By Pascal Fletcher
HAVANA, Jan 10 (Reuters) - Cuba said its 1999/2000 sugar harvest had made a good start in its first month, but the island's recession-hit sugar industry was struggling to reduce costs and be profitable in the face of low world prices.
"This harvest has begun well, better than the previous one," Cuban Vice President Carlos Lage said in comments reported at the weekend by state newspapers.
Sugar Ministry spokesman Jose Alvarez said that by the end of last week 61 sugar mills, more than half of the total of 112 scheduled to grind this season, had begun harvest operations.
This showed a larger number of mills in action that at the end of the same period last year, when only 37 had started up.
Lage said some 150,000 tonnes of sugar had been produced so far in the so-called "zafra chica" (little harvest), the early stage of the annual November to April harvesting season.
Precise comparative figures for this same stage last year were not available. The start of the 1999/2000 crop, originally set for Nov. 30, was delayed by a week because of rains.
But it seemed almost certain the island had produced more sugar this season than in the same period last year.
Cuban officials have said they are confident the 1999/2000 crop can increase by at least 300,000 tonnes over last year's improved harvest of 3.78 million tonnes.
If this forecast proves right, it will lift the communist- ruled Caribbean island's raw sugar output above four million tonnes for the first time in three years.
But Lage stressed that in the current depressed situation of world raw sugar prices, which have fallen by half in recent years, the most important challenge facing Cuba was not so much to produce more sugar but to do so more cheaply.
"The strategy is to produce more at a lower cost, and to diversify," he said.
Sugar Minister Ulises Rosales del Toro, a senior army general who was brought in more than two years ago to shake up the sector, introduced a cost cutting campaign last season. As part of this, 43 Cuban mills will remain idle this season.
But serious questions remain about the efficiency and profitability of Cuba's decayed and under-capitalized sugar industry that was badly hit after 1989 by the collapse of the former Soviet bloc, its main market and technical supplier.
Officials said the sugar industry succeeding in reducing production costs by an impressive-sounding 22 percent in 1999.
Lage was quoted at the weekend as saying the cost of producing one tonne of sugar had been cut to 138 Cuban pesos.
But this does not tally with a December, 1999 Finance Ministry report on state subsidies to the Sugar Ministry, which cites a cost per tonne of just over 328 pesos for 2000.
A comparable 1997 report also spoke of a similar production cost of 330 pesos a tonne in the 1996/97 harvest.
No explanation was immediately available for the big discrepancy. Nevertheless, foreign analysts believe Cuba's production costs are likely to be far higher than a large producer like Brazil, which has boosted output in recent years.
According to the 1999 Finance Ministry report, the Sugar Ministry expected 142 of its 185 companies, including sugar mills, to operate at a loss this year. Cuba's 2000 budget set aside 350 million pesos in subsidies to cover these losses.
Part of the problem is that Cuban officials and public statistics often do not distinguish between U.S. dollar and Cuban peso costs when evaluating economic performance.
This confusion is compounded by the government's use in its public accounting of an official -- but completely artificial - - rate of one peso to the dollar. Nevertheless, the peso is not internationally convertible, although it can be changed in Cuba at a government-sanctioned rate of some 20
pesos to one dollar.
In recent years, foreign banks and trade houses were channelling at least between $150 million and $300 million a year into the Cuban sugar sector. But the disastrous 1997/98 crop of 3.2 million tonnes made many financiers more wary.
Despite the mystery over real Cuban productions costs, there is no doubt Cuba's hard currency sugar export income has been badly hit by low international prices, and this in turn must be squeezing the sugar industry's financial performance.
Finance Minister Manuel Millares said in December that although Cuba exported 500,000 tonnes more sugar in the 1998/99 season, it earned $127 million less because of low prices.
"Even with these prices, sugar brings in income," Rosales del Toro said defensively, when asked by a Cuban radio reporter about the low world prices.
Not suprisingly, the Sugar Ministry is now urgently seeking to diversify more into sugar by-products like rum, alcohols, animal feed, bagasse board and other value-added exports which earn more than raw sugar. The government is looking for foreign investors to bring in capital, technology and
markets fot this.
08:57 01-10-00
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