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Historical Overview of Cuba's Costs of Sugar Production 1959-20051

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Historical Overview of Cuba's Costs of Sugar Production 1959-20051 Archival copy: for current recommendations see http://edis.ifas.ufl.edu or your local extension office. FE626 Historical Overview of Cuba’s Costs of Sugar Production 1959-20051 G.B. Hagelberg and José Alvarez2 The world is undergoing radical changes, characterized of humankind is as foolish as wishing to halt the movement by the growing interdependence of all countries and of the earth (Reynoso, 1998 [1862], p. 346). sharpened competition in liberalized markets. For Cuba, the closing years of the old millennium spelled the end of At the time this was written, Cuba produced roughly half an era and posed the challenge of adjusting its domestic a million metric tons of sugar annually and accounted for economic order to integrate the island into the global about 40 percent of the world’s cane sugar production and economy. Cuba’s sugar agroindustry was perhaps the most 30 percent of the total sugar supply (Deerr, 1949-1950). affected. Paradoxically, the sudden loss of its preferential Alvaro Reynoso, a polymath in the natural sciences, hardly arrangements abroad lent urgency to sweeping reforms touched on economic issues in his writings. However, he within, if it was to recover some of its former competitive summed up his recommendations of the best way to grow position, at the same time as the dependence engendered by sugarcane as follows: the previous privileged status rendered such reforms all the more arduous. ...the aim is to produce the ton of cane at the least possible cost and then to extract the maximum amount of sugar The great Cuban scientist Alvaro Reynoso (1829-1888) feasible, so that, after taking into account all expenses, we could not have foreseen the shape of the world today when can sell it profitably at the lowest price when we compete he wrote his famous sugarcane treatise almost a century in any market with all the world’s producers. That no one and a half ago. But his view of the international sugar trade be able to sell as cheaply as we is the goal to be achieved has a modern ring: (Reynoso, 1998 [1862], p. 346). By the nature of things, we had to face the advent of com- As recently as the late 1980s, Cuba was the world’s largest petitors in our market, since this was necessarily related to sugar exporter and the third largest sugar producer. Today, other nations developing their wealth. We can only aim for however, Cuba is no longer a leading sugar producer and equality of access, it being up to us to succeed with the low exporter, and it is questionable whether the Cuban sugar price of the product, which leads to increased consumption. industry can even hold on to a mid-ranking position. Proposing to obstruct the progressive evolutionary course This paper presents an historical overview of the costs of producing sugar in Cuba and suggests some guidelines 1. This is EDIS document FE626, a publication of the Food and Resource Economics Department, Florida UF/IFAS Extension, Gainesville, FL. Published March 2006. Reviewed January 2015. Please visit the EDIS website at http://edis.ifas.ufl.edu. This document is largely based on Hagelberg and Alvarez (2005), a chapter in a recent book (Pérez-López and Alvarez, 2005). The authors thank Lexington Books for granting permission to reproduce some parts. 2. G.B. Hagelberg (deceased), International Sugar Industry Consultant, Canterbury, England; and José Alvarez, Adjunct and Emeritus Professor, Food and Resource Economics Department, Everglades Research and Education Center, Belle Glade, FL, UF/IFAS Extension Gainesville, FL. The Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions or affiliations. For more information on obtaining other UF/IFAS Extension publications, contact your county’s UF/IFAS Extension office. U.S. Department of Agriculture, UF/IFAS Extension Service, University of Florida, IFAS, Florida A & M University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Nick T. Place, dean for UF/IFAS Extension. Archival copy: for current recommendations see http://edis.ifas.ufl.edu or your local extension office. for the future. First, however, it is necessary to set out the heart, then we must also have men who free their thought difficulties of assessing sugar production costs anywhere in of the peso sign (Cuba Socialista, No. 62, October 1966). the world and specifically in Cuba. The excursion into economic and financial know- Limitations of National Cost nothingism that followed was abandoned in the mid-1970s in favor of a so-called economic management and planning Estimates system (Sistema de Dirección y Planificación de la Economía, General Problems SDPE). The implementation of the new system was formal- ized at the first congress of the Cuban Communist Party in Attempting to quantify the costs of sugar production in December 1975. Castro declared that among the important any country is a thorny undertaking. All other things tasks that had been initiated since 1970 were “the partial being equal, unit fixed costs fluctuate from year to year, recovering of the economic controls and the emphasis in along with the size of the crop, at the mercy of the weather. cost accounting and cost reduction.” The SDPE, he said, Estimated national averages of fixed and variable specific recognized the existence of “the law of value,” and the need costs for any one year, moreover, hide great differences “to determine, to the last detail, how much we spend in between individual producers, owing to the diversity of everything we produce...” (Castro, 1978, pp. 111-112). their scale of operation, equipment, practices, and local conditions. No two sugar farms are alike, and few, if any, The system was also applied in the sugar agroindustry, sugar factories are designed and equipped the same way. but the available information is mostly descriptive of the The range and perpetual volatility of the numbers aside, the methodology that was to be followed (Suárez Guerra, 1983; cost picture is commonly distorted by implicit subsidies of Fernández Martín et al., 1984; Palencia Méndez, 1986). In production inputs. Standardized and reliable cost data are practice, by then, supports from the Soviet Union and other a rare commodity throughout the sugar world, and Cuba is members of the Council for Mutual Economic Assistance no exception. (CMEA) made cost a secondary consideration. Carlos Lage, in recent years the senior official overseeing Cuba’s Specific Problems Relating to Cuba as economy, has described the attitude prevailing at that time: Observed from Abroad “A cent more or less in costs wasn’t decisive when we were Measuring Cuba’s sugar production costs presents addition- paid 30 cents or more per pound [of sugar]” (Granma, al problems. Against the background of the country’s weak October 8, 2003). Confusion between bureaucracy and statistical tradition (Seers, 1964, p. 49), post-revolutionary necessary record-keeping became endemic, especially government policies have negatively impacted on the among sugarcane growers, sustained by resentment against quantity and quality of economic statistics. the close supervision exercised by higher authorities (Royce, 1996, pp. 55, 115, 128). SHACKLES IMPOSED BY IDEOLOGY AND SECRETIVENESS Cuba’s sugar ministry (MINAZ), for its part, responded to any improvement in the flow of data, if not their quality, Hopes that central control of the economy would boost the in the mid-1970s by reinforcing its control over access. A role of statistics and cost accounting in Cuba were dashed four-day seminar on state secrets in the sugar sector took when the collection and processing of data were conflated place under the chairmanship of the minister in December with bureaucracy, and economic and financial analysis 1976. A photograph of the event showed a banner, stretched fell under the suspicion of carrying seeds of disloyalty. across the wall behind the presiding functionaries, with the In a speech on September 28, 1966, Fidel Castro directly legend in Spanish: “The protection of state secrets is our denounced economic and financial scrutiny of the govern- contribution to the economy” (ATAC, 36 [1/1977], p. 22). ment’s policies: Restrictions of greater or lesser severity were maintained from then onwards, as attested to by several academic A financier, a pure economist, a metaphysician of the researchers (e.g. Edquist, 1985, p. xii; Pollitt, 1997, p. Revolution, would have said: “Careful! Don’t lower those 173). In contrast to the Ministry of the Economy and rentals by one cent, because financially, because economi- Planning, MINAZ evidently did not cooperate with the cally, because pesos more, pesos less.” Those persons have Economic Commission for Latin America and the Carib- a peso sign in the head and want the people also to have bean (ECLAC) in the preparation of its 1997 study of the a peso sign in the head and in the heart. And if we want Cuban economy, the sole acknowledgement of assistance a people that get rid of the peso sign in the mind and the in the section on the sugar industry being to the Grupo de Historical Overview of Cuba’s Costs of Sugar Production 1959-2005 2 Archival copy: for current recommendations see http://edis.ifas.ufl.edu or your local extension office. Países Latinoamericanos Exportadores de Azúcar (GEPLA- No outsiders – and only very few Cuban insiders – have CEA) (ECLAC, 1997, p. 283). While field costs have been insight into the real costs of the country’s sugar production. published in some detail, processing costs continue to be In this sense, the industry resembles a black box, where shrouded in secrecy.
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