SUGAR PRODUCTION AND THE GROWTH OF THE CUBAN ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004900090004-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 19, 2016
• Sequence Number: 4
• Content Type: REPORT

2 July 1965
Copy No. 52
SPECIAL REPORT
SUGAR PRODUCTION AND THE GROWTH OF THE CUBAN ECONOMY
CENTRAL INTELLIGENCE AGENCY
O F F I C E O F R E S E A R C H A N D R E P O R T S
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GROUP I Excluded from automatic
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SUGAR PRODUCTION AND TIIE GROWTH OF THE CUBAN ECONOMY
The growth of Cuba's economy depends to a very
large extent on production of sugar, which accounts
directly for about 25 percent of its gross national
product (GNP) and provides about 85 percent of its
foreign exchange income. This income is needed to
finance imports of virtually all its capital goods,
most of its fuels, a vital part of its raw materials,
and about one third of its foodstuffs. Thus, sugar
not only makes the largest single direct contribu-
tion to Cuba's GNP but, indirectly, it provides the
imported goods upon which all the rest of the econ-
omy depends.
The starting point for the analysis that fol-
lows is the working hypothesis that sugar produc-
tion will reach 10 million metric tons in 1970, the
goal set by current plans. The economic effects of
this growth in sugar production are then explored
in terms of two roughly limiting sets of assump-
tions: the least and the most favorable circum-
stances that may reasonably be expected to prevail
between now and 1970.
Estimates of Sugar Production
n import Capacity
Table I assumes the follow-
ing: that world sugar prices
will average about 2.5 cents per
pound during 1966-1970; that
sugar exports to Communist coun-
tries other than the USSR will
remain at about 1.0 million met-
ric tons while exports to the
USSR will rise after 1968 to the
5.0 million tons called for by
the 1964 Cuban-Soviet agreement;
that sugar exports to the free
world will remain at about 2.0
million tons until exports to
the bloc reach their maximum;
finally, that aid to Cuba from
the Communist countries will be
reduced gradually and in propor-
tion to the increasing value of
Cuba's exports. There is one
modification to the free world
price assumption, i.e., that the
sharp increase in sales to the
free world in 1970 will depress
prices to 2.0 cents per pound.
Table II assumes: first
that free world prices will im-
prove in 1966--probably as a re-
sult of re-establishment of the
quota system under the Interna-
tional Sugar Agreement--a.nd will
average about 3.5 cents per
pound during 1966-1970; that
Cuba will maintain exports to
the free world at about 2.0 mil-
lion tons, either voluntarily or
as a result of the workings of
a new quota system; that the
Communist countries will absorb
all of Cuba's increased exports
and, finally, that aid from Com-
munist countries will remain
at the $225 million estimated
for 1965.
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TABLE I Economic Significance of Rising Cuban Sugar Production Under Least Favorable Assumptions
Total Capacity to Import
(Millions US Dollars)
Year
Sugar
Production
Volume
to Bloc
Volume to
Free World
Bloc
Aid
From
Bloc
From
Free World
Total
(1,000 MT)
(1,000 MT)
(1,000MT)
(Million US $)
1965
6,000
3,500
2,000
225
745
170
915
1966
6,500
4,000
2,000
165
745
150
895
1967
7,000
4,500
2,000
100
745
150
895
1968
8,000
5,500
2,000
--
775
150
925
1969
9,000
6,000
2,500
--
840
180
1,020
1970
10,000
6,000
3,500
--
840
195
1,035
TABLE II Economic Significance of Rising Cuban Sugar Production Under Most Favorable Assumptions
Total Capacit
(Million U
y to Imp
S Dollar
ort
s)
(1,000 MT)
(1,000MT)
(1,000 MT)
(Million US $)
1965
6,000
3,500
2,000
225
745 170
915
1966
6,500
4,000
2,000
225
805 195
1,000
1967
7,000
4,500
2,000
225
870 195
1,065
1968
8,000
5,500
2,000
225
1,005 195
1,200
1969
9,000
6,500
2,000
225
1,135 195
1,455
1970
10,000
7,500
2,000
225
1,260 195
1,455
Past Cuban Imports For Comparison
(Million US Dollars)
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Both tables assume that
domestic consumption will remain
at about 500,000 tons annually;
that Communist countries will
continue to pay about 6 cents
per pound for Cuban sugar; and
that other exports will continue
to earn about $100 million an-
nually--$60 million from Com-
munist countries and $40 million
from the free world. To permit
comparison with the past, Table
III gives annual import totals
for 1955-58 and 1962-63 and es-
timates imports last year at
almost a. billion dollars, up
from $633 million in 1955.
Of the various assumptions,
those relating to prices and to
Communist aid policy are the
most critical in estimating which
of the limits will come closest
to reality.
With respect to the price
paid by the Communist countries,
there is no credible evidence
that the principal bloc pur-
chasers--the USSR and Communist
China--now intend to adjust
their buying price of 6 cents
per pound. How long this situa-
tion will continue, however, is
open to speculation.
The free-world price of 2.5
cents per pound assumed in Table
I probably is too low. The spot
price is now about 1.8 cents a
pound, but prices currently being
quoted in 1966 future markets
range between 2.6 cents for March
and 3.0 cents for October. Fur-
ther, there is considerable in-
terest (even on the part of the
Cubans) in the restoration of a
marketing quota system under in-
ternational agreement; if re-
stored, such a system would help
to revive prices. It probably
will be difficult, however, to
achieve a radical improvement.
The present International Sugar
Agreement called for a minimum
price of 3.25 cents per pound
which its quota system sought to
maintain. Nevertheless, during
the three years before that quota
system was suspended at the end
of 1961, the minimum price was
rarely achieved. Prices per
pound averaged 2.98 cents in
1959, 3.10 cents in 1960, and
2.91 cents in 1961.
On the question of Commu-
nist aid, there is virtually no
evidence that can be called upon
for guidance concerning the al-
ternate assumptions made in the
tables. For 1965, at least, the
USSR did maintain its aid com-
mitment to Cuba. at the 1964 level,
even though significant increases
in sugar exports were clearly
expected. But this obviously is
no guarantee that the same pat-
tern will hold throughout the next
five years.
Concerning the hypothesis
that sugar production will reach
10 million tons by 1970, about
all that can be said is that the
industry is making a good recovery
from the depressed levels of re-
cent years. From a. low point of
3.8 million tons in 1963, sugar
production rose to 4.6 million
tons in 1964 and evidently has
approached 6.0 million tons in
the harvest now being completed.
At this point, there appears to
be a good chance that output will
increase to 6.5 million tons in
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1966. Beyond that, it is dif-
ficult to forecast.
There is little doubt that
Cuba has the agricultural poten-
tial to grow 10 million tons,
but harvesting capacity can be
expanded only by extensive mech-
anization. In order to harvest
this year's crop, extra. labor
had to be recruited from almost
every sector of the economy.
This expedient solution to the
harvesting problem obviously
has its limit, and Cuba is prob-
ably approaching it. Mechaniza-
tion, moreover, has met with only
limited success thus far. The
most important step in this di-
rection was taken this year with
the introduction of 500 cane
combines into the harvest. Cuban
officials admit, however, that
the combines are still only in
the experimental stage. In short,
it is still too early to say
whether or not harvesting com-
bines can be developed to work
satisfactorily and supply a
major impetus to sugar produc-
tion under Cuban conditions.
Imports and Economic Growth
Data on Cuba's foreign
trade in the pre-Castro period
indicate that from the late
1940s through the late 1950s,
imports increased at an average
rate of about 5.5 percent an-
nually. During the same period,
Cuban GNP grew at an average
annual rate of approximately 3
percent. This suggests that at
the present stage of Cuba's de-
velopment a given growth rate
for GNP may require a somewhat
higher rate of increase for im-
ports.
The relationship between the
two growth rates is obviously not
fixed, however. To the extent
that Cuba emphasizes the growth
of its agricultural sector, which
requires a relatively small input
of imported materials, the rate
of increase in GNP should rise
relative to the increase in im-
port capacity. Further, if
growth in either industry or ag-
riculture results in competitive
domestic output of products for-
merly imported, this will also
increase the rate of growth in
GNP relative to import growth.
Cuba's current emphasis on
agricultural development should
produce more GNP growth for a
given import rate, but little
priority is being given to re-
placement of imports by domestic
production. Some import sub-
stitution is being developed in
the textile industries. Food
production, however, is being
hurt by expansion of the sugar
sector. Production of several
basic foodstuffs such as rice,
corn, a.nd beans has already de-
clined, and cotton production
evidently has been cut. Import
substitution in textile manufac-
ture therefore will be largely
offset by the need for larger
food and raw fiber imports over
the next few years.
Inspection of Table I shows
that, if the least favorable cir-
cumstances prevail, the level of
imports will tend to stagnate over
the next five years. Further,
since rising sugar production
would require some increase in
imported supplies, imports for
other areas would need to be cut.
Thus, general development of the
economy would be strangled.
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Table II presents a sharp
contrast. The average annual
increase in imports projected
under the most favorable assump-
tions is nearly 9 percent,
enough to support a consider-
able growth of the whole economy.
Potentials of
Import substitution
A brief commentary needs to
be added concerning the conse-
quences if sugar production fails
to reach the 10-million-ton goal.
Cuba presently has no other ex-
port commodity that could sustain
adequate growth of import capac-
ity and no prospect of develop-
ing one within the next five
years. If it proves impossible
to push sugar production above
some Limit considerably short
of 10 million tons, then the in-
crease of import capacity will
be cut short even under the most
favorable circumstances.
It would be a mistake, how-
ever, to conclude that the pos-
sibility of economic growth would
necessarily be short circuited.
As suggested earlier, import sub-
stitution offers Cuba an alternate
route to economic development,
at least temporarily. Cuba could
divert resources from further ef-
forts to expand sugar into the ex-
pansion of other sectors of agri-
culture or into industry; such a
policy might not increase exports
but it could reduce the need to
import many foodstuffs and some
manufactured goods. Import sub-
stitution of this type which is
reasonably competitive has the
same economic effect as an in-
crease in exports. Of course,
for a country like Cuba, with a
relatively small internal market
and a number of resource con-
straints, import substitution has
its limits. But for a term of,
say, five to ten years it could
provide an adequate channel for
further economic development.
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