Cuban sugar harvest shows limits of reforms

HAVANA – A new business model being rolled out by Communist-run Cuba as part of wide-ranging economic reforms has performed poorly in its first test – this year’s sugar harvest – and revealed shortcomings in the plan, local and foreign experts said last week.

Changes aimed at giving state companies more autonomy proved to be too limited, they said, echoing a common complaint about Cuban President Raul Castro’s efforts to remake the island’s struggling economy.In pursuit of greater profits and productivity, Cuban ministries are shedding their business activity in favour of state-run holding companies, and in some cases are closing entirely.The companies keep a percentage of their profits and in theory are freer to make day-to-day decisions, set wages, and hire and fire.The country’s emblematic Sugar Ministry was replaced last year by a state-run holding company that spokesperson Lionel Perez said at the time represented the first sector to complete its ‘economic reorganisation’.The new holding company is composed of 26 subsidiaries, including 13 provincial companies that manage the mills.The sugar company (Azcuba) promised output would top 1,45 million tons this year, a 19 per cent increase, but it came in at around 1,4 million tons.Plans for the mills to operate at 80 per cent of capacity failed to live up to expectations: only 60 per cent was achieved.The industry did turn a profit and the cost of producing a ton of sugar declined, state-run media reported, but that was due mainly to layoffs, not productivity.The problem, said Richard Feinberg, a non-resident senior fellow of the Washington-based Brookings Institution and author of a recent study on the Cuban economy, is that not enough has changed.’It’s early in the restructuring process and some gains were reported, but the new firms still face the same old constraints of weak incentives, distorted prices, severe capital shortages, and infrastructure bottlenecks,’ he told Reuters.The chronic problems that led to a steady decline of the sugar industry from eight million tons in 1990 to 1,2 million in 2011 persisted this year.There was more cane as yields increased from 33 tons per hectare to 40,3 tons, still well below international norms.’YOU HAVE TO CHANGE’But 21 of 46 mills opened late, poor repairs led to repeated breakdowns, cane-cutting machines were idled for lack of spare parts and transportation was delayed for the same reason.A report on state television showed the country’s first vice president, Jose Ramon Machado Ventura, reading the riot act to Azcuba executives.’We have said repeatedly that in the provinces you have to change, you have to really change, you have to do things in a different way,’ he said angrily.The news report said poor efficiency led to a loss of 68 000 tons of raw sugar.’It was simply lost, we could have produced more,’ said Machado, who is also second in the Communist Party hierarchy, behind only Raul Castro.But local and foreign experts said poor work performance was only a symptom of larger problems, among them management that is too centralised and a lack of capital and investment.’The new company continues to be structured along the same lines as the old ministry – by territory. The mills that actually produce the sugar, alcohol, rum and energy have little power when they should each be the centre of decision making,’ a local expert on the state-run companies said.’They have decentralised some but not nearly enough, and the subsidiaries, let alone the mills, are not free to partner with foreign firms, nor import and export,’ he added, asking not to be identified due to a ban on talking with foreign journalists.Carlos Saladrigas, a successful Cuban American businessman who advocates engagement with his homeland and heads an organisation of like-minded peers, the Cuba Study Group, agreed, saying Cuba needs to become more businesslike and less ideologically driven.’The business model they are trying to use is not new, and definitely not an efficient business model, but rather irrelevant tweaks on the same old version,’ he told Reuters.’The state companies need autonomy, effective governance, not interference, alignment of incentives, and the adoption of time-tested business practices,’ he added.Eight of Cuba’s mills were built in the 1970s and 80s, but the remainder date back to before the 1959 revolution.The industry is decapitalised, like most of the island’s infrastructure and manufacturing, yet proposals by various foreign firms to invest in sugar production have so far been rebuffed.’Without some significant new investment, it is going to be very difficult to make significant strides to increase sugar output, regardless of what organisational structure they use in Cuba,’ said William Messina, an agricultural economist with the University of Florida.- Nampa-Reuters