Cuba returns to sugar high

Cuba returns to sugar high
As global demand rises, Havana vows production rebound
By Gary Marx
Tribune foreign correspondent

September 5, 2006

JESUS MENENDEZ, Cuba -- Several years after downsizing what was once
Cuba's most important business, authorities have reversed course and are
expanding the sugar industry to take advantage of the high global price
of sugar and growing demand for ethanol.

Ulises Rosales del Toro, Cuba's sugar minister, said last week that he
expects sugar production to increase at least 25 percent this year and
has vowed to triple production to 3 million tons in the next few years,
according to Cuba's state-run media.

Cuban authorities also plan a fivefold increase in the production of
ethanol, a sugar-based fuel for automobiles that is increasingly
attractive as gasoline prices soar.

Analysts say the ambitious effort is full of pitfalls and doubt that
Cuba has the capital needed to quickly boost sugar cane yields,
modernize two dozen or more refineries to increase processing capacity,
and build new ethanol distillery plants and other infrastructure to
develop a viable export business.

In late July, Rosales del Toro said Cuba was negotiating with at least
three foreign companies to invest in the production and milling of
sugar, a huge step given the island has prohibited foreign investment in
the sugar sector since the 1959 revolution.

But one Havana-based diplomat cast doubt on Rosales del Toro's comment,
explaining that foreign investors are likely to shy away from Cuba's
sugar industry because the majority of the sugar-producing lands and
refineries were expropriated from U.S. companies and are subject to
legal challenge.

Analysts warn that investing in Cuba's sugar industry also is risky
given Cuba's high production costs and the historic volatility of world
sugar prices.

Since February, when Fidel Castro launched Cuba's expansion plan, the
world price for a pound of sugar has fallen to below 13 cents from about
19 cents, though it remains above the 5- to 7-cent price in 2002 and 2003.

"What's strange about this is that the message in the rest of the
Caribbean is: Get out of sugar," said Daniel Erikson, director of
Caribbean programs at the Inter American Dialogue, a Washington policy
group. "Cuba is cutting against the regional trend."

One country that has shown interest in Cuba's sugar industry is China,
which earlier this year was negotiating to provide credit for the
purchase of Chinese equipment for the island's antiquated mills,
according to diplomats and industry sources. It's unclear whether an
agreement has been reached.

Analysts say China's interest in Cuban sugar makes sense because it
already purchases sugar from the island nation and is hungry for
alternative energy sources like ethanol. The two nations also are
political allies.

Hampered by poor management, a bloated workforce and chronic
under-investment, Cuba and other Caribbean producers are unable to
compete against low-cost powerhouses such as Brazil, Thailand and South
Africa.

Castro cuts losses, shuts mills

In recent years, Castro acknowledged the business was no longer viable
and he cut government losses by closing about two-thirds of the nation's
156 sugar mills.

The downsizing cost several hundred thousand workers their jobs -- the
most profound change in rural Cuba since the 1959 revolution.

"The most beautiful thing in this town was the mill," said Miguel
Verdesia, 35, who spent 14 years at the refinery in the town of Jesus
Menendez until it was closed last year. "It was our flower. The majority
of us wanted to keep working for it."

One measure of the steep decline of Big Sugar in Cuba is this year's
harvest of about 1.3 million tons. It was Cuba's lowest production level
in nearly a century and far below the 7 million tons produced in 1992.

In Jesus Menendez, about 420 miles east of Havana, and other towns in
Cuba's eastern sugar belt, cane fields that once stretched to the
horizon now lay fallow while early 20th Century mills stand silent,
their rusted machinery a symbol of a bygone era.

To ease the transition, Cuba's socialist government has continued paying
laid-off workers their $15 to $20 a month salaries. Some ex-sugar
workers have taken early retirement. Others were shifted to farming,
construction and other work.

Verdesia is among more than 100,000 ex-sugar workers enrolled in
government-sponsored retraining. But some participants express little
hope of ever matching their mill jobs and fear they could be stuck in
employment limbo for years.

"It's a disaster," said one resident of Manati, a town 40 miles west of
Jesus Menendez, where the sugar refinery was closed four years ago.
"Many workers are studying because they have nothing else to do. In a
place like this the only source of employment was the mill."

Cuban officials declined to comment, but in June the island's state-run
Agencia Cubana de Noticias reported that almost 13,000 ex-sugar workers
are now enrolled in university. Food production also has soared on
former sugar lands, the news agency reported.

Juan Parra, director of Jesus Menendez's retraining program, said more
than 400 of the mill's estimated 1,000 former workers are studying
subjects ranging from agronomy to accounting to computer training.

"Fidel planted the idea of a new form of employment, and that's to
study," Parra explained. "No one is left behind."

Introduced into Cuba by the Spanish in the 19th Century, sugar became
the backbone of a colonial economy founded on slave labor. American
corporations later stepped in, buying up huge tracts of land and
constructing mills.

Neighborhoods of wood-slat and brick homes grew up around the mills, but
the lives of sugar workers were tough. They labored long hours during
the harvest between December and May and often were unemployed the rest
of the year.

In time, Cuba became the world's largest exporter of sugar, and much of
it was shipped to the United States. But the U.S. suspended trade after
Castro seized power in 1959 and nationalized the sugar industry.

The Soviet Union took up the slack and purchased Cuban sugar at many
times the world price as a reward for Castro's allegiance during the
Cold War.

The boom times in Cuba ended after the Soviet Union's collapse. Sugar
production plummeted because of a lack of fuel to run the mills, and
because of shortages of fertilizer, herbicides and other inputs.

World sugar prices also fell dramatically, forcing the government to
spend tens of millions of dollars annually to subsidize the industry.

`Sugar was a loser'

"Sugar was a loser," said Philip Peters, a Cuba expert at the Lexington
Institute, a Virginia-based think tank. "The market was flooded. The
price was down. Cuba's cost of production was through the roof, and the
amount of capital it takes to modernize the industry was nowhere to be
found."

Today, sugar has slipped far back in importance to the Cuban economy,
which grew at a sharp clip last year thanks to the high world price for
Cuba's nickel exports, solid tourism revenue and huge financial
assistance from Venezuela.

Still, the sugar industry remains critical because it provides work to
hundreds of thousands of Cubans in rural areas even as experts predict
its long-term demise.

"That's not where the future lies," said the diplomat in Havana.

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gmarx@tribune.com

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