U.S. Policy Changes Toward Cuba Could Boost Agriculture and Food Exports

On December 17, 2014, President Obama announced the beginning of normalization of relations with Cuba. The Office of Foreign Asset Control (OFAC), U.S. Department of the Treasury, will soon issue new rules to implement the President's policy changes.

Full normalization of relations with Cuba, including the lifting of the general trade and investment embargo, will require the approval of Congress which does not seem likely in the near term.

Food and Agriculture Exports

The announced policy changes should provide a boost to U.S. agricultural and food exports to Cuba. Although there has been a narrow exception from the general trade embargo for shipments of food and agricultural products and medical devices under the Trade Sanctions and Export Enhancement Reform Act (TSRA) of 2001, the terms for making such sales have been awkward, inefficient and expensive for the Cuban buyer, putting U.S. goods at a competitive disadvantage. These terms have included payment through third-country banks and payment of cash in advance of shipment.

Banking Relationships

New U.S. policy will include direct banking between U.S. and Cuban banks and transfer of title to U.S. goods upon receipt of payment no longer requiring payment of cash in advance.

U.S. banks will be allowed to develop correspondent banking relationships with Cuban banks. Money transfer between Cuban and U.S. banks will now be permitted. Although it may take a little while for U.S. banks to develop relationships with Cuban banks, eventually a U.S. exporter should be able to sell U.S. goods under a letter of credit issued by a Cuban bank and confirmed and guaranteed by a U.S. bank. These changes will allow U.S. agricultural and food commodities to compete for Cuban business on the same basis as goods from competitor nations like Canada, Brazil and the European Union.

Tourism

Changes announced this week also include expanded travel for all Americans under a "general license" to be issued by OFAC. The amount of Cuban goods, including cigars, that U.S. tourists can bring back to the United States will be increased. Greater tourism will result in increased foreign exchange earnings, which will contribute to increased demand for food and agricultural products in Cuba.

Advantage for the U.S. Agriculture Sector

Cuba is a country with a population of only 11 million people. It is a relatively small market for U.S. agriculture, but one that American goods should dominate because of its close proximity to the U.S. Changes in U.S. policy announced this week should help the U.S. attain its naturally competitive position in the Cuban market.