ECONOMY-CUBA: Banking on Sugar Prices to Compensate Drop in Output

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Feb 13 2001 (IPS) - Cuba is hoping for sustained international sugar prices to compensate the economic impact of a new fall in sugar output this year.

The 2000-2001 harvest of Cuba’s chief export crop, and main source of foreign exchange along with tourism, will fall around 300,000 tonnes short of last May’s 4.05 million tonnes, according to official projections.

But Vice-President Carlos Lage said that if “international prices hold steady, the results will be positive” for Cuba, which is also aiming at boosting efficiency in the sector.

International sugar prices have been rallying since mid-2000, a tendency that is expected to hold, despite the price fluctuations that characterise the global market for sugar.

The pound of raw sugar from the Caribbean is currently fetching around 10 cents of a dollar on the New York exchange – nearly twice the price it fetched a year ago, when Cuba was arranging futures contracts for the 1999-2000 harvest.

But despite the drop in output, analysts with the German firm FO Licht say the amount of sugar exported by Cuba this year is not likely to vary significantly from the volume sold last year.

Cuba, the largest Caribbean island nation, should export around three million tonnes of sugar this year, which would ensure its position as the world’s biggest exporter of raw sugar, bar Australia.

That volume sold at the current price of 250 dollars a ton would mean some 750 million dollars in revenue for Cuba, nearly double what the country would have taken in at last year’s prices.

The sound prices, together with the stabilisation of oil prices at levels below last year’s peak, should mean a welcome respite for Cuba’s finances, say analysts.

Cuba’s trade balance was unfavourable last year, when oil imports cost 500 million dollars more than usual, due to soaring petroleum prices.

Nevertheless, a report that the ministry of Economy and Planning sent to parliament in December indicated that Gross Domestic Product (GDP) grew 5.6 percent last year, outstripping the government’s projections of 4.5 percent growth.

After plunging 34.8 percent from 1990 to 1993, the Cuban economy began to show signs of recovery in 1994, when it grew 0.7 percent. From 1995 to 2000, average GDP growth stood at 4.4 percent.

Economy and Planning Minister José Luis Rodríguez said the economy would continue to recover over the next four years, with four to six percent annual growth.

That projection, however, depends on a recovery of traditional exports like sugar, the only industrial sector that has failed to rebound from the crisis that hit Cuba in 1990, with the break-up of the Soviet Union and the fall of the east European socialist bloc.

With an installed productive capacity of 10 million tonnes a year, and after an annual average output of seven million tonnes in the 1980s, Cuba’s sugar yield plummeted to 3.2 million tonnes in 1995.

Cuba’s hopes to gradually increase its sugar output to pre- crisis levels will have to be postponed for a time, said Bridge/CRB, a New York-based market research firm.

Local experts blame the 1990s depression on the combination of the impact of the loss of Cuba’s socialist bloc trading partners, the U.S. embargo, and internal economic policy errors.

According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Cuba sold its sugar to the countries of the now-defunct Council for Mutual Economic Aid (Comecon) comprised of east European socialist countries for up to 690 million dollars a ton.

And in 1989, sugar exports to that bloc climbed to four million tonnes, according to the book “The Cuban Economy in the Nineties: Structural Reforms and Economic Performance,” released by ECLAC late last year.

But although the volume of exports held steady, Cuba’s sugar revenues fell from 2.76 billion dollars to around 800 million dollars in 1991, when sold at global market prices, according to the study.

Coming on top of the loss of the preferential trade conditions offered by Comecon, Havana was hit hard by the plunge in international commodity prices.

Cuba’s total export revenues fell from 4.34 billion dollars in 1990 to 718 million in 1995, according to ECLAC.

The publication points out that unlike other sugar producers in the region, Cuba is extremely dependent on the behaviour of international sugar prices, because it exports around 85 percent of what it produces.

Nearly all of the sugar produced in Mexico, meanwhile, is sold for domestic consumption at a price of more than 400 dollars a ton, while 46 percent of Central America’s output is sold domestically, at 300 to 400 dollars a ton.

In addition, those countries export around 15 percent of their sugar to the United States under a quota scheme, at preferential prices, which means less than 40 percent of their output is exported at market price, ECLAC observes.

Cuba, which lost access to the U.S. market in 1960, immediately after Fidel Castro’s 1959 revolution, was admitted to the Asia- Caribbean-Pacific (ACP) group last year, although the mechanisms governing the economic relations between the group of former colonies and the European Union do not apply to this socialist nation.