--The Restructuring of the Cuban Sugar Industry, which began in April 2002, entered its second stage without affecting employees or housing. The world market decides. Sky-rocketing prices of oil and other inputs hang over crude production costs. The sector expands. Production of food and derivatives increases.

By Lucilo Tejera Díaz

Special for AIN

A foreign press agency reported the following from Havana:

“Cuba misses a great opportunity to take advantage of the benefits resulting from the rise in sugar prices on the world market, which could reach 11 to 12 cents (of a dollar) a pound in the coming months.”

The news report referred to a predicted rise in sugar prices back then, attributed to a presumed increase in world consumption and a production decline in some countries.    

The press release also referred to estimates of the World Sugar Organization (WSO) that a rising world demand in the period between 2004 and 2005 would generate a supply deficit of 2.8 million tons.

Though indirectly, the note alluded to Cuba’s decision three years before to restructure its sugar sector. 

In synthesis, out of the 155 sugar mills that existed until then, only 71 remained in operation to produce sugar, plus another 14 to produce sugar-cane syrups and other derivatives.

Moreover, 1.38 million hectares (62 percent of the land that was previously used for sugar plantations) were earmarked for other agricultural and livestock production and forestry.

The 100,000 workers cut from the payroll due to the reform were assigned other duties or sent to school, even university courses, and all of them continued earning their salaries.

In other words, there were no layoffs, nor was anyone abandoned as would be common in any capitalist society in a similar situation.

The aim of the restructuring was to concentrate resources in the sugar mills that registered the highest efficiency and with the best land, in order to reduce production costs, under the average price of six cents (of a dollar) a pound on the world market, as shown in the declining trends of the preceding years.

The above-mentioned news report expressed that the nation did not have the necessary mills or the sugar cane to place considerable amounts of it on the world market, at a time when prices were being boosted, while echoing Cuba’s enemies, who termed as misguided the island’s decision to close the sugar mills.

However, this issue deserves more than a simplistic, one-sided interpretation. A thorough analysis of the restructuring of the Cuban sugar industry, which began in April 2002 and was further widened in 2005, should take into account a series of historical, as well as commercial and financial aspects.

A BRIEF HISTORY

Since the triumph of the Revolution in January 1959, Cuban leaders had repeatedly insisted on the need to break away from the economic dependence on the already nationalized sugar sector, diversify Cuba’s agriculture and industry.

Later, that aspiration was held over due to the opening of fair, stable trade relations with the Soviet Union and the European socialist camp, which purchased whatever amount of sugar Cuba had to offer at prices that fluctuated between 25 and 40 cents (of a dollar) a pound, or even higher if the prices of imported goods increased.

Given the net profits, the Island maintained average annual production levels of 6.4 million tons for over three decades until the early 1990s, even exceeding 8 million tons on six occasions.

The harvest season was extended beyond 120 days, expanding crops to lands that were not so good and making strong investments to improve the milling capacity and modernize the industry. Eight new mills were also opened during the period.

“Could sugarcane be harvested in gardens and flowerpots it would have been completely justified, given the profits it meant for Cuba,” said Minister of the Sugar Industry  in reference to that period, during a session of the Cuban National Assembly of People’s Power (Parliament).

Naturally, sugar production became dependent on extensive farming in areas that were not the best for that activity, and which required a great deal of fertilizers, pesticides and fuels that Cuba acquired under favorable terms, since the Soviet Union and the European socialist camp provided Cuba with those resources.

Why did Cuba act like this?

During a congress of the Cuban Association of Writers and Artists (UNEAC) in November 1993, Cuban President Fidel Castro explained that Cuba acted like this, based on the supposition that the Soviet Union and the European socialist camp would be there forever.

There was an abrupt suspension of long-term trade agreements with the Council for Mutual Economic Assistance (CMEA) in the early 1990s, which was 85 percent of Cuba’s import contracts and most of the island’s sugar export arrangements. Sugar production dropped from eight million tons in the 1989-1990 harvest to some four million in the 1992-1993 harvest.

Despite the difficult conditions that the country had to endure in the years that followed the collapse of the socialist camp, forced to commercialize its sugar on the world “marginal residual” market, the island developed its production capacity to the fullest to try to recover the production levels, since it was the country’s almost only source of hard currency. Furthermore, sugar prices stood at between eight and twelve cents a pound, while a barrel of oil cost 15 dollars.

The accumulated human resources trained over more than four decades of Revolution allowed the island to develop important economic areas. By making a lot of sacrifices,

Cuba successfully came out of the economic crisis (what we call here in Cuba the Special Period) into which it was thrown following the collapse of the former European socialist camp, and which was used by U.S. imperialism to further tighten its economic, commercial and financial blockade against the Caribbean island.

During the years of the Special Period, the sugar agribusiness became severely undercapitalized, as did other Cuban industries.

By 1998, when the economy started to recover with the gradual development of tourism and the introduction of foreign capital in some economic sectors, the sugar industry stopped being the country’s principal source of income and the decision was made to close 40 sugar mills -- those with the lowest efficiency levels.

RESTRUCTURING BEGINS

At the beginning of 2002, the Cuban sugar sector was going through really difficult times due to a significant decline in prices -- less than six cents (of a dollar) a pound on the world market.

In October, President Fidel Castro, during a meeting with sugar workers and their families in Artemisa, west of Havana, explained the reasons behind the industry’s restructuring.

“In April, it became indispensable to take a decision. The sector’s restructuring was imperative,” Fidel Castro stressed.

He explained that there was a selection of the best mills, those with the best land and with production costs lower than four cents.

The Cuban president pointed to other elements that were also taken into account. Among these was an increase in oil prices, which at that time stood at 27 dollars a barrel, with an upward trend due to the threat posed by the imminent U.S.-led war against Iraq and other conditions that indicated a hike in the crude prices.

In June 2002, the visiting president of the World Sugar Organization, German Meter Baron, in reference to the restructuring of the Cuban sugar industry, expressed: “It’s the right thing to do and the right moment. It’s a difficult, but good decision.”

The world reality then forced not only Cuba, but other nations as well to adopt measures regarding their sugar agribusiness.

The sugar substitutes on the world market, produced by First World nations, the lack of access to the so badly needed state-of-the-art technology to increase efficiency, the lack of diversification and the protectionist practices benefiting U.S. and European producers, forced the closure of several sugar mills in developing countries and the consequent social trauma of mass layoffs and deeper poverty.

Havana made the changes with the support of workers, who understood the need for such measures and were informed of the restructuring process step by step.

Manuel Cordero, top leader of the National Union of Sugar Workers, stressed that “the aim was to improve the living conditions of workers, along with benefiting the national economy.”

“The family houses and all the social services in the communities around the sugar complexes will be kept and improved. We are working to further improve the living conditions in those communities,” he added.

Since the changes began in the Cuban sugar sector, a total of 1 600 social outlets have been completed in more than 70 villages and communities around the obsolete mills, representing 65 percent completion of the planned investments.

Former sugar workers and their families now have new places to buy food and agricultural products, as well as facilities that offer a wide variety of services, including household appliance repairs, drug stores, libraries, video clubs, etc. –all this plus benefits already enjoyed in areas such as health and education.

The transfer of the land for other agricultural and forestry use has been conducted gradually and already yields modest results.

Before the reforms, the agricultural produce mainly bound for canteens and the Cuban family was less than 184 thousand tons annually. In 2004 it grew to nearly 600 thousand tons, with a far wider range of benefits to the Cuban population.

In the area of  animal husbandry, during that same period, milk yield grew to 26 million liters, while beef production stood at 3 500 tons.

Despite the damage caused by the severe drought, which affected the Island in the past few years, these results improved considerably in 2005.

During the present academic year, over 97 thousand sugar workers are studying different specialties, including university courses in 130 university branches distributed in 84 of the above mentioned villages and communities.

Studying, for more than 25 percent of those involved in the project, has become their full-time employment while keeping their salaries.

SECOND STAGE OF THE RESTRUCTURING

At present, the Alvaro Reynoso Project, as the whole restructuring process of the Cuban sugar sector has been named --after a Cuban sugar expert from the 19^th century—is entering the second stage, as announced officially by the national press.

This stage, which will extend through December 2007, includes the closure, during the 2005-2006 harvest time of another group of mills. The main warehouses and industrial premises will be kept and used for other uses, including  some social services.

Acording to the official report to the press, the Sugar Ministry should guarantee production levels to meet the national demand between 2005 and 2007, plus a surplus to fulfill the country’s export commitments.

US SIEGE ON THE CUBAN SUGAR INDUSTRY

There are plenty of reasons to implement the new measures because for many decades the US government has besieged every single economic or financial transaction Cuba has carried out with its sugar production.

For instance, the prices of goods imported from Europe have increased, between 25 and 35 percent, while sugar exports to that same destination have experienced an over 10 percent decline.

Studies reveal that in 2004, alone, damage to the Cuban sugar industry resulting from the effects of the US blockade on the island’s foreign trade was to the tune of 98.5 million dollars.

On top of that, the Cuban sugar production does not receive any preferential treatment nor can the island sell directly on the world market, where speculation is the frequent cause of reduced unstable prices.

Traders represent the island on the world market. These are normally big transnational companies acting as intermediaries and gaining huge profits at the expense of producers.

We should also take into account the current situation of the sugar market, where the presence of artificial sweeteners has increased by 25 percent , thus putting sugar cane producers at a serious disadvantage.

But this is not all.  We should add other decisive factors: the European and US protectionism, tariff barriers and carriage, which in the case of Cuba cost 50 to 60 dollars per ton of sugar.

Reducing production costs was a primary objective of the restructuring, but reality has fully demonstrated that it depends largely on the market, rather than on domestic efficiency.

The truth is that real cost has increased with every passing year, a direct result of an irrational hike in the price of imported goods, particularly oil, machinery, additives and chemicals.

At present, 86 percent of the harvest process is mechanized, as well as 88 percent of the agrotechnic work and transportation process.

The truth is that with the current oil prices at over 60 dollars a barrel, the Cuban State hands over half of its working capital to purchase oil.

In 1959, one ton of sugar was enough to buy eight tons of oil.Today, 2.6 tons of sugar are required to purchase just one ton of the fuel.

Compared to 2002, when the restructuring process began, the hike in the prices of chemicals exceeded 15 percent; 31 percent in the case of metals; tires, 10 percent; sacks and wire netting, 54 percent; locomotive components and spare parts, 21 percent; locomotive crankshafts, 48 percent and the disks and blades of combine harvesters, 27 percent.

We should also add the high carriage costs. In 2003, carrying sugar on the route Cuba-Black Sea cost the island 28 dollars a ton, but a year later it increased to 61 dollars.

The US economic blockade prevents any ship that docks at Cuban ports from entering US ports for a six month period, which translates into higher carriage to cover risks.

We should also take into account the climate conditions on the island over the past several years, specially the severe drought.

To have an idea of the serious situation caused by the lack of rain: from 2004 to 2005 sugar cane production decreased by nearly 45 percent, as a consequence of damages to the eastern part of the island, where most of the land devoted to this economic activity is concentrated.

Finally, we should also mention the state of the land, submitted to many years of exploitation, which has caused deterioration and thus, recuperation requires major spending on irrigation and drainage systems and fertilizers.

In light of this reality, it would be far more convenient for Cuba to invest in other areas.

The island’s sugar sector, with the restructuring, has increasingly diversified its production: sugar cane, vegetables, grains, fruits and cattle raising, as well as forestry.

Likewise, it produces a variety of industrial products, from sugar and its derivatives such as alcohol, beverages, electricity and animal food to the introduction now of over 100 small and medium-sized plants to produce flour, pasta, canned food, chocolate and silos for the storage of grain.

SUGAR IS NO LONGER THE MAIN ECONOMIC ACTIVITY

 In 2005, Cuban National Bank President Francisco Soberón told Associated Press (AP) that in 2004 the country achieved its first surplus in one decade.

The hike in nickel prices and increased tourism development contributed to this results, at a time of significant decline in Cuban sugar exports and the ever-skyrocketing oil prices on the world market.

Obviously, the Cuban economy is diversifying.

During the main activity marking July 26 -Cuba’s National Rebellion Day- President Fidel Castro announced that 12 out of Cuba’s 20 industrial branches showed very positive results in  2005, particularly metallurgy, beverage, tobacco and fuel, as well as .tourism, construction, communications, commerce and services.

 As of last year, the economy has experienced a steady growth in  2005. The Gross Domestic Product (GDP) grew by 11,8 percent.

The credit balance in the services sector compensated for the imbalance in the exchange of consumer goods, bringing about a fair result in the balance of trade, over 2004.

Exchange between Cuba and Venezuela has increased steadely in the framework of the Bolivarian Alternative for the Americas (ALBA). Estimates are that bilateral exchange between Caracas and Havana will amount to some 3 million dollars in 2005. The same can be said also of the island’s bilateral exchange with China.

Cuba is laying the foundations of a strong investment program in the sectors of construction, health, the nickel industry, and others. At the same time, the island is working hard toward improving the living conditions of the population and the quality of health and education.

Sugar is no longer a decisive economic aspect on the small Caribbean island nation.

President Fidel Castro recently stated categorically:

“I know that our country will no longer depend solely on sugar. Monoculture belonged to the slave era, as did the illiteracy rate of 30 percent and the unemployment that forced people to work like animals.”

(AIN)