Cuban-Soviet Sugar Trade: Price and Subsidy Issues

Abstract

Central to the economic relationship between Cuba and the Soviet Union is sugar trade. Since 1961, the Soviet Union has been Cuba's most important market for sugar exports. During the period 1981-1985, for example, the Soviet Union took over one half of Cuba's physical exports of sugar and sugar accounted for over 80 per cent of the value of total Cuban exports to the Soviet Union (Anuario, 1985:385,432-433). In addition to purchasing large quantities of Cuban sugar, beginning in the mid-1960s the Soviet Union has paid preferential or concessional prices, i.e. above world market prices, for Cuban sugar deliveries. Preferential prices are common in international sugar trading, but the very high margins of preference granted by the Soviet Union to Cuban sugar are unprecedented: reportedly, the contract price in 1985 for Cuban sugar sales to the Soviet Union was around 45 cents per pound, compared to a world market price of just above 4 cents per pound. In the mid-1970s, Cuba and the Soviet Union agreed to a formula for establishing the price of sugar in bilateral trade which essentially severed any relationship between this price and the world market price. A minimum contract price was set at a very high level and automatically adjusted to take into account changes in the prices of a basket of Cuban imports from the Soviet Union. Whereas prices generated by this formula have tended to rise annually, world market prices have been flat or even declined markedly (as in the 1980s). The result has been a skyrocketing in the price premium paid by the Soviet Union and in the magnitude of transfers?subsidies?from the Soviet Union to Cuba, in the form of sugar prices. This paper pulls together what is publicly available regarding CubanSoviet sugar trade, with special emphasis on prices and price-setting. The paper then discusses whether the very high sugar prices the Soviet Union has paid for Cuban sugar constitute subsidies and critically surveys the literature that has tried to quantify these subsidies. Several sets of subsidy estimates available for different time periods are replicated and updated so that they can be compared with each other and with additional estimates. Subsidy estimates are in U.S. dollars; conversion from rubles or pesos to U.S. dollars has been made using official exchange rates. A brief concluding section summarises the results and identities some issues for further research.