President Barack Obama’s historic trip to Cuba was accompanied by an announcement U.S. agricultural commodity checkoff programs will be allowed to finance some marketing, promotion and research activities there. What impact it has on the U.S. dairy industry will take time, investment and congressional action.
While in Cuba with President Obama, Agriculture Secretary Tom Vilsack announced 22 U.S. industry-funded research and promotion programs and 18 marketing order organizations, including dairy, will be allowed to conduct authorized research and information exchange activities with Cuba, covering agricultural productivity, food security and sustainable natural resource management.
The USDA announcement reverses a long-held position that federal law prohibited federal checkoff dollars from funding activities in Cuba, according to Nathan Bowen, with the National Association of State Department’s of Agriculture (NASDA). Despite the checkoff program announcement, federal funds through USDA's Market Access Program and Foreign Market Development program continue to be prohibited from being used in Cuba.
The head of the nation’s dairy processors welcomed the news.
"Cuba is a natural market for the products made by U.S. dairy companies,” said Connie Tipton, president and chief executive officer of the International Dairy Foods Association. “We look forward to working with Secretary Vilsack and the Office of the U.S. Trade Representative to further explore this potential new market."
In early 2015, IDFA joined the National Milk Producers Federation (NMPF), U.S. Dairy Export Council (USDEC) and 30 other food and agricultural organizations in support of additional changes in U.S. policy to facilitate U.S. dairy exports to Cuba. The dairy organizations, members of the U.S. Agriculture Coalition for Cuba, called for policy changes affecting financial transactions between Cuba and U.S. exporters.
In addition to the embargo’s financial provisions, the three organizations said lifting travel restrictions could help U.S. agricultural exports by allowing exporters to more easily conduct business with Cuba and spurring greater demand for U.S. agricultural products in Cuba.
Dairy Management Inc. comments
“The current situation is still up in the air since the embargo has not been lifted,” said Wayne Watkinson, legal counsel for Dairy Management Inc. (DMI), which manages the U.S. dairy checkoff program. “However, the policy change allowing checkoff boards to invest funds under certain situations will begin the process of understanding the Cuban market for dairy products and other commodities.”
Before dairy product exporters can invest in marketing to Cuba, it will be necessary to understand Cuban consumers and marketing preferences, Watkinson explained. Combined with dairy exporter investment, checkoff funds can now be used to gather that information, much like programs have done for other export and domestic markets.
“If appropriate, DMI, working in conjunction with USDEC and industry exporting partners, will determine when and how to invest funds to gather the necessary market information,” he said.
With Congressional action required to lift the current embargo, and the political hot button the U.S.-Cuban relationship is in this election year, a quick surge in funding isn’t likely.
USDEC fact-finding mission
Early last year, USDEC conducted a fact-finding mission to Cuba to explore U.S. dairy market possibilities. In a blog post, Vikki Nicholson, USDEC senior vice president, global marketing, outlined challenges and opportunities to get U.S. dairy products to Cuba’s 11.3 million people.
Tourism likely offers a more immediate U.S. dairy opportunity, Nicholson wrote. U.S. tourists’ demand for cheese, yogurt and milk, particularly at hotels, will quickly rise beyond Cuban capacity to manufacture.
“Cuba is a deficit milk producer, and its domestic dairy industry is underdeveloped,” she wrote. “Most farms own a handful of cows, per-cow productivity is extremely low, and forage is inadequate and costly.”
At the time of USDEC’s trip, only about 10 of the nation’s 150 dairy processing plants (all small facilities akin to U.S. factories 50-60 years ago) were in operational shape.
As of one year ago, Cuba imported 50,000-100,000 tons of milk powder annually, primarily from New Zealand, South America and Poland. U.S. dairy exports to Cuba from 2000-2014 totaled $109 million, varying annually from zero to a high of $30.3 million.
Making export inroads into Cuba’s internal market will take time and work, Nicholson explained.
Cuba’s infrastructure – including ports, roads, rails, utilities and the nation’s food manufacturing and distribution network – are frozen in the 1950s and will complicate logistics. Cuba plans to turn the port of Mariel, 40 miles west of Havana, into an agricultural import and food-processing hub, but much of the project is still in the development stage.
Under a highly regulated food distribution system, citizens get a monthly ration book, and can buy products provided by the Cuban government. There may also be questions related to available refrigeration.
U.S. dairy exporters interested in the Cuban market must be wiling to invest in marketing, infrastructure, supply chain assistance and technical training, developing business from the ground up, the USDEC report concluded. PD
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