Eliminating Price Controls on Agricultural Products In Not Enough, Say Two Cuban Economists

Price controls reduce earnings in the private sector, already hit hard by Covid-19 restrictions. (14ymedio)

14ymedio bigger14ymedio, Havana, August 2, 2021 — The Cuban government is walking back the price controls it had put in place during the first half of 2021. A new resolution published on Friday voids measures adopted in February and April that limited how much private-sector producers could charge for agricultural products and for certain items (taro, bananas, sweet potato, mango, guava, papaya and tomato) destined for “social consumption” (crops farmers are required to sell to the state).

The Ministry of Finance and Prices announced that the current decision was made as a recognition of agricultural producers’ current costs and with the goal of “stimulating an increase in production.” It acknowledges the need to “create better conditions for price agreement and contracting with producers, both for social consumption and for sale in the retail market.”

The complex formulation is a veiled admission that the measures taken since January had failed to encourage production by capping prices, which in most cases prevented producers from recouping their operating costs.

Private-sector price controls on agricultural products, which took effect in mid-February, were set by provincial and municipal councils, and could not be exceeded by more than double.

Another resolution was passed in April that imposed price controls on the collection and purchase of agricultural products for social consumption, medical diets, family service programs and industry have now also been lifted.

However, prices for all other products will remain capped in an effort to contain “abusive and speculative prices,” says the ministry.

Cuban economist Pedro Monreal supports the measure though he believes the decision to do away with price controls reflects the realization that they were not effective in the early months of 2021 at controlling inflation caused by currency unification.

Monreal argues that price controls could have a favorable impact if combined with support for private farmers and subsidies for poor families that do not have the resources to feed themselves.

“The sequence in which price caps on agricultural products were lifted was not done properly but that could be remedied relatively quickly with measures to support private agricultural producers. The effect would not be immediate. Magic doesn’t work in economics,” he says.

After analyzing the data from several provinces, Monreal found that in some cases there were increases of more than 30%, even after January when currency unification had already made prices substantially more expensive. “The demand for food is ’inelastic’. People must eat and rising prices do not substantially reduce the demand for food. People cut back on other things to buy food. As a result, changes in supply have a large effect on prices,” says Monreal.

Elias Amor Bravo, a Cuban economist based in Spain, welcomes the government’s about-face but believes it is too limited. “Why lift price controls only on those agricultural products and not for prices in general?” he asks on his blog, Cubaeconomía. “Is it that the government wants to pay its providers less because it has less money to spend?”

“Fragmenting the market and deciding who can and can not make allocations based on supply and demand… is a serious mistake with very negative consequences for related prices, rents, income and costs,” he adds.

Another related resolution was announced on Friday in the Official Gazette. It lifts customs duties on entities importing inputs and raw materials for non-state companies and cooperatives though it does not appear to apply to self-employed workers.

The text of the resolution reads, “The objective is to reduce costs and stimulate production of goods and the rendering of services by non-state forms of management.” Amor wonders, however, why such duties are not lifted from all imported goods if that is the goal. In his words, “Patches go only so far.”


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