Milk Production in Cuba: They Pushed the Cow into the Ravine

Photo: Kyn Torres.

Milk Production in Cuba: They Pushed the Cow into the Ravine

6 / marzo / 2023

The glass of milk for “anyone who wanted it”, proclaimed by Raul Castro to the Cuban people during the July 26th celebrations in Camaguey in 2007, never became a reality. The promise has even been erased from the official records of that day.

It’s been over a decade and a half since those words were uttered and, up until today, children under seven years old and the elderly and sick – two priority groups that were given an extra allocation of milk – aren’t regularly receiving the “quota” they should get with their rations booklet. Milk shortages, like shortages of so many basic essentials, is a real problem.

Thus, it should come as no surprise that news of rationed sales of milk being cut down to half a liter sparked outrage among mothers and the state-controlled press had to issue a statement. In the statement, the finger was pointed at farmers and not at the Government, which has led to producers’ discontent and a lack of motivation due to a “series of outstanding payments.” The note also mentioned that a surge in livestock theft and sacrifice have influenced low production levels.

In a conversation with local newspaper Giron, Reinaldo Rodriguez Martinez, the director of the Dairy Company in Matanzas, admitted that the Empresarial de Comercio Group has accumulated huge debts to farmers as a result of late payments. A situation which has driven farmers to sell milk via “alternative channels”, in other words, the illicit market. The official confirmed that the state Dairy Company had applied for a 110-million peso credit from the bank in December 2022, to make good on some of the debt, but there are still some pending cases. “Outstanding payments are piling up,” Rodriguez admitted.

Out of the 39,000 liters of milk forecast in ACOPIO’s (Cuba’s State purchasing entity) plan, only 25,000 liters have been delivered. Unfortunately, this problem isn’t limited to the province, nor is it a recent phenomenon.

Less powdered milk and more national production

According to a report published by the Spanish Institute for Foreign Trade (ICEX), Cuba imported powdered whole milk in 2020 for a total value of 85 million euros and spent 25 million euros on powdered skimmed milk. The deal was made with countries such as New Zealand, Uruguay, Belgium, Germany, France and the Netherlands. They even did business with the United States in years prior.

In 2021, Cuba allocated just over 110 million USD to pay for its smallest powdered milk import in the last decade, 30,984 tons. The average ton costs 3,552 USD.

While there are no updated statistics, the bill the island has to foot for 2022 should be higher. Even though the year ended with a significant drop in international prices for this dairy product, the price went up steadily in the first trimester of this year. The market’s record close came on March 1st, when contracts were signed for up to 5065 USD per ton. Even in May, when the devaluation of milk prices began, the ton was still valued at over 4000 USD.

Like any imported product, you need to add freight charges, insurance, and Customs taxes to the price of powdered milk, which makes the bill all the more expensive for consumers. You can calculate these extra charges by comparing international prices in recent years and prices reported by Cuba in its statistical yearbook.

You can get approximately 8000 liters of liquid milk from a ton of powdered milk. At today’s prices, every imported liter costs 43 cents on the dollar, or 75 pesos at the informal exchange rate (recorded on February 22nd).

According to the ministries of Agriculture and Food Industry’s protocol, producers need to sell a certain amount of milk to the State every year. The State pays up to 20 pesos per liter for these deliveries “as part of the plan”, with fringe benefits for producers who transport it to bodega stores, ACOPIO centers or plants. Once contracts are met, it’s expected that producers will continue to deliver milk. As an incentive, they are able to negotiate higher prices in national currency. Plus, for every liter of milk “over their target”, dairy companies need to transfer them 0.15 in magnetic dollar currency known as MLC.

At the current exchange rate (165 pesos, rate on February 22nd), 15 cents of MLC is the equivalent of 24.75 pesos. Cuban dairy companies can add to this bonus with payment of up to 45 pesos per liter, and they would still have cheaper operational costs than international market prices.

Outstanding payments and “profitable” fines

There are many benefits to supporting milk production in Cuba. In addition to saving foreign currency and developing rural areas, “national” milk means a wide range of industrial byproducts. Cream is one of the most valuable – which is the key ingredient for butter and ice cream -, which is a by-product of manufacturing powdered milk. For example, the Camaguey plant was expected to deliver 2350 tons of powdered milk and 1100 tons of butter per year.

However, milk supplies to plants are hindered by poor government management and high demand on the illicit market.

Since late 2021, state-controlled media has been picking up on outstanding payments to producers, who need to wait up to a month to be paid for the milk they sold to the State and, as a result, found it was better business to sell milk for a higher price on the illicit market. Carriers are in a similar position, responsible for transporting the product to milk cooling centers. Fluctuations in milk prices have directly affected their wages and lots of them have stopped providing this service. On top of that, Cuba is suffering a drought. Less rain has meant less fodder for livestock, and they’ve lost weight and are producing less milk as a result.

In 2022, milk shortages – of liquid and powdered milk – caused a kilo bag to cost between 6-8 MLC (USD equivalent) at the beginning of the year.

Outstanding payments to farmers is a historic problem. This happened with milk collected for production with the old Cuban dollar called CUC, or destined for tourism and exports, with producers receiving a bonus in this currency. However, this money couldn’t be deposited in the bank because the central bank had a regulation that made it hard to for agricultural cooperatives and individual farmers to open a CUC account. The reason they gave was that the country was heading towards currency unification.

Subsequent changes to pay scales haven’t stopped late payments. On February 20, 2023, Vice-President Salvador Valdes Mesa demanded agricultural and dairy industry leaders in Camaguey “to find alternatives to put an end to outstanding payments.”

Similar appeals have marked his visits over the years to Camaguey, where over 20% of Cuba’s milk used to be produced. Last December, during a discussion about the new livestock law, a congressman from the Arroyo Naranjo municipality gave a specific case which he himself was involved in. “I sent three animals to the slaughterhouse recently, and I still don’t know when I’m going to be paid. In contrast, I need to pay cash to buy a bull, which is necessary to improve the herd. So, what do I do? We can’t make progress like this in agriculture,” he said at the meeting. Valdes Mesa and the minister of Agriculture, Idael Perez Brito, tiptoed around this particular case.

The situation isn’t the same as it was a decade or even five years ago. In November 2021, just after new prices were implemented for milk collection, Invasor newspaper warned about the possibility that lots of livestock farmers preferred to pay the fine for failing to meet their contract (10 pesos for every liter in the contract and not delivered to the plant) and divert their production to the informal market instead. “It’s simple math: they give the Dairy Company 10 pesos and they keep the liter which they can sell on the street for 100,” the journalist from Ciego de Avila, Katia Siberia, argued after confirming her prediction.

Only incentives such as bonuses in MLC or the delivery of supplies can compete with illicit market prices. It’s a situation where the State is playing with an Ace up its sleeve, a cattle breeder from Camaguey told El Toque. “The farmer is a slave to their ranch. Almost everything they earn they invest back into fences, feed, milk containers, etc. These are things the State has in its warehouses or can easily import. The money they pay for milk is paid back before the Dairy Company transfers it.”

This article was translated into English from the original in Spanish.
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INFORMAL FOREIGN EXCHANGE
MARKET IN CUBA (REAL TIME)

toque_logo_white
1 EUR
330.00 CUP
-5
1 USD
315.00 CUP
-5
1 MLC280.00 CUP
-5
Calendar iconCUBA
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