The Arkansas Report

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Arkansas Gov. Asa Hutchinson was the first U.S. governor to visit Cuba after the two countries normalized relations on December 17, 2014.

Arkansas Gov. Asa Hutchinson was the first U.S. governor to visit Cuba after the two countries normalized relations on December 17, 2014.

If you are not from Arkansas, you might not understand why Asa Hutchinson was the first U.S. governor to visit Cuba after the resumption of diplomatic relations in December 2014. If you are from Arkansas, then you get it immediately. “Between 30 and 40 percent of the commodities we raise in Arkansas are exported,” says Randy Veach, president of the Arkansas Farm Bureau. “And agriculture is the largest industry in our state. That is why we have paid a lot of attention to Cuban trade opportunities.”

For Mark Isbell, a fourth generation Arkansas rice farmer, the logic is inescapable: Half of the rice in the U.S. is produced in his state, and the island of Cuba—with the highest per capita consumption of rice in the Americas—should be its natural market. In fact, it once was. Before the U.S. embargo began in 1960, Cuba was Arkansas’ largest export market.

“As a farmer you don’t typically export rice yourself, that’s done through the mill and the distributor,” says Isbell, whose family farms 3,000 acres outside of North Little Rock. “But based on the quantities Cuba was buying pre-embargo, I’m sure that some of the rice my grandfather grew made it there through the supply chain.”

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Arkansas Farm Bureau President Randy Veach says the state is eyeing Cuban trade opportunities.

Taking back that Cuban market, with its annual demand of some 600,000 metric tons of rice, would make a critical difference for Arkansas rice farmers now facing their lowest prices in years. “We have seen price reductions as much as 40 percent over the last three years, down to $4.50 a bushel. A few years back you could sell it for $7.25,” says Isbell.

The fact that an increase in demand could mean the difference between profit and loss for thousands of rice farmers was a big reason that Gov. Hutchinson visited the island in the spring of 2015. A second reason was poultry, Cuba’s top import from the U.S., and a leading commodity produced in Arkansas.

“It’s an opportunity for Arkansas to open up the market in Cuba, and I also think re-engagement with Cuba is right from a political standpoint,” says Gov. Hutchinson. While he supported the embargo as a Republican congressman, “I have a different view as governor,” says Hutchinson. “You see it over time and you see the opportunities.”

For Michael Preston, Arkansas’ director of economic development, the search for global markets stretches as far as China. But Cuba, says Preston, holds a special place for the state. “We’ve had a historical trade relationship with Cuba, a strong history of trade with Cuba, and we can bring that back,” says Preston, one of the architects of the Governor’s precedent-setting trip. “Arkansas is one of the leading states in the country for agriculture production, number one for rice, and number two for poultry. Cuba just makes a lot of sense.”

The fact that Arkansas is a staunchly red state made no difference to Gov. Hutchinson, who transcended party politics to support the Obama administration’s efforts to reopen trade with Cuba—one reason that Hutchinson, with a 62 percent approval rating, is among the most popular governors in the country.

“We were very proud of the Governor for making that trip,” says Ben Noble, executive director of the Arkansas Rice Federation. “It was a bit of policy change for Hutchinson, since he served [as DEA director] under the Bush administration, whose policies were in the other direction.”

Noble projects that if the Cuban market for rice were to reopen that Arkansas could realize $100 million in sales within a year. “It’s significant. It could easily put us in a position where they are right back as one of our top markets,” says Noble, himself a third generation rice farmer. “I remember when my dad used to talk about rice sales to Cuba.”

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The State Capitol sits by the Arkansas River in Little Rock.

Statewide Push

Hutchinson is not alone among Arkansas politicians pushing to roll back the most damaging elements of the embargo, including the prohibitions against financing agriculture sales. Also spurring Congress to action are Arkansas Sen. John Boozman and Arkansas Rep. Rick Crawford. Both introduced bills to Congress to change the restrictions that make it all but impossible to do business with Cuba.

“Nationwide, the rice industry accounts for 125,000 jobs and contributes more than $34 billion to the U.S. economy,” said Boozman on the Senate floor earlier this year. “Rice farmers all across America would benefit from a change in policy with Cuba.”

While rice is the poster child for trade between Arkansas and Cuba, it is far from the only player. On the agriculture side there is also chicken, a big ticket item for a state with a chicken population of 123 million. Even with the embargo in place, Cuba bought $147.5 million worth of chicken in 2014 from the U.S.—and $1 billion worth over the past 15 years—mostly in the form of ‘broilers’ for consumption, versus poultry for breeding or egg laying.

Accompanying the governor to Cuba was Mark Simmons, the president and CEO of Simmons Foods, one of Arkansas’ top poultry producers. At the time of the trip Arkansas was still on the list of banned providers, a holdover from the days of the avian flu. “We met with their importers and got that ban removed,” says Simmons. “Shortly thereafter we were able to ship a boatload of product into Cuba, and subsequently we made two more shipments.”

In all, Tyson sold Cuba about 18 million pounds of chicken worth approximately $5 million. But don’t assume you’ll be eating any Arkansas chicken if you travel to Cuba, says Simmons. “If you go into a private restaurant in Cuba, our product is not in those channels. Our product is primarily leg quarters going into national food distribution by the government. We are missing out on a huge segment of the consumption there that is going to grow as Cuba opens up to the U.S. [tourists].”

Beyond agriculture there are other opportunities, such as technologies where Arkansas has competitive advantages that match Cuban demand. The state’s number one non-agricultural industry, for example, is aerospace equipment and services; here Arkansas could help with the upgrade of Cuba’s aviation facilities, currently being contracted to French and Russian companies.

Another area of expertise is renewable energy—a priority for Cuba—which is why Bradley Mannis joined the governor’s mission to Cuba. Mannis is the CEO of Mannco Environmental, which installs wastewater treatment systems that turn the leftover sludge into organic fertilizers. “I saw multiple economic opportunities in Cuba,” says Mannis. “There is certainly a big opportunity for private investment because the infrastructure needs huge work.”

Mannis has been invited back to Cuba several times, and has hosted Cuban offcials in Little Rock, but so far has concluded no deals. The problem, he says, is the U.S. prohibition against using lines of credit. The inability to finance infrastructure projects— standard operating procedure in the U.S.—makes them almost impossible to execute.

Even when capital is not an issue, the presence of the embargo—and all the legal, banking, and political challenges it imposes—is enough to kill most potential deals.

Burt Hanna, CEO of Hanna’s Candle Company, traveled with the governor and has been back several times, including twice this year. Hanna’s firm manufactures up to 60 million candles a year in Arkansas, and can easily meet Cuba’s needs. “They make 10 million candles a year and they need 20 million more,” says Hanna.

What Hanna proposed—and for which he signed an MOU—was to supply $1 million in manufacturing gear to a Cuban candle manufacturing company in exchange for half the profits. With his equipment, the factory could produce 6,000 candlesticks an hour with two workers. “I don’t think anybody can change the world with candles, but we’d like to be a little part of it,” says Hanna. But until the embargo is lifted, he’s going to wait on the sidelines.

Another frustrated investor who has traveled to Cuba repeatedly is Arkansas real estate developer Bruce Barrow, who launched a company called U.S. Cuba Holdings—only to find U.S. restrictions to be impenetrable. Beyond real estate development, he has lobbied the federal government to consider oil drilling off the coast of Cuba, only to be ignored. “I brought back maps and met with [various government officials],” says Barrow. “I never heard another word…. Someday you will wake up and there will be an oil derrick in the Gulf with the name of a Chinese or Iranian company on it.”

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Gov. Hutchinson (center back) and Michael Preston (center front) play basketball with a Cuban team.

A Warm Reception 

Barrow contends that most Americans are woefully ignorant about Cuba and its people. “I got down there and got off the plane and said, ‘Boy, have we been lied to.’ I expected sand bags and Beirut. But the reception was beyond belief.” Unlike his fellow Arkansans who want to open the market, Barrow says the better play is to invest. “We have all these people running down there to sell things to Cuba, but they have no money to buy… My focus is not to go down and sell, but to create joint ventures that will create a new future.”

Like Barrow, economic development director Preston did not know what to expect on the trip to Cuba. “Going down there for the first time myself I was a little apprehensive. What are we about to embark on? It’s not a country that we have dealt with. But I can’t say enough about the Cuban people and their friendliness and their welcome for us. The government officials as well… Everywhere we went we were greeted with good wishes and open arms.”

As part of the Arkansas-Cuba diplomacy, Preston and the governor both played a game of basketball with a Cuban team. Despite the governor’s greying hair, he is in remarkable physical shape— something which allows him to maintain his punishing pace as a governor who likes to engage with people. Among his weekly routines is a 7 am Friday morning basketball game with staff, including Preston.

“One of the fun things we did [in Cuba] was play basketball,” says the Governor. “I like pickup basketball but this was a little bit more of an organized game than I expected. And they were nice to me. They treated me like they thought a governor should be treated—a little too gingerly at first.” When Hutchinson noticed that they weren’t blocking his shots, “we actually called a timeout to say that it’s okay to foul me!”

Rep. Rick Crawford standing, right) talks to U.S. Ambassador nominee Jeffrey DeLaurentis sta

Rep. Rick Crawford (standing, right) talks to U.S. Ambassador to Cuba nominee Jeffrey DeLaurentis (standing, left) during a meeting at the Embassy in Havana.

Long Term Relationship

When Cuba held its annual International Fair in November, where companies from around the world set up shop at the vast ExpoCuba center outside of Havana, Arkansas’ representative was Mel Torres, the head of Latin America for the Arkansas World Trade Center. While his booth carried sample bags of the state’s coveted long-grain rice, Torres was in Havana primarily to continue the dialogue with Cuba which the Governor’s trip jumpstarted.

“Right now, when we talk about doing business with Cuba, we are talking about doing business with the government,” says Torres, “And we have an excellent relationship with the Cuban government. We both have products the other wants, and we want to do business immediately. But we can’t because of the embargo.”

Having said that, Arkansas is intent on growing its relationship with Cuba for the time when the embargo is lifted. Having organized the private sector trade-mission part of the Governor’s 2015 visit, Arkansas’ WTC has since arranged a visit by Cuban embassy officials to Little Rock and has led other trade missions to the island; they have also engineered the signing of several MOUs between Arkansas and Cuba.

“We encourage educational exchanges, including professor and student exchanges, in addition to commercial match making and trade,” says Torres. “And it’s far from one-sided. There are many things where Cuba can supply the expertise—they have done a lot of R&D on farming organically—and they have great products that would be very appealing to the U.S. market. There are multiple synergies.”

When it comes to the technology of rice and chicken growing, however, the University of Arkansas is in a class of its own—and happy to share its expertise.

Dr. Mark Cochran, vice president for agriculture at the U of A, travelled with the governor to Cuba last year and returned again this past summer. As the head of agriculture research at the university, he is a proponent of intellectual exchanges with Cuba.

“We are eager to play a role in creating opportunities. We are looking at faculty and student exchanges, research collaborations, and a visit from Cuban poultry scientists to spend time in our poultry labs,” he says. With its Center of Excellence for Poultry Science, U of A has a lot to offer, says Cochran. “The science behind poultry production is quite sophisticated. The notion that you have chickens running around in the yard isn’t realistic.”

On the other hand, says Cochran, U of A researchers would like to learn how Cuban poultry growers have done with fewer antibiotics, as well as fewer fossil fuel inputs into their farming methods. “We are interested in what we can learn from them about that, and they can learn from us, and that is a good foundation for building relations.”

To that end, one of the university’s leading rice scientists, Dr. Eric Wailes, spent three weeks in Cuba this past spring researching the rice sector. Wailes said he looked at all aspects— from growers to millers to storage to open market stores—to see how the industry might be improved. While there could be bigger yields with better genetic stock, Wailes concluded that Cuba could not develop the same kind of competitive advantages with rice that it enjoys with sugar, tobacco, coffee and tropical fruits.

The other thing he discovered was that, given the choice, Cubans prefer the kinds of rice grown in Brazil and Arkansas, rather than the rice that is currently being imported from Vietnam, thanks to its generous credit terms.

“Vietnamese rice is not of the quality of U.S. rice,” says Wailes. “When it’s been on a boat for a couple of months, and milled months before that, there is a deterioration of quality. So we have two things going versus Vietnam—quality competitiveness and logistic competitiveness.”

The real competition is coming from Brazil, however, which has not only been exporting to the Cuban market for years, but also paid for the buildout of the Port of Mariel and retrofitted most of the rice production plants in Cuba.

“There is no guarantee that the lowest price and best quality will gain the market. Statecraft plays an important part of that,” says Wailes. “The Arkansas Congressional delegation realizes that and is trying with great tenacity to promote relationships, to have meetings with officials, and so forth. at is an element which should not be underestimated, and why Arkansas is looking for decisions out of Washington.”

Those decisions, at least from Gov. Hutchinson’s point of view, do not need to include—indeed should not include—an immediate full lifting of the embargo. Rather, the state’s policy is that the U.S. should continue to gradually roll back restrictions, beginning in the critical area of finance.

“Hutchinson’s message is that you are not going to kick the door open immediately, and that is fine, because they are not ready for a complete U.S. invasion. They are still trying to figure out how to get enough toilet paper into the country for Americans,” says Rush Deacon, CEO of the Arkansas Capital Corporation Group, which is prepared to finance small businesses interested in doing business in Cuba. “I have been to Vietnam, and they have figured out how to blend Communism with Capitalism. So has China. But Cuba has not yet.”

Wes Ward, the Secretary of Agriculture for the State of Arkansas, traveled with the governor in 2015 and returned for a second visit this past June. “I’ve already seen pretty significant changes. There are cruise ships in Havana now, and more Americans are coming down,” he says. “The U.S. influence is already being seen; even if it’s non-U.S. companies investing, we are creating some of those changes.”

For Ward, like the governor, the ground game is one of small advances and incremental gains. “From my own perspective it’s a step by step process. The first step is lifting the financing restrictions, so there is an opportunity to normalize that trade. Then we have to lift the travel restrictions. And then just follow common sense. I think all of agriculture will benefit, in both directions.”

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