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Exporters unwise to use credit in Cuba

U.S. agriculture exporters should stick to a cash basis for sales to Cuba, according to John Kavulich, executive director of the U.S.-Cuba Trade and Economic Council.

U.S. agriculture exporters should stick to a cash basis for sales to Cuba, according to John Kavulich, executive director of the U.S.-Cuba Trade and Economic Council.

The payment terms may be changed so Cuba pays cash upon delivery rather than before the boat leaves the port, Kavulich said, but exporters would be unwise to grant credit to the Cubans -- if that becomes legally possible -- because they have a history of not paying their bills to other countries.

"Cuba is the safest food product export market -- and no one can contradict it -- because of cash-only," Kavulich said. The U.S.-Cuba Trade and Economic Council has promoted and analyzed U.S. trade with Cuba since 1994.

Allowing the Cuban government to deal directly with U.S. banks rather than through banks in third countries "can make existing transactions more efficient, more profitable and (will) provide a basis for new transactions to be more efficient and more profitable," Kavulich said. "But I am worried there is going to be pressure on changing the payment terms."

Kavulich said he has also told Cuban officials they are wiser to stick to cash transactions.

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If Cuba were to not pay a bill to a publicly held U.S. company and "the stock tanks over it," Kavulich said, "everyone will run."

The Trade Sanctions Reform and Enhancement Act of 2000 allowed the export of U.S. food products and seeds to Cuba, but on a cash-only basis. Cuban-Americans in Congress insisted the U.S. and U.S. financial institutions not grant any credit to the Cuban government, which is the buyer of the U.S. foods.

The cash-only system has had complications because of rules about how the Cubans could pay, but it has also made selling to Cuba very popular with American farmers and food companies because Cuba has never been in a position to fail to pay.

But that could change if credit sales were allowed, Kavulich said. One reason Cuba has bought food from other countries, such as Venezuela, Kavulich said, is that government-to-government sales allow Cuba to fail to pay without much public exposure.

Since President Barack Obama's announcement Dec. 17 that he will liberalize banking regulations and begin the normalization of U.S. diplomatic relations with Cuba -- including changing the U.S. Interests Section in Havana into a full-scale embassy -- many farm groups have issued statements that they hope for an increase in business beyond the $300 million in farm exports to Cuba this year.

'Irrational exuberance'

Quoting former Federal Reserve Chairman Alan Greenspan, Kavulich said there might be an "irrational exuberance" in the farm community about expectations of a quick change in sales to Cuba, and also about the buying power of Cuba's 11 million generally poor people.

The Obama administration has also said it will allow the sale of farm equipment to Cuba's small farmers, but Kavulich said farm groups such as the American Farm Bureau Federation and farm equipment companies could come into conflict over whether Cuba should be an export market for farm products or a developed competitor in production.

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Cuban officials have told Agweek that Cuba, which has a relatively low birth rate and educates its people, would have to import labor if it were to become an exporter of fruits and vegetables. Kavulich said American agriculture will have to deal with the question of whether it wants Cuba to compete with the U.S. for Mexican migrant laborers.

Kavulich said the biggest barriers to increased sales to Cuba might be Cuba's infrastructure needs and how it will finance its modern development. If Cuba wants to modernize its telecommunications structure to allow use of the Internet and the ATM systems used by U.S. banks, a structure will have to be built. No one has said who would pay for that, he noted.

Kavulich said he does not think the embargo and other congressional acts that affect Cuba will be repealed anytime soon, but he also said he thinks Republicans in Congress will fail to stop the Obama administration from using its executive branch to make the changes it can.

"The embargo is codified into law," Kavulich said, but "its shell is becoming thinner and thinner as each administration passes, whether Republican or Democrat."

Kavulich said he thinks there is a bipartisan majority in the House to repeal the embargo, but the question will be whether the Republican leadership allows a vote on it.

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