Smoked: Cuba’s cigar industry isn’t ready for its American moment

 

Cuba is trying to boost cigar production in anticipation of the end of the U.S. trade embargo, but tobacco fields lie fallow, and the country won’t likely be ready for the demand boom

 

Tripp Mickle, The Wall Street Journal

 

SAN LUIS, Cuba.- The fertile soil here in the Pinar del Río valley has long produced a richly flavored, slow-burning tobacco that is, without exaggeration, the envy of the world.

 

Some of Cuba’s best-paid workers roll the cured leaves by hand into cigars carrying the names Cohiba and Montecristo and Partagás, luxury brands as coveted by aficionados as the sparkling wines of Champagne or the single malt whiskies of Scotland.

 

For more than 50 years, Cuba hasn’t been able to sell its cigars to its giant neighbor to the north, the world’s largest cigar market. Now, with the U.S. moving to restore trade with Cuba, excitement is building that a great opportunity is at hand.

 

If the trade embargo is lifted anytime soon, however, Cuba is unlikely to be ready.

 

The amount of tobacco under cultivation in Cuba declined 65% between 2009 and 2014, to 21,733 acres, and annual tobacco production declined 21%, to about 20,000 tons, according to the most recent data from Cuba’s national statistics office. Cuba exported 91 million cigars in 2014, down 58% from 2006.

 

On a recent sun-soaked afternoon, tobacco grower Frank Robaina grimaced as he surveyed a 50-acre stretch of mostly fallow farmland down the road from his own fields. It used to be one of Cuba’s finest tobacco plantations. Now thorny 8-foot bushes known as marabú choke the rich, red soil. A hulking German irrigation pump that once watered crops sits idle and rusting.

 

Mr. Robaina, a member of one of the country’s leading tobacco-growing families, says two problems loom large: “resources and getting paid.” Farmers don’t always get what they need from government-supported cooperatives that supply them with fertilizer, fuel and other necessities. And the government, which buys all the tobacco farmers grow, is paying too little in relation to other crops, he says.

 

The result, he says, is that many farmers, including the owner of the weed-covered fields, have decided it isn’t worth planting tobacco.

 

The U.S. trade embargo can only be lifted by an act of Congress, but the Cuban government and its state-owned cigar-production company, Tabacuba, want to be ready. They are taking steps to boost production, including paying more for cured tobacco leaves and training more workers to roll cigars by hand.

 

Taste of CubaDemand for Cuban cigars is expected to surge when the U.S. trade embargo ends, but it isn't clear the industry will be ready. An attempt to increase production in the 1990s fizzled. Government figures suggest the current effort to boost tobacco growing and cigar production won't be easy.

The goal is to increase production about 20% annually over the next five years, says Inocente Núñez Blanco, co-president of Corporación Habanos SA, a joint venture between the Cuban government and British tobacco company Imperial Brands PLC to exclusively market Cuban cigars world-wide. He said the company is working hard to meet the expected surge in demand.

 

Tabacuba executives couldn’t be reached for comment.

 

It is a pivotal moment not just for Cuba’s cigar industry, but for its tourism and rum industries as well. Both stand to benefit from the world’s largest market restoring economic ties with Cuba. Companies from Starwood Hotels & Resorts Worldwide Inc. to Paris-based liquor producer Pernod Ricard SA are making investments designed to capitalize on renewed commerce between Cuba and the U.S.

 

Each faces its own challenges. Cuba’s hotels are aging, and Havana’s harbor can only accommodate two cruise ships a day. Ownership of Cuba’s signature rum brand, Havana Club, is contested in the U.S. because assets were seized years ago by the Cuban government without compensation. And Cuban law prevents foreign firms from widespread, direct hiring of Cuban workers.

 

Any growth in Cuba’s cigar industry would be a welcome boost for its economy. Cuba has a gross domestic product of just $77.2 billion, and the median income is only about $25 a month.

 

Cigar lovers credit the country’s soil and climate for its richly flavored, slow-burning tobacco. Cuban brands account for about one-fifth of the roughly 500 million handmade cigars sold world-wide each year.

 

The U.S., the world’s largest cigar market with $4 billion in sales, has been officially off limits since 1962, when President John F. Kennedy signed a trade embargo after the Bay of Pigs invasion failed to overthrow Fidel Castro’s communist government. Americans still can get their hands on Cuban cigars by ordering them online from foreign vendors, which is technically illegal, or from visitors to the island, who are allowed to bring back $100 worth.

 

Still, only about 3% of premium cigars consumed in the U.S. are Cuban, industry experts estimate. Habanos, Cuba’s cigar-sales joint venture with Imperial, has projected that the embargo’s end would enable it to capture as much as 30% of the American premium-cigar market, boosting its annual revenue by up to 60%, or $680 million.

 

Just how much Cuba would be able to boost production —and how quickly— is difficult to predict. Most land is farmed either with oxen or tractors built in the 1940s. Farmers say fertilizer must be imported from Venezuela. Often cigar shipments are held up because cigar boxes don’t show up in time, workers say.

 

The Cuban government has a hand in every aspect of production. It funnels the supplies needed by tobacco growers through the farming cooperatives, which farmers say set tobacco quotas for members and retain 2% of farm revenue. Farmers say they must apply to the government to buy tractors, irrigation systems or other expensive equipment, and Tabacuba, the government cigar-production company, decides who gets what.

 

The government buys all the harvested tobacco and sends it to 40-plus factories to be rolled into cigars for export. Habanos, the joint venture with Imperial, sells the finished product world-wide. In 2000, Imperial signed a 100-year agreement to be Cuba’s exclusive partner, says Fernando Domínguez, director of Imperial’s premium-cigar business.

 

That deal could hamstring the government’s ability to secure additional foreign help to boost production.

 

Oettinger Davidoff AG, a Switzerland-based cigar maker and luxury-goods company that once had a cigar-making partnership with the Cuban government, has had discussions with Cuban officials about growing tobacco and making cigars in Cuba, according to Chief Executive Hans-Kristian Hoejsgaard. He says the company has no interest in producing cigars there and being forced to sell them to a rival, Imperial, only to later buy them back for resale to its customers.

 

“A lot of things have to change before the rest of us come back there,” he says. “In the race to join the world economy, these [Cuban] monopolies at some point have to be more dissolved or become more flexible. It’s a long run ahead.”

 

At the moment, Cuba’s farmers aren’t especially eager to grow tobacco. Miguel Veloz, who leases farmland near Frank Robaina’s, says he grows cucumbers, not tobacco, because they grow twice as fast and he can make 40% more money. Vegetable growers like him are eligible to increase their income by exceeding cultivation quotas — a bonus designed to boost production on an island that imports more than 60% of its food. Tobacco growers aren’t eligible for any such payments, he says.

 

The Robaina family has stuck with tobacco. Its tobacco farms are among many in the Pinar del Río valley that remain family-owned. After Mr. Castro came to power, large farms were nationalized. Some of the families that had owned them started growing tobacco in Nicaragua and Honduras. Small farmers such as the Robainas were allowed to keep their land and farm as part of cooperatives.

 

Frank Robaina’s uncle, the late Alejandro Robaina, brought the family renown for growing some of the world’s finest “capa”— the smooth, wrapper leaves that become the outer layer of every cigar.

 

Toward the end of each year, workers on the Robaina farm erect a canopy of white cheesecloth over the young tobacco shoots to shield them from the sun, which helps produce wrapper leaves that are thin, mild and unblemished. The leaves are plucked by hand, one by one as they mature, from the bottom to top of the plant, over a span of about 30 days.

 

Frank Robaina says his cooperative, which has more than 100 farmers, isn’t always dependable and often is bureaucratic. Last December, he says, when it was time to plow his land so he could plant this year’s crop, the cooperative couldn’t provide fuel for his tractor because it owed money to the state-owned petroleum company.

 

“For one week, we couldn’t plant tobacco, and one week is important in tobacco,” he says. Because the seedlings were ready and “would die if I didn’t plant them,” he says, he found a truck driver who sold him fuel at an inflated price.

 

“Because of our country’s repeated economic problems, which take a toll on agriculture, these things happen,” says his cousin, Hirochi Robaina, who farms next door.

 

Picking tobacco is grueling, so finding workers is difficult. Hirochi Robaina pays pickers 1,680 pesos a month, or about $70, nearly triple the median monthly income. He offers a bonus of about 125 pesos, or about $5, to workers who come every workday for a month. Even with the bonus, some workers don’t return.

 

He still uses a 1949 Ferguson tractor once owned by his grandfather. He replaced the engine long ago with a Russian one, and he repairs it with parts he buys from the government or from friends.

 

The family doesn’t own a truck, so he often uses the tractor to make the nearly 2-mile trip to retrieve fertilizer from the cooperative. Sometimes, when the tractor is being used in the field, a worker fetches supplies by bicycle.

 

What the Robainas worry about most — the real weak link in Cuba’s tobacco industry, says Hirochi Robaina — is production.

 

High-quality cigars are rolled by hand, and cigar rolling is an art that takes years to get right. Roll a cigar too loosely or too tightly and it doesn’t smoke properly. That is exactly what happened when Tabacuba hired inexperienced cigar rollers, known as torcedores, as part of an effort to boost production by 60% in the 1990s.

 

“It wasn’t uncommon to have customers open a box of 25 cigars and find six or seven that were bad,” says Roberto Pelayo Duran, president of Miami-based Duran Cigars, who worked for a Habanos distributor in Asia at the time.

 

The reputation of the Cuban cigar worsened. After the government scaled back production, quality gradually improved.

 

Now, rollers go through a nine-month training program that is challenging enough that only 35% finish. Habanos says the program will help maintain quality when Tabacuba increases production. It plans to increase the number of rollers at its El Laguito factory in Havana to 150, from the current 90, by 2020.

 

On the third floor of the four-story La Corona factory in central Havana, more than 300 cigar rollers sit at wooden tables bundling tobacco inside delicate wrapper leaves. Each roller produces about 100 cigars a day.

 

Mercedes Lores, a 51-year-old roller at La Corona, earns $75 to $100 a month, which, she and other workers say, is about twice as much as a Cuban medical professional or professor. In fact, many nurses and professors, she says, become rollers because of the pay.

 

After the cigars are rolled, they are sorted by color, labeled by hand and boxed for delivery to Habanos. The company sells many of the cigars in its 140 official Casa del Habano stores around the world. Habanos co-president Luis Sánchez-Harguindey says once the U.S. embargo is lifted, the company plans to open stores in major U.S. cities.

 

The future of U.S.-Cuba trade relations depends partly on the outcome of the U.S. presidential election. Already, there are concerns that increasing American demand will outstrip Cuba’s ability to produce cigars.

 

Reynaldo González Jiménez, who manages the Casa del Habano cigar shop in Old Havana, says international clients, worried about a potential supply pinch or another quality crisis, are buying in bulk.

 

Reid Bechtle, an American Cuban cigar aficionado who lives near Washington, is worried about quality problems. “As soon as the floodgates open, we’re going to get three to four years of absolute garbage,” he says.

 

Habanos co-president Mr. Núñez Blanco says the factories have eliminated the problems of the 1990s by introducing new quality-control processes and suction machines that test how a cigar will smoke. “We’re never going to sacrifice the quality of the product for higher volume,” he says.

 

About 90 cigar rollers, called torcedores, work inside Havana's El Laguito cigar factory.

The Robainas hope that the end of the embargo will transform the family business. Frank and Hirochi Robaina plan to seek government approval for a new cooperative with only themselves as members. It would operate like a small business, allowing them to replace their old tractors with John Deeres, buy their own truck, secure fertilizer tailored for their soil and even sue suppliers who are late with deliveries.

 

Their adjacent farms would become a destination like the Robert Mondavi Winery in California’s Napa Valley. American tourists arriving on cruise ships in Havana would climb into 1956 Chevrolet Bel Airs and 1957 Mercury Montclairs and make the two-hour trip west to Pinar del Río. They would tour the tobacco fields, as musician Jimmy Buffett did recently, see the curing barns and then buy and smoke the Vegas Robaina cigars — currently sold only by Habanos and the Cuban government.

 

Hirochi Robaina says his grandfather began dreaming of that decades ago. Now, it finally seems possible.

 

“If we get started,” he says, “there wouldn’t be any stopping it.”

 

 

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