Agriculture in Cuba: Market Economy or Municipal Economy?

For the last two years the Cuban government has spoken about decentralizing government and reinforcing the local authorities’ autonomy to define development strategies, manage resources, and attract foreign investment, among other activities. The most progress in this endeavor has been in the area of agriculture.

The government has been touting its new strategy for the commercialization of agricultural products and for shaping food prices. Authorities from the Ministries of Agriculture, Finance, and Economy have emphasized that the new agricultural policy has eliminated the monopoly of “Acopio”, the state enterprise with the monopoly on purchasing agricultural products. On the Mesa Redonda television program on August 2, 2021, the director of merchandising at the Ministry of Agriculture said: “There is no monopoly. They are a family of merchandisers.”

Several analysts and media outlets echoed the announcement about the elimination of price caps in Cuban agriculture effective July 30. However, a careful analysis of the announcement does not necessarily indicate a definitive change in the pricing policies for the agricultural sector.

Acopio and the “Family of Merchandizers”

As published on May 4, 2021 in the Gaceta 49, the new regulations do indeed allow a greater participation of non-state actors in agricultural merchandizing.  However, Article 18 of the Council of Ministers’ Decree 35 specifies that:

• “Producers can sell—to other existing markets in the country—products that cannot be bought, due to logistical and financial problems of the state and its commercial entities …”
• “Products under contract for sale to the state and its commercial entities that are not actually purchased by them, through their own fault, can be sold by cooperatives or producers [...] to other existing markets in the country.”

That means that Acopio (the state agricultural purchasing monopoly) continues to have a first purchase option on agricultural products. Farmers and agricultural cooperatives are free to sell in other markets those products that Acopio has not placed under contract, or that it has placed under contract and then does not take delivery - for whatever reason.

Moreover, the same decree defines the new “municipal economy”: “the provincial councils and the councils of the Municipal Administration exercise supervision and control over the operation of the agricultural marketing system.” The following are among the duties of the provincial councils:

• Determine the points of sale and the prices of agricultural products that circulate among municipalities based on the recommendations of their contracting committees.
• Monitor the prices established by the councils of the Municipal Administration.
• Control the operation of agricultural markets.

This regulation is the origin of the so-called “Committee for the Contracting of Agricultural Production” in municipal economies, which are to be chaired by the provincial governor and the mayor of the municipality. Interestingly, these committees include cooperatives and individual farmers among their members, in addition to local authorities and state agricultural enterprises.

In addition to making contract proposals, these municipal committees have a primary duty “to set Acopio wholesale and retail prices for their territories and the prices applicable to agricultural products that are not subject to Acopio, in accordance with established commercial margins…”

Based on this new rule, the Cuban authorities claim that there are already very few centrally capped prices, rather, they argue, the situation is one of “agreed upon prices.” Certainly, agricultural producers have an important role in setting prices, but the published standards do not specify how these contracting committees will function.  It does not seem that prices will be set under a voting system; and what real bargaining power the agricultural cooperatives and individual farmers will have in these committees remains unknown.

The explanation for the success that the government expects from this “municipal economy” is that the best information regarding problems, imbalances, and local needs is found at the grassroots level. The argument is that this will allow better decision-making, as opposed to when decisions were made centrally by the ministries in Havana. There is some logic to this, but it is also true that the substitution of market mechanisms for price setting is a complex task even at the municipal level, especially if the producers do not participate in a real negotiation on equal terms with the local authorities.

Another legitimate concern is the whether there exists professional capacity in the municipalities for taking on these new responsibilities. Moreover, there is the concern about the effectiveness of having very different agricultural prices set by the various municipalities for the same products. Unjustified regional price disparities, and the difficulty of the local committees in fully understanding all the dynamics and interrelationships of the agricultural markets, can end up sending the wrong signals to producers and generating new distortions in Cuban agriculture.

Given that these new agricultural norms leave ample operational discretion to the contracting committees, there will likely be both good and bad experiences. Perhaps the most positive aspect of this municipalization is the ability to collect and disseminate information on best practices. Surely, the best examples will come from those committees that agree upon prices closer to reflected market values, since they will send the necessary signals to adjust the supply and demand of each of the food products in accordance with local and national realities.

Price Caps and Intermediaries

Another uncertainty created by the new agricultural commercialization policy springs from Resolution 320 of the Ministry of Finance and Prices, dated July 30, 2021, which eliminated the references to maximum agricultural prices set forth in Resolutions 18 and 84 at the beginning of this year.

But, Resolutions 18 and 84 had simply set a cap on agricultural prices to avoid excessive increases as a consequence of the monetary reform undertaken at the beginning of the year and the devaluation of the official exchange rate of the Cuban peso. And, since the official estimates of the inflationary impact of the devaluation have turned out to have been well below market inflation, these caps became obsolete and counterproductive, and thus were eliminated. This serves as another example of how difficult it is to understand the multiple factors driving prices in an economy.

While Resolution 320 eliminates the prior price caps, it should not necessarily be interpreted as changing pricing policy by eliminating pricing caps altogether.  The contracting committees are now in force and local governments also have the authority to define the prices of agricultural products that circulate among their municipalities (including any caps).

On the television program, Mesa Redonda, on August 2, 2021, the Minister of Finance was very clear: “The cap is eliminated, but without jeopardizing the provincial and municipal authorities’ ability to establish retail sales prices for the population that take into account regional needs and realities. We re-emphasize these powers are in force, as well as the local authorities’ responsibility to confront speculative and abusive prices.” (Mesa Redonda, August 2, 2021)

Another issue that the new regulations for agricultural marketing feature is the elimination of intermediaries. The intention is that the producers themselves be in charge of positioning their products in the markets, with a view to lowering the final prices for consumers. The marketing director of the Ministry of Agriculture called it “self-management” (Mesa Redonda, August 2, 2021).  While this may be feasible and beneficial for producers at a local level, it once again ignores the important role specialized merchants play in the value chain of any larger market.

Article 20 of the decree limits the wholesale merchandizing of agricultural products to state enterprises (other than Acopio) by agricultural cooperatives, landowners, and wholesale sellers of agricultural products.  This means that that wholesalers could only operate under the designation of “self-employed worker.”

As noted, the regulation specifically prohibits the operation of private small and medium enterprises, non-agricultural cooperatives specialized in commercialization, second-degree cooperatives, or joint or foreign enterprises as wholesalers.  By contrast, and creating more ambiguity, in another provision – Article 30 – these entities (along with non-agricultural cooperatives) are specifically empowered to engage in retail merchandising.

We already know to expect other regulations aimed at strengthening the role of the socialist state enterprise in agriculture.  But history and irrefutable data suggest that we should not expect anything new or beneficial from those coming regulations. The Minister of Agriculture announced on television: “the basis for the design of the municipal agro-industrial state enterprise system is already in place, and is already at the stage of seeking Executive Committee approval, and will then be implemented" (Mesa Redonda, August 18, 2021).

The Cuban agriculture, livestock, and forestry sector barely registered an average annual growth of 0.5% over the past decade.  Import substitution, food sovereignty, and a daily glass of milk for every Cuban remain unfulfilled promises of the government to the Cuban people from the first Lineamientos (the Cuban legislative reforms adopted in 2011).  The so-called "update of the socialist economic model" of the Lineamientos accrued countless economic and organizational transformations and changes to legal norms, while aiming to ignore the well-established logic and incentives of a market economy.

Vietnam, which has moved steadfastly in the market direction and has radically transformed its economic model, achieved a sustained average annual growth in the agricultural sector of 3.9% during the 1990s, and 3.8% in the 2000s, leading the country to increase its food production capacity by 50% during the first decade and double it in twenty years.

Under a “municipal-based” economy, we are once again in uncharted territory, and despite the Cuban government’s history of accumulated failures over the last three decades, when it tried half measures or “updates” to the command economy model, also known as bureaucratic socialism.

Nothing suggests that moving to the regional scale will guarantee the success of the administrative mechanisms in contracting and price-setting that did not work at the national level. The Cuban government’s reluctance to consider full market reforms is well-known: Whenever there is a possible alternative, no matter how speculative, it will be chosen by the powers that be.

In summary, the regulations published this year show a relaxation of the prior strictures on commercialization, without actually implementing adequate incentives and market signals for the growth of the agricultural sector. We may see some positive one-off results. But in order to achieve meaningful and sustainable results, much more progress is needed; farmers need clarity and confidence that new agricultural policies will definitely avoid previous mistakes.