march 2011 issie

BY DOREEN HEMLOCK

U.S. companies offering direct charterflights to Cuba are getting ready to rampup service now that Washington has

eased rules on travel to the island. But they’realso cautious: In order to add flights, they mustfind planes to lease at reasonable rates.Additionally, these companies aren’t sure how

liberal the Treasury Department’s OFAC will bein approving travel visas — and Cuba itself mustapprove landing rights for any new service.Charter companies interviewed by CubaNews

expect their business to rise moderately thisyear, slower than it did after Washington liftedrestrictions on Cuban-American travel to theisland in April 2009.By some estimates, U.S. charter traffic to

Cuba roughly doubled since the 2009 announce-ment to reach 300,000 to 400,000 last year, madeup almost entirely of Cuban-Americans.“I’d estimate 400,000 to 500,000 will travel in

2011 or 2012” depending how fast and liberallyWashington approves visas for people-to-people-visits, said Michael Zuccato, general manager ofCuba Travel Services of Long Beach, Calif. As of Feb. 7, the U.S. government had author-

ized 27 companies to offer direct air charters toCuba, but only about one-third of these CarrierService Providers were active in the business.And even though they were authorized to fly

from three airports — Miami, Los Angeles andNew York JFK — demand was so limited thatflights from Los Angeles had been suspended.CSPs generally don’t operate their own planes

but instead “wet-lease” from others, paying a feefor aircraft, crew and service. They contractwith companies large and small — from Texas-based giant American Airlines with its Boeingjet fleet down to tiny Fort Lauderdale-basedAero Leasing/Air Florida, with 9-seater planes.The business is no flight of whimsy. Besides

BY ANA RADELAT

The Obama administration’s move to relaxrules governing travel to Cuba has pro-voked a quick, strong response from U.S.

colleges, airports and charter airlines.But more importantly, it has rekindled inter-

est in the United States to begin planning formore liberalizations — or an outright end — tothe 50-year-old trade embargo.Within days of the Jan. 14 announcement, the

University of Iowa dusted off several proposalsto send its students to Cuba.Janis Perkins, assistant dean of UI’s Interna-

tional Studies Program, said her school hadbeen waiting for President Obama to ease Cubatravel rules since his January 2009 inauguration.“We’re ready to go to Cuba as soon as we

can,” Perkins told us from Iowa City. UI hopes tosponsor a culture and language program inHavana during the 2012 winter break.There also are discussions about holding an

Afro-Cuban drum and dance workshop in Cuba

and perhaps a global health program.“Over time students have asked to go, and

I’ve had to say, ‘No, we can’t do it.’ Now we’repoised and ready,” Perkins told CubaNews.The White House is now allowing accredited

colleges and universities to send students tostudy in Cuba under a general license. Thatmeans a letter authorizing the trip from theschool will allow Americans to study in Cuba.UI was one of many U.S. institutions of high-

er learning that sponsored trips to Cuba underPresident Clinton’s “people-to-people” policy.Like Obama’s new Cuba initiative, the Clin-

ton policy encouraged purposeful contacts be-tween Cubans and Americans while keeping aban on tourism travel. But President George W.Bush tightened travel rules to Cuba in 2004, andmost academic trips to the island stopped.Indiana’s Butler University sent hundreds of

American students to the University of Havanato study advanced Spanish before it was forced

In the News

Just a ferry tale?Veteran cruise industry executive BruceNierenberg dreams of launching dailyFlorida-Cuba ferry service ...........Page 3

Disregard the expertsRegardless what they say, Cuba really ischanging in profound ways ..........Page 4

Political briefsFlorida lawmakers fight Cuba oil drilling;Regime unblocks Yoani’s blog .....Page 5

Business briefsU.S. food exports to Cuba fell 31% in 2010;China restructures debt ...............Page 6

1,787 fewer souls2010 population statistics show 11,240,841people live in Cuba, down a bit from 2009— but confirming a trend .............Page 7

NewsmakersClosed-end guru Tom Herzfeld loves hisCaribbean Basin Fund ..................Page 8

Coffee’s tragic fallOnce the world’s largest coffee exporter,Cuba today barely produces enough beansfor its own consumption ............0

BookshelfImmigrant Prince, Afro-Cubanismo and‘Obama and the Empire’ .............Page 13

La Casa del HabanoCuban J-V uses cigar lounges to capturethe future U.S. market ...............Page 14

Vol. 19, No. 3 March 2011

See Charters, page 2

CubaNews (ISSN 1073-7715) is published monthlyby CUBANEWS LLC. © 2011. All rights reserved.Subscriptions: $479 for one year, $800 for two years.For editorial inquires, please call (305) 393-8760 orsend an e-mail to: [email protected].

Charter airlines scramble to keep pacewith rising demand for US-Cuba flights

See Travel, page 2

New Cuba travel regs spark enthusiasmfrom colleges, airports and businesses

2 CubaNews v March 2011

In addition, Tom Cooper, founder of Gulf-stream International, told CubaNews he’sinterested in operating one flight a week fromTampa to Havana and has asked the Cubangovernment for a landing permit.Cooper said the new rules have grabbed

the attention of several airports, includingnearby St. Petersburg-Clearwater Internatio-nal Airport, a direct rival to TIA. “A lot of peo-ple want to get into the game now,” he said.Obama had previously liberalized Cuban-

American travel to the island, dramatically in-creasing the number of visits allowed. Soareas with big Cuban exile communities likeMiami and Tampa-St. Pete may need expand-ed access to flights to Cuba, said Cooper.But he’s puzzled by the stampede of air-

ports in other cities energized by Obama’s bidto increase charter flights to Cuba.“I don’t think there’s much business there

to bother with,” he told us.In fact, while the new rules will undoubted-

ly boost the number of Cuba-bound travelers— now estimated at 400,000 a year — thejump isn’t likely to merit a huge expansion offlights to the island.Gigi Skipper Rechel, TIA’s general counsel,

said the federal government’s approval is like-ly to be “market driven” to favor airports withthe largest number of passengers who wouldbe allowed to travel to Cuba.

DECISIONS EXPECTED AS EARLY AS FEB. 28

Some airports say they are trying to posi-tion themselves for an end to the embargo –or at least an end to the Cuba tourism ban.On the list of cities whose airports have

applied or will apply to host charters to Cuba

Travel — FROM PAGE 1 are Atlanta, Dallas-Fort Worth, Key West,Orlando and San Juan, Puerto Rico.Most say they are uniquely positioned to fly

charters to Cuba.“This is an excellent opportunity to provide

a new service,” said John Kennedy, spokes-man for Hartsfield-Jackson Atlanta Internatio-nal Airport, which is a hub for Delta Airlines.“We’re the busiest airport in the world, andwe’d like to add Cuba as a destination.”CBP has advised applicants that a decision

on their bids would be made within 30 days.That means some airports may win approvalto fly charters to Cuba before Feb. 28.

CONFUSION SURROUNDS ‘PEOPLE-TO-PEOPLE’

The impact of Obama’s other changes inthe embargo are less dramatic.There’s some confusion over Obama’s rein-

statement of a Clinton-era rule that allowed“people-to-people” travel. Abolished by Bushin 2003, that policy allowed travel for educa-tional purposes that was not sponsored by anaccredited college or university. Under theClinton rules, “people-to-people” travel couldalso have cultural or artistic purposes.Under Obama’s regulations, a U.S. citizen

would have to apply to OFAC for a license totravel under the “people-to-people” banner.Washington-based attorney Robert Muse

said there was speculation after the WhiteHouse’s announcement that there would besome clarification of the definition of “people-to-people,” which can be subjective.But that hasn’t happened. And OFAC has

declined to requests to clarify the issue.

to end its program in 2004. The school nowhopes to start it up again.“It falls within our mission, which is to pro-

vide meaningful academic and cultural oppor-tunities abroad,” said Joanna Holvey-Bowles,executive vice-president of the university’sstudy abroad program.There’s also been a strong response to the

Obama administration’s decision to boost thenumber of U.S. airports that may providedirect air charter service to Cuba. Under cur-rent law, only Miami, New York JFK and LosAngeles can offer that service.But on Jan. 28, the day after the new regu-

lations appeared in the Federal Register, FortLauderdale/Hollywood International Airportapplied to host flights to and from Cuba.

AIRPORTS LINE UP TO OFFER CUBA FLIGHTS

In its application to U.S. Customs & BorderProtection — the agency authorized to imple-ment the new airport regulations — FLL’sdirector of aviation, Kent George, said AirlineBrokers Co. of Coral Gables, Fla., “has ex-pressed they would be very interested inimmediately commencing service to Cuba”from Fort Lauderdale.Tampa International Airport also rushed an

application to CBP. That airport said two char-ter companies already licensed by the U.S.Treasury Department’s Office of Foreign As-sets Control (OFAC) are prepared to fly char-ters to Cuba from the airport: Air MarBrisa ofTampa and Island Travel & Tours Ltd. of SanDiego, Calif.

CHARTER SERVICE PROVIDERS*ASC International USA (Tampa)A Better Choice Travel (Miami)Aero Leasing Inc. (Ft. Lauderdale)Air MarBrisa (Tampa)Airline Brokers Co. (Coral Gables, FL)American Airlines Inc. (Fort Worth, TX)C&T Charters Inc. (Coral Gables, FL)Continental Airlines Inc. (Houston)Corporate Air Charters (Homestead, FL)Cuba Travel USA (Metairie, LA)DMI Travel (New Orleans)Delta Airlines Inc. (Atlanta)Golden Air Charters Inc. (Miami)Gulfstream Air Charter Inc. (Ft. Lauderdale)Island Travel & Tours Ltd. (San Diego)MK Cuba LLC (Coral Gables, FL)Machi Community Services Inc. (Miami)Marazul Charters Inc. (Miami)Margo Travel Inc. (New York)National Jets Inc. (Ft. Lauderdale)Personal Jet Charter Inc. (Ft. Lauderdale)Tico Travel (St. Petersburg, FL)ViajeHoy Charters (Miami)Wilson International Services Inc. (Miami)Xael Travel Servies (Miami)Yellow Air Taxi (Ft. Lauderdale)*Authorized to offer flights to Cuba as of 2/7/2011. Source: OFAC

Charters — FROM PAGE 1

See OFAC, page 9

government approvals required in Washing-ton and Havana, there are tough financial real-ities for both the charter provider and the air-line it contracts for service.“It’s hard on the airplanes,” said David

Meers, chief operating officer at Atlanta-based Vision Airlines, which has been flyingan average 14 flights a week to Cuba for C&TCharters Inc. of Coral Gables, Fla.Big jets such as 737s or 767s do best on

long-haul trips, but short jaunts betweenMiami and Havana mean “you go throughbrakes, engines and everything on your planequicker,” boosting maintenance costs.

MIAMI-HAVANA PLANES CAN’T FLY FULL

The planes offering Miami-Havana trips arealso underutilized, said Meers. It makes finan-cial sense to fly a jet 220 to 350 hours a month.But jets on Cuba routes often sit on runways,flying maybe only 140 hours a month.“There are charter carriers that are living

hand to mouth and go to Cuba at rock-bottomprices just to get the cash flow,” Meers toldCubaNews. “CSPs want to lease at the cheap-est price. For the charter carriers, it’s not agreat place to build a long-term sustainablebusiness model.”

Nor can the charters fill up their seats tocapacity. Passengers bring so much cargo toCuba — everything from clothes and toi-letries to giant flat-screen TVs — that chartercompanies must limit the number of seatsthey sell heading south, so that the planewon’t be overweight.A 737 jet that can carry 150 passengers usu-

ally flies to Cuba with 130, though it returnsfull when passengers have little freight, saidMeers. Some charter companies opt to fillseats to Cuba but hire an extra plane to tagalong just to carry all the luggage.

RISING FUEL PRICES COULD SLOW EXPANSION

To expand service under new rules, char-ter companies are focusing on where there’sdemand for Cuba travel.That’s mainly places with large Cuban-

American populations who find it tough to getto Miami or New York for existing flights.Those include the Tampa-St. Petersburg area,California, Texas and San Juan, Puerto Rico.They’re also checking where they can get

planes at decent rates. Such companies arehot on airline hubs, such as American’s cen-ters at Dallas-Fort Worth or San Juan.Zuccato said his Cuba Travel Services aims

to relaunch LAX-Cuba flights in June and addservice from San Juan later this summer.

See Charters, page 7

March 2011 v CubaNews 3

Cruise pioneer hopes to revive Florida-Cuba ferry serviceTOURISM

BY TRACEY EATON

For more than three decades, BruceNierenberg has been an innovator in thecruise industry. Now he wants to oper-

ate the first ferries between the United Statesto Cuba since the 1959 revolution.“Cuba’s a no-brainer, obviously, because

the market exists,” Nierenberg said. “Thepeople want it. The economics make sense.It’s something that should be done.”Nierenberg is founder, president and CEO

of SeaBridge FerryServices Inc. inDavenport, Fla. Hiscompany, doingbusiness as UnitedCaribbean Lines, isone of several ask-ing the U.S. Treas-ury Department’sOffice of ForeignAssets Control forpermission to ferrylicensed travelersto and from Cuba.Another is Uni-

ted Americas Ship-ping Co., a unit of Paris-based Unishipping,which already operates ferries between theMexican Pacific ports of La Paz and Mazatlán.That company’s CEO, Daniel Berrebi, re-

cently told us that Fort Lauderdale’s PortEverglades — not Miami — would be thechoice of departure for his proposed ferryservice (see CubaNews, October 2010, page 6).Both rivals expect the number of Cuba-

bound travelers to soar in 2011.“The market has really responded in a pos-

itive way to the several changes made by Pre-sident Obama,” said Nierenberg. “It’s gonefrom 200,000 to 400,000 a year since Obamarelaxed the rules in 2009.”

OFAC DRAGGING ITS FEET ON APPLICATION?

On Jan. 14, the White House announced itwas loosening travel restrictions even further.“Now with the new rules, this market is goingto be six, seven, 800,000 people within thenext 12-18 months,” said Nierenberg, whosepredictions are far more optimistic than whatother tourism officials have been saying.The new rules allow dozens of airports in-

cluding Atlanta, Tampa, Dallas-Ft. Worth andLos Angeles to offer charter flights to Cuba.

Nierenberg said he isn’t sure why OFAChas not yet approved his request to transportthe same passengers by ferry.“Actually, it hasn’t been rejected. It’s just

they haven’t said anything,” he told us. “May-be they’ll announce in a couple weeks thatthey’ve decided to add the ferry service. Myhope is that all this is a delay.”Nierenberg has been in the tourism and

cruise business since the 1970s. He openedPort Canaveral to cruising with PremierCruise Lines’ “Big Red Boats” — the original

family-oriented Disney-style cruise trips.He helped develop the first computerized

reservations system in the cruise industry.He introduced SeaEscape, which debuted the“cruise-to-nowhere” concept in Florida.Nierenberg also opened the Port of

Houston to cruises, and helped develop theindustry’s first 2,000-plus passenger mega-ship, the SS Norway.

NIERENBERG: FERRY BETTER THAN FLYING

Nierenberg’s proposed Cuba ferry wouldtransport, by category, the same peoplealready approved for air charter travel.“Our proposed ferry service is intended to

take the same exact customers that currentlyhave to go by charter planes and do nothingmore than just basically swap an airplane ridefor a ferry ride,” he told CubaNews. “We justprovide the transportation. We would not beselling ferry travel to the general public. Theywouldn’t be able to call us and say, ‘Hey, Iwant to go today.’”Travelers would still have to buy tickets

through a government-approved Transporta-tion Service Provider, or TSP.“The biggest advantage in taking our ferry

is that travelers would save money,” Nieren-

berg said. “The typical air charter goes any-where from $500 to $700 per person by thetime you add in taxes and baggage fees. We’dcharge about $350, including everything. Andwhen they go as a family — let’s say it’s a hus-band and wife and two kids, and they go in acabin — the kids would only pay $150.”He added: “When you go on a charter

plane, everybody pays the same for the seat.The ferry gives a much better overall cost tothe consumer when they travel togetherwhen compared to an air charter.”

Ferry travel also low-ers the cost of carryingbaggage and gifts.“The average Cuban-

American family takesabout $1,000 worth ofmerchandise for familyand friends back in Cubawith them on these air-plane charter trips. It’sone of the main reasonsthey go,” said Nieren-berg, adding that his fer-ries would be large

enough to handle many tons of baggage.“They are not like the Staten Island ferries,

but more like the ferries you’d find in placeslike Scandinavia and Germany and Englandand the Mediterranean. Theyre as big asmany of the modern cruise ships that are sail-ing out of Florida.”The vessel Nierenberg wants to operate to

Cuba weighs 40,000 tons, measures 175meters long by 29 meters wide, has 600 pas-senger cabins and boasts one of the largestcar decks in the global ferry market.As Nierenberg sees it, ferries would sail

every afternoon, departing around 6 p.m. andarriving in Havana early the next morning.After disembarking the passengers and theirluggage in Havana, the ferry would spend theday in port, then depart Havana around 6 p.m.and be back in Florida the following morning.“This new ferry business would be a signif-

icant economic boost to the Florida econo-my,” he told CubaNews, noting that the boatscould sail out of Port Everglades, Miami orTampa. “Our ferry business would create aminimum of 100 new shore-side jobs and 200to 300 jobs aboard the ship.”If U.S. authorities approve ferry service,

Nierenberg said he doesn’t know if more thanone company will be involved.“They might give the license to three, four,

five companies. Or they would give it to onecompany and say, ‘Let’s go ahead and test it.’At the end of the day, I think it’s in every-body’s interest probably to get one operationstarted successfully and get all the kinksworked out rather than have three or fourcompanies beat each other to death.” q

Tracey Eaton, former Havana bureau chief ofthe Dallas Morning News, now lives in St. Augus-tine, Fla., and writes regularly for CubaNews.

Bruce Nierenberg

WTC Miami awards CubaNewswriter Doreen Hemlock for excellence

World Trade Center Miami has chos-en CubaNews correspondent DoreenHemlock as one of five women to be

honored for enhancing international trade.Hemlock, former Havana bureau chief and

now business reporter at the Sun-Sentinel, willreceive the award Mar. 4 at WTC’s VIII Inter-national Women’s Day ceremony in Miami.

Other women to be feted are Louise Leger,consul-general of Canada; Carmenza Jarami-llo, director of ProExport USA; Carmen Tay-lor, managing director of Latin America forAmerican Airlines Cargo, and Liane VenturaGuerra, senior VP of leadership developmentfor Greater Miami Chamber of Commerce.

Details: WTC. Email: [email protected].

Here are 14 of the most important lin-eamientos (guidelines) to be debatedat the upcoming Sixth Congress of

the Cuban Communist Party in April:n 1. Decentralization. Grant greater pow-

ers to factories, services, corporations,municipalities and provinces to encourageeconomic development. Investment proces-ses will be also decentralized.

n 2. Recognition of private sector. Incen-tives for joint ventures, cooperatives, finque-ros and cuentapropistas, and leasers of statefacilities and all other forms of property thatmight increase efficiency.

n 3. Slashing subsidies. Remaining subsi-dies will be drastically reduced, with fewexceptions.

n 4. New supply system. Allowing themarket to determine wholesale prices, andwithout subsidies, for state enterprises,cooperatives, finqueros and self-employed.

n 5. The need for profits. Non-profitableindustries, services and other entities willbe closed down.

n 6. Banking. Expansion of banking activ-ities, especially opening lines of credit forindividuals and the emerging private sector.

n 7. Taxation. Rigorous enforcement oftaxes on state entities, state enterprises andthe expanded private sector.

n 8. Contracts. Credibility of state enter-prises and the strict fulfillment of contracts,

including Cuba’s foreign debt.n 9. Foreign capital. continuation of poli-

cies that lure investment and boost Cuba’saccess to new technologies, markets andmanagerial skills, thereby creating jobs andreducing imports. Also, the establishmentof special economic development zonesthroughout Cuba, as well as promotion ofCuban entities and alliances abroad.

n 10. Cooperation. The promotion ofcooperation and solidarity arrangements,mainly through the United Nations, in orderto attract new resources and technology.

n 11. Redesign of social policies. Thismeans eliminating superfluous expendi-tures, depending on the economic situation.

n 12. New model of economic manage-ment. This will give a bigger role to non-state players and is based on a more effec-tive use of market relations and a moreactive role for free competition mecha-nisms. Prices, for the most part, will be fixedbased on offer and demand.

n 13. Short-term priorities. Recovery ofkey activities such as sugar, citrus and fish-eries. In addition, special help for the ni-ckel, oil, biotech and pharmaceutical indus-tries, as well as IT, telecom, tourism, hous-ing and the Cienfuegos industrial complex.

n 14. Streamlining. The elimination of “lalibreta” — or ration books — as well as thedual-peso currency system now in place.

– DOMINGO AMUCHASTEGUI


placed by private cooperatives, individualfarms and finqueros (already 70% of Cuba’s idleland has been allotted to these farmers).Cuba’s microeconomy is already moving in-

to the hands of self-employed cuentapropistasand small businesses, while subsidies arebeing eliminated and a market-based econo-my is starting to dominate.For the first time, bank loans and credits

are now available to the non-state sector, alongwith the leasing of government facilities andservices. This allows private people to partici-pate in the tourism industry like never before.By 2015, some two million people and their

families will have joined the private sector.Much of the money that will allow these pri-

vate businesses to flourish is already in thehands of a substantial wealthy sector consist-ing of private farmers, as well as the owners ofpaladares, taxicabs, trucks, workshops andconstruction cooperatives.Another huge source of funds: remittances

from family members living abroad (see ourreport in CubaNews, February 2010, page 14).At the same time, Cuba itself continues to

win growing legitimacy around the world —particularly with regard to Latin America, theVatican and the 27-member European Union.

In addition, the government has ended thetemporary freezing of assets of foreign com-panies in Cuba and has paid 3% compensation.Cuba has also rescheduled its debt with the

country’s most important creditors whileseeking new partners — along with incentives— in several key areas of foreign investment.

NOT THE TRANSITION WASHINGTON ENVISIONS

Recent political developments have favoredthe current position of Cuban authorities. U.S.media blew the cases of hunger strikersZapata Tamayo and Guillermo Fariñas out ofproportion — but this was quickly overshad-owed by government reforms, and ultimatelythese two cases faded into oblivion.The WikiLeaks scandal brought additional

scorn upon Cuba’s dissident movement andtheir U.S. connections, while the release ofpolitical prisoners and Cuba’s cooperationwith the Catholic Church has improved thecountry’s image in recent months.It’s clear that a transition is already in full

swing in Havana, but it’s certainly not the tran-sition that’s been envisioned by experts inWashington or Miami since the early 1990s.

Topics of debate at the VI Party Congress

No matter what the ‘experts’ say, Cuba really is changingPOLITICAL ANALYSIS

BY DOMINGO AMUCHASTEGUI

Right now, under our very noses, Cuba isbeing completely transformed — and anew set of economic, social and political

relations is taking shape. Yet many observersfar from Cuban shores are still wasting theirenergy on outdated arguments and claims.They clearly need a fresh approach.Thirty years ago, understanding China was

of the utmost importance. When the “fourmodernizations” — agriculture, industry,national defense and science — were adoptedby Zhou Enlai and later pushed by DengXiaoping, most U.S. experts dismissed themas nothing but “cosmetic changes.”Today, 30 years later, China is a major world

economic power, second in size only to theUnited States.Understanding Russia 15 years ago was no

less relevant. The best U.S. journal on Russianaffairs called on the nation’s top sovietologiststo predict what would happen following BorisYeltsin’s retirement.All the scenarios proved wrong, and not one

of those so-called experts even mentioned thenames Vladimir Putin or Dmitry Medvedev.Likewise, in 2009, predictions about Cuba’s

short-term future among foreign experts sta-tioned in Havana were extremely gloomy.According to one U.S. Interests Section

cable uncovered by WikiLeaks from that year,Cuba was not expected to have enoughresources to live on by 2011.And now that 2011 is here, USINT cables

published in Madrid’s El País are reportingexactly the opposite: that Cuba’s economy isless vulnerable than 20 years ago.

OPENING EXTENDS EVEN TO TV PROGRAMMING

Paradoxically, the most important change istaking place in politics, culture and ideas —characterized by an expanding atmosphere offree discussion and debate throughout Cubasince 2007.Initially promoted by intellectuals through

their own media resources, this exchange wasfollowed up by the Cuban Communist Party,which received hundreds of thousands ofcomplaints, demands and recommendations.And it’s not only official media that’s open-

ing up to different opinions and even criti-cism. The Cuban government is airing Chin-ese and Vietnamese documentaries on stateTV that deal with the success of their own eco-nomic reforms.Some movies portray the Stalinist regimes

of Eastern Europe and the former SovietUnion, while 15 to 20 U.S.-made programs arenow also airing on a weekly basis. Theseinclude Law & Order, Boston Legal, Grey’s Ana-tomy, The Mentalist and Two and a Half Men,among others.In economics, drastic changes are taking

place, and will continue to do so. State farmshave almost disappeared, having been re-

See Analysis, page 9

“The technology in itself is not a threat, but the threat is what the people whouse this technology can do with it. The Internet is a battlefield.”

— Cuban counterintelligence agent Eduardo Fontes-Suárez in a leaked 53-minutevideo warning an audience of government officials that pro-democracy organizers aresecretly using Facebook and Twitter to spark political unrest in Cuba. The video waspurportedly shot last summer, months before popular uprisings in Egypt and Tunisia.

“We see instances of repression starting since the Egyptian upheaval. Therehave been brutal beatings on dissidents. It is a direct sign from the Cuban gov-ernment that this is something that will not be tolerated on the island.”— Susel Pérez, staff researcher at the University of Miami’s Cuba Transition Project.

“We deplore the Cuban government’s announcement that Cuban prosecutorsintend to seek a 20-year sentence for Alan Gross. His imprisonment withoutcharges for more than a year is contrary to all international human rights obli-gations. He should be home with his family now.”— Gloria Berbena, spokeswoman for the U.S. Interests Section in Havana, comment-ing Feb. 4 on Gross, a 61-year-old American citizen and USAID subcontractor from

Potomac, Md., who has been jailed in Cuba since December 2009 for illegally dis-tributing satellite phones under a U.S.-funded program to promote democratic change.

“To allow this rogue regime to equate the activities of Mr. Gross with the rep-rehensible actions committed by a convicted spy and murderer, GerardoHernández, would set a precedent that could place more American citizens ingrave danger by subjecting them to the whims of pariah states, who will stop atnothing to extract concessions from the U.S. government.”

— Sen. Bob Menendez (D-NJ) and Rep. Ileana Ros-Lehtinen, on talk of a deal to freeAlan Gross in exchange for the ‘Cuban 5’ spies being held in U.S. federal prison.

“Because most Cubans work for the state, the entire system — from pettyofficials to Castro’s closest advisors — is rife with corrupt practices. Corruptionand thievery have become one and the same ... Corrupt practices also includebribery, misuse of state resources and accounting shenanigans.”

— excerpt from a 2006 cable sent by USINT-Havana and exposed by WikiLeaks.

“My intention is to continue struggling for the welfare of the motherland.”— Eduardo Díaz Fleitas, one of the original ‘Group of 75’ dissidents jailed in 2003,

upon his release Feb. 11. Díaz, who suffers from gastritis, hypertension and other ail-ments, spoke to Spanish news agency EFE from home in Pinar del Río province.

“While I support the recent announcement of changes to U.S.-Cuba travel pol-icy, I am disappointed President Obama did not make executive changes toexisting U.S. regulations that restrict the cash sale of agricultural products toCuba. I hope the president will make such changes in the coming months.”— Sen. Jerry Moran (R-KS), in a Jan. 21 statement urging the White House to liberal-

ize U.S. food exports to Cuba under TSRA. Last year, such exports fell to $366 mil-lion, a 48% drop from the high of $710 million reached in 2008 (see brief, page 6).

“This is a huge missed opportunity. If you can get into a market early on, youcan control it all along the value chain.”

— Chris Sabatini, senior policy director at the New York-based Council of theAmericas, telling Bloomberg News on Jan. 26 about a pricing dispute between the

U.S. and Cuba that may have cost AT&T and Verizon a foothold in the island’s newlyopened telecom market. On Jan. 22, Paris-based Alcatel-Lucent SA began laying a1,600-km-long underwater fiberoptic cable between Venezuela and Siboney, Cuba.

“Since these events took place, we started a long and painful search for thetruth, which touched the deepest feelings of every Cuban because it took placein the heart of a sector which is the pride of Cuba.”— Jan. 24 editorial in Granma, about the embarrassing criminal negligence trial ofadministrators at Havana Psychiatric Hospital (known as Mazorra), where26 patients died of cold and malnutrition last winter. In all, 13 people were

convicted, with prison sentences ranging from five to 15 years.

In their own words …CONVICTED BOMBER: FIDEL SPARED ME DEATH

A Salvadoran man who spent years on death rowfor his role in a series of hotel bombings in Cubatold the Associated Press in an exclusive interviewthat the man who later became his country’s presi-dent brought him a reassuring message from FidelCastro: The sentence will never be carried out.The message came more than a decade ago,

when Mauricio Funes was a reporter for a TV sta-tion in El Salvador and interviewed convictedbomber Ernesto Cruz León in Havana.“Funes was here in 2000 ... the only journalist

from my country who was permitted to come,”Cruz León told AP. “He brought me a messagefrom President Fidel Castro himself that he wasaware of my cooperation in clarifying these events,and that because of it the death penalty would notbe applied. But all I had was his word.”Upon taking office last year, Funes restored El

Salvador’s diplomatic ties with Cuba. In December,the death sentences of Cruz León and anotherSalvadoran involved in the 1990s bombings, OttoRené Rodríguez, were reduced to 30 years in jail.

GOVERNMENT UNBLOCKS ACCESS TO YOANI’S BLOG

Popular Cuban blogger Yoani Sánchez, describ-ing it as the end of “the long night of censorship,”confirmed that the Castro regime has unblockedaccess to her and 40 more Internet sites critical ofthe government. But she’s not quite sure why.Most likely, said Sánchez and her husband, fel-

low blogger Reinaldo Escobar, it’s because Havanais hosting the Informatica 2011 fair Feb. 7-11,which attracts many foreign computer experts.“It would not be very elegant for those persons

to be able to confirm that in Cuba there areblocked websites,” Escobar told Miami’s El NuevoHerald by phone from Havana. He said the blockscould be put back in place once the fair is over.In a tweet sent to supporters, the founder of the

Generación Y blog said: “If they opened the door,it’s not time to just stay on the threshold, but totear up the door frame and take down the bars.”

FLA. LAWMAKERS VOW TO FIGHT CUBA OIL DRILLING

With Cuba poised to drill for oil off its coast asearly as this spring, Florida lawmakers are renew-ing efforts to block it, citing fears about damage tothe state’s beaches in the event of a major oil spill,the Miami Herald reported Feb. 4.Sarasota Republican Rep. Vern Buchanan intro-

duced legislation to allow the U.S. Interior Depart-ment to deny oil and gas leases to companiesinvolved in Cuba's oil drilling operations.Sen. Bill Nelson plans to reintroduce legislation

to pull the visas for executives of such companies.Nelson also is hoping to “outline our position” inan upcoming meeting with officials from Spanishenergy giant Repsol, which is working with Cuba.Buchanan, a staunch opponent of drilling off

Florida’s coast, worries Cuba doesn’t have the ex-pertise to contain a spill. He said he has bipartisansupport for his efforts, even among lawmakerswho want to relax restrictions against Cuba.“We have no drilling 230 miles off our coast,"

Buchanan said, referring to law that keeps rigs atleast that far off Tampa Bay. “So why in the worldwould we want Cuba drilling within 50 miles?”

POLITICAL BRIEFS



U.S. FOOD EXPORTS TO CUBA FALL 31% IN 2010

U.S. agricultural exports to Cuba sank by31% in 2010 to $366 million as the island’scash crunch continued and it looked else-where to buy food, according to the U.S.-CubaTrade & Economic Council.American sales of chicken, corn, soy, wheat,

pork and other products have dropped by 48%since hitting a peak of $710 million in 2008.U.S. farm sales to Cuba since passage of the

2000 Trade Sanctions Reform and Export En-hancement Act (TSRA) total $3.526 billion.The leading U.S. export commodity to Cuba

in 2010 was frozen poultry, valued at $99.8million, or 27.2% of the total. Next was corn($94.8 million, or 25.9%), followed by soy-beans ($41.9 million, or 11.4%).Despite the embargo, the U.S. ranked as

Cuba’s 5th-largest trade partner in 2009, whenfood exports to the island totaled $528 million.The trade council said Brazil, Argentina,

Vietnam, Mexico, Canada, Russia and Iran areusing credits or barter to maintain or increasetrade with Cuba — at America’s expense.

NICKEL PRODUCTION ON THE RISE AGAIN

Cuba’s production of unrefined nickel pluscobalt bounced back in January 2011, afterperhaps the industry’s worst performance in adecade in 2010 when output fell to well below70,000 tons, according to a Reuters report.Alberto Panton Graham, general director of

state monopoly Cubaniquel, said January 2011output was 4% above plan.Economy Minister Marino Murillo said that

as 2010 drew to a close, the nickel industryhad failed to meet its production and exportplan by 6,700 tons, costing Cuba $120 million. The government’s goal for the state-run

industry in 2010 was never made public after2009 output weighed in at 70,100 tons. Cubaproduced 70,400 tons of unrefined nickel andcobalt in 2008, after averaging between 74,000and 75,000 tons during much of the decade.Cubaniquel operates three processing

plants in Holguin; it wholly owns two, whilethe third is a joint venture with Canadian min-ing company Sherritt International.The nickel industry — Cuba’s top foreign-

exchange earner — was the subject of severalinvestigations last year, resulting in the arrestof plant managers and officials at the ministry.

CHINA RESTRUCTURES BILLIONS IN CUBA DEBT

China restructured billions of dollars inCuba debt over the last six months andagreed to provide new credit in a clear showof support for President Raul Castro’s effortsto reform the economy, Asian diplomats said.Beijing and Havana signed an accord last

summer restructuring government debt, andmore recently restructured commercial debt,with principal in both cases not coming dueuntil after 2015 and on easy terms, the diplo-mats said, without providing further details.Figures haven’t been released, but Cuba’s

official and commercial debt to China may beas high as $4 billion, say government insiders.

BUSINESS BRIEFS As part of the accord, China will continue toprovide trade cover and both parties agreedto use an already existing development creditto modernize the port of Santiago de Cuba,800 miles east of Havana, the diplomats said.Bilateral trade came to $1.5 billion in 2009,

down significantly from $2.2 billion in 2008.

BACARDI TO FIGHT SPANISH RULING ON RUM J-V

Drinks maker Bacardi vowed Feb. 7 to fighta Spanish court decision in favor of its Frenchrival Pernod Ricard in a long-running disputeover use of the Havana Club brand in Spain.Bacardi said it was “disappointed” Spain’s

supreme court had rejected its claims “on thelegal technicality of a statute of limitations,”according to an Agence France-Presse.“Bacardi has and will continue to defend its

position in the wake of ongoing and inaccu-rate allegations by Havana Club Holdings sur-

Etecsa employees in hard hats lay an underground telephone cable in downtown Sancti Spíritus.

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Telecom Italia SpA has sold its 27%stake in Cuba’s Etecsa to Cuban statefinance arm Rafin SA for $706 million.

News media reported Jan. 31 that theItalian telecom giant had already received$500 million from Rafin, with the balance tobe paid in monthly installments of $5.72 mil-lion each over the next 36 months. Thearrangement is subject to “specific creditguarantees,” TI said without elaborating.The sale concludes TI’s efforts to shed

non-core assets and reduce debt, CEOFranco Bernabe said; the company will nowexpand its Argentina and Brazil operations.In its latest half-year report, TI valued its

Etecsa stake at €367 million ($481 million).However, TI reportedly asked $780 millionfor the stake in negotiations with Spain’sTelefónica in 2009.According to Bloomberg, the Castro re-

gime set up Rafin in 1997 to finance import-export operations, participate in debt refi-nancing operations, and manage centralizedfunds for state companies, among others. Itis the non-bank financial branch of Grupode Administración Empresarial SA (Gaesa),the armed forces’ business unit that con-

trols entities which have remained solventthroughout the most recent cash crunchthat began in 2008. This is likely Rafin’slargest-volume undertaking ever.The Cuban purchase doesn’t come as a

surprise, since TI officials had talked aboutnegotiations since last October. However,third-country companies includingTelefónica had also expressed interest.Britain’s Cable & Wireless Communica-

tions PLC said it wanted to bid for the 27%stake, attracted by Cuba’s growth potentialin the mobile phone sector. C&W is enter-ing the Cuban market via an underseacable linking Jamaica and Cuba.“The starting point is the cable landing,

but the greater prize is working with the[Cuban] government to develop its tele-coms market,” Cable & Wireless CEOTony Rice told the Sunday Times in 2010.Six Cuban state entities now own Etecsa:

Telefónica Antillana SA (51%); Rafin SA(27%), Banco Financiero Internacional(6.16%); Universal Trade & ManagementCorp. SA (11.09%); Banco Internacional deComercio SA (0.92%) and Negocios enTelecomunicaciones SA (3.83%).

rounding the legitimacy of Bacardi’s rightsand ownership of Havana Club rum,” the Ber-muda-based rum empire said, hinting it plans“new legal avenues” but giving no details.Pernod, meanwhile, said Spain’s supreme

court had confirmed that Havana Club, itsventure with state-owned Cuba Ron, “holdsthe rights to the Havana Club brand in Spain.”The Havana Club trademark was first used

by the Arechabala family whose company wasnationalized by the Castro regime in 1960.Cubaexport then assigned the trademark tothe Pernod joint venture in 1993.Bacardi claims that move was illegal. Unlike

the rum sold by Pernod, Bacardi’s rum ismade in Puerto Rico.A separate but similar dispute involves use

of the Havana Club trademark in the UnitedStates. Last April, a U.S. court allowed Bacar-di to keep using the Havana Club name for itsrum, but Pernod has appealed that ruling.

Telecom Italia sells 27% slice of Etecsa


Generating power from sugarcanefiber and wild shrubs is at the heartof a pioneering link between a Brit-

ish company and the Cuban government.Havana Energy, chaired by former U.K.

Labor minister Brian Wilson, plans todevelop the technology to build biomassenergy plants in Cuba, said the BBC.The £157 million ($250 million) deal

with state-owned Zerus is being hailed asthe first major renewable energy contractsigned between Cuba and a British entity.It would see a pilot project at the Ciro

Redondo sugar mill, 250 miles southeast ofHavana, with a second stage of four furtherbiomass plants at other mills, each with acapacity of 32 megawatts.A return on the investment is expected

within five years. According to HavanaEnergy, Cuba already produces 7% of itsenergy needs from renewable sources.Havana Energy is a unit of Esencia, a

British company focused on trade withCuba, which also works in the tourism sec-tor. But there is potential for far more, par-

ticularly from using the sugarcane plant.As much as 50% of the country’s energy

needs — or 3,000 megawatts — could beprovided by the burning of bagasse, thefiber left over after sugarcane is crushed at56 sugar refineries in Cuba believed tohave biomass potential.In addition, about one million hectares

of land on the island has been invaded bythe marabú shrub, which is now being test-ed for its potential as an energy source inbiomass burning.Nelson Labrada, Cuba’s vice-minister of

sugar, said “this strategy of using sugar-cane bagasse for power generation avoidsone of the primary problems with otherbiomass sources which is supply. In Cubait is possible via the sugar mills andbagasse-based power plants to generate upto 40% of Cuba’s energy needs today.”Wilson said he’s been trying to promote

British-Cuban business ties for 10 years.Details: Havana Energy. Tel: +44 1481

714-898. Email: [email protected].

Havana Energy in $250m biomass deal

Cuba’s population fell in 2010 for thefourth time in five years. According tothe government’s Oficina Nacional de

Estadísticas, the island had 11,240,841 inhabi-tants at year’s end, down slightly from the11,242,628 registered on Dec. 31, 2009.The difference of 1,787 people may be sta-

tistically insignificant, but it highlights a trendthat can be clearly seen in the chart at right:after 2003, Cuba’s population growth hasground to a permanent halt.Scholars frequently argue that Cuba has

reached the final phase of demographic tran-sition, in which the birth rate drops sharply ina well-educated population where workingwomen comprise a significant share of thelabor force, and the death rate rises slightly asa result of an older population.This is already taking place in Japan,

France and Cuba’s former Soviet bloc allies,including Russia.Yet this interpretation discounts Cuba’s

persistent economic crisis which began after1990, as can be seen in the chart at left. Froma growth rate of 11 per 1,000 in the late 1980s,the ratio suddenly dropped to 3 per 1,000from 1994 to 2003, and again to 0.1 per 1,000in the years after.Even scholars seem to have been taken by

surprise by this outcome.In 2005, when stagnation was already a fact,

demographers predicted Cuba’s populationwould reach 11.34 million by 2010, instead ofthe 11.24 million actually reached. Eighteenyears earlier, in 1987, the government pre-

dicted Cuba would have 11.84 million peopleby 2000, when in fact it was only 11.14 million,a difference of 700,000.

– ARMANDO PORTELA

Cuba’s population drops again in 2010, confirming a trendDEMOGRAPHICS

“Of course, Cuba has to give out the land-ing authority,” said Zuccato, whose companynow offers nine flights a week to the island.Vision Airlines said it has two planes avail-

able to boost Cuba service, once demand war-rants. It charges charter companies “less than$20,000” roundtrip for a 737 with crew, whichis more than some rivals but less than others.Also influencing growth are jet-fuel prices.

Charter companies generally pass higher fuelcosts onto passengers, but more expensivetickets can blunt demand.Roundtrip charter fares from Miami to Hav-

ana now run about $400 to $600, with priceshigher on weekends when demand goes up.A jump in fuel prices — the biggest variable

cost for airlines — could slow expansion,executives said. Still, that’s not stopping somenewly licensed companies from dreaming ofthe day Washington lifts the travel ban entire-ly and U.S.-Cuba business soars.Christopher Behnam, president of Fort

Lauderdale’s Yellow Air Taxi, which plansCuba charters on its 10-seater planes, says“eventually, we’d like to create an air bridgebetween Havana and Miami, flying two tothree times a day.” q

Charters— FROM PAGE 2


BY DOREEN HEMLOCK

Tom Herzfeld is a patient man and thank-fully so. Back in 1994, he launched aclosed-end investment fund that looks

to business opportunities with Cuba whenWashington lifts its embargo against the is-land. Yet the embargo remains firmly in place.In those 17 years, his son Erik earned a

master’s degree from MIT, worked a decadefor top finance companies worldwide and thenreturned to the family business. The father-and-son team now jointly run the HerzfeldCaribbean Basin Fund, which trades on theNasdaq Capital Market as CUBA.Tom Herzfeld, 65, and Erik Herzfeld, 37,

have been tracking Cuba so long that theirinvestment strategies have shifted.The fund started after the collapse of the

USSR, when the end of generous Soviet sub-sidies to the Castro regime raised U.S.investor hopes that Cuba might turn awayfrom communism and fling open its market.One early focus was investing in publicly

traded companies in the greater Caribbeanthat would benefit if Cuba welcomed U.S.business. That meant buying stock in Miami-based cruise giants Carnival and Royal Carib-bean, both of which will someday visit Cubanports, their ships laden with U.S. travelers.But with the embargo not going anywhere,

the Herzfelds now also look to invest in small-er companies not traded on stock marketsthat could gain from more modest transitionsunderway in Cuba.That might mean backing a microloan fund

to help Cubans set up small businesses on theisland. Such activity is now encouraged byboth Havana and Washington to spur entre-preneurship in cash-strapped Cuba.“I don’t think the fund itself would invest

directly in mom-and-pop businesses in Cuba,

but we might invest in a Cuba microlendingfund or some type of Cuba business develop-ment fund,” Tom Herzfeld told CubaNews inan interview at his Miami office.He estimated that investments in smaller,

private ventures could comprise up to 20% ofthe fund’s holdings by 2013, while the embar-

go still holds under a Republican-led House.Still, waiting for an end to the embargo has

not meant losing money for CUBA clients orthe Herzfelds, who have their own cashinvested in the fund. A $100,000 investment atthe fund’s launch would fetch more than$218,000 today. That assumes the cashbought an initial 19,231 shares at $5.20 each.

NEWSMAKERS

Tom Herzfeld: Caribbean Basin Fund has huge potentialThose shares have paid out distributions of

$4.18 each over the years, or more than$80,000. And the shares now trade above$7.20 — up at least $2 since the launch, finan-cial reports show.Overall, the value of the fund has grown

from $8 million to about $30 million, including

proceeds from a 2007 rights offering.The Herzfelds’ patience has paid another

dividend too: expertise on Cuba few others inU.S. finance can claim. When U.S. and Cubanlaws permit, Erik Herzfeld envisions openingan office in Havana and directly financingmajor conglomerates opening up there.

Tom and Erik Herzfeld stand in front of the founder’s portrait at their company’s Miami headquarters.

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Herzfeld— FROM PAGE 8

“I’m the fund’s largest shareholder. And in the last few months, about20% of the [fund’s] holdings hit new highs — Televisa, Royal

Caribbean, Femsa, Fresh Del Monte. So that keeps my enthusiasm.”— THOMAS J. HERZFELD, CHAIRMAN & PRESIDENT OF THOMAS J. HERZFELD ADVISORS

But for now, the fund remains focused oncompanies faring well in the Caribbean andlikely to grow if Cuba opens to U.S. business— especially those involved in transportation.At present, the fund’s largest holding isKansas-based Seaboard Corp., which oper-ates a Caribbean shipping line.The fund also has stakes in Panama’s

COPA airlines, Virginia-based railroad giantNorfolk Southern and shipping line TrailerBridge of Jacksonville — all busy with region-al trade, according to the June 30 report.“When the embargo is lifted, freight is

Doreen Hemlock, former Havana bureau chiefand now business writer at the South Florida Sun-Sentinel, is a regular contributor to CubaNews.

Herzfelds refuse to invest in firms with majorCuba sales, such as Leisure Canada — eventhough some investors call those more direct“Cuba plays.”“We don’t want to be the fund that circum-

vents the U.S. embargo,” said Tom Herzfeld,sensitive to early criticism when his venturewas launched.Nor are there chances for big gains in

those companies in cash-tight Cuba under theembargo, “so you’re not really missing theboat,” said his son.How does Tom Herzfeld keep patient so

long? It helps that the CUBA fund isn’t hissole activity. His main business continues tobe investing in other closed-end funds and

going to have to get to Cuba somehow, by rail-way, airlines or ships,” said Tom Herzfeld.The fund long had its largest investment inrailway operator Florida East Coast Indus-tries, but that company went private in 2008and is no longer held in the portfolio, he said.The Herzfelds have some cash in compa-

nies that already have a toehold in Cuba,including Mexico’s Coca-Cola bottler, whichsells beverages throughout Cuba.Embargo rules allow U.S. stakes in foreign

firms active on the island, provided Cubasales are not their main business. But the

advising on them; he’s written half a dozenbooks on the subject and publishes a monthlynewsletter on the industry.Starting and running the CUBA fund — the

only fund he actively manages — also helps tosharpen his skills analyzing other closed-endfunds. Plus, he said, it’s profitable.“I’m the fund’s largest shareholder. And in

the last few months, about 20% of the [fund’s]holdings hit new highs — Televisa, RoyalCaribbean, Femsa, Fresh Del Monte. So thatkeeps my enthusiasm,” he said.Father and son also enjoy tracking Cuba,

however unpredictable its course may be. OnJan. 14, for instance, when word spread justminutes before the close of trading that Presi-dent Obama would ease travel restrictions toCuba, shares in the fund jumped as much as14% to $8.30 each —a spike that often hap-pens when Cuba news breaks.That sense of possibility helps explain why

the duo keeps a securities registration readyto offer a second closed-end fund on Cuba,“as soon as you can after the embargo is lift-ed,” Tom Herzfeld said.They aim bigger next time, not brokering

the deal in-house but using an underwritergroup. To justify the effort and fees, they aimto offer $300 million in shares. That would beenough to draw in institutional investors whotend to shy from small funds and would wantto tap new U.S.-Cuba business, they said.The elder Herzfeld takes the long view in

awaiting that post-embargo day, drawingpatience from history. He recalled that closed-end funds started out in Europe in the 1800sas bets on what was then the ultimate emerg-ing market: the United States of America. q

FUND’S TOP PORTFOLIO HOLDINGSCOMPANYSeaboard Corp. (Miami)Watsco Inc. (Miami)Freeport McMoran (Phoenix)Coca-Cola Femsa (Mexico City)Copa Holdings (Panama)Bancolombia (Bogotá)Carnival Corp. (Miami)AméricaMóvil (Mexico City)Norfolk Southern (Norfolk, VA)Royal Caribbean Cruise Ltd. (Miami)Consolidated Water (Cayman Is.)Mastec Inc. (Miami)Teco Energy Inc. (Tampa)Lennar Corp. (Miami)Grupo Televisa (Mexico City)Teekay Corp. (Vancouver)Banco Latino Exportaciones (Panama)Cemex (Monterrey, Mexico)Atlantic Tele-Network (USVI)Fresh Del Monte Produce (Miami)37 others (mostly less than 1% each)

*Source: Herzfeld Caribbean Fund annual report, Jun. 30, 2010

%8 .7 87 .5 57 .0 36 .2 05 .9 45 .3 65 .2 64 .9 44 .9 13 .6 63 .3 53 .2 32 .6 92 .6 02 .4 82 .3 12 .1 51 .6 11 .5 81 .4 9

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There is no collapse of the Castro regime orits overthrow by the masses a la Egypt. Nor isa coup d’etat or U.S. invasion on the horizon.There is, however, a transition taking place

inside Cuba’s power structure, where the realdissidents are. Cuban authorities — bothparty and government — remain very muchin control while ready to supervise the reformprocess. Political continuity today does notand cannot mean the status quo, and there isclearly no going back.To imagine or suggest, in such a context,

that the Cuban leadership and its lower struc-ture remains “frozen in time” is unimaginableand unacceptable. q

Analysis— FROM PAGE 4

Former Cuban intelligence officer DomingoAmuchastegui has lived in Miami since 1994. Hewrites regularly for CubaNews on the CommunistParty and South Florida’s Cuban exile community.

Muse said this “people-to-people” travelmay fall prey to politics. Those seeking an endto the embargo will lobby for liberal interpre-tation of the definition of “people-to-people,”and those who support the embargo will tryto narrow it, he told CubaNews. “There’s go-ing to be a delicate minuet between the WhiteHouse and Democratic members of Congresswho support a hardline on Cuba.”

REMITTANCES A BIG HELP TO JOBLESS CUBANS

More generous are Obama’s new rules forreligious travel. Church groups may now trav-el to Cuba without asking OFAC’s permissionand open bank accounts in Cuban financialinstitutions to help finance their activities.Another big change: the new rule on remit-

tances. Now any American, not just Cuban-Americans, can send money to the island.Non-exiles may wire up to $500 every three

months to anyone in Cuba who isn’t part ofthe Castro regime or members of the CubanCommunist Party.While the Clinton administration also

allowed these remittances to Cuba, it said itspurpose was strictly humanitarian. But theObama White House specifies that his moneymay be used “to support the development ofprivate businesses, among other purposes.”This new source of hard currency will cer-

tainly help many of the 1.3 million state work-ers facing layoffs in coming months. TheCuban government has encouraged these dis-placed workers to start small businesses.“I think it’s a great idea,” said Phil Peters,

vice-president of the Lexington Institute, athink tank based in Arlington, Va.“The Bush administration tried for eight

years to bring regime change to Cuba and itfailed,” Peters told CubaNews. “What’s goingon now is an expansion of activity that makesCubans less dependent on their government. Ithink most Americans would applaud this.” q

OFAC— FROM PAGE 2

Washington-based journalist Ana Radelat hasbeen covering Cuba-related issues on Capitol Hillfor CubaNews since the newsletter’s birth in 1993.


incentives, erratic management, neglectedinfrastructure, the damaging practice ofusing unpaid high-school students to do theharvesting and a lack of chemicals, fuel andtransportation.All these factors left cafetales so weak and

decimated that recent diseases, hurricanesand droughts may have caused lasting, per-haps irreversible, damage to the plantations.

BY ARMANDO H. PORTELA

Nobody could have told it better thanRaúl Castro himself. During Cuba’smost recent National Assembly in

December, he described how, years ago, theVietnamese asked Cuba for technical assis-tance in developing their coffee industry.Cuba did so, and Vietnam quickly became

the world’s second-largest coffee exporter.Recently, a Cuban official traveled to Hanoi topurchase coffee, surprising his Vietnamesecounterpart. “You taught us the techniquesand the business,” he said, “and now you’rebuying coffee from us?”As shocking as it might sound, Cuba’s

once-proud coffee industry is becomingincreasingly irrelevant. Soon, coffee produc-tion may end up confined to a few remoteplantations in the mountains of eastern Cuba— more of a curiosity than the traditionalstronghold of Cuban agriculture.Despite official efforts over the past 50

years, coffee output has suffered a prolongeddecline. It’s sort of like a slowly descendingstaircase, in which each period sets a produc-tion average lower than the previous one.Last year’s harvest yielded only 5,500 tons

— roughly 10% of the 54,000 tons produced in1955. This represents the smallest harvest in200 years.(It’s likely that output fell to similar low lev-

els by the late 19th century, right after theend of Cuba’s war of independence, but thereare no figures to corroborate this.)

WHAT WENT WRONG?

An unhappy coincidence of factors hascombined over the years combined to sendthe industry tumbling downhill.These include aging groves, an unstop-

pable population exodus from the farms, poor

AGRICULTURE

Coffee: From world’s leading exporter to mere curiosityEnvironmental degradation may also be ac-

countable for part of the losses. Soil erosion isconsidered severe by the Ministry of Agricul-ture in over 93% of the coffee groves, asreported by Cuban geographers A. Herreraand R. Seco, in their 1986 study“La agricul-tura y el medio ambiente en Cuba.”Eastern Cuba is also suffering more fre-

quent, intense and prolongued droughts.Annual rainfall in the past few decades is wellbelow the prevailing averages in the first halfof the 20th century. The coffee industry’s current crisis is a

serious problem, because it deprives Cuba ofa potentially lucrative source of foreignexchange, while forcing the island to importmore coffee for domestic consumption.

VIETNAM: AN EXAMPLE WORTH EMULATING

The regime seems incapable of adoptingmeasures similar to the ones that turned Viet-nam into a top coffee exporter, with 2009 ex-ports of 1.13 million tons (2nd only to Brazil).Today it accounts for 14.3% of world market

share, and the United States is one ofVietnam’s biggest customers, buying $257million worth of coffee in 2009, according tothe Vietnam Coffee & Cacao Association.By contrast, the 5,500 tons of coffee pro-

duced in Cuba that same year could be hauledin a single freight train of 55 boxcars.Measures that made Vietnam an overnight

global coffee powerhouse included massivecapital investments, change of land owner-ship, renouncing centralized policies, lettingproducers trade and benefit directly fromtheir work, and attracting foreign investors.Instead, Cuban authorities created a “cof-

fee recovery plan” in 2009 to reverse theslump. This meant offering better prices and

This is the 4th in a series of articles by ourcorrespondent Armando H. Portela that examinevarious sectors of Cuban agriculture. In our nextissue, we’take a look at Cuba’s tobacco industry.

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Havana-born Armando Portela, a contributorto CubaNews since the newsletter’s birth in 1993,has a Ph.D. in geography from the Soviet Aca-demy of Sciences. Portela resides in Miami, Fla.

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“reorganizing” growing areas, which reallymeans abandoning less productive groves tofocus resources on the best areas, as wasdone with the sugar industry after 2002.The goal of this recovery plan is to raise

Cuba’s coffee output to 22,000 tons by 2015and reduce coffee imports. Cuba spent $47.5million to buy coffee abroad in 2009 (com-pared to $62.6 million in 2008 and $48.9 mil-lion in 2007) averaging 22,500 tons per year.Estimates are that 2011 coffee purchases

will come to $47 million.Meanwhile, Cuba’s recent exports of

around 4,000 tons a year are worth only $2million at current world market prices.The last comprehensive effort to help the

industry, dubbed Plan Turquino, was initiatedin 1989 under the direct supervision of then-vice president Raúl Castro.The program aimed to revitalize the econo-

my in Cuba’s mountain regions, reverse thepopulation exodus, improve infrastructure,build new housing for agricultural workersand even lease some lands to people willing to

make a living from coffee.But after 20 years the project had little to

show for itself, and seems to have failed inboosting the local economy to offset the costsof the program itself.Coffee has since disappeared from the offi-

cial figures released annually by the OficinaNacional de Estadísticas (ONE). Even thespecial quarterly statistics on Plan Turquino— with details on non-essential crop produc-tion — omit coffee.

SANTIAGO DE CUBA IS ISLAND’S TOP PRODUCER

Another expected initiative is the relocationof coffee groves to the plains, preferably nearcities, where available workers abound andwhile vacant lands are plentiful, especially af-ter the 2002 downsizing of the sugar industry.However, growing coffee in the plains

would require constant irrigation to succeed. Some local figures are astonishing. Last

year Santiago de Cuba — the island’s top cof-fee-producing province — produced only2,698 tons of coffee and expects much thesame in 2011.Villa Clara, which grows the pricey Crystal

Mountain variety in the Escambray, harvest-ed merely 50 tons in 2009, down from 1,185 in1992; in five years the recovery program fore-sees provincial production at only 800 tons.Considering the area under production

(169,500 acres) and the output figures recent-ly cited by Granma, Cuba had an estimatedcoffee yield of 71.5 lbs/acre, down from 316lbs/acre in 1962 and 135 lbs/acre in the mid-1990s. The lack of essential inputs followingthe Soviet collapse a brought chaos, as in near-ly every other aspect of the Cuban economy.The United States is a natural market for

Cuban coffee and will be crucial to the indus-try’s revival. Americans import 1.2 milliontons of coffee annually, making them theworld’s largest consumers.If quality isn’t a consideration, the United

States could easily blend Cuban productionwith other varieties. Credits, equipment andtrade can draw back scores of Cubans thathave fled the mountains in recent decades. q

Coffee— FROM PAGE 10

EL CORDÓN DE LA HABANA

El Cordón de La Habana” was the nameof a massive campaign in the late 1960sthat aimed to create a coffee belt around

Havana using exclusively volunteer work.Reaching its peak in 1968-69, it drew tens of

thousands of mobilized housewives, white-collar workers and students daily — sevendays a week — planting coffee trees or work-ing in huge nurseries.In spite of the advice of specialists, and

common sense, the project never yielded anyresults. Millions of dollars were wasted on theHavana Coffee Belt before it was abandonedin 1970 — by which time it should haveinstead been yielding an immense amount ofcoffee. Meanwhile, traditional groves in themountains received less attention.The Havana Coffee Belt extended its reach

to the neighboring provinces of Pinar del Río,Matanzas and even to the Isle of Youth, wheremillions of trees were planted and immediate-ly forgotten.The ill-fated program was covered obses-

sively by state media for several years andeven its own newspaper and its own radio sta-tion, “Radio Cordón de La Habana.”

– ARMANDO PORTELA


BY ARMANDO H. PORTELA

First grown in colonial Cuba in the mid-18th century for domes-tic consumption, coffee only gained importance after the Hai-tian Revolution of 1791, which forced French growers to emi-

grate to eastern Cuba, where they introduced large-scale cultivation.Those early French colonists not only brought coffee — a crop

that has epitomized Cuban culture for the last 200 years — but alsoleft an indelible cultural mark on Cubans for generations to come.Indeed, the mountainous regions of eastern Cuba, as well as its

natives, are peppered with French names. Many of its inhabitants,both black and white, can trace their heritage back to those colonistsand their Haitian slaves.Coffee was first commercially grown in Sierra Maestra and the

area around Baracoa. From there it spread to the hills of centralCuba. By the 1820s, both French and Cuban growers settled in the

plains around Havana and inthe Sierra del Rosario hills,taking advantage of a pre-sumably wetter climate andof the natural fertility of thenewly assimilated soils.By the 1830s, Cuba was

firmly established as theworld’s leading coffeeexporter, with the United

States as its best customer. In 1833, it sold a record 64.16 millionpounds. The island produced an average 85 million pounds by 1940— a volume last matched in 1962.However, the explosive development of sugar — a much more

profitable industry — in the 19th century put coffee on the defensive.Sugar demanded lots of slave labor, and coffee output declined grad-ually. Higher U.S. import fees on Cuban coffee, competition fromSouth America, the hurricane of 1844 and two devastating wars ofindependence left Cuba’s plantations in ruins by the end of the 1800s.Coffee remained dormant until the 1920s, when protectionist tar-

iffs helped jump-start the industry. Exports resumed in the 1930s,

AGRICULTURE

Cuba’s rich coffee heritage is only a distant memory...

reaching 54,000 tons in 1955. Growing demand, high quality, access tothe U.S. market and abundance of land contributed to a bright outlookfor Cuba’s coffee industry.Today, remnants of 19th-century coffee plantations are hidden in the

mountains near Santiago de Cuba and Havana. These jewels hint at thegrandeur of an industry that — along with traditional Cuban music,sugar, rum and tobacco — once defined a nation. q

...but 2010 sugar harvest offers some cause for cheer

Cuba’s sugar harvest is up and running,with all 39 mills scheduled to open nowgrinding and yields higher than expect-

ed — and the country straining to top one mil-lion tons of raw sugar by May.That’s according to Reuters correspondent

Marc Frank, quoting state-run radio Feb. 3.“January was very important. Many mills

opened early leading to the production ofmore sugar than at this time during the previ-ous harvest,” Juan Varela Perez, Cuba’s topsugar reporter, said during his regular spoton national radio.“Yields were higher than the plan and way

above last year at this time,” he said, notingthat yields are currently averaging 10.43%.Cuba has said there is less cane available

than last year when the harvest came in at arecord low 1.1 million tons, but it hopesimproved yields and industrial efficiency willmake up for part of the shortfall.“Raw sugar production [in 2011] will be

slightly less than this year due to a lack ofcane,” Economy Minister Marino Murillo,who’s reportedly presiding over monthly in-

dustry meetings, said in late December.A tour of western Havana and Matanzas

provinces, as well as central Cienfuegos pro-vince, found harvesting in full gear, often withrelatively new Brazilian sugar-cuttingmachines, Chinese trucks and support equip-ment from Holland.Murillo, during a back and forth with Natio-

nal Assembly deputies in December, said that

a reorganization of the industry would beginwhen the harvest ends with an eye to obtain-ing reasonable results by 2015, which indus-try insiders say will be about 2.5 million tons.Traders told Reuters that the Cuban sugar

industry has no plans to import sugar nor ex-port more than the approximately 400,000tons it sends each year to China and minoramounts it sells elsewhere.Cuba consumes an average 700,000 tons

annually, however last year consumption wasaround 600,000 tons due to a reduction in theration to the population and other measures.Cuba, where sugar once was king, account-

ing for 90% of export earnings compared withunder 5% today, has drawn up plans to reor-ganize the industry and allow foreign invest-ment for the first time since mills were nation-alized in the 1960s.But the reorganization has yet to begin and

negotiations with at least two foreign compa-nies to jointly share administration of millsand share production for a limited number ofyears have dragged on and continue withoutresults, foreign business sources said. qSugar harvest in progress in Sancti Spíritus, Cuba.


BOOKSHELF

Immigrant Prince, Afro-Cubanismo and Fidel on ObamaMEL MARTINEZ AND THE AMERICAN DREAM

Mel Martinez, the first Cuban-Ameri-can senator in U.S. history, came toFlorida in 1962 as part of Operation

Peter Pan. His rags-to-riches climb throughcounty, state and national politics has thecharacter of a storybook saga.In his even-handed, inspiring and deeply

satisfying biography, “Immigrant Prince: MelMartinez and the American Dream,” authorRichard E. Foglesong demonstrates that theCuban-born Martinez became a politician notfrom an ego-driven desire to exercise powerand captureattention, butfrom a morallydriven desireto return thefavor for allthat he and hisfamily re-ceived fromtheir adoptedcountry.The 312-

page book( ISBN 978-0-8130-3579-6,cloth, $32.00)will be re-leased by Uni-versity Press of Florida in March 2011.From counting chads to Terri Schiavo to

the confirmation of America’s first HispanicSupreme Court justice, Martinez — who wasborn in Sagua la Grande, in the province ofVilla Clara — has played a role in many recentpolitical controversies.Foglesong explores that aspect of his char-

acter, his appeal to Latino voters and the rea-son behind his sudden resignation from officein 2009 (he later became a lobbyist and is nowchairman of Chase, directing operations inFlorida, Mexico, Central America and theCaribbean).Drawing from Machiavelli, Foglesong

describes Martinez as an “immigrant prince,”a genuine leader who has escaped his ownhistory and shown others the way forward.As a U.S. senator, Martinez was respected

in both parties for his forthrightness inaddressing the problem of America’s undocu-mented workers and other issues affectingU.S. Hispanics.“Foglesong has done a masterful job

threading Mel’s life into larger political, his-torical and social themes such as the rise ofHispanic power in the United States, the roleof religion in political life and the ongoingdebate over immigration policy,” says AubreyJewett of the University of Central Florida.

Details: Stephanie Williams, Publicity andPromotions Manager, University Press of Flor-ida, 15 NW 15th Street, Gainesville, FL 32603-1933. Tel: (800) 226-3822. Fax: (352) 392-0590.Email: [email protected]. URL: www.upf.com.

CARNIVAL AND NATIONAL IDENTITY

The poetry associated with afrocubanismohas been of great interest to academics sincethe movement began in the late 1920s.Thomas Anderson’s detailed analysis,

“Carnival and National Identity in the Poetryof Afrocubanismo,” infuses new life into thestudy of these remarkable works.The volume, to be published by UPF in

March, focuses on representations of carnivaland its comparsas (carnival bands and music).Anderson’s 350-page book offers thought-

provoking new readings of poems by seminalCuban poets, demonstrating how their writ-ings on and about these traditions both con-tributed to and detracted from the develop-ment of a recognizable Afro-Cuban identity.Carnival and National Identity (ISBN 978-0-

8130-3558-1, cloth pice $74.95) is the first toexamine — from a literary perspective — thelong-running debate between the proponentsof Afro-Cuban cultural manifestations and thepredominantly white Cuban intelligentsiawho viewed these traditions as “backward”and counterto the inter-ests of theyoung repub-lic.The book

i n c l u d e sanalyses ofthe works ofFelipe Pich-ardo Moya,Alejo Carp-entier, Nico-lás Guillén,Emilio Balla-gas, José Za-carías Tallet,Felix B. Caig-net, Marcelino Arozarena and Alfonso Camín.Thomas Anderson is associate professor of

Latin American literature at the University ofNotre Dame. He’s the author of “Everything inIts Place: The Life and Works of Virgilio Piñera.”Says UPF: “This rigorous, interdisciplinary

volume takes a fresh look at the canon ofafrocubanismo and offers surprising insightsinto Cuban culture during the early years ofthe republic.

Details: Stephanie Williams, Publicity andPromotions Manager, University Press of Flor-ida, 15 NW 15th Street, Gainesville, FL 32603-1933. Tel: (800) 226-3822. Fax: (352) 392-0590.Email: [email protected]. URL: www.upf.com.

OBAMA AND THE EMPIRE

Ocean Press, which bills itself as a publish-er of “radical books on Latin America and theworld,” thinks the man best qualified to judgePresident Obama’s performance during hisfirst year and a half in office is none otherthan Fidel Castro.Hence the leftist Australian publisher’s lat-

est title: “Obama and the Empire,” which itcalls “a compact, 134-page anthology of Fid-el’s writings on Barack Obama, the first blackpresident in the history of the United States.”And just

what makesthe aging rev-o l u t i o n a r yuniquely quali-fied to judgethe 44th presi-dent? OceanPress says it’sFidel’s reputa-tion as “his-toric leader ofthe Cuban rev-olution, whichhas success-fully resistedthe policy ofaggr ess i on ,blockade andisolation carried out against it by the UnitedStates for over 51 years.”The names of this book’s provocative 28

chapters tell it all: “The Cynicism of the Em-pire,” “Contradictions Between Obama’s Poli-tics and Ethics,” “Seven Daggers at the Heartof the Americas,” “The Annexation of Colom-bia to the United States” and “The Insanitiesof Our Times” are just a few of them.In this little red tome (ISBN 978-0-9804-

2926-8, paper, $14.95), Fidel Castro considerswhether U.S.-Cuba relations are finally head-ing in a new direction.Racism as a constant theme runs through-

out its pages. Fidel argues that the only rea-son a black man got elected president at all is“the deepening of the economic, social andmoral crisis of the United States, whichturned the miracle into reality.”Avoiding any mention of Cuba’s own many

economic and social crises, “Fidel discusses awide range of critical political issues includ-ing the global financial crisis, climate changeand the environmental crisis, Washington’sorientation to Latin America, and the contin-ued U.S. occupation of the Guantánamo navalbase,” Ocean Press boasts in a blurb pushingthe book, one of many it’s published on Cuba.“He also challenges the Obama administra-

tion’s decision to retain Cuba on the list ofnations supporting international terrorism.”

Details: Ocean Press, Inmobiliaría Jardinesde 5ta, Avenida 5ta y 114, Apto. #135, La Hab-ana. Tel: +53 7 204-1324. Email: [email protected]. URL: www.oceanbooks.com.au.

“Bookshelf” is an occasional feature ofCubaNews. If you’d like your book, novel orscholarly publication to be featured in anupcoming issue, please mail a press releaseto Larry Luxner, PO Box 1345, SilverSpring, MD 20915, fax it to (301) 949-0065or send an email to [email protected].


BY EMILIO MORALES & JOSEPH L. SCARPACI

British consortium Imperial TobaccoGroup PLC is honing its marketingtools to capture a slice of the world’s

largest market for cigars: the United States.In February 2000, Habanos SA, formerly a

Cuban state-owned trading company, becamea joint venture with 50% of its ownership in thehands of Altadis — the outcome of a mergerbetween France’s Seita and Spain’s Tabaca-lera, both currently owned by Imperial — andthe other 50% owned by Empresa Cubana delTabaco (Cubatabaco).With sales approaching $400 million last

year, Habanos claims 80% of worldwide pre-mium tobacco revenues excluding the United

States, which is off-limits because of Washing-ton’s long-standing Cuba trade embargo.The company relies on its 151 lavish “La

Casa del Habano” cigar lounges, which arepresent on every continent except Antarctica.A brand-new franchise, Cohíba Atmosphere,has just opened six cigar lounges in targetmarkets around the world.

PRODUCT PLACEMENT IS EVERYTHING

The Habanos venture’s success relies onthree strengths: brand structure, distributionscheme, and franchise concepts. Brand struc-ture allows a company to segment its marketsand to position its brands. Each Casa delHabano has a defined brand structure.Two basic features determine the manage-

ment and positioning strategies of eachbrand. Product location across categories isdefined by the quality of the cigar’s compo-nents: the aging of the raw materials, the con-tainer used (box, tube type — glass, card-board or cellophane — and humidor type.A second feature reflects the type of vitola

(length and diameter or ring size) used.These two brand features are not static, but

shift according to world market tastes. Theyrespond to new categories and new vitolas ascigar smokers demand them. A cigar’s classi-fication can rise in tandem with the quality of

its inputs. Higher-quality cigars, for example,use more aged and cured tobacco leaf; themore aging, the more wrapper luster standsout in the Cohiba cigar packaging.Each product category from the Siglo

Series and beyond carries a distinction andquality that exceeds the previous categoryand therefore commands a higher price.At the same time, higher prices reduce

access within each category by different seg-ments of the cigar-smoking population.Besides segmenting the marketing and

positioning the brand, this classificationprocess allows marketers to refine differentmarket segments.As cigar smokers acquire more expertise,

MARKETING

Habanos: Using cigar lounges to capture U.S. market?

they’re likely to change categories andbecome more elitist in their habits and tastes.This consumer behavior allows Habanos toretain customer loyalty among clients whocan translate their desires into ever moreexpensive purchases.A similar process occurs along the horizon-

tal axis. Some brands carry more vitolas thanothers. Montecristo, for instance, has a greatnumber of vitolas and not all of them are cur-rently on the market.

CATERING TO CIGAR SMOKERS’ TASTES

Releasing different lines of cigars dependson tastes and styles. For at least three yearsor so, long and thin cigars have become lessfashionable, whereas short and thicker styles(robustos) have become more stylish. One reason for this shift may be that anti-

smoking laws mean less time for enjoying asmoke, which, in turn, gives robustos anadvantage over the longer, thinner cigars.Harder economic times also dictate the

amount of leisurely time — and disposableincome — needed to enjoy a good smoke. Asthe macro-marketing environment changes,so too does demand for long and thin cigars. This situation might also indicate a con-

traction in the production of some vitola, andan increase in others. Cigar types that have

become less popular are withdrawn from themarket and “put to sleep” in specialized humi-dors. Like the Phoenix rising out its ashes,out-of-style cigars lie still until smokers’ tasteschange.This brand structure allows each brand to

retain its flavor, ensure well-positioned imagestandards and preserve unique attributes. Aquality-control network ranging from plantingand harvesting to retail marketing ensuresthis structure.This careful shepherding of cigar brands is

the core competency of Habanos. Strategiesdo not focus on a particular brand or group ofbrands.Instead, the goal is to promote and protect

all habanos as original products with uniqueroots that allow clients worldwide to identifyany Cuban brand by its origin.To the cigar smoker, this means teasing out

cigars made from Cuban seed, from cigarsproduced in Cuba.

BRAND DISTRIBUTION, POSITIONING STRATEGY

A series of state-owned retail stores withinCuba sell Cuban cigars. These chains includeGrupo Palco, Caracol, Gaviota, Cimex andHabaguanex. Each chain relies on a networkof sales outlets in every province and is clas-sified according to its particular features.International retailing of Cuban cigars is

carried out by a network of exclusive distrib-utors who sell all brands of habanos withintheir designated sales area.The company also maintains purchase-sale

agreements for markets that fall outside thoseassigned to particular exclusive distributors.In tandem, the venture runs an internation-

al network of cigar shops and lounges called“La Casa del Habano” and a newer franchisechain, Cohiba Atmosphere. Both have streng-thened the retailing of Cuban cigars globally.The company operates a well-defined mar-

keting and distribution network, in which itsupplies the product to its distributors who, inturn, distribute the merchandise to retailersand franchise operators who work in theirsales districts.This latter group receives the products

with a greater profit margin (the differencebetween the purchase and sales prices, lessexpenses and taxes).

LA CASA DEL HABANO

Casa del Habano was launched as a fran-chise in 1994. It first appeared in Cancún,Mexico — one of the Caribbean’s primarytourist destinations, with a large share of U.S.vacationers. That fact was paramount in posi-tioning Casa del Habano as a franchise and abrand, as was including all the brands ofhabanos under a single roof. Casa del Habano— now with 151 franchises worldwide — is aregistered brand that serves as a large

See Habanos, page 13


umbrella under which the other Habanosbrands and their segments exist.Below it is a well-defined pyramid whose

top tier is occupied by global brands led byCohiba, along with Montecristo, Romeo yJulieta, Partagás, Hoyos de Monterrey and H.Upmann.Tier two finds multi-local brands and con-

sists of such cigars as Bolívar, Punch, VegasRobaina, José Gerner, Quintero and Fonseca.Niche brands follow in the third-tier spot andare made up of Cuaba, Trinidad and SanCristóbal de La Habana.

Eighteen local brands occupy the bottom ofthe pyramid; better-known cigars in thisgroup include Gloria Cubana, Guantanameraand Flor de Cano. In all, the pyramid houses27 brands that are still being produced andcurrently sold in various markets.

THE NEW FRANCHISE: COHIBA ATMOSPHERE

The new cigar-lounge franchise is a perma-nent cigar showcase. Cohiba Atmosphererelies on six broad concepts to strengthen theattributes of the Cohiba brand: maximumquality, promotion, pairing with food andwine, careful presentation, variety and mix-tures in restaurants, and corporate dinners.Together, they create an exclusive setting forenjoying Cuban cigars.The design of Cohiba Atmosphere is aimed

at promoting not only cigars but also acces-sories such as books, magazines, clothing,museum pieces and other merchandise of anexclusive nature.The franchise isn’t a retail store per se, but

instead a restaurant, private club and bar witha smoking area all rolled into one.Each site is authorized and licensed by

Habanos to use the Cohiba Atmospherebrand. Such authorization gives the localeaccess to a system of Cohiba Atmosphereservices that are adaptable to each country.The licensee pays an annual royalty to

Habanos based on sales specified by a five-year contract. As of early 2011, Cohiba Atmos-phere operated in Tokyo, Beijing, Hong

Kong, Buenos Aires, Cancún and Prague.Two unanswered questions loom on the

company’s horizon: the transformation ofCuba’s economic model and the inevitableend to U.S. travel restrictions. These are cru-cial points when formulating a strategy to con-quer the U.S. market.The first stems from the Cuban govern-

ment’s aggressive investment in tourism overthe next five years. The objective is to boostby 50% the current hotel capacity of 54,000rooms in the island’s key tourist poles.Experts anticipate the construction of 16

golf courses and 11 marinas for high-endtourism; all in all, some 25,000 new rooms will

be added to Cuba’s hotel capacity. Habanos could add at least 16 Casa del Ha-

bano franchises by 2016. There’s little doubtthe new golf courses and marinas wouldenhance their glamour appeal by having theseattractive franchises on their properties. The second element is really a preamble to

what can only be described as a frontal attackby the company on the U.S. market themoment the Cuba travel ban is lifted.That alone could translate into between $50

million and $100 million of revenues forHabanos in just the first year, when at leastone million tourists are expected to cross theFlorida Straits.

THE BIG AMERICAN DREAM

Over the first five years, there is good rea-son to believe this figure can only rise. A flood of U.S. tourists on the island would

give also give Habanos a chance to delight thecurious visitors directly by breaking the mythof the ‘forbidden fruit’ (the Cuban cigar), aniconic symbol that’s ruled for half a century.And if current prohibitions about not bring-

ing anything back from Cuba continue, therewould be even more reason to enjoy theseCuban cigar lounges while on the island.We estimate that about 250 Casa del

Habano outlets might spring up throughoutthe U.S. mainland and Puerto Rico within oneyear of an end to the trade embargo.Sales of cigars, smoking paraphernalia

(humidors, ash trays, cigar cutters, maga-

zines, merchandise) and cigar-smoking ac-coutrements (rum, alcohol, coffee, fine-diningofferings) could hit $1 billion in that first year.Think a mélange of Ruth’s Chris Steak

House or Smith & Wollensky’s meets BuenaVista Social Club, Beny Moré, cha-cha-cha,and Ernest Hemingway and Celia Cruz — allunder a single roof.Adapting to local public-smoking laws could

easily be remedied with ventilation systems.Besides, who would visit a cigar lounge-restaurant and not expect at least some sec-ond-hand smoke?Habanos is counting on these sensual and

symbolic associations with its coveted brands.

The frenzy unleashed over Cuban cigarscould break all preconceptions about how toreally savor a cigar.However, it could also prove challenging for

Habanos to maintain its obligations with theexisting 151 franchisees. New York, Chicago,Las Vegas, Los Angeles, Boston and Miamicould become a prime market for cigar lovers.Co-locating Casa del Habano franchises

near professional football, baseball, hockeyand basketball sport complexes would be alogical marketing strategy.Limited editions of Habanos cigar brands

never before imagined could become the new,glamorous hotspots in these cities. SuperBowl, FIFA World Cup, World Series,NASCAR and other special events wouldmerit special limited editions.The problem with this scenario would be

satisfying both old and new demand. Will pro-duction increase through new plantings inCuba, or by rolling more cigars? Are condi-tions apt for that? Or, will the price of Cubancigars simply rise to keep pace with demand?No doubt this is a rather pleasant challenge

for Imperial Tobacco and its new franchise. q

Emilio Morales, former marketing directorat Cuba’s state-owned CIMEX SA, and JosephScarpaci, emeritus professor of geography atVirginia Tech, wrote this article for CubaNews.

Details: The Havana Consulting Group.URL: www.thehavanaconsultinggroup.com.

La Casa del Habano boasts 151 outlets worldwide, from Toronto’s Park Hyatt Hotel to the duty-free shop at Dubai International Airport, United Arab Emirates.

LA

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Habanos— FROM PAGE 13


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If your organization is sponsoring an upcoming event, please let our readers know!Fax details to CubaNews at (3 0 1 ) 9 4 9 -0 0 6 5 or send e-mail to larr [email protected].

Feb. 1 5 : “US-Cuba Relations: Moving Policy Forward in 2011 and Beyond,” Brookings In-stitution, Washington. Keynote address: Bill Richardson, former governor of New Mexico.Panelists: Stephen Propst and Patrick Kilbride. No charge. Details: Brookings Institution, 1775Massachusetts Ave. NW, Washington, DC 20036. Tel: (202) 797-6105. URL: www.brookings.edu.

Feb. 2 4 : “The United States and Cuba: Intimate Enemies.” Books & Books, Coral Gables,Fla. Presentation by author Marifeli Pérez-Stable, professor of global and sociocultural stud-ies at Florida International University. Details: Latin American/Caribbean Center, FIU School ofInt’l and Public Affairs, DM 353, Miami, FL 33199. Tel: (305) 248-2894. URL: http://lacc.fiu.edu.

Mar. 1 2 : “Tribute to Beny Moré,” Tiempo Libre & Friends, Miami-Dade Auditorium. Event“celebrates the legendary repertoire of the greatest Cuban popular singer of all time.” Tick-ets: $35, $35 and $65. Details: FUNDarte, Miami. Tel: (305) 316-6165. URL: www.fundarte.us.

Mar. 1 5 : Lecture by Gen. Gustavo Chui, London Metropolitan University. Chui is co-authorof book, “Our History is Still Being Written: The Story of Three Chinese-Cuban Generals inthe Cuban Revolution.” No charge. Details: Stephen Wilkinson, Director, Center for Caribbeanand Latin American Research, London Metropolitan University, TM1-50, Tower Building, 166-220Holloway Rd, London N7 8DB. Tel: +44 795 638-1640. Email: [email protected].

Mar. 3 1 -Apr. 2 : “Cuba Futures: Past and Present,” Bildner Center, City University of NewYork. 50+ panel discussions planned over a 3-day period, covering art, civil society, politics,dance, film, history, Santería, theater and urban life. Cost: $175 (students $35). Details: Bild-ner Center for Western Hemispher Studies, Graduate Center/CUNY, 365 Fifth Avenue, Suite #5209,New York, NY 10016. Tel: (212) 817-2096. Fax: (212) 817-1540. Email: http://cubasymposium.org.

Apr. 4 -8 : IV Cuban Earth Sciences Convention & Fair, Palco, Havana. Focus is on Cubanand Caribbean earth sciences. More than 600 abstracts already received; abstracts accepteduntil Jan. 30. Cost: CUC 260. Details: Palacio de Convenciones, Calle 146, e/11 y 13, Cubanacán,La Habana. Tel: +53 7 202-6011. Fax: +53 7 202-8382. URL: www.cubacienciasdelatierra.com.

Apr. 8 : Cuba Corps Spring Fete, Coral Gables, Fla. Nonprofit organization funds and sup-plies after-school childhood enrichment programs in 10 cities across Cuba. Details:TaniaMastrapa, Cuba Corps, PO Box 558275, Miami, FL 33255. Email: [email protected].

Apr. 23 -May 5 : US/Cuba Labor Exchange Seminar to Cuba. Includes one week of laborcourses at the Lazaro Peña School of the Cuban Workers Central Union. Hosted by the Con-federación de Trabajadores Cubanos. Price: $1,650 (inc. round-trip airfare between Cancúnand Havana; 2 meals a day, transportation, translation and visas). Details: US/Cuba Labor Ex-change, PO Box 39188, Redford, MI 48239. Tel: (313) 575-4933. Email: [email protected].

May 1 0 -1 2 : 15th Annual Caribbean Hotel and Tourism Investment Conference, MontegoBay, Jamaica. Cost: $350. Details: Caribbean Hotel & Tourism Association, 2655 Le Jeune Road,#910, Coral Gables, FL 33134. Tel: (305) 443-3040. Email: [email protected].

CALENDAR OF EVENTS

march 2011 issie

Documents