Opinion: Next big market for U.S. wood products?

The recent warming of diplomatic relations with Cuba has created a buzz about the potential for export sales to this market.

Pre-embargo Cuba was a thriving market for U.S. agriculture exporters — it was the largest export market for Louisiana’s rice industry and a top destination for the state’s wood product exports. The island nation remains highly dependent on imports of food and fiber.

Here in Louisiana, we could see significant gains should restrictions be fully removed and the country becomes a true market economy. We’re able to offer a wide variety of high-quality wood products at competitive prices, in smaller shipments, and with fast delivery times. In principal, Cuba is a natural market for us.

From a global perspective, it’s helpful to put in context how successful our industry has been at growing exports. Southern pine lumber exports have nearly doubled in the past five years and reached a record in 2016 of more than 685 million board feet valued at $413 million. Although the Caribbean and Europe remain important and steady markets, we’re seeing unprecedented growth in China and promising new emerging markets in Southeast Asia and South America. While total U.S. softwood lumber exports were flat in 2016, Southern pine lumber exports increased by 11 percent. Our efforts to introduce Southern Pine to buyers in new markets is paying off and we’re confident that this growth will continue.

Cuba

Wood exports to Cuba took off after the ban on U.S. agriculture sales to the island was lifted in 2000. USDA reports U.S. exports to Cuba growing sharply to a peak of $9.7 million in 2008. Much it was roundstock (poles), although a good portion was softwood and hardwood lumber, used mostly in construction and furniture manufacturing. Sales dropped sharply in 2009 and trailed off to nothing over the past few years.

Often, Cuba’s imports appear to be driven by political objectives rather than market forces. Exporters suspect that the state agency ALIMPORT — which firmly controls the spigot on agriculture imports — spread its wood purchases across the southern United States with the intention of encouraging U.S. shippers to push for lifting the embargo.

With a big order came a gentle reminder that Washington should move toward liberalizing trade. The strategy wasn’t working, so import purchases were redirected toward countries that can offer better terms.

What’s it worth?

According to the Global Trade Atlas, Cuba currently imports almost 10 million board feet of softwood lumber annually, valued at $4.6 million. Brazil supplies the lion’s share and, curiously, Cuba imports a sizable quantity of softwood lumber from Spain.

Regarding its potential, USDA estimates that Cuba could become a market equal in size to the Dominican Republic, which is similar in population and income and purchases $1.1 billion in agricultural products from the United States. Apply that same model to wood products and the market could be substantial.

U.S. wood product exports to the Dominican Republic exceeds $84 million, of which nearly $53 million is Southern pine lumber produced in Louisiana and elsewhere in our region. Exports could grow substantially higher as the country badly needs to update its infrastructure and resort developments expand to accommodate a burgeoning tourism industry.

What’s standing in the way?

Cuba remains a non-market, state-controlled economy which controls imports in an effort to diversify its supplier network and strengthen relations with its allies. U.S. lumber has several competitive advantages over products imported from Brazil, but until its purchases are driven by market forces, rather than political ones, those competitive advantages will remain ignored.

On the regulatory front, exporters point to banking restrictions as being the biggest barrier to exports: Sales must be either all cash — which Cuba has little of — or through letters of credit issued by foreign banks and under the watchful eye of the Treasury Department’s Office of Foreign Asset Control.

Moreover, the inability to extend credit to Cuban buyers either through private financial instruments or U.S. government credit guarantees puts U.S. exporters at a considerable competitive disadvantage. Brazil and Vietnam are offering 360-day credit terms on a government-to-government basis, making imports from those countries much more attractive to cash-strapped Cuba.

Our government is taking steps to loosen regulations — particularly welcome in the area of banking — but the true value of the market remains untapped. Cuba is certainly on our industry’s radar screen, but for now we’re having to wait and see.

Jerry Hingle, president and CEO of International Trade Associates in New Orleans, represents the Southern Forest Products Association.