PRIVATE FARMERS' MARKETS PUT ON ALERT

C O N F I D E N T I A L SECTION 01 OF 02 HAVANA 000666

SIPDIS

STATE FOR WHA/CCA

E.O. 12958: DECL: 11/03/2018
TAGS: ECON EAGR PGOV CU
SUBJECT: PRIVATE FARMERS' MARKETS PUT ON ALERT

REF: A. HAVANA 631 ("THE END OF THE PAPA STATE IN CUBA")

B. 08 HAVANA 790 ("BACKWARD REFORMS THROUGH PRICE
CONTROLS")

Classified By: CDA: Charles Barclay for reasons 1.4 (b) and (d)


1. (SBU) SUMMARY: The Government of Cuba (GOC) is
threatening one of the only free market - and thus well
functioning - parts of its economy in the supply and demand
(private) farmers' markets. Instead of liberalizing the
commercialization of food as called for by other recent GOC
actions to lease idle land, close workplace cafeterias, and
restrict rations (Ref A),the GOC is proposing additional
regulations through fixed prices or state management. These
changes were rumored to have started on November 1, but have
been delayed until at least January 2010. According to the
GOC, the new measures are intended to lower prices and
eliminate illegal intermediaries and corrupt vendors.
However, the controls are more likely to reduce the
incentives for farmers to increase production, and therefore
dry up the available supply of agricultural products. END
SUMMARY.

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Rumors of a Crackdown on Private Markets
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2. (SBU) In October and November 2009, there has been much
public and private speculation that the GOC may choke off one
of the few legitimate private sector activities. Rumors that
the end of the private markets was near started soon after
the 2008 hurricanes severely limited domestic production (Ref
B) and the GOC implemented "provisional" controls, such as
price caps and limits on the amount any one person could buy.



3. (SBU) Furthering speculation that the private markets
were under the gun, official reports have resurfaced in
recent months accusing private markets of artificially
maintaining higher prices through collusion, speculation
resulting in huge profits, and generally cheating customers.
These complaints are similar to those that resulted in the
end of a previous experiment with free farmers markets from
1980-1986, and in the aftermath of the 2008 hurricanes which
again clamped down on private markets and neighborhood stalls
(the latter never reopened). Although the official press has
also identified deficiencies in the state-owned markets
(including questionable hygiene, poor quality of goods, late
payments to farmers, and bad customer service),their focus
has been to fix these in order to dissuade Cubans from
having to subject themselves to high prices and "thievery" at
the private markets.


4. (SBU) The GOC responded to the rumors on November 2 with
two full pages clarifying that it would not eliminate
(regulated) private markets altogether, but stressing that
the state markets would remain the preferred option.
Although the outcome is not clear, the management of several
private markets in Havana met with vendors and confirmed that
changes planned for November 1 have now been delayed until at
least January 2010. (Note: Most private markets are managed
by either a cooperative or state entity that leases vendor
stalls either directly to farmers or to a farmer's
representative. On the other hand, vendors at state markets
are all state employees. End Note.) Particularly targeted
are private vendors who are not clearly representing specific
farmers but are instead purchasing their products from
various farmers, which is illegal but was previously
tolerated. In addition, the GOC is focusing on the illegal
middlemen who buy the highest quality goods from farmers and
deliver them to market in a timely fashion, something that
would be a legitimate business in most other countries but is
considered "anti-revolutionary" and "profiteering" in Cuba.

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Identify the Solution, Then Create a Problem
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5. (SBU) While our Cuban contacts agree that some vendors at
the private markets are less than honest and prices can be
out of reach for many Cubans, the obvious solution is to

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create more competition not less. All of the best produce
finds its way to the handful of free markets in Havana, most
of which is not available anywhere else in Cuba. The most
well-to-do Cubans and, in particular, foreign residents and
visitors flock to these markets willing and able to pay
higher prices. One Cuban contact told us that the GOC has
once again identified the solution (free markets) and, by
threatening to close or take them over, has created a
problem.

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Supply and Demand Versus State Markets
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6. (SBU) Farmers' markets were first allowed to operate in
1994 to permit state, cooperative, and private farmers to
sell their products directly to the public after meeting
government quotas. Cubans rely on farmers markets to
supplement the 10-15 days worth of food supplied through the
ration card, especially fruits and starches. The private
markets are distinct from the state-run markets in that the
farmers or their representatives, rather than state
employees, do the selling. Prices are also allowed to
fluctuate, which results in a higher quality, quantity, and
prices of goods than those offered at state markets.


7. (U) Private markets are growing in popularity despite the
higher prices. Private markets represent 26% of all
agricultural sales in the markets (up from 17% in 2008) worth
more than $11.5 million (up from $7.5 million in 2008). In
contrast, sales at state markets are down from $36 million in
2008 to $33.5 million in 2009. The volume of products going
to the private markets is growing even faster as tonnage
tripled from 2008 to 2009, although 85% of agricultural goods
are still sold at state markets.

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COMMENT
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8. (C) In finding a way out of its acute economic
predicament, the GOC should liberalize successful and popular
farmers' markets and other mechanisms to distribute locally
produced agricultural products. It is the logical next step
to the leasing of idle land to increase production, the
closing of work place cafeterias, and changes to the ration
card. However, the GOC is unable or unwilling to expand
market reforms proven to deliver agricultural products from
the farm to the home more efficiently. Pending regulations
aimed at the relatively free private markets may simply be a
misinformed attempt to recapture market share to ensure the
availability of more affordable products to poorer Cubans
while at the same time limiting profit making opportunities
for intermediaries. At the very least, price controls and
state management will decrease the incentive for farmers to
produce high quality products above and beyond their
government-mandated quotas.
BARCLAY