Sell them everything thy need at market prices, including heavy machinery, fertilizers and pesticides and let the market stabilize on its own. Save subsidies as strategic incentives on specific things the country needs.Thats the ONLY way to reduce deficits and achieve sustainability in the long run.

    Certainly, this carries the risk of increasing inflation, but as we discussed before, that kind of inflation is not only desirable, is necessary to correct the economic imbalances introduced by the dual currency. Not to mention that a sustainable agriculture would act as economic anchor to the rest of the economy and more importantly, it will serve as a base measurement of the value of the Cuban currency.

  • June 3, 2013 at 3:02 pm
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    A few years back in a speech to the National Assembly, Raul suggested that Cuban farmers revert back to using oxen to pull the plows because of the scarcity of fuel and parts for tractors. Now he is not willing to subsidize the cost of a new plow for the oxen to pull? So let’s recap here: the State turns unused marabou weed-infested land over to Cubans farmers and now even lets them build a house and live on the land they cultivate. Major step forward, right? Then, Raul takes away the subsidies the farmers obviously need to buy the equipment to farm the same land. Big step back.

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