In his book, Sugarcane Energy Use: The Cuban Case (University of Havana, 2008), Alonso-Pippo Walfrido wrote: "Central America and the Caribbean, historical sugar-producing economies where the sugar-ethanol infrastructure already has a foundation, labor costs are low, and the political conditions are more or less stable– offers the best near-term potential for large-scale sugarcane ethanol production. This is a market opportunity which Cuba, with the longest experience of sugar–ethanol and sugarcane derivates production in the region, is positioned to take advantage of.”

As the result of a precipitous contraction in the Cuban economy, Cubans have recently experienced crippling energy cutbacks and other shortfalls that are reminiscent of the devastating hardships of the “Special Period,” and industries have continued to falter due to the evaporation of credit and investment flows which largely dried up after the break-up of the Soviet empire. In the first half of 2009, the Obama Administration launched a series of modest initiatives aimed at normalizing U.S.-Cuba relations, most recently exemplified by the loosening of restrictions on travel by Cuba-Americans, lifting controls on remittances, and giving the nod to U.S. telecommunication investments on the island.

Though President Obama recently renewed the Trading With the Enemy Act, policy mitigations have prompted speculation that a greater volume of trade and investment is likely to be permitted in the future. These factors, coupled with the current 28-year high in sugar prices and the delicate health of Fidel Castro, lead to the question: would Cuba benefit from, and does it possess the technological and infrastructural means and political will to expand and modernize its sugar and sugarcane ethanol industries to take advantage of the unique developments now taking place around the globe?

Despite the precipitous collapse of Cuba’s sugar industry beginning in the early 1990s, the country’s economy would benefit from opening its markets to foreign investment and revitalizing its tattered sugar industry for the production of raw sugar, ethanol and electricity.

A Glorious Past and a Conflicted Present

Sugar has served as one of the most important formative influences on Cuba’s socioeconomic development; as according to the Cuban adage, “without sugar, there is no country.” Ever since Columbus introduced sugarcane to Cuba on his second voyage, it has been referred to as “the grass of Cuba,” and the island has been one of the leading producers and exporters of sugar since the 1600s. Even the implementation of Cuba’s railway system in the 1830’s was directly linked to sugarcane planting and cultivation. In the first half of the 20th century, while sugarcane agriculture was spurred by U.S. financial speculation and investment cycles, the industry was all but ruined by a drought of incoming funds brought on by the Great Depression. Later, it was devastated by the U.S.-Cuban embargo, which was in part targeted at undercutting Cuba’s sugar industry. Sugar cultivation had been heavily fostered by Soviet patronage and the Council for Mutual Economic Assistance (CMEA) trade bloc, producing an impressive zafra (sugarcane harvest) of 8.5 million tons in 1970. Throughout the 1980s, production was sustained at an annual average of 7.5 million tons with sugar accounting for three quarters of Cuba’s foreign exchange earnings, until the collapse of the Soviet Union led to a devastating 35 percent contraction in the Cuban economy from 1991-1993.

Cuba’s sugarcane production sharply declined thereafter, from 8.4 million tons in 1990 to 4.2 million only three years later. A blatant lack of efficiency, a series of droughts and hurricanes, as well as an economic crisis led to a fall in average annual production to a mere 3.7 million tons from 1994 to 2003. In 2002 the Castro government, in despair, severely downsized the industry, closing over half of Cuba’s 156 sugar mills in what was called the “Alvaro Reynoso Task.” As a result, production continued to shrink. By 2007-08, the Cuban zafra amounted to a mere 1.5 million tons. Since 2003, in order to fulfill export contracts as well as meet domestic consumption levels estimated at 700,000 tons/year, Cuba unbelievably has had to become a net importer of sugar.

Despite its clear deterioration in recent years, a revived Cuban sugar industry could serve an important role in the immediate future by attracting a new tranche of foreign investment while bolstering the country’s failing economy through the production of raw sugar, which would be processed into renewable fuel as well as cogenerate electricity. In fact, Cuba has produced ethanol in the past; when imported oil supplies were drastically curbed during the WWII conflict, Cuba produced roughly 26 million gallons of anhydrous ethanol to blend with gasoline. This practice, however, was discontinued after the war in order to meet U.S. raw sugar import quotas.

Today, Juan Tomás Sanchez of the Association for the Study of the Cuban Economy estimates that Cuba eventually could supply up to 3.2 billion gallons of ethanol annually. A more modest prediction by Cuba expert Jorge Hernandez Fonseca projects a production figure around 2 billion gallons per year, which would still make the island the third largest sugar producer in the world, behind the U.S. and Brazil. Regardless, Rivera Ortiz, director of the Cuban business society ZERUS, told business magazine Opciones in 2006 that, “any efforts by foreign and Cuban entrepreneurs to jointly produce ethanol in Cuba must first look at guaranteeing financial and technological resources needed to boost sugarcane production as the necessary raw material for the advancement of ethanol projects.”

Noxious Inefficiencies, But Not Fatalities

The Cuban government’s decision to disassemble most of Cuba’s aging sugarcane infrastructure stemmed from the belief that production of the commodity was no longer cost effective for Cuba. As Fidel Castro noted, “Why would we produce something that costs more to make than to import?” However, the inefficiencies that beleaguered the once-mammoth Cuban sugar industry are not systemic, but rather the result of fixable practices, obsolete infrastructure, and a lack of adequate investment. There is no reason why Cuba’s raw sugar and ethanol industry wouldn’t be profitable in a modernized market with successful technology sharing partnerships and the appropriate implementation of world-standard cultivation and refining techniques. In fact, such improvements do not even necessarily involve expensive new technologies. As Dr. Brian H. Pollitt, a Cuban sugar expert from the University of Glasgow’s Institute of Latin American Studies, noted: “It was evident both that there was still great room for productive improvement and that most of it lay not in adopting novel or sophisticated techniques of cultivation, but in generalizing the mundane good tillage practice that could be observed on many small cane farms and CPAs [Agricultural Production Cooperatives] throughout Cuba.”

Cuba’s ambitious push for a “Ten Million Ton Harvest” back in 1970 fell short of its goal but still resulted in an 8.5 million ton harvest. The government push to achieve such high production levels began a period of bad habits: inefficient seeding methods, inappropriate harvesting schedules, and faulty refining techniques. The milling season, for example, was extended 4-5 months into the rainy season, causing a predictable decrease in yield and considerable damage to agricultural machinery. A loss of sucrose content found in the cane and a decline in sugar quality occurred due to protracted delivery schedules as well as stoppages at the mills. Additionally, considerable mechanical problems during the following harvesting season were exacerbated by maintenance delays. By this time politically-driven Cuban officials set goals for sugarcane cultivation, regardless of the production cost, under the government slogan “Sugar to Grow,” institutionalizing such inefficiencies that have plagued the island’s sugar agroindustry.

However, Cuba’s largest problem arose later, following the economic upheavals caused by the termination of Soviet patronage. After the demise of the Soviet epoch in 1989, the average level of production of Cuban sugarcane fell from 57.5 tons/ha before 1990 to 22.4 tons/hectare in 2005. This plunge cannot be solely attributed to inclement meteorological conditions such as devastating hurricanes and tropical storms, as the Cuban government is wont to claim. The Dominican Republic experienced the same adverse weather conditions, yet it has increased its yield since 1999 to double that of Cuba’s today. Measures such as raising the sugarcane agricultural yield and standardizing efficient practices would be essential to bolstering Cuba’s sugarcane industry today.

For Cuba, Why Now?

A sweeping mandate from the top is an incontrovertible requirement for Cuba to be able to open itself to any influx of investment, especially from the United States. Given Cuba’s pronounced and justifiable hostility against U.S. intervention, such an endeavor would prove a difficult task for Havana. However, both internal and external incentives exist to prompt Cuba to act with avidity to reassess and revamp its capital assets. Similar to China, Cuban quasi-visionaries believe that they stand to gain much by riding the currents of capitalism while still holding fast to the spirit of La Revolución.

A notable impetus for Cuban agricultural production has been prompted by the protracted drought and heavy rains in India and Brazil that have caused sugar prices to reach a 28-year high of nearly 20 cents per pound. According to the Financial Times, India, which produced 26.3 tons of sugar in 2007-2008, delivered a mere 15.5 tons last year and is expected to produce only 17 tons this year. The resulting price fluctuation lends a sizable incentive for other sugar producing nations to increase production. Even at Cuba’s high profit threshold of 10 cents per pound compared to 4.5 cents per pound in Brazil, profitability is guaranteed into future years due to the historically high prices of the commodity. However, windfall profits for sugar growers will more than likely result in a global push for heightened production that may end up generating commodity surpluses in two to three years. This surplus would impel Cuba and other sugar-producing nations like Jamaica and the Dominican Republic to invest in alternative sugar and sugar derivative technologies — such as ethanol – to be used in place of raw sugar.

Reports about decreased production are mired in stories of staggering energy cutbacks in Cuba, which are intended to prepare for slashed national spending in the face of rising budget deficits and plummeting export profits. This circumstance is reminiscent of – though not as severe as – the ghastly “Special Period” of rationing following the fall of the Soviet Union. In keeping with this rationale, Cuba has imposed austere measures aimed at conserving energy, such as planned blackouts which last year left many without air conditioning in the heat of the torrid Caribbean summer.

A surfeit of electricity, however, would be available for such usage if Cuba utilized electricity cogeneration from bagasse, the fibrous residue remaining after sugarcane stalks are crushed in the refining process. Many mills burn bagasse or Sugarcane Agricultural Residues (SCAR) in low-efficiency boilers to generate sufficient electricity for the mill while also disposing of the waste. Using state-of-the-art technology, a sugar mill can generate over 10 times the electricity needed for its own operation; thus, equipping mills with cogeneration capacity increases profitability 34 percent over that of the production of sugar and ethanol alone.

It is estimated that if Cuban mills cogenerated electricity from bagasse, the island could add up to four gigawatts of power to its grid, roughly equivalent to adding four nuclear power plants to the island. Moreover, an action as simple as modernizing the existing mills would augment their electrical generation capacity from 600 MW to at least 1400-1600 MW. This would represent more than a 50 percent increase of the National Electric Energetic System’s (NEES) total power capacity of 2940 MW in 2005. Cogenerated electricity from bagasse for transmission to the national grid will almost certainly be the most profitable scenario for Cuban ethanol and sugar production.

Moreover, the demoralizing blackouts in Cuba are a sign of a floundering economy and declining exports more than any existing shortage of electricity. Cuba’s trade deficit rose to 70 percent, or $12 billion last year, and an external analysis estimates a current account deficit of $2.5 billion. It has not gone unnoticed that 80 percent of all Cuban government enterprises postponed payments to foreign creditors this year, according to Carmelo Mesa Lago, an expert on Cuban financial affairs from the University of Pittsburgh. What Cuba needs is an influx of foreign currency, which can be achieved by promoting greater levels of investment and foreign trade. Unlike Brazil, which uses much of its ethanol to satisfy the domestic market, the majority of Cuba’s sugarcane ethanol would be used for export, thus curbing the endemic lack of hard currency, credit, and foreign investment, as well as boosting exports and stimulating economic growth.

Investment and Partnership: The Catalysts for “Crecimiento”

Cuba’s sugar industry has suffered from long-term neglect and insufficient investment, and its productive role has been utilized more as a vehicle for short term profit than as an engine for long term economic growth. From 1959 to 1999, only six new sugarcane mills with the capacity to cogenerate electricity were built despite guaranteed financial backing from the Soviet Union for part of that time. Also at Havana’s disposal were several advanced sugarcane research institutions, such as the Institute for Sugar Investigation (ICINAZ) and the Cuban Research Institute of Sugarcane Derivates (ICIDCA). Gradual decapitalization, disrepair, and low morale, all a result of a largely insufficient investment and a lack of spare parts, brought about the infrastructural deterioration that led Castro to close the majority of the nation’s mills in 2002.

It must be noted that Cuba’s ethanol and sugar production capacity will increase exponentially if direct foreign investment, which has been seen only sparingly up to now, is encouraged to enter by direct government policy. Starved by a recurrent shortage of hard currency, new capital inputs needed to modernize Cuban sugar mills would have to come from abroad. To rectify this current shortage, the University of Havana’s Walfrido Alonso-Pippo suggests an investment strategy similar to that used to fuel a Cuban natural gas power plant.

He maintains that this “joint venture agreement for a recently constructed natural gas power plant could serve as a model for modernization of [Cuba’s] sugar bioenergy infrastructure. Under this existing arrangement, the foreign partner owns a third of the plant’s output, participates in its management, and receives a proportion of the plant’s profits.” Dr. Alonso-Pippo goes on to note that legal, institutional and political barriers to investment in Cuba have tended to remain a major obstacle, though recent heavy foreign investments in Brazil’s sugar ethanol production facilities suggest the feasibility of similar investments in Cuba.

Another scenario under which Cuba could accelerate investment was offered by Stanford economist Paul Romer who has suggested starting a free trade zone in Guantanamo Bay in the southeastern part of Cuba, where the U.S. currently administers an area roughly twice the size of Manhattan. Comparable to the Chinese model of Communist rule and the design of free trade zones in the communist east, such a zone in Cuba’s eastern region, where the majority of the island’s sugarcane is grown, might be a catalyst for modernization, trade opportunities, investment, and integration. Under either Dr. Alonso-Pippo or Dr. Romer’s plans, Cuba would be a strong contender to receive the foreign investment necessary for a thriving economy without the political ramifications of foreign ownership and ideological clashes.

When asked about sugarcane ethanol, an official posted to the Cuban Interests Section in Washington D.C., who preferred to remain anonymous, observed, “I don’t believe it would be good for us. Brazil has much more land. If anything, we would produce for our internal market and maybe with old partners like China.” However, in order for ethanol to be traded as a global commodity in the international market, a variety of producers and products must be developed globally. Brazil, rather than discouraging competition, has been looking for regional partners to create a Latin American market for sugarcane ethanol, offering technology sharing and market partnerships to several other countries in the region. Instead of avoiding competition, other Latin American nations could look without apprehension to Brazil as a likely benign partner rather than as a hegemonic regional competitor.

Spending Political Capital for Industrial Capital

Raul Castro, who has been hailed as more of a pragmatist than his famed brother, seems to be open to the idea of investment and modernization. In a July 2009 keynote speech to the legislature, he emphasized his concept of “rational socialism,” a geopolitical game plan focused on increased productivity and efficiency. This is exactly the type of political typology welcomed in today’s global economy and contrasts with the commercial autarky traditionally favored by Cuba.

After U.S. corn-based ethanol policies helped bring about a global food shortage in 2007, the use of food for fuel has been the Castro brothers’ primary ideological objection to ethanol. However, a distinct difference exists between the utilization of corn and sugarcane, as the latter is not used as a food source. As Wired News reported, “Fidel Castro hated ethanol. He thought it punished the poor by driving up food prices. But Cuba produces a lot of sugar, and with Fidel’s brother Raul – a fan of biofuels – expected to call the shots, Cuba could become a key player in the global ethanol game.”

The amount of cultivable land in Cuba used for sugarcane was reduced from 21 to 5 percent between 1991 and 2005, with the transferred lands supposedly earmarked for food crops. However, this re-organization has resulted in almost no additional agricultural output, and Cuba continues to import 84 percent of its low-cost subsidized foods. In fact, food production from 2007 to 2008 declined 8 percent, with advocates insisting that the most effective use of bayetes – small towns surrounding sugar fields – could be in the production of sugar.

Some argue that tourism, which in 2001 surpassed sugar as the leading gross hard currency earner in the Cuban economy, is an adequate substitute for the role that sugar once played. However, the tourism industry has proven altogether inadequate for that role. According to a study in 2006, the cost benefit ratio for tourism, as expressed in US dollars, is $0.78 to the dollar, while the comparative ratio for the sugar sector is nearly one-fifth the cost, with a ratio of $0.20 to the dollar.

In addition, the formerly thriving sugar sector employed three times as many people as tourism does today. As well, sugarcane over the years has contributed significantly to research and technological development whereas tourism has done little in terms of new technology for the country’s economic and social development. A peaceful coexistence of tourism and sugarcane industries may be the best-case scenario for Cuba; however, claims that tourism unilaterally can be an adequate replacement for the sugarcane industry might be dangerously overblown.

As Washington looks to improve relations with the Caribbean nation, the bulk of the responsibility for the lobbying effort will likely fall on the shoulders of both sides of the Cuban population. This will hopefully encourage fair-trade and investment practices based on sugarcane-based ethanol while respecting Cuba’s national sovereignty. The case for U.S. involvement in sugarcane cultivation is straightforward: sugarcane ethanol is exponentially more energy efficient, cheaper, and cleaner than corn-based ethanol. The withholding of trade with Cuba based on the premise of “political prisoners” seems grossly opportunistic if not hypocritical as the U.S. engaged in over $66 billion in bilateral trade with Saudi Arabia last year. All told, the lure of ethanol may make this irresistible.

Concluding Considerations

The reliance on a single subsidized commodity produced for a single trading partner proved to be monumental mistake in pre- and post-revolutionary Cuba. Rather than implementing a program of rapid industrialization after the revolution in order to end Cuba’s long-standing economic dependence on sugar, sugar production was doubled and constituted both the symbolic and financial heart of the revolution. Yet, an equally ponderous modern error would most likely have been to abandon and neglect Cuba’s single most available resource: sugarcane. The political and economic stars may now be aligning for Havana to turn to lucrative sugar and ethanol production as a major part of a winning economic plan, and Raul Castro could be committing a major blunder by again failing to embrace the promising economic diversification plan staring him in the face.

Nicholas Elledge writes for the Council on Hemispheric Affairs, from where this story was adpted.