Texas companies could benefit from change in power balance
09:31 AM CDT on Sunday, March 11, 2007
By KATHERINE YUNG / The Dallas Morning News
kyung@dallasnews.com
An ailing Fidel Castro could usher in a new era of U.S.-Cuba trade
relations, with Texas companies and farmers leading the way.
That's the rosy view among those eager for closer ties with the
Caribbean nation, but much depends on political factors, from who wins
the White House in 2008 to whether Venezuela can continue to prop up the
Cuban economy.
U.S. trade with Cuba is extremely limited, thanks to a decades-old
embargo. But last year's transfer of power from the country's president
to his brother Raúl has American companies wondering whether frosty
relations between the two countries may finally start to thaw, opening
the way for increased business opportunities.Opinion falls into two
camps. Some experts caution that Cuba's reliance on Venezuela and China
means that it won't introduce any major pro-market alterations to its
economy after Mr. Castro dies. In other words, expect business as usual.
"Cuba will make no changes unless it has to," said John Kavulich, a
senior policy adviser at the U.S.-Cuba Trade and Economic Council Inc.
in New York.
Others predict that American exports will increase after Mr. Castro's
death. They see Cuba imitating China by adopting a more market-oriented
economy. And they note that companies from other countries have a head
start.
"Cuba has a growing economy regardless of the U.S. embargo," said
Cynthia Thomas, head of the Texas-Cuba Trade Alliance and president of
TriDimension Strategies LLC, which helps American companies sell to
officials in Havana.
But with so much political uncertainty, most U.S. companies will wait to
see what happens with U.S.-Cuba relations before making any moves,
experts say.
"We're going to see more get involved as the potential for change
becomes viable," said Kirby Jones, president of Alamar Associates, which
advises U.S. companies interested in Cuba.
Limited exports to the island nation became possible when Congress
passed the Trade Sanctions Reform and Export Enhancement Act in 2000.
It permitted shipments of food, agriculture and medical products for
humanitarian reasons.
Since a ship laden with frozen chicken parts sailed for Havana in late
2001, U.S. companies have exported about $1.6 billion worth of goods to
America's longtime foe, primarily agricultural commodities such as
wheat, chicken, corn and rice.
Ten companies, including agricultural giants Cargill Inc. and Archer
Daniels Midland Co., dominate this trade, Mr. Kavulich said.
Getting in
A few Texas companies are already in on the action, eager to tap into a
market of 11 million people just 90 miles off the coast of Florida.
Pilgrim's Pride Corp., the largest U.S. chicken company, began exporting
frozen leg quarters from the Port of Houston to Havana about six months ago.
"We anticipate consistent business with them," said Ray Atkinson, a
spokesman for the Pittsburg, Texas-based poultry giant. "We hope it
opens doors for our other processed products."
Texas is a leader in producing chicken and rice, two of the top exports
to Cuba.
Over each of the last three years, Texas companies have sold about $25
million worth of commodities and other products to Cuba, Ms. Thomas
said. Other popular items include powdered milk and cotton.
Yet making money from Cuba remains a touchy subject. Several companies
that export goods to the island did not want to talk about it.
Annual U.S. exports to Cuba peaked at $392 million in 2004. Since then,
they have dropped to $340 million as officials in Havana bought less
from American firms in an attempt to get them to increase their pro-Cuba
lobbying efforts in Washington.
Easier exports
The strategy may be working. New legislation backed by the American Farm
Bureau Federation aims to make it easier to export to Cuba.
If passed by Congress, it would allow Alimport, Cuba's state-owned
agricultural import company, to wire money directly to U.S. banks to pay
American companies.
That's currently prohibited, which forces American companies to use
banks in third-party countries such as France to get money from Alimport.
The legislation would also eliminate the costly "letters of credit"
payment method used to conduct transactions and special licenses that
are needed to travel to Cuba. In addition, Cuban inspectors could get
visas to visit U.S. food-processing facilities.
"We are trying to show we are reliable suppliers of food for Cuba," said
Chris Garza, the Farm Bureau's director of congressional relations.
Companies are eager to win contracts with Alimport, which generally pays
enough for them to turn a profit from the deals. The agency also pays
its bills promptly.
If successful, the Farm Bureau effort could benefit Texas farmers like
Curt Mowery. At his farm in Sandy Point, about 40 miles south of
Houston, Mr. Mowery grows rice that's sold to Cuba through companies
such as Cargill and Archer Daniels Midland.
Boon for Texas?
Since entering the family business in the mid-1970s, Mr. Mowery has seen
the number of acres devoted to rice in Texas shrink from 500,000 to less
than 150,000. He blames the decline on urban sprawl, low rice prices,
high farming costs and scarcer water supplies.
"Cuba could literally buy 100 percent of our rice crop and part of
Louisiana's, too," he said. "You just can't lose a market, particularly
nowadays."
Patrick Wallesen, managing partner of WestStar Food Co., a food
distributor in Corpus Christi, also wants to boost sales to Havana.
His company exports pinto beans grown in North Dakota and Nebraska to
Cuba. Shipments have grown since 2003 but are likely to decline this
year because of tight supplies.
"It's been very good business for us," Mr. Wallesen said. "I'd like to
have more of it."
Farmers aren't the only ones angling for closer ties. U.S. energy
companies, for example, are intrigued by Cuba's sizable offshore oil
reserves.
Though doubts about the quality of the oil persist, energy companies
from other countries are exploring the area, while American firms have
been left on the sidelines because of the embargo.
The National Petrochemical and Refiners Association, which represents
450 U.S. refiners and petrochemical manufacturers, is supporting
legislation that would allow American companies to bid on Cuba's
offshore oil and gas projects.
"It's not as if 'If one of our domestic companies doesn't do it, it
won't be done,' " said Charles Drevna, the group's executive vice
president. "If it's going to happen, we should make sure it's done in
the best way possible."
Not for everyone
Cuba's not suited for everyone.
Much of the population in the Communist nation is mired in poverty. With
a per capita gross domestic product of only $3,900, most Cubans can't
afford pricey foreign products.
"The potential for trade with the U.S. can't increase unless Cuba
reforms its economy," said Carmelo Mesa-Lago, a longtime Cuban scholar
and professor emeritus of economics at the University of Pittsburgh.
"They need exports in order to pay for imports."
The situation diminishes Cuba's appeal for some companies. Roy Allen,
vice president of international business development at Rudolph Foods
Co., the world's largest pork rind supplier, visited Havana last fall
and discovered that most Cubans can't afford a bag of pork rinds.
The company, which operates a plant in Dallas, may export products to
Cuba in a year or two but doesn't view the country as a future source of
high-volume sales growth.
"They don't have the income that we have," Mr. Allen said.
Companies stand a better chance of success if they're selling necessities.
Just ask Ms. Thomas of TriDimension Strategies. In addition to her
consulting work, she has also exported margarine to Cuba and is trying
to sell cheese there.
"The companies that are having the most success are the ones that are
most price-competitive and have high quality," she said.
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