Development & Aid, Economy & Trade, Food and Agriculture, Headlines, Latin America & the Caribbean

CUBA: Foreign Investors Keen on Sugar Production

Patricia Grogg

HAVANA, Aug 29 2008 (IPS) - Foreign direct investment in the sugar industry is acceptable to the Cuban government for producing alcohol and other derivatives, but it continues to be a topic that the authorities prefer not to talk about, at least in public, although experts regard it as desirable for the recovery of the industry.

At present there are seven joint ventures involving capital from Spain, Italy, Canada and Mexico, all of which concentrate on the diversification of the sugar industry, Liobel Pérez, the Sugar Ministry’s chief communications officer, told IPS.

Pérez said six of the joint ventures between Cuban and foreign capital are based in this Caribbean island nation, and one is based in Mexico, where it markets technological expertise and technical assistance for optimising sustainable sugar production.

Discreet approaches made some two years ago by foreign companies interested in investing in sugar production did not prosper. “Conversations were held, but they did not produce concrete results,” Deputy Minister Juan Godefoy of the Sugar Ministry responded to an enquiry by IPS, without elaborating.

At the time, according to experts, no agreement was reached, among other reasons because the investors held out for greater decision-making power over the use of funds, although these reports were not confirmed by the government.

When Cuba began to restructure its sugar industry in 2002, it closed down about half of its sugar mills and reduced the crop area under sugarcane, citing the goal of boosting efficiency in the face of the steady decline of international market prices.

Of the 156 sugar mills in operation prior to the beginning of this decade, only 61 are now working. Prices began to improve in late 2005, and the Cuban government responded by devoting extra resources to reactivating the sector and increasing the area under sugarcane cultivation.

The sugar harvest this year was between 1.4 and 1.5 million tonnes, enough to satisfy domestic demand as well as the promised shipment of 400 million tonnes to China, and even providing a small surplus for export to other markets, experts say.

In 2006 and 2007, output stood at around 1.2 million tonnes, and the country was forced to import between 200,000 and 250,000 tonnes each of those years to supply the needs of its 11.2 million people.

According to experts, the poor harvests were due to the decapitalisation suffered by agroindustry over the past 14 years, which drove agricultural machinery and truck transport to the verge of collapse. There have also been technical problems with sugar agroprocessing equipment, as well as adverse climate factors, the experts say.

Given this context, “agroindustrial recovery would have greatly benefited if foreign capital had been allowed to participate on a greater scale, particularly in sugar production,” researcher Armando Nova wrote in an article on the subject.

The Cuban government strategy for sugar, which for many years was the mainstay of the island’s economy, is that it is now only one among many of the industry’s products.

“We cannot produce just sugar any more, no one in the world is doing that,” Luis Gálvez, the head of the Cuban Sugarcane Derivatives Research Institute, said in mid-August.

He told journalists that Cuba is “not against alcohol,” although he criticised the sidelining of food production by biofuels. Gálvez stressed the many different uses of ethanol (alcohol) in foods and medicines.

ALFICSA, the Cuban-Spanish joint venture that produces and sells extra-fine sugarcane spirits, is so far the only company with foreign investment in alcohol, a sugar fermentation subproduct that Cuba hopes to develop by modernising 11 distilleries.

Joint ventures with new foreign partners have not been ruled out in plans for these enterprises.

Sugarcane is the raw material for a host of derivatives used in the food, chemical, pharmaceutical and biotechnology industries.

Animal feed, resins, preservatives, plastics and inputs for pulp and paper mills and furniture factories are among the useful byproducts that add value to sugarcane production.

Within its strategy for the reconversion of the sugar industry, Cuba hopes to reactivate and expand the derivatives side of the industry, which was interrupted in the 1990s by the crisis following the demise of the Soviet Union, the island’s main economic and trading partner, and the fall of the East European socialist bloc.

Cuba is developing part of its sugar industry reconversion process, where it welcomes foreign capital, in partnership with Venezuela, to which Cuba has transferred ownership of 11 formerly disused sugar mills that have been modernised, as well as technology used in the derivatives industry, especially for producing animal fodder.

Foreign direct investment in Cuba, focused on the search for new external markets, competitive technologies and financing (mainly long term), is regulated by a 1995 law and requires authorisation from the Council of State executive committee, or the relevant Council-appointed government commission.

There are currently 319 foreign companies operating in Cuba, 75 percent of which are joint ventures with the state.