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Updated: 23 Dec 2008 10:02:26 GMT
CHICAGO --The U.S. rice industry is hoping President-elect Barack Obama's campaign mantra of change will apply to the country's relations with Cuba, which analysts say could become a key customer if the U.S. would allow it.
Although the U.S. eased trade sanctions against Cuba at the end of the Clinton administration, there are still enough restrictions to limit sales to the island neighbor.
"The best case in our view would be to remove the restrictions regarding trade and economic relations and travel and all that, and just kind of open it up," said Reece Langley vice president of government affairs for the USA Rice Federation, which represents rice producers, millers and merchants. "Whether that's going to happen, I think that's a long shot, at least initially."
But Langley and others say there's plenty of reasons for the rice industry to be optimistic about change coming to Cuba.
"The main thing is, I believe that things will open up for travelers, people going between the U.S. and Cuba," said Milo Hamilton, co-founder of firstgrain.com.
He thinks that could happen very soon after Obama takes office. Such a move would be seen as a benchmark signaling improved relations and freer trade with the nation.
Cuba is a big rice consumer and natural customer of U.S. rice given its proximity, analysts said.
"From what we can tell, they're using about 1 million tons per year, and we think can supply them 350,000 to maybe 500,000 metric tons of that, if things were completely opened up," Langley said. "Maybe not even completely opened up."
Trade with Cuba picked up in 2001, following passage of the Trade Sanction Reform and Export Enhancement Act, and rice sales slowly built up to a high of 177,000 metric tons in 2004, Langley said. The Bush administration tightened restrictions in 2005, however, and sales dropped. There were 60,000 metric tons sold to Cuba in 2007, and Langley estimates only 12,000 to 15,000 through October of this year.
The U.S. government's changes in 2005 have prevented Cuba from purchasing U.S. rice via credit.
"You basically had to have payment of cash in advance, which meant payment had to be sent before the shipment ever left the U.S.," Langley said.
That has prompted Cuba to get loans from foreign countries in order to buy U.S. rice, said Bill Nelson, a grain analyst with Doane Advisory Services. Easing this restriction and granting Cuba credit would facilitate more sales, analysts said.
"If you're going to sell, you might as well just sell it," Nelson said. "There are certainly issues with Cuba we all know about."
Langley added that another potential change, allowing for direct banking, would cut down on transaction time and costs because payments to U.S. companies that do sell rice to Cuba wouldn't have to be made to a third-party bank.
The U.S. Department of Agriculture says on its Web site that in 2006 Cuba was the 33rd largest market for U.S. agricultural exports.
Reform in U.S. policy toward Cuba already has support in Congress, Langley said. He said there have been multiple instances in which legislation to relax the restrictions has been included in appropriation bills, only to be removed from conference committees at the insistence of the White House.
He also noted Obama "won Florida without really having committed on anything to the Cuban population down there, that hopefully he has some flexibility to push this agenda.
"I think you'll see a pretty large coalition, a diverse coalition of groups working on this issue going forward," Langley said.
Cuba is considered a natural consumer of U.S. rice because of its proximity to the U.S. and its key rice-producing regions. That allows it to purchase much smaller amounts than it could from key U.S. competitors, such as Vietnam and Thailand, and operate hand-to-mouth, worry less about getting it shipped and storing it, analysts said.
"It becomes the difference between buying huge amounts at Wal-Mart versus going over to Stop & Go," Hamilton said. "That's our edge."
He also noted, however, that Cuba is still "a price-conscious buyer" and that with cheaper Asian prices and historically low freight rates, the nation still might have a greater incentive to look elsewhere.
But easing of trade restrictions would help U.S. rice, analysts said. A Chicago Board of Trade rice trader said prices would "really take off."
Nelson said easing of rice sales to Cuba could lead to a couple million hundredweight in additional sales.
"On the margin, when you're talking 20-25 million hundredweight in ending stocks, you're talking about 5%-10% of the ending stocks. That's significant," Nelson said.
-By Ian Berry, Dow Jones Newswires; 312-341-5778; ian.berry@dowjones.com
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