Government Price Manipulations Bring Profitable Cuban Business to the Brink of Collapse

The company, often cited as one of the most efficient in Guantanamo, reported losses of up to 300 million pesos. (Facebook/Procesadora de Cafe Asdrubal Lopez)

14ymedio bigger14ymedio, Havana, 24 February 2023 — Guantanamo’s Asdrubal Lopez Processing Company is on the verge of collapse. Though often cited by the local press for being “one of the most efficient and profitable in the province,” on Friday the company reported losses of nearly 300 million pesos. The cause: selling its coffee on the domestic market for less than it costs to produce and an inequitable distribution of its export earnings.

Its general director, Osmel de la Cruz Cala, told the newspaper Venceremos that the company is one of twenty in Guantanamo that are reporting staggering losses. The critical turning point, he says, came in 2021, when it paid 96,000 pesos for a ton of robusta coffee beans but sold them for only 46,000. Company profits had to be used to cover the 50,000-peso deficit.

The situation improved slightly in 2022, when sales figures reached 70,000 pesos. But the amount it paid to growers also increased to 102,000 pesos a ton. Though not as bad as in 2021, the total loss was 32,000 pesos.

De la Cruz points out, however, that losses cannot be attributed solely to the price the company gets. When operating costs are added in, the figure easily climbs to 52,000 peos. For example, the company must cover the cost of getting its coffee from Guantanamo to Havana. “You have to add in another 20,000 pesos for processing, transportation and labor,” he says.

The local growers who supply the company work in the Nipe-Sagua-Baracoa area, a mountainous micro-region between Guantanamo and Holguin provinces, as well as around the Holguin town of Sagua de Tanamo. More than half the coffee is of the robusta variety, a more bitter type, which is mixed with chicory and sold under the brand name Hola. Popularly known as cafetín, it is available to Cuban consumers through the rationing system. Coffee marketed under its other brands — Alto Serra, Serrano and Caracolillo — is produced for export.

De la Cruz pointed out that 497 of the 2,300 tons processed from the last harvest were destined for export, where prices turned out to be higher than anticipated. “The country came out ahead,” he noted.

The company paid 228,000 pesos per ton for arabica beans, which are fruitier and more prized on the world market than robusta, and was able to sell them for 5,000 dollars a ton. However, it then encountered problems due to the devaluation of the Cuban currency. At the new official exchange rate of  24 pesos to the dollar, the sale price fell to 120,000 pesos a ton.

De la Cruz told Venceremos that a solution was worked out at the end of last year which allows the company to sell its coffee at a higher price in the country’s hard currency stores. “We negotiated a price of 250,000 pesos to avoid the first loss we would have had since the start of currency unification. We will earn 4 million pesos, which is still not enough but at least it will allow us to reduce our losses to 118 million,” he explained.

The company would have to earn enough from sales to compensate for its losses, explained De la Cruz. “We would [also] have to match what we sell domestically with what we sell for export,” he added, without going into details. This would entail either reducing the wholesale price paid by the company or raising the retail price paid by consumers.

Despite its losses, Asdrubal Lopez remains the country’s top coffee exporter. In 2020 the Cuban government reported that Europe, Asia and Oceania are its “regular customers.” Its beans have also received certificates of quality, allowing its coffee to be sold in specialty markets, where the prices are higher than the normal rate it would get through the Contract C commodity index, an international group of nineteen coffee producing countries.

To reduce the deficit, De la Cruz proposes changing the official exchange rate for businesses from 24 pesos to the dollar to the rate for individuals of 120 pesos to the dollar. This modification would have allowed the company to collect 600,000 pesos for the 5,000 dollars it earned from imports instead of the 120,000 it received. This would have made up for the company’s losses in the domestic market, which are unavoidable given the government-mandated prices it must charge.

When interviewed by a local newspaper, Yunier Oliva Batista, provincial director of Economy and Planning, said he believes one solution would be to set a floating exchange rate of 85 pesos to the dollar — three times higher than the company’s proposal —  in order to increase the profitability of exports.

De la Cruz said he beleived that the company’s “greatest suffering” is yet to come and that its financial crisis “is already taking its toll on us.” He explained that potential investors in three foreign capital projects are reviewing the company’s financial statements before agreeing to partner with it. “They don’t understand intentional losses,” he said.

The bank is also tightening the rope. He points out that it cannot honor the company’s debts until the Finance Ministry deposits the money. In the meantime, the company must pay the bank higher installment fees. As of January, Asdrubal Lopez had paid 1.1 million pesos in interest alone.


COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.