Friday, March 26, 2010

Cuba eyes foreign investment to halt sugar decline

Cuba eyes foreign investment to halt sugar decline
Published on Friday, March 26, 2010
By Marc Frank

HAVANA, Cuba (Reuters) -- Cuba may open sugar production to foreign
investors for the first time since the 1959 revolution as it seeks to
reverse the once proud industry's relentless decline, business sources
said this week.

Talks between investors and the government have come and gone with
little result for years, but what is shaping up as perhaps the island's
worst harvest in a century has increased interest in bringing foreign
partners, the sources said.

Cuban peasants weed a sugar cane field in Alquizar, near Havana. AFP PHOTO
Their money and management know-how could help revive a sugar industry
that has collapsed from neglect and the decapitalization of mills and
plantations, local experts and foreign traders said.

President Raul Castro, who took over from ailing brother Fidel Castro
two years ago, is trying to right communist Cuba's cash-strapped economy
by increasing exports and cutting imports.

Sugar, once the driver of Cuba's economy, now accounts for less than 5
percent of Cuba's foreign earnings, but prices have been driven up by
ethanol demand, so Cuba is turning to it once again.

A Cuban source with knowledge of the sugar industry said the government
has been seriously exploring foreign participation for several months.

"The executive Committee of the Council of Ministers approved plans to
pursue talks last November, and again this year to sign administrative
agreements," the source said.

Foreign banking and other business sources confirmed talks were
advancing toward agreements that would have investors jointly administer
several mills and share in the production for a limited number of years.

The sources would not name the various companies involved or provide
further details.

Similar agreements already exist in the citrus industry, where
Panama-based Israeli investors jointly operate juice plants with the

Theoretically, the state-run sugar industry has been open to direct
investment since 1995, but in practice there has been little interest on
the government's part except in a few joint ventures making sugar
derivatives such as alcohol and parts used in sugar processing, the
sources said.

A big obstacle is the US Helms-Burton law, which penalizes investment in
properties expropriated from US owners and contains a yet-to-be
implemented chapter allowing Cuban-Americans to sue investors who
"traffic" in their expropriated properties.

All but eight of Cuba's mills were built before the revolution and
therefore nationalized, and most plantations are lands expropriated by
the government after Fidel Castro took power in 1959.

Foreign investors are forbidden by law to own land in Cuba, and do not
need to own anything for the proposed sugar ventures, said a local

"There is little need for investors to own land. In fact, it is in their
interest to simply administer mills, provide farmers with technology
packets and process the cane," he said.

Cuba was once the world's biggest sugar exporter with raw output
reaching 8.1 million tonnes in 1989, but the industry went into decline
after Cuba's top ally for 30 years, the former Soviet Union, collapsed
in 1991.

The Soviet Union paid padded prices for Cuban sugar to boost the
island's economy, so its demise hit Cuba and the sugar industry hard.

Cuba shut down and dismantled 71 of 156 mills in 2003 and relegated 60
percent of sugar plantation land to other uses.

More mills have closed since then, with just 44 mills open this season.
Another 20 have been maintained in working condition for future use.

Only 1.7 million acres (700,000 hectares) of the over 5 million acres (2
million hectares) once controlled by Cuba's Sugar Ministry are currently
dedicated to sugar cane.

Cuba planned to produce 1.3 million tonnes of raw sugar this season, but
milling problems and low yields have resulted in a shortfall of more
than 100,000 tonnes to date.

With the harvest scheduled to end by May, Cuba is in danger of reaching
its lowest output since 1908, when 1.2 million tonnes of sugar were

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