Friday, April 25, 2008

"Structural" changes on the farm

Many of the policy changes made so far under Raul Castro involve public investment (the new bus fleet), ending nuisance regulations (pharmacies), or allowing Cubans to buy things previously off-limits (cell phones, hotels, computers, dvd’s). I don’t scoff at these changes, but they are not big economic policy measures geared to generating increased output, jobs, and incomes.

Agriculture seems to be a different story, where the “structural” changes called for by Raul Castro may indeed come into being.

Right up front, one has to say that Americans – with our agricultural subsidies, government-driven land allocations, and distortion of market signals through tariffs, ethanol mandates, and other measures – are not in the best position to discuss “socialist” farm policies in Cuba, and we should hope the Cubans don’t look our way for a model. (See here for the side effects of ethanol policies, and here for a look at the farm bill under consideration in Congress.)

Since the economic crisis of the early 1990’s, Cuba’s agriculture sector has had a measure of incentives and market mechanisms. All producers, from individual private farmers to all varieties of cooperatives, have to deliver a quota to the state – but they are then free to sell any surplus on the open market. That surplus production, most supplied by private farmers, is sold at market prices at 300 farmers markets across the country. (Study here, pdf.)

But Cuba produces far below its potential, many of the larger farm cooperatives have never turned a profit, and Cuba’s annual food import bill is now about $1.6 billion. Raul Castro has focused on agriculture – he settled debts to producers and raised prices paid to producers for milk and beef, and he called for broader changes in his speech last July.

These are the changes under way:

Idle lands are being distributed to private farmers – the most productive of all Cuba’s producers – and cooperatives. This report says that half Cuba’s agricultural land is idle or underutilized.

The agriculture ministry bureaucracy is being reorganized, and decisionmaking is being decentralized. Offices are being created at the municipal level, with the promise that decisions once made by central authorities will be made in Cuba’s 169 municipalities, with the benefit of local knowledge. These offices are to make decisions about land distribution, delivery of products to market, and other matters. Also, some of the agriculture ministry’s enterprises are being combined. Here’s a report on this from Camaguey, and another from Havana province.

Producers are increasingly selling directly to local state institutions (schools, hospitals, businesses) instead of selling to a state enterprise that would then distribute the product. This report says that the “intermediary enterprises” will “become providers of services” to cooperatives. This article discusses the same thing. (It used to be that discussion of eliminating “intermediaries” meant going after those Cubans who earn a living by transporting produce and re-selling it to vendors in the farmers markets. There has never been a real crackdown on these alleged profiteers, surely because the markets would grind to a halt without them.)

Stores are being created where farmers can buy tools, and farmers are being given credit to make purchases at these stores. This is a small step to reverse an absurd, decades-long policy where the state distributed supplies of its choosing, when it chose, to whom it chose – and farmers’ actual needs were not a driving factor.

On a lighter note, when it comes to getting rid of marabu, the bush that takes over idle fields, Granma reports that two guys in Las Tunas have found a great way to kill it: flood the fields for 72 hours, clear the field, then plant something else.

If you sum this all up, it looks promising. One step alone, the distribution of additional land to private farmers, is almost guaranteed to raise production and put Cuba on a path toward lower imports and lower food prices. But much remains to be seen.

The key to the incentive structure for all agricultural producers in Cuba is the amount of product they are required to deliver to the state, which in turn determines the amount of product they can sell for profit on the open market. Will the state tilt this ratio in favor of farmers and cooperatives, and thereby increase their incentive to produce and their chance to earn higher incomes? And regarding the new municipal-level offices of the agriculture ministry, how much autonomy will these offices have, and what kinds of decisions will they make?

Finally, there has been talk of eliminating the libreta, the ration book that is the mechanism for distributing heavily subsidized staples to every Cuban household. And we are seeing reports that there is a decreasing reliance on the state as the buyer, transporter, and distributor of food, and increasing use of direct sales to end-users. If the result of all this is elimination of the huge state distribution system in agriculture (the acopio) and a new policy where the state abandons mass rationing and instead targets food aid to those in need, that would mark a very large “structural” change, one that could point to later policy moves in other economic sectors.

Regarding all this, some good journalistic accounts are these: from Reuters in English, and from La Jornada in Spanish, here and here.


Mambi_Watch said...

Thank you for the summary Phil. Incredibly informative.

Jorge PiƱon said...

Phil; my views on Cuba's sugarcane ethanol as recently published by Canada's FOCAL. Saludos, JP

Anonymous said...

rearranging deck chairs on the Titanic...

Nenos said...
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