Washington Insider -- Friday

Discovering Cuban Trade

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Sugar Program Reformers Plan Next Steps

Two long-time proponents of U.S. sugar program reform –– Rep. Joe Pitts, R-Pa., and Sen. Jeanne Shaheen, D-N.H. –– reportedly are planning to take another run at altering federal supports for sugar. Reuters reports that Shaheen may offer an amendment that would cut funding for loans to sugar processors with more than $300 million in revenue. Meanwhile, Pitts wants to cap sugar support loans at $40 million annually.

Program supporters say the sugar program ensures stable supplies and typically operates with no or limited net costs. Pitts said the "no-cost" argument cannot withstand scrutiny after sugar processors defaulted on loans two years ago and program costs swelled to more than $250 million.

There are fewer than 5,000 U.S. sugar beet and sugarcane producers, but their industry is the largest single agricultural contributor to federal election campaigns. The political power represented by these contributions is what has kept the sugar program running for decades, and can be expected to prevail in this latest round of proposed reforms.


House Members Pressure Canada on Dairy Program

Some prominent members of the House say that if Canada does not significantly reform its dairy program then it could be dropped from the proposed Trans-Pacific Partnership (TPP) free trade deal. House Ways and Means Chairman Paul Ryan, R-Wis., and Agriculture Committee Chairman Mike Conaway, R-Texas, head a list of 21 bipartisan House members who warned Canada in a letter Wednesday that it could be dropped from the proposed TPP if it does not open its market to more dairy products.

Canadian government officials have said repeatedly that they would provide details of the country's TPP negotiating positions and offers once Congress granted President Obama Trade Promotion Authority, also known as fast track. Congress has done so, but details regarding Canada's positions so far have not been forthcoming.

There is general agreement among the 11 other nations in the TTP talks that Canada should be part of the final agreement. But that support is conditioned on whether Canada is willing to jettison its protectionist supply management regime for dairy, poultry and eggs. The next move is up to Canada.


Washington Insider: Discovering Cuban Trade

The Washington publication Politico says most Americans are surprised by the importance of current U.S. trade with Cuba — although that certainly is less true in the area of agriculture. So, reporters there are setting about bringing the business world, mainly, up to speed about the Cuba trade reality and its potential.

First, U.S. firms already export hundreds of millions of dollars' worth of goods annually to Cuba. This trade flow currently is only one way since it is still illegal for Americans to buy Cuban goods. Current sales include wheat, meat, corn and other agricultural commodities which move under a special series of humanitarian exemptions. And according to U.S. Census Bureau records, there's also a modest trade in musical instruments, jewelry and stereo equipment.

Politico notes that agricultural groups anticipating a large payoff and have already visited Cuba looking for opportunities to expand grain and other exports if the embargo is lifted. In 2014, Cuba imported more than $6 billion worth of goods, including almost $500 million worth of corn and wheat. However, despite U.S. proximity, U.S. exporters captured just 5% of the market.

John Block, secretary of Agriculture in in the Reagan administration, told the press following the visit, "If [Cuba] goes to Vietnam to get their rice, you've got to know it's not the best idea in the world. If we can get trade opened up — and we're going to need legislation — and also make it possible for them to work with companies to get financing when they need it, then I think we're going to positioned where instead of selling to Cuba $200 million worth of products, we can be over $1 billion worth of product in a year."

The list of humanitarian exports allowed under the current law is extensive. "The way they [the U.S. government] define it is food for human and animal consumption," said Linda Weinberg, a partner at a law firm in Washington, who focuses on international trade and export issues. She added that all medicines approved by the U.S. Food and Drug Administration also likely would be approved for export to Cuba.

Despite the recent thaw, some U.S. exports to Cuba have fallen recently. In 2008, the U.S. exported nearly $200 million worth of corn to Havana. In 2014, that number had fallen to less than $30 million.

A major impediment to trade now is the rule requiring that Cuban importers pay cash-in-advance for U.S. goods. The lack of access to credit is particularly limiting for a poor country like Cuba, observers note.

The Obama administration has already watered down that requirement slightly by changing the exact definition for cash-in-advance. But it will take an act of Congress to remove it entirely, just as it will take legislation to eliminate the embargo.

Farmers hope that such action will be forthcoming, but know that congressional opposition still runs high in parts of the Republican Party. "There are several bills before Congress to ease the embargo," Rob Elliot, the first vice president of the National Corn Growers Association, said in a statement. "NCGA will continue to educate Congress on the importance of the US-Cuba relationship."

In the meantime, farmers will still seek ways to export to Cuba even with the embargo in place.

The fact is that Cuba now is both a modest market with constrained access for U.S. products. Clearly, if the remnants of the long embargo are lifted, the island could become much more prosperous and depend increasingly on trade for many, many products it has little advantage in producing locally, including food.

Thus, the politics of ending this geopolitical anachronism likely will continue to be bitter. But Cuba has strong potential to become a much larger and growing market for agriculture, rather than a limited, shrinking one as is now the case, Washington Insider believes.

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