Cuba Business

Sugar: Former Lifeblood of Cuban Economy Reduced to Mere Trickle

Posted January 16, 2006 by Cubana in Cuba Business.

Patricia Grogg | IPS

Sugar, once the mainstay of the Cuban economy, has been relegated to a weaker role than ever before, as the country prepares for a shortened harvest season that will involve just over half of the mills kept open after a major restructuring of the industry in 2002.

Only 42 sugar mills will be put to use for this year’s harvest, which will last a mere three months, according to estimates, in contrast to decades past, when harvests stretched out until May or June and the entire economy was placed at the service of this key sector.

“That was a mistake, everyone knows that the best milling, the most productive, is in January and February,” a veteran sugar sector worker told IPS, although he still cannot quite accept the demise of what was the country’s main industry not all that long ago.

For his part, Juan Varela Perez, a sugar sector specialist who writes for the state-run newspaper Granma, believes that the decision to begin the harvest in the first month of the year is “opportune”.

“This will allow for the sugar cane to be cut and milled at its peak of maturity,” he stated.

Harvesting commenced at the end of the first week of the year on four mills, which will be joined by another 25 by Jan. 15. The remainder of the 42 mills will set to work during the first half of February.

According to Varela Perez, each hectare of land will yield 3.8 tons more sugar cane than during the last harvest.

Cuba produced 1.3 million tons of sugar last year. The authorities are predicting a similar yield this year, despite the fact that fewer resources were devoted to sugar production, while world market prices are currently higher. Around 700,000 tons of sugar are used for domestic consumption annually, and the rest is exported.

Economists lament that the decrease in Cuba’s sugar output coincided with an abrupt rise in world market prices. The price of raw sugar shot up from 6.4 cents a pound in February 2004 to over 11 cents in 2005, while refined sugar is now selling at over 14 cents a pound.

After many years as the country’s primary source of foreign exchange, sugar has now been replaced by other industries like nickel and tourism, and during some periods, by remittances sent from Cubans living abroad to their families in this socialist Caribbean island nation.

Cuban exports in general grew by 27.9 percent in 2005 as compared with the previous year, according to official figures. Services accounted for 70 percent of the increase, particularly the health care services and others provided to Venezuela.

The reasons behind the rise in sugar prices, which is predicted to continue in 2006, include the growing use of sugarcane for the production of ethanol. Interest in this environmentally friendly alternative fuel source has been boosted by record high oil prices, which currently stand at over 60 dollars a barrel.

Other factors contributing to the rise in world sugar prices are the drought that has severely hit production in Thailand, one of the world’s largest exporters; the plans to reform the European Union’s agricultural policy, including a reduction of the area devoted to beet sugar production; and a rise in worldwide demand concurrent with the fall in the available supply.

The United Nations Food and Agriculture Organisation (FAO) estimated worldwide sugar consumption in 2005 at 144.8 million tons, and production at 144 million tons. Russia, India, Pakistan and Iran were among the countries that experienced an increase in demand for sugar.

“The fundamental question is whether these higher prices are the result of a temporary situation, and are only a short-term phenomenon, or if in fact they represent the beginning of a longer-lasting trend,” Cuban economist Armando Nova commented to IPS.

In any event, the upsurge in world prices has done nothing to weaken the Cuban government’s conviction that producing sugar is no longer profitable for the country.

“Now the price of sugar has gone up a little bit, but I know that this country will not live off of sugar ever again,” President Fidel Castro stressed in March 2005.

As far as the Cuban leader is concerned, the sugar industry, once the lifeblood of the island’s economy, had turned into its “ruin.”

To prove his point, he noted that the sugar sector consumed three times more diesel fuel than the Ministry of Transportation, using up 1,000 tons a day, at a cost of 183 million dollars.

In November, Castro took aim at the sector once again, remarking that the country was no longer “throwing away” money on “colossal mistakes like the one made with the sugar industry.”

He also criticised the ministry responsible for the sector for currently having 2,000 to 3,000 more trucks in its power than it did when the country produced eight million tons of sugar annually.

The last year that Cuba’s production reached that level was in 1990, when 8.4 million tons were harvested. From that year onwards, output declined gradually until reaching the current total of 1.3 million tons, the smallest yield since the early 20th century.

Drastic reforms were adopted in 2002 to adjust production to the low sugar prices of the time. Out of a total of 156 sugar mills in operation, only 85 were kept open, and close to a dozen were devoted exclusively to the production of organic sugar, fuel alcohol and other by-products.

As a result of this major restructuring, the amount of land used to grow sugarcane was reduced by over one half. The workers left unemployed as a consequence were either given jobs in other sectors or provided with the opportunity to pursue further studies, while continuing to receive a salary.

A second phase of the restructuring went into effect in mid-2005. Roughly 40 of the 85 sugar mills still in operation were closed down, although in some cases only temporarily, while one third of the 900,000 hectares of land still used to grow sugarcane were redirected to other crops.

Member Comments

On January 17, 2006, I-taoist wrote:

Here lies the basic vulnerability of an extreme central command economy.  With the price of this commodity almost doubling in recent months, the government is completely incapable of responding to the increased demand vs. supply. 

Such cumbersome bureaucratic oversight is what will always doom these systems to economic failure.  It is like a Frankenstein monster trying to juggle three balls and keep them in the air at the same time, impossible. 

On January 17, 2006, Chuck Bailey wrote:

Just another obvious short coming, in refusing the validity of a market driven economy. Fidel touts literacy as one of the islands claim of success and yet his own people couldn’t read and understand one simple fact. If it “costs you more to make, then you can sell it for”  you are a failure.
Now they will put an all out effort to get back into the market, only to find the price of sugar falling. Called not being in the loop.  Chuck

On January 18, 2006, ElaineMiami wrote:

Capitalism has its failures as well.  Just look at healthcare.  Everyone wants to turn a profit.  In the hospitals alone you have the doctors, nurses,  the cafeteria, the pharmacy, maintenance, security, etc.etc…all wanting a big chunk of the pie.  That’ why you can end up losing your house with one’ week’ stay in the hospital.  Add to that the clinics and shuttle services and insurance companies, and of course the entire pharmaceutical industry along with the big payoffs to Washington. Everything has its limits, and the record levels of consumer debt is a sign of just how bad things have gotten.