CENTER FOR LATIN AMERICAN STUDIES AND INSTITUTE FOR FOOD & AGRICULTURAL SCIENCES, UNIVERSITY OF FLORIDA

Cuba‐US Agricultural Research Working Paper Series, Working Paper #6

DRAFT: July 28, 2017

Provisioning Cuba’s Private Restaurants: Insights on the

Impact of the Expanding Tourism Industry

Carmen Diana Deere and Frederick S. Royce

Introduction

The total number of international tourists visiting Cuba reached 4 million in 2016, increasing by 60% since 2010. Part of this increase is due to the normalization of relations between the United States and Cuba, with the number of US‐based travelers visiting the island increasing by 34% just between 2015 and 2016 (Whitehead 2017). This spurt in US travelers has been supported by the opening of US commercial airline flights to Cuba, with some 155 flights a week authorized as of September 2016, in addition to the approval of port calls by US cruise ships (Tkaczyk 2016).

The largest number of tourists to Cuba are Canadians, followed by Europeans (in descending order, Germans, British, French and Italian) and Cubans from the diaspora (irrespective of country of residence) (ONEI (a) 2016: Table 28). A major difference between Canadian and US tourists is that whereas the former tend to visit Cuba for beach vacations, US visitors tend to spend more time in the capital city of Havana and touring the country (Perelló 2015). This is not because US visitors are any less interested in beaches, but rather, reflects the fact that visits to Cuba by US citizens and residents of non‐ Cuban origin are restricted by US regulations to twelve categories of approved travel (with the majority engaging in educational travel or “people to people” exchanges) which excludes pure leisure travel.

The different destinations require different types of tourism infrastructure. Most of the beach tourism is concentrated in all‐inclusive resorts owned by Cuban government entities, sometimes under joint ventures or management contracts with foreign firms. Urban‐based tourism, in contrast, has supported the development of Cuba’s private sector, specifically, guesthouses and the private restaurants known as paladares (Perelló 2015). The state has gradually relaxed the regulations governing these kinds of self‐employment activities (known as cuenta propista or “own account” activities), partly in response to the shortage of hotel rooms and restaurants to accommodate the growing number of visitors to the island.

In 2012, there were an estimated 1,618 private restaurants and 5,207 private homes renting out rooms throughout the island (Peters 2012). Feinberg and Newfarmer (2016) estimate that in 2015 guesthouses provided about one‐quarter of the total rooms available to tourists, with some 16,000 of the 22,000 rooms serving international tourists (i.e., they require payment in convertible Cuban pesos, known as CUC). AirBnB, which opened operations in Cuba during 2015 with only 1000 listings, had over 4000 by 2016 (Farley 2015; Feinberg and Newfarmer 2016). The number of paladares has fluctuated

1 considerably, since not all are successful. Feinberg and Newfarmer estimate that in 2016 there were over 1700 of these private restaurants operating nationally, with about 500 of them located in Havana, the primary tourist site. A mid‐2017 report puts the total number nationally at around 2000 (Cuba Debate 2017).

This paper focuses specifically on the paladares, and the question of how these private restaurants provision themselves with foodstuffs. This question is important for three reasons. First, since the late 1960s, market processes have played a minimal role in Cuba’s socialist economy, with food distribution largely taking place through state channels, at prices fixed by the state. Second, Cuba has traditionally been a food‐importing country, and between 2011 and 2015, food and beverage imports ranged from 13% to 17% of its total import bill.1 For tourism to be a successful development strategy requires successful import substitution efforts, particularly of foodstuffs that can be grown in Cuba; i.e., the net foreign exchange generated by this activity must grow. Third, given the Cuban government’s commitment to meeting the basic needs of its population, a successful food import substitution strategy geared to increased tourism earnings cannot come at the expense of domestic food availability. We do not attempt in this paper to assess the total impact of tourism on domestic food supplies, since we do not have access to the data required for such an exercise. Nonetheless, by focusing on one particular— albeit, small—segment of total tourism activity, the paladares, we hope to provide insights into this broader question.

This paper draws upon qualitative fieldwork carried out by us in Havana during January and April 2017. We interviewed the owners, chefs and/or managers of 13 paladares geared to international tourists in four districts of the city. We also carried out participant observation in 17 agricultural markets (agromercados), representing the main types of fresh produce markets now operating in Havana, along with three state supermarkets that supply imported foodstuffs. The aim of these market visits was to collect information on product availability, quality and prices.

In the next section, we provide a summary of Cuba’s changing regulatory framework that has fostered growing numbers of people becoming own account workers in occupations serving the tourism sector, along with the expansion of markets and decentralized contractual relations. This is followed by the presentation of our main results regarding how the paladares supply themselves, including the imported products upon which they continue to rely. Next, we draw upon the price information collected in Havana markets to analyze how prices vary by type of market, and then analyze in further detail the main provisioning problems reported by the paladar owners and chefs. Finally, we consider the impact of the paladares and the growth of tourism on domestic prices, and then conclude.

Cuba’s changing regulatory framework toward the market and self‐employment

1 Derived from ONEI (b), Anuario Estadístico de Cuba. Sector Externo, for 2014 and 2015, Table 8.12. This estimate includes oils and fats as well as all beverages. The share increased in 2015 to 17% primarily because total imports fell drastically that year as a result of Cuba’s acute foreign exchange shortage once petroleum imports from Venezuela were reduced (as a result of that country’s economic crisis) which also caused a reduction in Cuban re‐ exports of petroleum products. No reliable estimates are available on Cuba’s current degree of food import dependence (food imports as a share of total food availability), although the figure of 60% to 80% is frequently cited in press reports. See the discussion of this issue in Altieri and Funes‐Monzote (2012).

2

With the fall of the Berlin Wall in 1989 and the subsequent dismantling of the socialist trading bloc, Cuba entered what is known as the Special Period in Peacetime, a period of extreme economic contraction, shortages and sacrifice. It was in this context that the state opened the door in 1993 to licensed self‐employment activities.2 Among the occupations now allowed was the operation of guest houses and small restaurants in people’s own homes. The paladares were limited to 12 seats and could only employ family members. Moreover, they were forbidden from serving beef or seafood, items in particularly scarce supply.

At this same time, to address the drastic fall in agricultural production, the decision was taken to decentralize Cuba’s huge state farm sector through the creation of Basic Units of Cooperative Production (UBPC), and the leasing of unused state land.3 The new UBPCs were to be modeled on the relatively successful Agricultural Production Cooperatives (CPA) which had been organized on non‐state lands since the late 1970s. The CPAs had been formed by individual farmers, most of whom had previously been members of Credit and Service Cooperatives (CCS), pooling their lands to work these collectively.

These measures were followed in 1994 by the re‐opening of free agricultural markets, where prices are determined by supply and demand.4 Cuba had experimented with free peasant markets from 1980 to 1986, but these had been closed, among other reasons, due to the high prices and the corruption that they had encouraged (Deere and Meurs 1992). These had subsequently been replaced by an expanded state “parallel” market, where non‐rationed foodstuffs could be purchased at higher prices which were adjusted depending on supply and demand. Under the difficult conditions of the Special Period, Cuba’s production of foodstuffs had fallen drastically, and most items were returned to the ration card (García and González 2016).

The re‐opening of free agricultural markets in the mid‐1990s was viewed as a necessary measure to stimulate agricultural productivity and rein in the black market in foodstuffs that had emerged, and only secondarily as the means of provisioning the new private restaurants and guest houses (which tend to operate as B&Bs, providing breakfast). These new markets differed from the peasant markets of the 1980s in that they were to be supplied by the above‐plan production (or unplanned production) of all types of production units, not just that of CCS and CPA members and their representatives.

Due to what were considered the very high prices in what came to be called the supply and demand markets, beginning in 1999 the state began to operate new state agricultural markets (Mercados Agropecuarios Estatales, MAE), similar to the state parallel markets which had operated in the 1980s, with fixed maximum prices.5 The state procurement agency, Acopio, was authorized to purchase above plan production at higher prices than offered for planned production, in the hope that with this price incentive farmers and cooperatives would direct their surplus production to the MAEs rather than the

2 Decree Law 141 of September 1993 and Joint Resolution #4 of June 1995. See Ritter and Hanken (2015) for a detailed treatment. 3 Decree Law 142 of 1993 and Accord 2708 of 1993 of the Council of Ministers, respectively. See Deere, Pérez and González (1994) for a detailed examination of the reforms attempted in the state farm sector during the Special Period, and Nova (2015) for a longer‐run perspective on their efficacy. 4 Decree Law 191 of 1994. 5 The state agricultural markets were complemented by those run and supplied directly by military personnel dedicated to agricultural production, known as the Ejercito Juvenil del Trabajo (EJT).

3 supply & demand markets, putting a lid on the rising level of prices. According to García and González (2016), these measures were initially relatively successfully in increasing total agricultural market sales and maintaining food prices relatively stable, but from the mid‐2000s on both production and prices fluctuated considerably.

The number of paladares initially expanded fairly rapidly, catering primarily to a Cuban clientele. The government, however, remained ambivalent if not hostile to the role of self‐employment activities in the Cuban economy. The private restaurants were often times harassed through what were considered excessive inspections to make sure they were complying with the many regulations, and not infrequently, were shut down for violations (Scarpaci 1995). Moreover, taxes and fees tended to be onerous. By the end of the 1990s their numbers had dwindled and the remaining paladares focused on international tourists who could pay their relatively high prices (Ritter and Henken 2015).

After Raul Castro assumed the presidency in 2008 there was renewed attention to the potential role of self‐employment activities in raising the productivity of the Cuban economy. This was accompanied by a growing recognition of the potential importance of tourism in Cuba’s future growth strategy. Both factors contributed to a change in the regulations governing the paladares as part of a 2010 package of reforms governing self‐employment activities.6 Paladares were now allowed to expand their seating to 20, and for the first time could directly employ wage workers; they were also allowed to serve beef and seafood. These moves were accompanied by other new regulations that facilitated their expansion in number and size, such as new real estate regulations that allowed rentals as well as the purchase and sale of places of business as well as dwellings,7 and the expansion of their seating capacity from 20 to 50 (Peters 2012).

In 2011 the Cuban Communist Party undertook a major review of state economic policies, leading to the Lineamientos, or the proposed socio‐economic framework for “updating” Cuban socialism (CCP 2011; Mesa Lago and Pérez Lopez 2014). Among the measures that were implemented immediately were several to support the expanding tourism sector. Henceforth, the agricultural cooperative sector (CCS, CPAs and UBPCs) could contract directly with tourism entities,8 rather than only via Frutas Selectas, a specialized procurement agency that supplies the tourism sector, principally the state‐owned hotels and restaurants.9 Subsequently, in 2013 this measure was broadened so that individual farmers (including the new sector of “usufructuarios”, those renting individual land parcels from the state10) could contract directly with hotels and restaurants (Puig 2013; Puente 2014; El Productor 2016a).

Concomitant with the above changes, the state also revamped its agricultural pricing policies, aiming to eliminate state subsidies on inputs and equipment in order to bring domestic prices more in line with the international price of inputs. This has required increasing farm gate prices, so that they reflect the new costs of production plus a reasonable profit (Tamayo 2015; Cuba Debate 2015). This may have been

6 These various resolutions are contained in Gaceta Official Extraordinaria, No. 11 and 12 of October 1 and 8, 2010. 7 The sale of dwellings and places of businesses is contained in Decree Law 288 of November 2011. 8 Ministry of Agriculture Resolution 122 of November 2011. 9 Established in 1976, in 2013 Frutas Selectas was supplying approximately 35% of the demand for foodstuffs of the 259 hotels and 226 restaurants with whom it contracts, purchasing the output of 640 production units (Opciones 2014). 10 See García, Nova and Anaya (2014) on this expansion.

4 one of the factors driving the increased retail prices reported in late 2015. In May 2016 the state set new maximum retail prices to govern the state agromercados (MinFinanzas 2016; El Productor 2016b).

The bulk of agricultural production in Cuba continues to be distributed through non‐market channels. In 2011, of the total reported domestic production of fruits, vegetables, tubers and grains of 6.5 million tons, only 8.4% was sold through the various agricultural markets. The majority, 56.1%, was contracted by state agricultural procurement agencies for distribution; 19.6% was consumed on farm as self‐ provisioning (including sales to workers and/or cooperative members), and 15.9% corresponded to “other” uses, principally seed stock and animal feed (derived from Nova 2013: Annex 6).11 Of the production which is contracted by the state agricultural procurement agencies, a good part of the staples (such as rice and beans) is distributed through the state rationing system, where fixed quantities are guaranteed to all Cubans at very low prices. Another part is destined for social provisioning, such as allocations to schools and hospitals, or public provisioning (such as workplace cafeterias) as well as deliveries to agro‐industry. Included in this sub‐total is what is procured by Frutas Selectas for the state tourism sector.

Graph 1 shows the distribution of agricultural products by type of retail market, differentiating between state markets (MAE), supply & demand markets, kiosk sales (puntos de venta, run by production units on or near their farms), markets which are located in locales rented from the state (from 2015 on), and markets managed by non‐agricultural cooperatives (from 2013 on).12 We include this graph primarily to emphasize that the amount of produce and other food products typically sold through supply & demand markets—those upon which the paladares typically rely—usually constitute less than 8% of the total volume marketed.13 In most years between 2012 and 2015, the total amount reported as being distributed through market channels in Graph 1 represents between 8% and 10% of total reported domestic production, with the peak year for these sales being 2013.14

A separate distribution system governs processed and imported foodstuffs. The domestic food processing industry is under the direction of the Ministry of Food Industries (MINAL), which has its own processing enterprises (such as slaughter houses and the mills which produce flour with imported wheat). Some of its products are distributed through the rationing system (e.g., cooking oil) while other items are sold through the national network of retail stores which operate in pesos (CUP), both which are regulated by the Ministry of Internal Commerce (MINCIN) and operated in conjunction with local government. MINCIN also purchases and distributes the agro‐industrial products of many of the enterprises under the Ministry of Agriculture, as well as some imported items.

Most imported foodstuffs are sold through supermarket chains which until recently operated only in CUC. Among the largest, are the chains which belong to enterprises run by the Ministry of the Revolutionary Armed Forces (MINFAR), Panamericana (a subsidiary of CIMEX) and TRD Caribe (a

11 The original source is ONEI (c), Sector Agropecuario. Indicadores Seleccionados, enero‐diciembre 2011, Table 2.1. This series was discontinued thus similar information does not appear in subsequent editions of this report. 12 In Havana Province, these latter two locales (as well as the supply & demand markets) are the property of the Provincial Agricultural Market Enterprise (EPMA), which then rents them wholly or by stall to these different forms of management. 13 The exception is 2012, where the sales through the kiosks pertaining to production units (state farms, UBPCs, CPAs, and CCSs) were combined in the report with the volumes being sold through the supply & demand markets. 14 Based on comparing the totals in Graph 1 with total production of fruits, vegetables, tubers and grains, Table A5.

5 subsidiary of Gaviota). Others such as the Caracol or Universo chains, belong to enterprises controlled by the Ministry of Tourism, while the Palco conglomerate is owned by the Council of Ministers.15

From the point of view of market‐oriented economies, there is a whole layer of the marketing system that is missing in Cuba‐‐ wholesale suppliers and distributors—from whom one can purchase items in bulk at lower prices than in retail markets. The 2011 Lineamientos mention these as a necessary next step in perfecting Cuban socialism and in 2013 an experiment with a wholesale produce market was authorized for the provinces of Havana, Artemisa and Mayabeque.16 At this time new categories of self‐ employment activities tied to this market were also approved, such as the occupations of wholesale and retail merchants.

The wholesale produce market El Trigal opened in the outskirts of Havana city in December 2013, operated by a non‐agricultural cooperative, another innovation of this period.17 Suppliers (which could include all types of productive units as well as merchants) could rent space and equipment in this marketplace, and buyers paid a small entrance fee (3 pesos) to purchase produce and other products in large quantities. The expectation was that by facilitating bulk transactions, it would increase efficiency in the supply chain, bringing down prices (Cuba Debate 2013; Puente 2014). The experiment only lasted to May 2016, when it was closed under charges of mismanagement and corruption (Cuba Debate 2016). Also, it apparently did not have the intended effect of bringing down food prices, a major concern in the preceding months, leading to the renewed efforts to enforce lower maximum prices in the state agricultural markets.

In April 2016 it was announced that a wholesale foodstuffs market to meet the needs of the self‐ employed was in the offing (Cubanet 2016). The CIMEX store that opened in July 2016 (named “Zona +”) sells foodstuffs, beverages and cleaning products in bulk, however, at retail prices18 (Figueredo 2016). During 2017 new produce markets to exclusively supply licensed self‐employment activities were opened in three of the tourist poles of the country, with five more to begin operating by July 2017, including one in Havana (Cuba Debate 2017). These also aim to facilitate bulk purchases, but at retail prices. Thus while both of these recent measures intend to ameliorate the provisioning problems of the paladares and other private sector activities, they are not quite the same as wholesale markets since they do not provide a price incentive for buying in bulk.

15 Cerviño and Bonache (2005) provide the best description of how these supermarket chains and associated enterprises operate in Cuba, but their information is now dated. Cubalse, which operated the chain Meridiano was broken up in 2009, and its various subsidiaries distributed among various ministries and enterprise groups. Habaguanex, which owns the supermarket La Isla in Old Havana, is now controlled by the Gaviota group. Palco (the abbreviation for the Palacio de las Convenciones as well as the holding company to which it pertains) operates a large supermarket on 5th Avenue and 188th Street in Playa and took over some of the Cubalse enterprises. 16 Decree 318 of 2013. 17 On the development of non‐agricultural cooperatives, see Ritter and Henken (2015). Mesa Lago (2014) reports that as of mid‐2013 there were some 77 of these non‐agricultural cooperatives managing agricultural retail markets in Havana Province. 18 It is located on 7th Avenue between 66th and 70th Street in Miramar. It is open to the public without restrictions, which is one of the reasons that it may not be offering wholesale prices, afraid that if it did so, supplies would be quickly exhausted.

6

Provisioning strategies of the paladares

Our sample of paladares is a convenience sample, drawn among the private restaurants that we (or our friends) have frequented over the years, in addition to a few chosen purposively. While not statistically representative, the sample reflects a range of situations in terms of size, location, years in business, and price among those restaurants geared to international tourists. Seven of the 13 paladares are located in the neighborhood of Vedado, four in Miramar, and one each in Central Havana and Jaimanitas. Of the 790 restaurants listed in Tripadvisor19 (a listing which includes both state and private restaurants), three of these paladares are ranked among the top 25, another 5 among the top 60, with the remaining ranked from number 128 to 313. Most are listed as medium‐priced restaurants, with only two considered as expensive (neither of which is in the top 25). The interviews, the vast majority which were carried out under conditions of confidentiality, lasted from a minimum of fifteen minutes to almost two hours, and were carried out in January and April of 2017.

Operating a restaurant is a complex operation in any country, with a high degree of uncertainty, given the need to have sufficient foodstuffs on hand to meet maximum demand, yet not knowing with precision the number of customers that might be served in a given day and their food preferences. In Cuba this uncertainty is compounded by the instability of supplies, and in many cases, by insufficient infrastructure in the restaurants to store large quantities of foodstuffs. To assure themselves of adequate provisioning, the paladares employ a multitude of strategies.

As Table 1 shows, even though the majority of paladares would be considered relatively small (with seating capacity limited to 50 customers at a time), almost all require that one person dedicate themselves full‐time to provisioning activities, commonly an employee of the restaurant. Usually the paladar has its own vehicle, and this buyer spends his/her days going from market to market in search of fresh produce and from state store to state store for other products. In two cases, one of a relatively new restaurant (in operation for only six months), and the other of a very small paladar, the owner and the chef share this activity; in a third case, the restaurant employs a buyer half‐time, and the owner, the chef and the administrator also share this task among themselves. In a couple of other cases, the restaurants have found it more convenient to contract purchasing activities, so that the buyer is not an official employee, but rather works independently with his/her own vehicle, being remunerated either by a percentage of the value of products purchased or by a fixed fee plus gasoline.

Only one paladar did not report having a buyer, presumably because it has found a stable supplier, a middleman who takes their order nightly and delivers produce, meat and staples to them the next morning.20 But even this Vedado paladar also relies on several other vendors, buying fish and seafood from a fisherman who delivers, and relying on an organopónico (an urban, organic vegetable garden run by a workers’ collective) for weekly deliveries of specialty items, such as cherry tomatoes, broccoli, cauliflower and fresh herbs.

Most of the paladares, in fact, in addition to their buyer, have a combination of provisioning arrangements with either a middleman and/or direct producers. In the case of middlemen, the most common situation is for them to deliver pre‐arranged orders twice a week. One paladar reported that it was supplied daily by a middleman who also has a stand in one of the nearby Supply & Demand

19 www.tripadvisor.com. Accessed April 21, 2017. 20 This middleman previously had a post at the short‐lived wholesale market, El Trigal.

7 markets. The most frequent arrangement in terms of those with direct producers is with fishermen for deliveries of fish and seafood, although several also have arrangements with farmers for direct pork deliveries.

Three of the paladares are supplied directly by Finca Marta, a well known agroecological farm in Artemisa province, which represents the pioneer in the farm‐to‐table genre in Cuba (Miroff 2015; Rausberg 2016; Funes Aguilar and Vázquez 2016). On eight irrigated hectares, the farmer, a Ph.D.‐ trained agronomist, cultivates over 25 different vegetables in addition to tropical fruits, basic grains, plantains and herbs which he supplies twice a week to around 25 Havana paladares.

Another of the Vedado paladares has a similar arrangement with a different ecologically oriented producer, also an agronomist, who produces organic cherry tomatoes, peppers, eggplant, greens and herbs on his one‐quarter of a hectare in the periphery of the city.21 He supplies only three paladares as well as several households who require organic diets with twice‐weekly deliveries. His main economic activity is the production of vegetable and herb seedlings in greenhouses for the CCS members in the cooperative to which he and his father belong.

We found only one case of a paladar that has a near‐exclusive provisioning arrangement with a CCS farmer who will soon provide the restaurant with the majority of its fruit, vegetable and meat requirements (including rabbit, guinea pig, chicken and goat in addition to pork). This farmer, a veterinarian, whose principal activity is a combination of cattle fattening operations and milk production on 5.6 hectares of land, recently went into a joint venture with the paladar owner to produce sausages and cheese, also primarily for the restaurant’s consumption.22 The paladar employs a full‐time buyer (referred to as the comercial) who picks up these products in the restaurant’s truck several times a week. This paladar is unusual because the owner also owns his own boat and provisions his restaurant with fish.

The paladares that do not do their own fishing (only two do so), or have arrangements to have their fish delivered, often travel outside the province, to fishing villages on the southern coast, to obtain their supplies. Another example of the need to travel to other provinces to assure supplies‐‐ and of direct production by a paladar‐‐ is of a chef in Miramar who drives to a farm in the Sierra del Rosario (in western Artemisa) to obtain honey and fresh goat milk to make the cheeses that she serves and sells at her restaurant. Another, is the two‐hour drive to Varadero undertaken weekly by one of the paladar owners to shop in the state CUC stores there, which she assured us are always better supplied than those in Havana since there is less competition from other paladares.

Some of the paladar owners rely upon international travel to obtain key ingredients, such as the full array of spices that they need for their cuisine or the appropriate rice for paella. Also mentioned in interviews was the need to travel internationally (or to rely upon family and friends who do so) to obtain kitchen and restaurant supplies23 and either a wider assortment of liquor or at a cheaper price than can be found in Havana.

21 Authors’ interview in municipality of La Lisa, Havana Province, April 19, 2017. 22 Authors’ interview in municipality of Guanabacoa, Havana Province, January 18, 2017. 23 Ritter and Hanken (2015) report that they were told of paladar owners who became Spanish citizens to facilitate their travel and obtaining credit in Spain to supply their paladares.

8

A final strategy mentioned is to participate in what might be called the “grey market”. Two of the paladares noted that they rely on their contacts at the state slaughterhouses to supply them either with the best cuts of meat or to advise them when sheep will be slaughtered, paying a premium over the authorized price for such services.

Many of the paladares, however, purchase their beef at the state CUC stores,24 which is usually frozen meat imported from Brazil or Argentina. Several of the chefs mentioned that they prefer this frozen imported beef, since it was of higher quality than domestic beef. The other type of meat which is usually obtained at the CUC stores was frozen chicken, imported currently from the US and Brazil (USITC 2016). When supplies of fresh fish or seafood are not available, these are also purchased frozen from these stores.

Table 2 provides a list of the imported items mentioned in the interviews upon which some of the paladares depend. The Italian chef of a paladar specializing in Italian cuisine insists that, given the poor quality of the domestically produced flour, imported Italian pasta is far superior to home‐made pasta, and depends on the CUC stores to stock it. Similarly, with respect to domestic tomatoes and tomato sauce, thus he depends on imported Italian whole tomatoes for his sauce. In another restaurant specializing in Italian cuisine, they make their own pasta from domestically produced flour (based on imported wheat), but depend on the CUC stores for other ingredients, such as yeast. At this paladar, they either make their own tomato sauce from local ingredients when tomatoes are available, or purchase domestically canned tomatoes or tomato sauce, the latter products which are only available at CUC stores.

Other chefs take pride in not using any canned or frozen vegetables at all in their cuisine, although they may stock items like canned tomatoes or mushrooms for emergencies. Only one paladar mentioned relying on frozen vegetables for one of their dishes, a Chinese‐style fried rice, as well as their preference for canned fruit juices. But most of the paladars depend on the CUC stores for imported dairy items, rice, cooking oils and particularly, wine and liquor (with the exception of rum).

In sum, what our interviews revealed was that most paladares engage in a combination of strategies to assure their provisioning. That they require multiple strategies is related to the multitude of problems that they encounter in acquiring their food supplies—summed up in terms of the erratic availability of just about all products. Before turning to a detailed analysis of the principal supply problems of paladares, we consider next how prices vary in Havana agricultural markets.

Price variation by type of market

In order to verify and understand the constraints under which the paladares operate, we carried out participant observation in 17 Havana agricultural markets and three supermarkets. The list of agricultural markets visited is provided in the Appendix (Table A1). We have categorized the markets by their form of management, which include: 1) those managed by the state (where maximum prices are

24 We will refer to the supermarkets as CUC stores, since until recently purchases in these could only be made in CUC. Since at least May 2016 prices are also posted in Cuban pesos (at the exchange rate of 1 CUC = 25 CUP) and either currency may be used for purchases (Cuba Debate 2016c).

9 fixed); 2) those managed by different types of cooperatives; 25 and 3) the supply & demand markets, where prices are determined through the interaction of consumers and vendors who are own‐account workers. 26

Tables 3 to 6 present the mode price of selected fruits, vegetables, viandas27 and dried beans, and pork in these different types of agricultural markets in January 2017. What these data confirm is that prices in the supply & demand markets are almost always much higher than in the state markets. These also have a broader selection of fruits and vegetables and tend to have better quality produce.

These tables also reveal that prices in January 2017 at the state agricultural markets tend to conform or be even lower than the maximum official prices set in May of 2016 (adjusted for season) for a number of the fruits and vegetables considered in high demand. The only exceptions are squash and burro plantain where the mode was slightly higher than the maximum price allowed. Also, prices in the markets run by the various types of cooperatives tend to be more closely aligned with those in state markets than with the supply & demand markets, conforming to the directive that one of their social purposes should be to assist in maintaining a lid on prices to maintain food affordable to Cuban consumers. In a few cases (coconuts, onions, squash and pork chops) the mode in markets managed by cooperatives is even lower than in the state markets. Only in the case of several cuts of pork meat is the mode price in cooperative markets similar to that in the supply & demand markets (and in the case of pork loin, more expensive).

The principal supply problems of the paladares

Table 7 summarizes the main provisioning problems reported in the interviews, and are discussed below following the main categories of problems noted in the table.

Supply and quality of fresh fruits and vegetables

Notwithstanding their higher prices (and often having their own direct suppliers), most of the paladares rely on the supply & demand markets for at least some, if not all, of their fresh fruits and vegetables. They prefer shopping at the supply & demand markets both for the greater diversity of produce that these offer and for the better quality available. While paladar owners and chefs sometimes complain of the very high prices in these markets, our analysis suggests that prices in the supply and demand markets are generally below international prices for fruits and vegetables and allow a more than adequate return, given that the paladares aimed at international tourists set their prices in CUCs.

For example, take the case of a basic salad consisting of lettuce, tomato, cucumbers and perhaps a sprinkling of carrots which would typically cost around 3 to 4 CUCs at a paladar. At the mode price per

25 By emphasizing the form of management, we are combining markets that in Graph 1 may be categorized as a kiosk (in the case of an organopónico)), a rented market locale (in the case of a CCS), and a locale pertaining to a non‐agricultural cooperative. 26 Information on prices was obtained as follows. In the case of the state and cooperative agricultural markets, the prices are usually posted in the entryway, and vary minimally by market stand, except for differences by size and quality of the produce. In the case of the supply and demand markets, each vendor posts his/her own prices, which may vary during the day. In these markets, we took prices from a random sample of market stands. 27 Viandas is a Cuban term for starchy vegetables which includes all root crops plus plantains.

10 pound in Table 4, the restaurant could acquire these ingredients for 35 pesos (1.46 CUCs),28 or (assuming 3‐4 servings per pound), at a minimum cost of 0.63 CUC per serving, leaving a margin of 2.37 CUC per salad. This is not the equivalent of net profit on the salad since it excludes the cost of other complementary ingredients, such as salad dressing, plus other variable and fixed costs. The point here is to illustrate that produce prices in the supply & demand market—while very high for Cuban consumers who earn incomes only in pesos29— are far from the level that would affect the profitability of the private restaurants. Moreover, this example also explains why the paladares are willing to pay more for good quality produce at the supply & demand markets than purchase them at the much less expensive state or cooperative markets.

A valid complaint of some of the paladares is the lack of sufficient diversity even in the supply & demand markets, a complaint which is largely attributable to seasonal shortages. One of the main characteristics of the production of fresh fruits and vegetables is its seasonality, with some depending on the rainy season and others on the cooler, winter months for optimal growing conditions. While Cuba can produce a diverse range of fruits and vegetables, many products are only available during their peak harvest season, at which point the markets are flooded. While Cuban producers are attempting to stretch their seasons (mainly by using different varieties and protected cultivation), out of season availability everywhere depends on access to non‐local production (i.e., imports).

Table 8 presents a summary of the products that were in scarce supply or not available at all in Havana markets in January; when available, they could only be found at one or two stands, and usually in only one of the 17 markets. Given that January is the dry season, one would expect not to see such fruits as avocadoes, chirimoyas (custard apple), mangoes and mamey sapote that depend on spring rains to bloom and form fruit. What should have been available in January were more varieties of bananas and plantains, which can be grown year‐round, as well as potatoes, a key staple.

The shortage of potatoes may have been due to production and/or transportation difficulties. It is commonly noted that production units (irrespective of type) often lack sufficient vehicles or spare parts for them to transport their own products to market. For those who depend on state transport to get products to market, January is considered to usually be a bad month for deliveries since the state enterprises tend to use up their annual gasoline budget in December and there are often delays in acquiring their budget for the subsequent year. An indication of production problems, suggesting a poorer than expected harvest, is that when potatoes became available in February such were distributed through the ration card to assure an equitable distribution of supplies.

Broccoli and cauliflower are crops that generally do not do well in the lowland tropics, but we encountered some production in shade houses around Havana, either in the organopónicos or by farmers involved in the farm‐to‐table movement. The expansion of production of these vegetables would require significant investment on the part of other production units, the financing for which is in short supply.

A particular problem in terms of the quality of fruit is the use of chemicals to induce ripening, particularly in pineapples, a complaint of several of the paladar owners. While this practice lengthens the harvest season, it substantially alters the taste of the fruit, since it never sweetens properly. And

28 These same salad inputs at Publix supermarket in Gainesville, Florida, in January 2017 cost around US$ 7.00. 29 The average state salary in Havana in 2016 was 725 pesos a month (ONEI (b) 2016).

11 several of those interviewed expressed health concerns regarding ingestion of chemicals used to artificially ripen fruit. A related problem mentioned by several owners or chefs, is the lack of traceability of the produce in the markets, so that there is no assurance that the products purchased are 100% organic or even safe. This is one of the reasons some of the paladares prefer direct deliveries by growers that they know and trust. Another chef, who does most of the buying for her paladar herself, notes that she only purchases fruit and vegetables in the market from retailers she knows well, who in turn only buy organic produce.

Among the main reasons that most paladares have a full‐time buyer is because of the erratic availability of fruits, vegetables and viandas, which requires visits to multiple agricultural markets on most days. For example, note in Table 7 that to acquire all of the products that were scarce during January would have required visits to five or six different markets located in different parts of the city.

Related to this, the price of these can also vary substantially, not only between state, cooperative and supply & demand markets, but among the supply & demand markets themselves. The Vedado market located on the corner of 19th and B streets is often referred to as the “millionaire’s market”, due to what Cuban consumers frequently regard as its very high prices. This is commonly attributed to the fact that many of the Havana paladares are located in this district and shop at this market. A detailed examination of the prices in this market compared with its counterpart in Miramar (42nd and 19th streets), nonetheless, revealed that its prices are not systematically higher (see Appendix, Table A2, A3 and A4). In January, sour oranges and pineapples were cheaper at 19th and B, while tomatoes and peppers were less expensive in the Miramar market, with other prices being similar. Another supply & demand market also located in Vedado (17th and G streets) most frequently had the lowest prices for fruits or vegetables of all three sites.

Supply and quality of meat and sea products

Some of the paladares consider the supply of seafood and various types of meats to be even more erratic than the availability of fruits and vegetables, or at least that they have found it difficult to secure a stable source. Specific shortages reported in January included lobster, beef, lamb and rabbit.

The most commonly available fresh meat available in the Havana markets is pork. Since this is Cuban’s favorite meat, the government goes to great lengths to maintain its production.30 Lamb is also frequently available in these agricultural markets. Supplies were diminished in January primarily due to the draught conditions affecting a number of provinces, which have affected grazing pastures. Poultry and rabbit are seen only occasionally in these markets; most poultry consumed in the country is imported frozen.

Among the quality concerns noted was with regard to the sanitary conditions under which pork is sold in the agricultural markets. While the meat stands are inspected regularly, these are open air stands, so flies can abound.

The unstable supply of meat, fish and seafood is one of the reasons that some of chefs who take great pride in serving only the freshest ingredients do not have printed menus. The menus in these paladares change daily, depending on their availability. Another disadvantage of maintaining a fixed menu, besides

30 State enterprises produce roughly two‐thirds or more of total national production, similar to beef (ONEI (c), various years).

12 erratic availability, are the large price variations to which these items are subject. One chef mentioned that when prices spiked, it was difficult to charge customers much more than they were accustomed to, which impacts profits.

Supply of imported & domestic products at state CUC stores

Erratic availability was also a common complaint regarding supplies at the state CUC stores. While cognizant that Cuba is suffering a shortage of foreign exchange and needs to carefully ration its use, some of the paladares felt that insufficient priority was being given to the tourism sector and its demands, or at least to the private sector serving the Havana tourist market as opposed to all‐inclusive resorts. The latter tend to be owned by the same holding groups that own the supermarkets and are the main entities that can import foodstuffs directly. The lack of a wholesale market serving the private sector, also means that the paladares are competing with Cuban consumers (those with high incomes) for many products.

The paladar owners and chefs are also cognizant that the paladares themselves are sometimes responsible for shortages. Given the erratic availability of supplies, the tendency is to buy large quantities of needed items when such are available. The extent to which they can do so is, of course, constrained by their storage capacity and cash reserves. Others noted that shortages were due to the rapid growth in the number of paladares, which has increased competition over a fixed supply of imported goods. This is the reason one of the paladar owners reported that it was worth her while to drive to Varadero weekly to shop there rather than in Havana. Surprisingly, none of our interviewees mentioned shopping at the bulk drygood store, Zona +, although this CIMEX store had been open for around six months at the time of our initial interviews.

Price variability across CUC stores was another issue raised. One owner‐chef complained that the price of a bottle of liquor such as scotch could vary by as much as 300% between stores, requiring trips to three to four supermarkets before purchasing high‐ticket items.

The main domestically‐produced products generally available at the CUC stores include rum, beer, soft drinks and bottled water, some fruit juices and preserves, canned tomatoes or tomato paste, and coffee. Sometimes domestically produced rice and flour will also be available. The main shortage reported In April 2017 was of domestically produced beer, which was in great demand by international tourists in Havana.

The main quality complaint reported by a paladar was regarding that of the domestic and imported rice (Vietnamese) available in the CUC stores, which was considered unsuitable for paella. This is the reason that she took advantage of her twice yearly trips to Canada to visit family to purchase premium rice.

Are the paladares responsible for domestic price increases?

In late 2015 and again in late 2016, the Cuban and international press called attention to rising domestic food prices, prompting the following headline in a New York Times article: “Cuba’s surge in tourism keeps food off residents’ plates” (Ahmed 2016). This article, as well as many Cuban consumers, blame the supply & demand markets and, implicitly, the paladares serving international tourists as the reason for the rise in prices. However, given the relatively small volume of produce which circulates through

13 the supply & demand markets,31 as well as the relatively small size of the paladar sub‐sector in the total tourism sector, we consider it more likely that a combination of other factors explain these price increases.

Macro indicators for 2015 suggest that total food availability may have declined that year, driving the year‐end price increases. According to official statistics the volume of non‐cane agricultural production fell by 1.7% in 2015 (Table A5), a year in which total tourist arrivals grew by 17.4% (ONEI (a) 2016). The value of imports of food, edible oils and beverages also fell, by almost 4% in this same period (Table A6). However, world market prices of many foodstuffs, such as poultry, soybeans and corn, were lower in 2015 (USITC 2016), so a decrease in the value of what is imported does not necessarily correspond to a reduction in the absolute quantity imported. Shortages have not been reported in recent years of the imported items which are crucial to Cuban diets, such as rice, beans, wheat for flour, and chicken, thus it is doubtful that the increase in tourist arrivals caused a direct diversion of imported products from the internal market. Moreover, in 2016, as will be discussed below, the state lowered the domestic price of many of these imported items in the CUC stores.

We noted earlier that a relatively small share of Cuba’s total agricultural production circulates through the different agricultural markets, less than 10%. However, in 2015 the volume directed to these markets fell by 6.7%, so that this share was 8.5% (see Graph1). This fall could certainly have been due to a larger share of domestic agricultural production being channeled to hotels and restaurants through the direct contracts all the various productive units (state, UBPCs, CPAs, CCS and individual farmers) may now engage in with tourism entities.32 The supply & demand markets were likely the least affected by the possibility of individual farmers making direct sales to the tourism sector, since prices in these markets have always been higher than in other venues.

The largest component of market sales corresponds to sales through the MAE, the state agricultural markets; it was the share circulating through these markets which also fell most drastically in 2015 (Graph 1). However, beginning in late 2013 many of these state marketplaces were reorganized as non‐ agricultural cooperatives or, beginning in 2015, were rented out to cuentapropistas,33 accounting for part of this shortfall. By 2015 these two new forms of management accounted for 5.7% of the total volume being channeled through the agricultural markets. García, Nova and Anaya (2014) report that, at least initially, prices in the markets under these new forms of management were considerably higher (between 15% and 25% higher) than under state management. They suggest that this is because these new forms of management do not have access to the same subsidies available to the MAE’s and must assume all of the costs associated with running these marketplaces, including transportation of their supplies.

31 The share of marketed volumes circulating through the supply & demand markets was 8.3% in 2015, falling to 4.7% in 2016. 32 As far as we can discern, these contracts are not included in the data on total agricultural market sales published by ONEI. Unfortunately, information on the volume or value of these contracts over time is not available. In August 2013 there were some 403 of these contracts (187 with cooperatives); sales were reported to have increased by 10 million pesos between the first half of 2012 and 2013 (Trabajadores 2013). 33 These are generally smaller, local neighborhood markets, such as the one we visited on 19th and B streets in Vedado.

14

Changes in government crop pricing policies could be another factor behind the price increases of 2015 which might have specifically affected the MAEs. Since 2014 the government has been trying to develop more realistic farm gate prices for the large share of production that is acquired by the state procurement agencies. Since the cost of inputs is no longer to be subsidized, the prices offered by Acopio for many crops have been gradually adjusted to reflect the new costs of production plus an adequate return to the farmer (estimated as between 30% to 50%, depending on the crop).34 The hope is, of course, to provoke a positive supply response and maintain retail prices stable (both in terms of what is distributed through the rationing system and what is sold freely in state markets (Cuba Debate 2015; El Productor 2015).

Evidence of higher retail food prices in the state agricultural markets in late 2015 is provided primarily by the fact that the government announced it was responding to these. The main measures taken in April 2016 were to continue to adjust input and Acopio prices and to set new official prices for many essential items; these maximum prices apply only to the state agricultural markets (MinFin 2016; El Productor 2016b). The supply & demand markets (and those rented to cuentapropistas as well as street vendors) were explicitly exempt from these measures.

While official data on food imports are not yet available for 2016, domestic food production reportedly increased by 5% in that year (Table A5). The volume of total agricultural production circulating through the different agricultural markets also increased in 2016, by 10.7% (Graph 1), so that share circulating through markets rose to 9%.

Our price observations in the supply & demand markets in Vedado‐‐ the ones most frequented by the paladares‐‐ in April 2016, and January and April 2017, suggest that the prices of fruits and vegetables have been surprisingly stable in this recent period. As Table 9 shows, between April 2016 and January 2017 the mode price in these two Vedado markets increased for 3 products, decreased for 7, and remained stable for 10. Between January and April 2017, the mode price increased for 5 products, decreased for 5 and remained stable for 10. Overall then, comparing the month of April from 2016 to 2017, the mode price increased for 5 products, decreased for 6, and remained relatively stable for 8 to 9 products. Moreover, in our interviews with the paladar owners and chefs, no one spoke of substantial price increases in these markets in recent years. Thus, there is not direct evidence that either the first or the second reported spurt in prices was due to price hikes in the supply & demand market.

Typical Cuban consumers are much more likely to be affected by price changes in the state markets than those in the supply & demand markets, since it is on these lower‐priced markets upon which they depend. We can illustrate the importance of these state markets to consumers by returning to our example of a basic salad. Recall that a pound of each of its basic ingredients (lettuce, tomatoes, cucumbers and carrots) cost 35 pesos in the supply & demand market; in January 2017 these same ingredients cost 9 pesos in the state agricultural market. Taking the average Havana state salary of 725 pesos a month, these ingredients in the supply & demand market represent 4.8% of a state worker’s monthly salary; in the state markets, only 1.2%. While such salads have not typically been part of the

34 These directives are in terms of the crops and products where prices are determined centrally, by the Ministry of Finance and Prices, and began with experiments in the production of beans, corn, tobacco and honey. By August 2015, they also included tomatoes, potatoes, rice, beef, coffee, cacao, pork, beef and milk. For example, the previous Acopio price of tomatoes was 100 pesos per quintal and it was increased to 110 pesos which was estimated to include a 40% return to the farmer (Cuba Debate 2015).

15 daily diet of Cuban consumers for many decades, it would be difficult for a Cuban working class family to eat salad every day, even if shopping only at the state agricultural markets.

The rub is that all the ingredients for this salad are not always available at the state agricultural markets at a given point in time, requiring Cuban consumers to buy key items in the supply & demand markets, which is what they can ill afford. This is what has been emphasized in press reports, particularly, the lack of availability of such necessities to Cuban cuisine as onions and garlic (Valdés 2016).

The government has tried to be responsive to consumer concerns, placing considerable attention recently on remodeling some of these marketplaces and trying to streamline the coordination of deliveries in order to maintain greater diversity. For example, the site of a previous supply & demand market in the municipality of Cerro in Havana opened in July 2016 as a new state agricultural market35 that also includes a fish store, meat store, a bakery and a dry goods store. It is being overseen by the provincial councils of La Habana, Mayabeque and Artemisa to assure that supplies from the latter two agricultural provinces reach the Havana market in a timely fashion (Cuba Debate 2016c). In our market observations of January 2017, this was the best supplied state market that we visited.

In sum, we have found no convincing evidence that the paladares and the supply & demand markets are the culprit behind the recent food price increases. But there clearly is a disconnect between Cuban salaries and prices in these markets. There are huge disparities in purchasing power between those who earn incomes or part of their incomes in CUCs (including those working in the tourism sector) or have access to foreign exchange through remittances, and those relying on Cuban peso salaries. Moreover, as some have noted, the state may currently be subsidizing the non‐state sector through an undervalued CUC rate (Morris 2014).

Currency reform—to make the peso fully convertible to the US dollar—has been on the agenda since at least 2014. And some concrete steps have been taken in this direction, specifically, the lowering of CUC prices in April 2016 for certain imported products, specifically, rice, cooking oil, chicken, and ground beef—some by as much as 20% (Cuba Debate 2016a and 2016d). The aim is thus to increase the purchasing power of the Cuban peso to facilitate an eventual conversion.

Conclusion

Along with B&B establishments, paladares are the most successful example of the new wave of private business activity in Cuba. While this sector is still undoubtedly small, given the size of the all‐inclusive tourism sector, it has expanded rapidly in concert with the recent growth of tourist arrivals, particularly of visitors from the US.

As we have shown, the main problem of the paladares is the erratic availability of fresh food (produce, meats, fish and seafood) of sufficient quality when needed, along with the dry goods upon which they depend, many of the latter which are imported. Paladar owners all emphasized the large amount of time and attention which this procurement requires. We have described the broad variety of strategies

35 This opening of state agricultural markets in locales that were previously supply & demand markets may be an explicit state policy to de‐emphasize the latter, as suggested in a Diario de Cuba press report (Freire Santana 2016). We were able to verify that the former supply & demand market Cuatro Caminos has been closed since 2014, and the Egido market in Old Havana closed at the end of 2016, both reportedly for remodeling.

16 which they employ to assure supplies. In spite of the cost and complexity of these arrangements, the paladar sector continues to grow.

The expansion in the number of paladares and the increasing competition among them have brought a number of innovations to Cuba’s food provisioning system, both directly and indirectly. Of particular interest are the direct farm‐to‐table arrangements. The paladar sector is now providing a reliable demand for high quality, locally produced fresh food and its supply is relatively well compensated. The regularity of the demand from the paladares has contributed to the economic stability of innovative small farms within a short drive of Havana. This has led some Cuban farmers to experiment with producing vegetable crops, dairy products and meat preparations that are not part of the traditional Cuban diet, but that may become very important when the nearby US market eventually opens to imports from Cuban agriculture. In the process, they are deepening linkages within the internal economy and expanding employment.

In a parallel fashion, the demand of the paladares over time has contributed to a growing diversity and an increase in the quality of what is offered in the supply & demand markets. As we have shown, these are precisely the reasons that these markets are favored by the paladares over the state agricultural markets, notwithstanding their higher prices. The higher prices which can be fetched in these markets by farmers for above‐plan production has also contributed to their higher incomes and provided an important incentive for innovation in an economy where agricultural inputs are scarce.

We did not find evidence that the paladares compete with the general population for fresh produce, or drive up the price of the type and quality of food purchased by the majority of the Cuban population, who largely rely on the state agricultural markets. The paladares do compete with high‐income Cubans (those with steady incomes in convertible currency) and those with some access to CUCs in the supply & demand markets and in the CUC supermarkets. Prices in the CUC supermarkets are considerably above world market prices. According to Cervino & Bonache (2005), prices of imported goods are typically marked up 240% to 270%, and those of domestically produced goods in these stores, by 120% to 210%. Since all the supermarkets are owned by state corporations, the rationale is that the price mark‐up ultimately serves to subsidize both the rationed foodstuff market and state social services, serving as an implicit tax. In contrast, most prices in the supply & demand produce markets are still much below international prices.

The crux of the problem for the majority of Cuban consumers is that peso salaries are so low that, at current exchange rates, the price of many of the goods which they need and/or aspire to is way above their reach. This is why the moves mentioned earlier to gradually move towards a unified exchange rate—such as by lowering CUC supermarket prices to increase the purchasing power of the peso‐‐ are so important. Still, the pace of currency unification will likely depend on increasing the overall productivity of the Cuban economy, a process to which this nascent private sector contributes.

From the point of view of the paladares, well‐functioning wholesale markets are an obvious solution to their supply problems. But can such be attained under conditions of scarcity? One of the likely reasons that the limited experiments with state‐controlled bulk sales have maintained retail prices, rather than discounted prices for large purchases, is the fear that lower wholesale prices might trigger a run on supplies, exacerbating the instability of procurement, as well as fuel the black market. Even if shopping in such markets is restricted to licensed cuentapropistas, it might be difficult to curb the temptation to

17 resell such cheaper products, without rather draconian measures, for example, limiting purchases to proof of the number of meals sold in the paladares which amounts to another form of rationing.

Another issue is whether the paladares really need lower wholesale prices to maintain their profitability. While their transaction costs seem relatively high (particularly in terms of time devoted to provisioning activities), current profit margins appear sufficient to maintain the great majority in business; at least in recent years, it is unusual for a known paladar to close down.

Also requiring further investigation is the sustainability of some of the practices in which the paladares currently engage, such as direct deliveries of seafood or its purchase in fishing villages. While farmers can now contract to sell their above‐plan production directly to tourist entities, there is no such provision governing seafood, and such practices are technically illegal. Whether such practices will continue to be tolerated, eventually legalized, or whether the ban will once again be strictly enforced, will undoubtedly influence the profitability of the paladares.

This study has been limited to a small sample of the Havana paladares. Besides drawing on a larger (and statistically representative) sample, it would be useful for future work to investigate the conditions under which the paladares operate in other cities of Cuba, and particularly in such tourist poles as Viñales and Trinidad. The government sometimes experiments with the new policies first outside Havana, for example, recently with new merca hostales, all‐in‐one supermarkets designed only for cuentapropistas (Cuba Debate 2017). Also, it would be important for future studies to consider in more detail employment generation in the paladar as well as B&B sectors.

The recently announced June 2017 restrictions of the Trump administration on individual travel to Cuba on the part of US citizens (OFAC 2017) will certainly have a dampening effect on the rate of growth of Cuba’s private sector. The reimposition of the requirement that US citizens traveling to the island under people‐to‐people authorization do so only in organized groups will most directly affect the B&Bs. Few guesthouses can accommodate more than half a dozen people, and the recent growth in their numbers has been fueled by the burst in individual travel allowed under the early 2016 Obama administration rule changes and the general thaw in enforcement of the travel regulations that preceded it. Somewhat ironically, given the aims of the Trump administration to deny financial benefits to the Cuban state, organized groups are more likely to be booked in state‐owned hotels and to eat as a group in hotel restaurants or in other, larger state‐owned restaurants than in the privately owned paladares.

While many of the larger paladares regularly accommodate tour groups, our interviews suggest that up until now they have restricted the number of tour bookings, both to ensure availability for individual tourists and local customers, and to maintain the integrity of the dining experience. The new regulations will surely tip the balance towards an expansion in the size of individual paladares, perhaps encouraging the state to loosen regulations on their 50‐seat limit. Concomitantly, it will have a dampening effect on the large majority of small paladares which are still family‐run affairs located in people’s homes, with ripple effects on the incomes of the many Cubans who have come to depend on them and the B&Bs for employment and access to CUCs.

18

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ONEI (d). Ventas de Productos Agropecuarios. Indicadores Seleccionados, Enero‐Diciembre, various issues. Havana: ONEI. Available at: www.one.cu

Opciones. Semanario Económico y Financiero de Cuba. 2014. “Frutas Selectas para satisfacer suministro estable al turismo.” January 31. www.opciones.cu/cuba/2014‐01‐31 Accessed March 28, 2017.

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Peters, Philip. 2012. Cuba’s Entrepreneurs: Foundation of a New Private Sector. Arlington, VA: Lexington Institute, July.

Puente Nápoles, José. 2014. La Comercialización de Productos Agropecuarios. Havana: Ministerio de la Agricultura.

Puig Meneses, Yaima. 2013. “Nuevas opciones en la comercialización directa de productos agropecuarios.” Granma, September 9. www.granma.cu/granmad/2013/09/09/nacional/artic02.html. Accessed March 15, 2017.

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Tables and Graphs

Table 1. Provisioning strategies of 13 Havana paladares

Strategy Number of paladares Notes Has buyera 12 Who is: Owner/chef 2.5 Employee 7 Service contract 1.5 Supplier contract 11 With: Middlemen 4 Primarily fruit, vegetable, vianda deliveries Producers 10 Includes fruit, vegetable, fish, & pork deliveries which may be regularly scheduled or sporadic Direct production 3 Own activity 3 Cheese making; fish with own boat Joint venture wt/partner 1 Cheese & sausage factory Domestic travel 4 Purchase fish in fishing village; goat milk & honey in Sierra; shop in Varadero CUC stores International travel 3 Purchase spices, liquor, rice Grey market 2 Purchase beef, lamb directly from state slaughter houses Notes: Multiple responses allowed; sub‐categories do not necessarily add to sub‐total if more than one reported. a If buyer is not full‐time, reported as a fraction in break‐down below. Source: Authors’ interviews, January and April, 2017.

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Table 2. Imported items purchased by paladares at state CUC stores

Fruits & Vegetables Canned tomatoes, tomato puree, sofrito Canned mushrooms Frozen vegetables (1) Fruit juices Dairy Cheese Butter Cream Dried milk Meat Chicken Beef Fish Seafood Grains Pasta Rice Other Yeast Olives, cocktail onions Olive oil & other cooking oils Vinegar Worcester sauce, catsup, mustard Spices Japanese ingredients (1) Beverages Wine Liquor Beer Fancy water Source: Authors’ interviews.

Table 3. Price of selected fruits (mode) by type of market, Havana (Cuban pesos)

Fruit Max official pricea Mode state Mode Mode S&D markets cooperative markets markets Banana 1.4/lb 1.3, 1.4/lb 1.2, 1.4/lb 10 bunch Coconut ‐‐ 1.35, 2.6/lb 0.5/lb 10 each Guayaba 1.95/lb ‐‐ ‐‐ 6/lb Limes ‐‐ ‐‐ 15/lb 25/lb Oranges ‐‐ 1.4/lb, 2 each ‐‐ 10/lb Papaya 1.70/lb 1.55/lb 1.7, 2/lb 5/lb Pineapple 1.55/lb 1.55/lb ‐‐ 15 each Watermelon ‐‐ 2/lb 2.5, 4.5/lb 7/lb

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Notes: Where no mode is noted, either that product was unavailable or there were too few observations; where two prices are noted, the distribution was bimodal (often across markets). For purposes of this analysis, “other” have been included in the S&D markets. Sources: Market price estimates based on authors’ observations, January 10 to 19, 2017; see Table A1 for specific markets visited. aResolution 157‐C & 162 of Ministry of Finance & Prices, May 3, 2016; applicable to state retail markets only, for selected products of high demand, for month of January.

Table 4. Price of selected vegetables (mode) by type of market, Havana (Cuban pesos)

Vegetable Max official price Mode state Mode Mode S&D markets cooperative markets markets Beet ‐‐ 2, 8/lb 3.1, 10/lb 15 bunch Cabbage 1.2/lb 1.15/lb, 10 head 1.2/lb; 7, 10 head 15 head Carrot ‐‐ 3.8, 10 bunch 6, 10/lb 5/lb, 15 bunch Cucumber 1.4/lb 1.4/lb ‐‐ 10/lb Eggplant ‐‐ 3, 5/lb 3.5/lb 10/lb Garlic 16.5/lb ‐‐ 16.5/lb 4 each Lettuce 2/lb 1.7/lb, 2 head ‐‐ 10 head Onion 4.7/lb 2.5, 3.9/lb 0.4/lb 15/lb Pepper 3.1/lb ‐‐ 3.1/lb 15/lb Squash 1.1/lb 1.2, 1.4/lb 0.40/lb 3/lb String beans ‐‐ 3, 6 bunch 7/lb 10 bunch Tomato 2.1/lb 2.1/lb 2.1/lb 5/lb Notes & Sources: See Table 3.

Table 5. Price of viandas & dried beans (mode) by type of market, Havana (Cuban pesos)

Product Max official price Mode state Mode Mode S&D markets cooperative markets markets White sweet 1/lb 1/lb 1.1, 2/lb 4/lb potato (boniato) Taro root 1.8/lb 1/lb ‐‐ 10/lb (malanga) Plantain (burro) 1.1/lb 1.1, 1.4/lb 1.1/lb 10 hand Cassava (yucca) 0.85/lb 0.85/lb 0.85, 1.5/lb 3/lb Black beans 10/lb 10/lb 10/lb 10/lb Red beans 11/lb ‐‐ 11/lb 20/lb White beans 11/lb ‐‐ ‐‐ 20/lb Notes & Sources: See Table 3.

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Table 6. Price of pork meat (mode) by type of market, Havana (Cuban pesos)

Cut Mode state Mode Mode S&D markets cooperative markets markets Steak 45/lb 45/lb 45/lb Ribs 18, 22/lb 15/lb 25/lb Loin 21, 28/lb 45/lb 40/lb Loin chunks ‐‐ 50/lb 50/lb Shoulder 28/lb 35/lb 35/lb Leg 28, 35/lb 35/lb 35/lb Lard 10/lb ‐‐ 15/lb Notes & Sources: See Table 3.

Table 7. Main supply problems reported by 13 Havana paladares

Type Problem Supply and quality of fruits & Erratic availability vegetables Seasonal shortages Too much price variation across markets Lack of sufficient diversity High variation in quality Lack of traceability Use of chemicals to induce ripening Supply and quality of meat and Difficulty of securing stable source of sea products seafood Shortages of lobster, beef, rabbit Sanitary conditions of pork in markets Supply of imported products at Erratic availability state CUC stores Need to make large purchases when items are available, leading to shortages Too much price variation across stores Supply of domestic products in Shortages of domestic beer (April) state stores Source: Authors’ interviews, January and April 2017.

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Table 8. Fruits, vegetables and starches not available in Havana markets

Not seen at all Scarcely Available Where Found Avocado Bananas, small S&D, Vedado, 19 & B Custard apple (chirimoya) Cantaloupe S&D, Miramar, 42 & 19 Cauliflower Mango S&D, Miramar, 42 & 19 Celery Mamey sapote S&D, Miramar, 42 & 19 Broccoli Coop, Miramar (organopónico) Okra S&D, Vedado, 19 & B Plaintain (macho) Coop, OH; S&D OH Potatoes State, OH Source: Authors’ observations, January 10 to 19, 2017.

Table 9. Comparison of prices (mode) in Vedado Supply & Demand Markets, April 2016, January 2017 and April 2017

Product April 2016 January 2017 Direction of April 2017 Direction of change: April change: to January April 2016 & 2017 Fruits Guayaba 6/lb 8/lb Increased 7/lb Increased Limes 25/lb 20/lb Decreased 25/lb Stable Mango 12/lb ‐‐ 10/lb Decreased Oranges 5/lb 5, 7/lb Stable ‐‐ Papaya 5/lb 5/lb Stable 6/lb Increased Pineapple 12 each 12/lb Stable 10 each Decreased Watermelon 7/lb 7/lb Stable 7/lb Stable Vegetables Beet 10, 20 bunch 15/lb ‐‐ Cabbage 12 head 15 head Increased 15 head Increased Carrot 15/lb 5 lb, 5 bunch Decreased 10/lb Decreased Chard 10 bunch 10 bunch Stable 10 bunch Stable Cucumber 6/lb 10/lb Increased 10/lb Increased Eggplant 10/lb 5, 10/lb Stable ‐‐ Garlic 3 head ‐‐ 4 head Increased Lettuce 10 bunch 10 bunch Stable 10 bunch Stable

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Onion 20/lb 15/lb Decreased 10/lb Decreased Pepper 20/lb 15/lb Decreased 10/lb Decreased Spinach 10 bunch 10 bunch Stable ‐‐ Squash 3, 4/lb 3/lb Stable 4/lb Stable String beans 5, 10 bunch ‐‐ 7 bunch Tomato 8/lb 5/lb Decreased 7/lb Decreased Viandas & beans Cassava 3.50/lb 3/lb Decreased ‐‐ Plantain (burro) 10 hand 10 hand Stable 10 hand Stable Black beans 15, 20/lb 10/lb Decreased 13, 15/lb Stable Red beans 18, 20/lb ‐‐ 20/lb Stable White beans 18, 20/lb ‐‐ 20/lb Stable Notes & Source: Based on authors’ observations at Supply & Demand markets at 19 y B and 17 y G. Blank entry indicates no price was the same in at least two stands across the two markets. Where two prices are noted, indicates that each price was observed a similar number of times.

Figure 1. Market sales by volume and type of market, 2012‐2016 (in tons)

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 2012 2013 2014 2015 2016

State S & D Kiosks* Rented Non‐ag Coop

Notes: * Included with S & D markets in 2012. Excludes sales made by street vendors (ambulatory, own account workers) who hawk produce on the streets (carretilleros). Source: Compiled from ONEI (d), for 2013, 2014, 2015 and 2016, series 2 tables (by crop), except for the information on non‐agricultural cooperatives which is only reported in aggregate form in Table 1.3 and for 2014 on.

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APPENDIX

Table A1. Havana Markets Visited, January 10‐19, 2017

Management* District Locale State Old Havana Sol & Villegas State Cerro Plaza Cerro State (EJT) Vedado 17 & K State Vedado 21 & J (small) State Vedado 27 & A State Jaimanitas main plaza (small) Supply & Demand Miramar 42 & 19 Supply & Demand Miramar 33 & 44A (Grupo Maipe) Supply & Demand Old Havana Mercado Belen Supply & Demand Vedado 19 & B Supply & Demand Vedado 17 & G Supply & Demand Jaimanitas (small) Cooperative (collective) Miramar Organopónico INRE 1, 44 e/ 3 & 5 Cooperative No‐Agropecuaria Old Havana Mercado Sol Cooperative (CCSF) Vedado B e/ 17 & 19 Other – street cart Jaimanitas Other – Punto de Venta Vedado 19 & B Note: * This categorization is our own and differs from that utilized by the Cuban statistical agency, ONEI, since it privileges the form of management.

Table A2. Comparison of fruit prices (mode) in Vedado vs. Miramar Supply & Demand Markets

Product Vedado Miramar Fruit 19 & B 17 & G 42 & 19 (n=6) (n=6) (n=5) Banana ‐‐ ‐‐ 10 hand Coconut 10 each ‐‐ 10 each Guayaba 8/lb 6/lb 6/lb Limes 20/lb 15/lb 25/lb Oranges 5, 7/lb ‐‐ 10/lb Papaya 5/lb 5/lb ‐‐ Pineapple 10, 12/lb 12/lb 15/lb Watermelon 7/lb ‐‐ ‐‐ Mango ‐‐ ‐‐ 20, 30/lb Notes: n refers to number of stands selling fruit sampled within a given market. Some of the stands sell both fruit, vegetables and/or viandas and these products are reported separately in Tables A2, A3 and A4. In bold, where cheapest.

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Source: Authors’ observations, January 2017.

Table A3. Comparison of vegetables prices (mode) in Vedado vs. Miramar Supply & Demand Markets

Product Vedado Miramar Vegetable 19 y B 17 y G 42 y 19 (n=6) (n=9) (n=7) Beet 15/lb 15/lb, 10 bunch ‐‐ Cabbage ‐‐ 15 each 15 each Carrot 15 bunch 5 lb 10/lb Chard 10 bunch 10 bunch 10 bunch Cucumber 10/lb 6/lb ‐‐ Eggplant 10/lb 5/lb 10 each Garlic ‐‐ ‐‐ 4 head Lettuce 10 bunch 10 bunch 10 bunch Onion 15/lb 15/lb 15/lb, 15 bunch Pepper 12/lb 15/lb 3,4 each, 5/lb Spinach 10 bunch ‐‐ ‐‐ Squash ‐‐ 3/lb ‐‐ String beans ‐‐ ‐‐ 10 bunch Tomato 5/lb 5, 6, 8/lb 4/lb Notes & Source: See Table A2.

Table A4. Comparison of vianda & bean prices (mode) in Vedado vs. Miramar Supply & Demand Markets

Product Vedado Miramar 19 y B 17 y G 42 y 19 (n=6) (n=9) (n=7) Wh. sweet potato ‐‐ ‐‐ 4/lb Taro root ‐‐ ‐‐ 10/lb Plantain (burro) 3/lb, 10 hand 10 hand 10 hand Cassava 3.5/lb 3/lb ‐‐ Black beans 10/lb ‐‐ 10/lb Red beans ‐‐ ‐‐ 20/lb White beans ‐‐ ‐‐ 20/lb Notes & Source: See Table A2.

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Table A5. Non‐sugar cane agricultural production (in 000 tons)

Product 2010 2011 2012 2013 2014 2015 2016 Viandas 2,250.0 2,280.0 2,337.0 2,239.0 2,507.1 2,633.6 2,859.6 Vegetables 2,141.0 2,200.0 2,112,0 2,406.5 2,499.0 2,424.2 2,384.8 Beans 80.4 133.0 127.1 129.8 135.5 117.6 136.6 Cereals 778.9 920.4 1,002.0 1,002.0 1,013.5 781.1 918.5 Citrus 345.0 264.5 203.7 166.9 96.8 115.4 119.5 Other Fruit 762.0 817.0 964.9 925.0 884.5 942.7 944.5 Totala 6,357.4 6,614.9 6,746.7 6,966.0 7,136.3 7,014.5 7,363.5

Total marketedb na na 519.0 700.1 642.3 599.1 663.1 Share of Total 7.7% 10.0% 9.0% 8.5% 9.0% Production Notes: a Excludes tobacco, cacao and coffee b Refers to volume sold through the different types of agricultural markets; excludes the volumes sold by street vendors, which are not reported in source. Sources: for Agricultural Production, ONEI (b), Anuario Estadístico, Table 9.10, various years; for Total marketed, ONEI (d), Venta de Productos Agropecuarios, tables 2.5, 2.6, 2.7 and 2.8, various years.

Table A6. Cuban imports of foodstuffs (000s CUPs)

2011 2012 2013 2014 2015 Food 1,863,194 1,644,877 1,848,051 1,917,741 1,800,910 Beverages & tobacco 37,122 27,861 50,436 54,786 89,666 Oils & fats 146,505 164,653 119,995 147,456 148,549 Sub‐total 2,046,821 1,837,391 2,018,482 2,119,983 2,039,125

Total Imports 13,952,403 13,800,851 14,706,619 13,036,844 11,702,367 Total foodstuffs as 14.7% 13.3% 13.7% 16.3% 17.4% share of imports Source: ONEI (b), Anuario Estadístico, Table 8.10, various years.

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