Cuba allows companies and eliminates price caps on agricultural products

In response to the economic and political crisis in Cuba, Cuban authorities have announced new reforms that will allow Cubans to own companies and will eliminate price caps on agricultural products.

Last July, the prolonged shortages of food and medicines, the frequent power cuts, the collapse of the health system at the current peak of the corona pandemic, and an underlying discontent among ordinary Cubans with the lack of political and civil rights, caused the largest public uprising seen in communist Cuba.

Partly as a response to these protests, Cuban authorities have now accelerated the pace of economic reforms and are hoping these reforms will curb the rapid decline of its economy and the growing discontent of the population. One of the most anticipated of these reforms is that private micro-, small and medium-sized businesses will now officially be allowed, putting an end to the legal limbo in which many of such ventures have existed for years; Another long-awaited reform is the elimination of price caps imposed on agricultural products produced by Cuban farmers.

Only natural persons with permanent residence in Cuba, will be allowed to create a company (with a maximum of 100 employees), thus excluding Cubans abroad or foreigners living in Cuba from this reform. Foreign investors will however be allowed to interact directly with private MSMEs in Cuba as partners in joint ventures, even though all foreign investment projects must be approved by the Cuban authorities. Cubans will be allowed to own only one company.

The elimination of price caps on agricultural products and the adoption of market prices will undoubtedly have a positive effect on the development of the Cuban agricultural sector, especially when tourism will pick up again after its collapse caused by the COVID-19 pandemic. State-imposed price caps on agricultural products discouraged many farmers from producing more food and made it unattractive to sell food on the local market.

The small print of the new reforms is yet to be published, and the precise impact of these reforms on the agricultural sector remains to be seen. The same is true for reforms that had been announced previously this year, such as the establishment of a new agricultural bank, and the possibility for private companies to import and export. These reforms, too, are still a work in progress. Also, many foreign banks will still be reluctant to finance business activities in Cuba, because of the danger of US sanctions against them. Still, many see these reforms as yet another step in the direction of a more market-oriented economy. In the long run, these reforms may also open up new business opportunities for Dutch agro-food companies.