Thursday, May 24, 2007

Sugar bust

Cuba declared its 2007 sugar havest finished. Like last year, no figures were released but a Reuters report estimates no more than 1.2 million tons, well short of targets. Officials blame weather and organizational problems.

In years past, such a report would signal a crisis for Cuba’s economy as a whole. Now, with Cuba drawing on other sources of foreign exchange, sugar’s role is second-tier at most, and the economy is growing even with sugar in decline.

But there are opportunities to revive a profitable sugar industry. They stem from higher sugar prices, high oil prices, and high ethanol demand. Combined with Cuba’s natural advantages, experience, and workforce, an infusion of capital – either Cuban or foreign, through joint ventures – could modernize production and milling, and build ethanol production capacity. With lower production costs, Cuba would be well positioned to sell sugar and ethanol, adjusting the product mix depending on year-to-year market conditions. That would be welcome news for laid-off sugar workers, and a lift for the rural economy and national foreign exchange earnings.

They key is capital. I have seen no sign that Cuba is willing to invest its own working capital in a revival of the sugar industry. That’s why the recent statements backtracking from Fidel Castro’s complete rejection of sugar-based ethanol production are important. We’ll see if they are followed by revival of the talks with Brazilian investors.

A 2003 report on the downsizing of Cuba’s sugar sector is here (pdf).

An item on Cuba and ethanol from The Fueling Station, the St. Petersburg Times’ blog on alternative energy sources, is here.

No comments: