MENU

AskIFAS Powered by EDIS

The Current Restructuring of Cuba's Sugar Agroindustry1

José Alvarez 2

Introduction

After remaining a leading world sugar producer for most of the twentieth century, Cuba's sugar agroindustry is currently undergoing a radical transformation. In spite of the interest that the process has generated outside of Cuba, very few details about its scope and impacts are known. The objective of this fact sheet is to partially fill that gap.

The Restructuring Process

The Underlying Reasons

On April 10, 2002, the Cuban government announced that about half of Cuba's 156 sugar mills would be closed permanently as part of a restructuring process. Such a radical decision had to come from the very top of the Cuban leadership. In a 2003 speech, Cuba's Vice-President Lage stated that: "as we advance on this task, we understand better Fidel's vision when he decided to close 70 mills and start this profound and broad transformation" (Varela Pérez, 2003). Reasons for such a drastic measure included depressed prices and a negative outlook for the world sugar market, and Cuba's sugar agroindustry's existing excess capacity, well above current and future needs.

The restructuring (or re-dimensioning, or reconversion, or rationalization as it is also called) has three general objectives:

  1. to achieve efficiency and competitiveness in sugarcane and sugar production.

  2. to increase food production through agricultural and industrial diversification.

  3. to develop a sustainable agriculture, supported by knowledge and human capital.

General Overview

The restructuring program was named the "Alvaro Reynoso Task" in honor of a famous Cuban scientist of the mid-1800s whose sugarcane recommendations are still being followed in many areas of the world. According to the Cuban Minister of Sugar (Rosales del Toro, 2002, pp. 4–5), the implementation would encompass the following tasks:

  • From the existing 156 sugar mills, 71 will produce raw sugar; 14 will produce raw sugar and molasses intended for animal feed; and the remaining 71 will be deactivated, whereby 5 will be converted into museums, 5 will remain idle, and 61 will be dismantled (Tables 1 and 2).

  • Sugar production from sugarcane will occupy 700,000 hectares of the best soils, with the goal of achieving crop yields of 54 metric tons per hectare from harvests lasting only 90–100 days.

  • Molasses production from sugarcane will occupy 127,344 hectares.

  • Sugar production will be geared towards satisfying a domestic need of 700,000 tons, fulfilling trade agreements, and accessing the market when prices are favorable.

  • Extensive soil testing will be conducted on lands taken out of sugarcane production (1,378,000 hectares) to determine what areas will be devoted to mixed crops, livestock, fruit trees, and forestry. This program began in 1998 (MINAZ, 1999).

Deactivating the sugar mills displaced 213,000 workers, who have either retired or moved into other productive tasks—23,540 workers (58%) remain in the ministry's enterprises; 42,600 workers (20%) are full-time students; 21,300 workers (10%) have moved into non-sugar agricultural production; 17,040 workers (8%) have retired or gone into some other type of business; and 8,520 workers (4%) are working full-time dismantling the inactive sugar mills (Peters, 2003, p. 9). The surplus workers who opted for full-time study continue to receive their paychecks during the retraining process.

The Cuban Minister of Sugar has stated publicly that the remaining sugar mills will be open to foreign investment (Frank, 2002a). The first mill to benefit from foreign financing, according to the Associated Press (2002), was the "Paraguay" in the oriental province of Guantánamo. Peters (2003, p. 11) reported that 10 joint ventures have been formed with foreign investors (where the foreign investor owns part of the business and shares profits), and 15 cooperative production agreements have been reached (where the foreign partner contracts to assist production and earns a share of revenues, without ownership). The joint ventures include alcohol production (Spain), chemicals (Mexico), and specialty papers (Italy).

Scope and Regional Impact

The numbers mentioned above, however, do not tell the whole story. A few calculations from the official Cuban data shown in Tables 1 and 2 help to better understand the magnitude of the current transformation and its regional impacts. For example, by reducing the number of raw mills from 156 to 85 (a 45.5% decrease), total daily grinding capacity declined from 647,200 to 404,700 metric tons (a 37.5% decrease), whereas average milling capacity went from 4,149 to 4,761 metric tons per mill (a 14.7% increase).

With minor exceptions (due perhaps to the location of mills within important sugarcane production areas), the goal of eliminating small, inefficient factories appears to have been fulfilled. Of the 66 mills that are being dismantled or converted into museums, the majority had less than 3,000 metric tons grinding capacity.

Although all the provinces have been impacted to some degree, a few have seen their sugar industries shrink considerably. Examples include Matanzas, La Habana, Villa Clara, and Cienfuegos, which have seen their number of mills decreasing to 38%, 40%, 46%, and 58%, respectively, of what they were before the restructuring process.

While Cuba lists 400,000 workers in its sugar agroindustry, the methodology used to develop that figure has never been explained. Regardless of the exact number of people working in Cuba's largest industry, the impact is by no means small. Shortly after the announcement was officially made, Cuba's President Castro himself had to address the nation to calm the worries of those who were about to lose their jobs (Frank, 2002b). However, the nation's fear was well founded since Cuba's raw sugar mills are located in 100 of its 169 municipalities. This means that almost 100,000 displaced workers need to be retrained. While displaced workers receiving retraining will probably not be impacted too much, workers engaged in indirect activities will feel the repercussions of this process for a long time.

Final Thoughts

The current restructuring process has just begun. It is obvious that an effort of this magnitude will require periodic adjustments, which has created a debate over other alternatives. For example, Almazán del Olmo (2002, p. 98) states that Cuba's sugar agroindustry should embody:

  • a close relationship among production, marketing, distribution, education, and scientific research.

  • the application of scientific knowledge and technological innovations.

  • a production oriented to the different market segments.

  • a diversified production, with the objective of increasing the value added of products and byproducts.

  • wider labor profiles and more effective incentive mechanisms.

  • flexibility to meet changing market conditions.

Some world sugar specialists have reacted with some degree of skepticism concerning a successful outcome (Licht, 2002). Nobody, however, questions the need for restructuring Cuba's sugar agroindustry (Alvarez and Peña Castellanos, 2001, pp. 91–106). While the current plan being implemented appears to be appropriate, questions remain unanswered or have not been adequately addressed. For example,

  • the methodology used in selecting the best lands and most efficient mills to remain in production has not been explained (Was it based on economic criteria?).

  • the procedure followed for the clustering of lands and mills once the previous selection was completed also has not been explained.

  • no rationale has been advanced for how agricultural yields are going to almost double in just 2 years to reach 54 metric tons per hectare when they have been depressed for so many years with no apparent solution in sight.

  • although 4 million tons have been mentioned a few times, a definite sugar production goal has not been provided (How much sugar is going to be produced? What types of current trade commitments were chosen to target output?). This means that external demand may have been underestimated.

  • diversification efforts have not been adequately addressed. Most of the emphasis seems to be concentrated on food production on former sugarcane lands. Little has been said about new developments in by-products, derivatives, and energy that would increase Cuba's sugar agroindustry's efficiency and competitiveness.

  • no concrete plans on how Cuba's sugar sector is going to regain its profitability have been announced. A recent report analyzing the performance of the Basic Units of Cooperative Production in their first 10 years of operation (1993-2003) shows that more than half of these units are still unprofitable (MINAZ, 2003, p. 7).

  • Cuban Minister Rosales del Toro has stated that having more than 1 million hectares available for organopónicos and intensive gardens, mixed crops, beef and milk livestock development, and fruits is an enviable goal in today's world (Varela Pérez, 2003). This goal will require a tremendous effort that could very well divert resources and attention from the restructuring tasks.

The final concern involves the potential neglect of the restructuring process after the big push of the first years of implementation. It has happened with other gigantic plans and projects undertaken by the Cuban government (Alvarez, 2004). Even if the process is completed, it is doubtful that the Cuban sugar agroindustry will be able to switch back to higher levels of sugar output (as is done in Brazil) when world prices call for such a move.

The current restructuring has ended decades of internal debate concerning the role of sugar in the Cuban economy. However, despite depressed cyclical world sugar prices (which are not a new phenomenon anyway), the law of comparative advantage dictates that Cuba should remain a top world sugar producer. Lack of incentives has been identified as a key factor hindering the achievement of higher levels of productivity and economic efficiency. Perhaps that should be a priority area if Cuba's sugar agroindustry is to regain its former competitiveness.

References

Almazán del Olmo, Oscar. 2002. Viabilidad del Proyecto Azucarero Cubano (Feasibility of Cuba's sugar project). Revista Bimestre Cubana (Epoca III) XCII (17, July–December): 92–105.

Alvarez, José. 2004. Cuba's Agricultural Sector. Gainesville, FL: University Press of Florida. In Press.

Alvarez, José and Lázaro Peña Castellanos. 2001. Cuba's Sugar Industry. Gainesville, FL: University Press of Florida.

Associated Press. 2002. Reconvierten ingenio azucarero cubano con financiamiento externo (Cuban sugar mill is restructured with foreign financing). Havana, Cuba, November 8.

Frank, Marc. 2002a. Cuba will downsize sugar industry by 50 pct - minister. Transmission and Distribution World, June 18. http://tdworld.com/ar/agriculture_cuba_downsize_sugar/index.htm.

Frank, Marc. 2002b. Castro moves to calm Cuban sugar industry's worries. Forbes, October 22. http://www.forbes.com/business/newswire/2002/10/22/rtr761254.html.

Licht, F.O. 2002. Cuba seeks to revamp its sugar industry. International Sugar and Sweetener Report 134 (20): 309, 311–314.

MINAZ. 1999. Diversificación – Bases del Proceso de Perfeccionamiento del Complejo Agroindustrial Azucarero (Diversification - Basis of the process of improvement of the agroindustrial complex). La Habana, Cuba: Ministry of Sugar.

MINAZ. 2003. Informe Resumen de los Resultados Alcanzados por las UBPC Cañeras en el Período 1993-2003 (Summary report of the sugarcane UBPCs results in the 1993-2003 period). La Habana, Cuba: Ministry of Sugar and National Syndicate of Sugar Workers, October 31.

Peters, Philip. 2003. Cutting Losses: Cuba Downsizes its Sugar Industry. Washington, DC: Lexington Institute, December. http://www.lexingtoninstitute.org/cutting-losses-cuba-downsizes-its-sugar-industry.

Rosales del Toro, Ulises.2002. Intervención del Ministro del Azúcar a los Embajadores Extranjeros en Cuba Sobre la Restructuración del MINAZ (Oral presentation of the Minister of Sugar to foreign ambassadors in Cuba about MINAZ's restructuring). La Habana, December 5. Mimeo Report.

Varela Pérez, Juan. 2003. Restructuración Azucarera: El Compromiso de Dar Uso a las Tierras que Pasan a Otros Cultivos (Sugar restructuring: The commitment to use the lands transferred to other crops). Granma, October 25, 2003. http://www.granma.cu.

Tables

Table 1. 

Cuban mills after the 2002 restructuring process.

Table 2. 

Active and deactived sugar mills, 2003.

Footnotes

1. This document is FE472, one of a series of the Food and Resource Economics Department, UF/IFAS Extension. Original publication date January 2004. Revised August 2009. Reviewed June 2019. Visit the EDIS website at https://edis.ifas.ufl.edu for the currently supported version of this publication.
2. José Alvarez, professor, Department of Food and Resource Economics, UF/IFAS Everglades Research and Education Center, Belle Glade, FL.

Publication #FE472

Date: 8/4/2019

Fact Sheet

Contacts

  • William Messina, Jr.