THE FORBIDDEN ISLAND

Weststar Food Handled the U.S. Trade Embargo and Found a New Market in Cuba

 By Vito Echevarria, Global Trade Magazine

WestStar Food Company is an agribusiness with an appetite for new markets. That’s what led the bean producer from its home in Corpus Christi, Texas, to the “Forbidden Island” of Cuba. Well, new markets and a massive hurricane.

Formed in January 2003 as a merger between Kirkeide’s Northland Bean and managing partner Patrick Wallesen, WestStar was already selling into Northern Mexico and other parts of the Caribbean when Wallesen began hearing news reports about Cuba’s openness to buying food from U.S. producers. Though the capability to ship to Cuba was put in place by President Clinton in 2000, it took a crisis to jump start trade activity.

The 140-mph winds and torrential rain of Hurricane Michelle devastated the island nation’s domestic food production in 2001, and the fatal storm forced Cuba to turn to its long-standing enemy—USA—to replace some food staples for its 11 million people. Even though America had offered Cuba food as aid, Fidel Castro, the island’s then-leader with notorious nationalistic pride, reportedly huffed “No thanks—we prefer to pay.” By December 2001, agribusiness giants ADM and Cargill made news when they started shipping grain to Cuba.

Few had thought of Cuba as a viable market for agricultural products shipped direct from America and its farm belt regions, but the groundwork had been laid during the last days of the Clinton Administration. In 2000, the Trade Sanctions Reform and Export Enhancement Act (TSRA) was passed, allowing exports of U.S. food & agricultural products into Cuba for the first time since the enactment of America’s trade embargo against the country in the early 1960s. The terms of trade were very simple: cash-only U.S. sales into Cuba, with payment to be made before the goods leave U.S. ports of exit.

Cash upfront was certainly a stipulation that caught Wallesen’s attention.

Free to Trade: Fidel Castro meets traders eager to ship to Cuba at Havana’s International Trade Fair

Still, he was unsure about Cuba as a realistic trading partner, especially for smaller independently owned firms. Wallesen decided to travel to Havana in 2003 and meet with officials from the country’s food import buying agency, Alimport, to gauge the market for himself. Aside from his knowledge that beans are a “must-have” item in any Cuban’s diet, it was developments closer to home that drove Wallesen to book his flight to Havana. That year, Alimport’s then-CEO Pedro Alvarez signed a memo of understanding with the Port of Corpus Christi. Afterward, U.S. dry bean sales into Cuba tallied at nearly $1.2 million for 2003—all shipped right from Texas’ Port of Corpus Christi.

Putting aside that trade development, Wallesen couldn’t ignore overall U.S. food and agricultural exports to Cuba during that period. While such exports from the U.S. to Havana totaled just $4.3 million in 2001, the figure would skyrocket to $138.6 million the very next year.

By 2003, Wallesen had seen Havana’s consumer market for himself and negotiated deals with Alimport after learning that Cuba was “open for business” after all. “The Cubans are opportunistic buyers,” Wallesen says. “They buy when the time is right. They buy from the U.S. between November and February.” He notes that as much as 25 percent of dry beans consumed in Cuba are from America, with the remainder originating from China, Canada and elsewhere.

Wallesen says WestStar Foods sometimes exports its own supply of beans to the island nation, and at other times sources beans from places such as North Dakota. Interestingly, the firm had to learn which beans were viable in Cuba. Even though a visit to any Cuban restaurant in Miami, for example, will likely result in a serving of black beans richly heaped over a plate of steaming white rice, Wallesen learned that, for economic reasons, Alimport was instead ordering tons of pinto beans. The reason was simple. “They’re cheaper,” Wallesen says.

With the rest of Washington’s trade embargo against Cuba still in effect, Alimport was forced to remain sensitive to costs—a key factor in canned U.S. beans being entirely absent from any Havana supermarket. “I doubt you will find any canned beans in Cuban supermarkets, since they’re so much more expensive,” says Wallesen.

He and other stateside food producers had to be educated not only in the goods that actually sell in Cuba, but in navigating the U.S. bureaucracy still governing the trade embargo against Cuba—and its exceptions. For example, simply paying a visit to Cuba is not a matter of booking a flight with just a few mouse clicks through a commercial travel website, like going to the Bahamas or Cancún. Those who must legally visit Cuba to negotiate trade deals are required to apply for a license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) division in Washington, D.C.

Such visitors must also get a visa from the Cuban Interests Section to visit that country. (The D.C.-based agency is given that name because there are no diplomatic relations between the two countries, but it still functions like an official embassy.) Having an appointment set up with Alimport’s headquarters in Havana may ease the process for U.S. executives obtaining these travel documents for their trips to Cuba.

Once a U.S. food manufacturer or agricultural firm signs a deal with Alimport, it must get an export license to ship to Cuba. Because other Texas-based agribusiness firms are also selling into Cuba, those like Wallesen didn’t have to look too far for advice in that area. “U.S. companies need to obtain a one-year export license from the Bureau of Industry and Securities (BIS) within the U.S. Department of Commerce,” says Cynthia Thomas, president, TriDimension Strategies in Dallas, Texas. Thomas also happens to be president of the trade promotion group, Texas-Cuba Trade Alliance. “The application and approval process is now quite quick,” she says. “It generally can be turned around by BIS within a week or less. This is the only required license for exporting to Cuba.”

Along with the export paperwork required for U.S. suppliers, it’s stipulated that Alimport must pay the American exporter. As per OFAC’s guidelines, only a handful of foreign banks are allowed to process such payments into U.S. bank accounts (to be done by letters of credit through third-country banks—usually based in Europe and Canada). Food exporters like Wallesen learned that one reason Cubans must use letters of credit—instead of wire transfers in cash—is concern that Alimport (a Cuban government entity) taking title to goods still sitting at a U.S. port may subject the goods to seizure by Miami Cubans who have legal judgments against the Castro regime. The seized food shipments could be used to help satisfy such civil claims.

Once payment is received, the next issue is logistics. There are at least 12 U.S. shipping companies currently handling American food exports to Cuba. For Wallesen, though, it was a “no-brainer” who the best-known Cuba-bound shipper is in the market: Crowley Maritime Corp. “Crowley entered this market because it spent years working with both U.S. and Cuban officials anticipating that one day there would be trade,” says Jay Brickman, Crowley’s vice president. “When the Trade Act (TSRA) passed Congress and was accepted by Cuba, Crowley was a known entity by all parties. Crowley is not the only company providing a shipping service to Cuba. [However,] it is the largest for carrying containerized cargo from the U.S.”

One reason few U.S. shipping companies serve Cuba is the embargo, which dictates that containers unloading goods in Havana can’t bring anything back to America. “We are not permitted to carry cargo from Cuba to any market,” says Brickman. “To continue the service, it really takes two things: a route that is complementary to serve the market, and a commitment to hang in there.”

In addition, OFAC has restrictions on which ports of exit are authorized to handle cargo destined for Cuba. Most are concentrated in the Southeast, and include the ports of Everglades, Jacksonville and Tampa, Florida; Savannah, Georgia; New Orleans, Louisiana; Mobile, Alabama; Gulfport and Pascagoula, Mississippi; and Port Arthur and Corpus Christi, Texas. Would-be exporters are advised to verify other OFAC-authorized ports of exit with their shipping company.

Of course, WestStar Food is not the only U.S. supplier of dry beans into Cuba. Others include commodity trader PS International, based in Chapel Hill, North Carolina; St. Hilaire Seed Co., based in St. Hilaire, Minnesota; and another Minnesota entity, Anderson Seed Co. The latter two were bought out earlier this year by Canadian entity Legumex Walker, a specialty grain company based in Winnipeg.

In recent years, these and other U.S. dry bean suppliers have had no complaints in trading with Cuba. According to USDA figures, dry bean exports from U.S. suppliers to Cuba reached $7.7 million last year, up from $5.6 million in 2010 and $4.3 million in 2009. But 2006 was perhaps the strongest year for U.S. dry bean sales into Cuba, with record sales totaling $10.9 million.

Still, Wallesen worries about Cuban purchases in the near future, because of higher prices for beans and other agricultural goods these days. “The drought in Mexico pushed their purchases up, and (world) prices have gone up,” says Wallesen, knowing that the Cubans are notorious for turning to cheaper, non-U.S. suppliers when the occasion calls for it.

This is where TriDimension Strategies’ Thomas and her trade advice kicks in. She warns prospective U.S. suppliers that in many cases—say, if Cubans stop buying a certain food category from America—such suppliers may want to refrain from visiting Alimport in Havana to do a sales pitch. “Cuba is not issuing business visas to companies selling products that they do not have an interest in buying,” says Thomas. “Alimport has a very limited staff and it takes a lot of time to prepare for one meeting. A number of these companies who will not be getting a visa should know that they have a product that Cuba does not need or at least does not have the money to buy. For example, one company that went to Cuba was selling very high end and expensive bird seed. Someone else was [pitching] individual packets of hot chocolate.”

Despite such advice, trade figures generated by U.S. food exports to Cuba are still luring U.S. food producers—brokers as well—to visit Havana. As shown by U.S. Department of Commerce statistics, U.S. food export sales to Cuba peaked in 2008 ($710 million) and 2009 ($528.4 million), with 2011 figures standing at $347.2 million.

Americans are shipping more than beans to the Forbidden Island. An unlikely success story in America’s revived food trade with the Cubans is Splash Tropical Drinks, a Ft. Lauderdale, Florida-based supplier of daiquiri and margarita drink mixes that had been supplying such goods to tourism hotspots within the U.S. and various countries in the Caribbean and Latin America. Splash’s clientele included Sandals, SuperClubs, Marriott, Sysco Food Service and various all-inclusive resort operations in that region.

Splash became one of the first U.S. food companies to sign a deal with Alimport in the early 2000s. Since then, its products have been consumed at Havana’s famed Hotel Nacional, Hotel Meliá Cohiba and other resorts and restaurants on the island. In 2009, Splash’s owner, 43-year-old Brooklyn native Richard Waltzer, mentioned to the South Florida Sun-Sentinel that due to the extra business Cuban sales had generated for his firm—several million dollars annually—he added four staffers to his 50-employee work force.

That same year, Waltzer, under his sister firm Procurement Systems Inc. (PSI), expanded efforts to push into Cuba’s robust tourism market. He was even spotted on CNN pitching supermarket-ready products such as Miller Draft beer and Haagen-Dazs ice cream at Havana’s International Trade Fair (FIHAV). Held every November, FIHAV attracts prospective food and consumer-product exporters from all over the world. “This is one of the things people are going to pay premium for, especially the tourists that have the dollars,” Waltzer told a CNN correspondent at FIHAV, referring to the brand name-packaged products recognizable to U.S. and other consumers.

It’s no surprise that Waltzer wants to hawk supermarket goods in Cuba’s tourism market. U.S. State Dept. figures confirmed that by 2010, 2.53 million foreigners had visited Cuba (mainly from Canada, Western Europe and elsewhere), with that sector generating $2.4 billion in revenues that year. At a subsequent seminar on U.S. trade with Cuba at Tampa, Florida, Waltzer also mentioned another potential market for well-known brand items like Kellogg’s Corn Flakes and Heinz Ketchup: Cuban-American visitors. “What we want to do is bring American-branded products to supermarkets in Cuba, as many as we can, as soon as we can,” Waltzer said at the time.

The market potential for U.S. exporters of such goods is as clear as the island’s famed turquoise-blue waters. The U.S. State Dept. estimates that from $800 million to as much as $1.5 billion a year in remittances are sent to Cubans by their overseas relatives (mainly in America). A sizeable portion of that cash flow ends up in the island’s supermarkets and overall retail sector.

And that is precisely the next challenge for U.S. exporters—flooding one of the last bastions of Marxism with American products. With Alimport accustomed to buying bulk farm goods from the U.S. over the years, it has not yet gone to the next level to buy consumer brands direct from America on a massive scale, despite the presence of household American names like Coca Cola (canned in Mexico) in the island’s supermarkets, known locally as “dollar stores.”

“[Supermarket managers in] Cuba had to mark it up 240 percent before selling it in the dollar stores,” says U.S.-Cuba trade advocate Kirby Jones, referring to such packaged items being sold in local supermarkets. Jones should know—his trade consulting firm, Alamar Associates (based in Washington, D.C. until recently), successfully put together trade seminars between Cuban officials, U.S. companies in Cancún, Mexico, and Havana itself, well before the first containers of U.S. farm goods left their ports of exit for Cuba during the early 2000s.

Jones also explains how Cuban supermarket managers maximize profits by carrying, for example, an obscure brand of ketchup from Spain, versus carrying the universally known but pricier Heinz brand from Pittsburgh. However, familiar regional U.S. convenience store staples like Wise-brand potato chips (from Canada) and even Colgate brand toothpaste have found their way into Cuba through third-party international traders who strike one-shot deals with the Cubans.

Whether Alimport is given the green-light to negotiate deals for such goods direct with U.S. manufacturers still remains to be seen. As one observer notes, “it may take another hurricane to make that happen.” Given how U.S. agricultural trade with Cuba got to where it is now, that can’t be ruled out in the near future.