2210. The First American Build Factory in Cuba Since 1959 Revolution

By Susan Adams, Forbes, February 16, 2016

Horace Clemmons and Saul Berenthal, both 72-year-old retired software engineers, are slated to become the first Americans since 1959 to set up a manufacturing plant in Cuba. Their plan: produce small, easily maintained tractors for use by family farmers. Under new regulations issued by the Obama administration, the U.S. Treasury Department’s Office of Foreign Assets Control gave the Paint Rock, AL-based partners the go-ahead last week. Once they get final approval from the Cubans, they anticipate that in early 2017, they’ll start building a factory in a special economic zone set up by the Cuban government in the port city of Mariel. In this condensed and edited interview, Berenthal describes his transition from software entrepreneur to Cuban manufacturing pioneer.

Susan Adams: Tell me about your personal connection to Cuba.

Berenthal: I was born and raised in Cuba. I came to the U.S. in 1960 right after the revolution. First I came and then my parents. My family in Cuba is in the cemetery. But I have lots of friends there and I’ve been traveling back and forth since 2007.

Adams: How did you get the idea to build tractors?

Berenthal: I understood the needs of the Cuban economy. Cuba has to import more than 70% of what people eat. They’re still using oxen to farm the land. Our motivation really is to help the Cuban farmer be more productive.

Adams: But you and Mr. Clemmons are software engineers. How did you know the first thing about farm equipment?

Berenthal: Horace was born and raised on a farm in Alabama. He’s the farming expert and I’m the Cuba expert.

Adams: Just because he was raised on a farm wouldn’t mean he would know how to make tractors.

Berenthal: We hired an engineering company in Alabama that helped us pick up an existing design that was appropriate for what we wanted to do. We brought in state-of-the-art technology and produced the tractors. We have a tractor in Cuba already that’s going to be shown at an agricultural fair in March.

Adams: It sounds like you were motivated less by profit than by a desire to help the Cuban economy and Cuban-American relations.

Berenthal: Yes, our motivation is really to help Cuban farmers be more productive. Through commerce and trade, we can bring Cuban and American people closer together.

Adams: What about making money?

Berenthal: Our business model says we are investing in Cuba and reinvesting any profits we make. We’ll do what we did with our other businesses. We’ll create value and then sell the company.

Adams: What profit margins do you project for your tractors?

Berenthal: We’re aiming for 20%.

Adams: How many tractors do you need to sell before you’re profitable?

Berenthal: We believe we’ll sell 300 tractors in the first year and then we’ll ramp up to 5,000. That includes other light equipment we’ll sell for construction as well. The facility will have the capacity to produce up to 1,000 tractors a year. I think the profitability will come after the first or second year when we start to do production and not just assembly in Cuba.

Adams: But Cuba is plagued by shortages of the most basic products. How will you get tractor parts?

Berenthal: They’re all going to be sourced and shipped from the U.S. The current state of the embargo makes it so we can’t buy parts there. But we think that within the next three years the embargo will be lifted and we’ll be able to source from Cuba, if not sooner.

Adams: Your factory will be in a special economic zone?

Berenthal: It’s called ZED, for Zona Especial de Mariel. It’s built around one of Cuba’s biggest ports and it has a whole bunch of sections dedicated to foreign investment. They provide for a bunch of tax and investment incentives. We’re also taking advantage of Cuba’s commercial treaties with the rest of Latin America, where we’ll be able to ship and provide better pricing than for tractors built in the U.S.

Adams: What kind of tax incentive is Cuba offering?

Berenthal: For the first 10 years we don’t pay any taxes.

Adams: How many local people will you employ?

Berenthal: We’ll start with five and ramp up to 30 within the first year and then probably go up to 300.

Adams: You want to sell the tractors for $8,000-$10,000. How can a Cuban farmer with an ox possibly afford that?

Berenthal: There are a couple of ways. There is financing by the Cuban government and by third countries like Spain, France and the Netherlands. We also count on Cuban-Americans who live in the U.S. who have relatives and friends that run farms. We think they would be happy to contribute to Cubans owning a tractor. We’re also counting on NGOs that help Cuban farmers, like religious groups.

Adams: How much is your initial investment?

Berenthal: We project a $5 million investment and then it will go up to $10 million.

Adams: Where are you getting the money?

Berenthal: It’s private money. We have a couple of investors but we have also sold a couple of companies.

Adams: What was your first company?

Berenthal: We left IBM in 1982 and started our own company to compete with it. It was called PSI, for Post Software International, in Raleigh, NC, which developed software for cash registers. We had revenues of $30 million, offices in South America, Europe, Australia. The company was bought by Fujitsu in 1995. The purchase price wasn’t public. We had 300 employees in the states and 400 throughout the rest of the world. It was a significant enterprise.

Adams: Then you started a second company?

Berenthal: Csoft. It was a company that supported the credit card readers at gas pumps. We integrated those with the inside point-of-sale devices. In 2005 we sold that to the gas pump manufacturer we’d developed the software for. That company had $12 million in revenue and 60-some-odd employees.

Adams: What did you do after that sale?

Berenthal: We enjoyed life and then I started traveling to Cuba to find out what was going on there. We had other businesses that had to do with real estate and office buildings.

Adams: What did you find when you went to Cuba?

Berenthal: I started meeting with people and I had a lot of contacts in the economics department at the University of Havana. I learned what the Cuban government was proposing to do about readjusting the economy. In 2014, when the opportunity for trade arose, we decided to pursue farming and tractors.

Adams: How difficult was it to get U.S. government approval?

Berenthal: In all honesty it was tedious rather than difficult. We had to wait for the regulations to change so that the proposal we made was covered by the regulations implemented over the last nine months.

Adams: Were you competing with other U.S. companies?

Berenthal: We certainly believe we’re going to compete with the Chinese and Byelorussians, who are the current suppliers of tractors to the Cuban government.

Adams: Where did you get the names for your company, Cleber, and product, Oggun.

Berenthal: Cleber is from our names, Clemmons and Berenthal. It’s clever! Oggun is the name of the deity for iron in the Santeria religion. Santeria is the most popular religion in Cuba. It’s a mixture of Catholic and African religions.

Adams: Do you practice Santeria?

Berenthal: No ma’am. I’m Jewish. We’re called Jewbans.

2185. The Debate on Cuba’s Farm Crisis: Pessimists vs. Optimists

By Erasmo Caldazilla, Havana Times, February 2, 2016

Regions in Cuba suffer from climate change induced drought

Cuban agriculture is going through one of its recurrent crisis. What is the cause this time around?

One sector sees speculation and a lack of regulations as the root of the problem, while others claim just the opposite: regulations and State intervention is what Cuba has too much of.

What should be regulated and what should we liberalized in Cuba’s economy and agricultural sector today? I’m not entirely sure. The only thing I know is that all extremes have already been tried somewhere and that they are bad.

That said, I am fascinated by how our deep-thinking analysts have assumed it’s possible – and would be splendid – to squeeze more out of the countryside in order to accelerate agricultural production. You can find people as different as Machado Ventura (No. 2 in the Communist Party), from the high echelons of the Party bureaucracy, and reform-minded economists Juan Triana and Armando Nova, espousing this view. There is of course no shortage of passionate defenders of full capitalist liberalization.

I ended a previous post with two questions: “is this really our best option or is there a better one?” No one who commented on my post paid any attention to these queries.

I am of the opinion that it is not the only option available and it is quite possibly not the best. I explain why below.

Climate Change

Cienfuegos during a rainy season.

I have a relative who’s a farmer. Not long ago, he told us how delighted he was with the top-notch field of beans he had managed to sow thanks to the unusual heat and rains this time of the year. The day before yesterday, we found out the unusual downpours of recent days had destroyed his crop and enthusiasm.

Agro-meteorologists and the FAO have been saying it for years: agricultural productivity, stability and revenues will fall. These are not predictions for a hundred years from now, they describe a process that’s already underway.

Last year was one of the hottest on record. Cuba’s average temperature has risen gradually. Currently, it is 0.9 degrees Celsius above the historical mean (and low temperatures have risen much more). This may not seem like a lot, but it’s actually a huge increase.

The sea level has risen at an average of 1.4 millimeters every year, contributing to the much-feared salinization processes, which already affect 10% of the country’s land. Draughts have become chronic towards the country’s east. Eleven out of Cuba’s 14 provinces show signs of desertification. It does rain, but so intensely and tempestuously that ends up ruining crops. The sugarcane harvest is behind schedule because of the rains that unexpectedly fell during the dry season.

Taken from the blog of Gail Tverberg

Energy

The other issue absent from the debate surrounding the agricultural crisis is that of energy. Capitalism – and then the revolution – sought to establish “modern” agriculture in Cuba, which requires as much oil as it does water. Black gold consumption, however, has been declining in Cuba since the end of the last decade, and not precisely because we are becoming efficient. Since 2013, the government has not published any statistics on this, a sign that things are getting even worse. Most countries in the region (including ours) have already surpassed their extraction peak and will be plunged into a serious economic, political and social crisis at some point in time.

Soils

Tourism ads sell Cuba as a tropical island with exuberant flora and fauna. Nothing could be further from the truth. Our soils evince a degree of erosion that’s so high that this has been considered the country’s chief environmental problem since 1997.

The following data offer a sense of the magnitude of the disaster:

• 65% of cultivable lands have potential yields below 50%.
• More than 70% of farming lands report poor (and decreasing) concentrations of organic matter. The once fertile plains surrounding the capital (which feeds nearly one third of the country’s population) is seriously affected by this problem. A century ago, it reported a high 8% of organic matter. Today, its fertility is below 3%. In the country’s east, the situation is not much different and is aggravated by draughts and desertification.
• The agro-productive potential of Cuba’s mountains can be classified as anywhere from middle to low.
• 60% of cultivable lands suffer from acidity, high salinity, high sodium levels, compactness, poor drainage and other ills that affect their fertility.

With such alarming signs everywhere, one cannot help but ask: will Cuba be capable of the steep increase in agricultural production we need to satisfy growing demand and to lower prices?

Environmentalists, agro-meteorologists and risk analysts who have studied our country’s energy situation don’t think that’s too likely. But a team of high-ranking economists, State officials and the fans of liberal reforms see absolutely no problem. If Vietnam could do it, why can’t we?

Notes:

• The data on the state of Cuban soils were taken from a report prepared by Geocuba and from several articles written by environmentalist Eudel Cepero.
• Since 1997, Cuba’s Environmental agency has regarded soil degradation as the country’s most pressing environmental issue.