US Rice Industry Sees More Open Trade With Cuba Under Obama

US Rice Industry Sees More Open Trade With Cuba Under Obama

CHICAGO --The U.S. rice industry is hoping President-elect Barack
Obama's campaign mantra of change will apply to the country's relations
with Cuba, which analysts say could become a key customer if the U.S.
would allow it.

Although the U.S. eased trade sanctions against Cuba at the end of the
Clinton administration, there are still enough restrictions to limit
sales to the island neighbor.

"The best case in our view would be to remove the restrictions regarding
trade and economic relations and travel and all that, and just kind of
open it up," said Reece Langley vice president of government affairs for
the USA Rice Federation, which represents rice producers, millers and
merchants. "Whether that's going to happen, I think that's a long shot,
at least initially."

But Langley and others say there's plenty of reasons for the rice
industry to be optimistic about change coming to Cuba.

"The main thing is, I believe that things will open up for travelers,
people going between the U.S. and Cuba," said Milo Hamilton, co-founder
of firstgrain.com.

He thinks that could happen very soon after Obama takes office. Such a
move would be seen as a benchmark signaling improved relations and freer
trade with the nation.

Cuba is a big rice consumer and natural customer of U.S. rice given its
proximity, analysts said.

"From what we can tell, they're using about 1 million tons per year, and
we think can supply them 350,000 to maybe 500,000 metric tons of that,
if things were completely opened up," Langley said. "Maybe not even
completely opened up."

Trade with Cuba picked up in 2001, following passage of the Trade
Sanction Reform and Export Enhancement Act, and rice sales slowly built
up to a high of 177,000 metric tons in 2004, Langley said. The Bush
administration tightened restrictions in 2005, however, and sales
dropped. There were 60,000 metric tons sold to Cuba in 2007, and Langley
estimates only 12,000 to 15,000 through October of this year.

The U.S. government's changes in 2005 have prevented Cuba from
purchasing U.S. rice via credit.

"You basically had to have payment of cash in advance, which meant
payment had to be sent before the shipment ever left the U.S.," Langley
said.

That has prompted Cuba to get loans from foreign countries in order to
buy U.S. rice, said Bill Nelson, a grain analyst with Doane Advisory
Services. Easing this restriction and granting Cuba credit would
facilitate more sales, analysts said.

"If you're going to sell, you might as well just sell it," Nelson said.
"There are certainly issues with Cuba we all know about, but there are
also hungry people there."

Langley added that another potential change, allowing for direct
banking, would cut down on transaction time and costs because payments
to U.S. companies that do sell rice to Cuba wouldn't have to be made to
a third-party bank.

The U.S. Department of Agriculture says on its Web site that in 2006
Cuba was the 33rd largest market for U.S. agricultural exports.

Reform in U.S. policy toward Cuba already has support in Congress,
Langley said. He said there have been multiple instances in which
legislation to relax the restrictions has been included in appropriation
bills, only to be removed from conference committees at the insistence
of the White House.

He also noted Obama "won Florida without really having committed on
anything to the Cuban population down there, that hopefully he has some
flexibility to push this agenda.

"I think you'll see a pretty large coalition, a diverse coalition of
groups working on this issue going forward," Langley said.

Cuba is considered a natural consumer of U.S. rice because of its
proximity to the U.S. and its key rice-producing regions. That allows it
to purchase much smaller amounts than it could from key U.S.
competitors, such as Vietnam and Thailand, and operate hand-to-mouth,
worry less about getting it shipped and storing it, analysts said.

"It becomes the difference between buying huge amounts at Wal-Mart
versus going over to Stop & Go," Hamilton said. "That's our edge."

He also noted, however, that Cuba is still "a price-conscious buyer" and
that with cheaper Asian prices and historically low freight rates, the
nation still might have a greater incentive to look elsewhere.

But easing of trade restrictions would help U.S. rice, analysts said. A
Chicago Board of Trade rice trader said prices would "really take off."

Nelson said easing of rice sales to Cuba could lead to a couple million
hundredweight in additional sales.

"On the margin, when you're talking 20-25 million hundredweight in
ending stocks, you're talking about 5%-10% of the ending stocks. That's
significant," Nelson said.

-By Ian Berry, Dow Jones Newswires; 312-341-5778; ian.berry@dowjones.com

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