Don't Look at Change as Bad

[El Presidente]

Don't look at change as bad. by Punch Joe

Just a few thoughts to share thismorning…Trough time we Cubans have had temporary setbacks, obstacles thatshould be faced every single day, barriers we should avoid, in one word,challenge! But aside from the bad things in the past, I can envision a betterfuture for our cigars if we play our cards right. Proud of my product thoughI'm concerned about the future might bring for smokers.

Very often I am asked about the topicof the embargo / blockade dependingon your point of view. I think it's timechanges finally occur and since my passion is Cuban cigars, I'm always askedabout the future of Cuban cigars when the embargo ends. Seems a simple question,but there's no simple answer. I was born in Havana, November 1969. Since then I've been listening to my familytalking about the blockade. When will it end? And my generation doesn't knowhow it would be living without it; no idea. They are just used to that idea ofsurviving day after day. Havana is a time capsule due to many factors, not onlythe shortage of spare parts, food, housing repair materials, old cars, samespeeches since the 60's…and else. Although not working for a long time, theblockade is pretty unfair for both sides, but hey who is blocking who?

We have been witnessing the forbiddenfruit effect for a long time: the more you know you can't have it, the more youwant it. Not only when it comes to Cuban cigars. Remember the Prohibition?Yeap, it will be like that at the beginning but I don't think it could lastlong. Maybe within a year and a half is more than enough while the demand ishigh and the supply is low. The cigar craze had its own plummeting after yearsof climbing to the top. And…How many legit Cuban cigars are consumed in the UStoday? An estimated 5 to 8 million units annually would be consideredacceptable, right? But today it's illegal. No doubt that smoking Habanoslegally in the US will be trendy. Sometimes I wonder why the f… they don't say "it'sover, it's not working for decades, can't beat those stubborn Cubans, dude.Let's open trade and start changing things a little". Don't they know what theyare missing?

The remaining fear about what the Cubans would do when the Americans come and delight on theirfavorite CC's, the temptation to meet the new demand while supplying oldclients at the same time, the reaction and the consequences this will have onquality if Cubans decide to go insane by increasing production unreasonably …etc.If the American premium cigar market opens up, could that create dramaticshortages in Europe? A lot ofspeculation since the Clinton administration to this day and reinforced whenFidel Castro handed out the torch to his brother.

What aboutthe Havana namesakes ("double brands") in the US? Will Imperial Tobacco dosomething about it? Would Habanos s.a. be happy with an agreement on the use ofthe brand names? Hard to say. Everyretailer I know wants the market place to remain stable. They won't like theidea of stirring up controversy that could end up in a timeless battle. Again,it's time to gather everybody around the table, reach an agreement, shake handsand get a life. That doesn't mean either that Wal-Mart takes over, or Starbuckscoffee (this won't succeed among Cubans) will be serving such. Well, only ifCuban coffee is finally served. But you know how home developers do their job.They'd come, look at the buildings of historical significance in bad conditionsbut well located and they would say: "Ok, that was great 200 years ago, let'sdo this now. Let's remove every single trace of cultural heritage and plantthis skyscraper here and let's call it the Havana Ocean View" It happenedbefore, not so dramatic because there was space for building hotels andresidences. Back in 1956, US urban planners wanted to replace many oldbuildings in Havana. They didn't have any ideas about preservation and theCubans didn't want to pay a high cultural price.

I don't know what to expect and Ihaven't lived much enough to realize we have experienced the same before but priorto any analysis I want to point out some important data for a better forecast.

· Theexodus of young people mainly to the US during the past 10 years is everincreasing. Nobody seems to be overly concerned about it.

· Thepeople that flee out of Cuba are mostly young people in the past 15 years.

· Thebirth rate is declining.

· It'sexpected to have 1 old person out of 4 before 2025.

· It'sexpected that population would decrease about 2 million people by 2019 due tolow birth rate, exodus and deaths combined.

· Personalbusiness or private initiatives are growing bigger and it's foreseen that itcould hire more workers than the Government in less than 2 years.

· Theprivate business will soon be allowed to have union rights, already grantedretiring policies and vacation time.

· Theannounced layoffs have been delayed for some time and yet they think it's timeto kick out some half a million at least.

· CubanWorkforce: around 4.5 million. Over 300 000 people works in private business

· Taxpolicy is established for over 150 activities

Why young people are so important inthis business? Firstly, this is about tradition, passion, love and art. Toprollers are getting older and they need to pass the knowledge on to newgenerations before they go retired. The same happens with farmers. Somethingmust be done.

We will not be caught off guard, sothey say and I believe so. Land can be reoriented to produce high quality tobacco;there are plantations in Pinar del Rio that are currently sown with other cropswhich could be easily turned over to tobacco. People can be trained at thefactories. This could take at least a year but the plus is that many havelearned this skill in their families for generations. Workers at the factoriestoday only have a single eight-hour shift. We may afford to have another shiftif needed or switch over to three while we repair the factories that have beenshut down for years… We have leaf stock as well. But is that enough? Who will be in charge ofcontrolling those crazy ideas of producing 200 mm cigars for export?

Back to the issue of the embargo. Cubanshave transferred their know-how and their skills since 19^th Centuryto many places in America from Veracruz (Mexico), to Jamaica and including KeyWest, Tampa, Gatoville, Ybor City, New York, Philadelphia, New Jersey andlately Miami..etc (USA), Santiago de los Caballeros (Dominican Republic),Esteli, Condega, Ometepe, etc (Nicaragua) San Pedro Sula, Talanga, Copan andDanli (Honduras), Costa Rica and also Bahamas where you can still find rollersfrom Cuba. Whether they flew by their own decision, forced to leave ordefected, they have carried on the business they know best: Tobacco growing andcigar production. Will they, their sons or grandsons rush back to Cuba? Willthey be allowed to have properties if not the ones they had, a small portion ofthe land or maybe will they get their hands on some Cuban leaf if allowed? Toomany questions. Bear in mind we are living in the 21^st Century. Backin 1869, Cubans had lived in KeyWest for over 10 years when they progressively started settling themselvesthere. Pensacola was the only city in Florida that outnumbered Key West inpopulation, which rapidly became an industrial spot. Later that year, 4factories became operational and started producing cigars with Cuban leavesexported to the US. By 1873, therewere 15 cigar factories accounting for 1 200 workers in total. Cities likeGatoville and Ybor City were founded at the time. In 1875, the number of factories were up to 21 and a year laterreached 29, so it was heavily consolidated. Jose Martinez Ybor produced thatvery year 10 mm units while Cayetano Soria was busy with 19 mm units. EduardoHidalgo Gato, founder of Gatoville fetched up 12 mm units one year and also helpeddevelop the city and trade. There were 32 factories, either big or small inTampa where in 1885 the cigar makers started moving up there. Cigars produced in Key West and Havanatogether accounted for 356, 5 mm units of unmatched quality, still anannual record nowadays. Most of those cigar men never returned to Cuba, nomatter if they were owners, rollers, sorters or master blenders.

Seems to me very difficult to changethings overnight but it is true that things are going to change inevitably.What I can assure you, is that Cubans will continue focused in supplying cigarsof unparalleled quality through the global distribution network and try hardevery year to grow the best leaf for export as well. I took a look at the production for the domestic market (around 200 mm units bythe end of September) We Cubans are smoking more than previous years meanwhilethe rest of the world is smoking less. We are producing less cigars for exportthough. I wonder if we could reach 80 mm units sold before Christmas. Not onlythe anti smoking campaigns, or the restrictions and draconian laws takingeffect, the embargo plays its role on that as well and it must end. We are notthe ones either stealing brandnames (you name it: Bacardi, Matusalen, HavanaClub, Vina 95…Cohiba, etc). What's left? Is Cuba going to be known as the Landof the Avocado or something? So the best avocado could only be found in Cubaand we would create a brand called Avocado Royale and when performingsuccessfully in the markets, somebody will come up with the idea that Inuitsinvented the Avocado, plus Avocado Royale is a trademark registered in the 60'sby Inuits who left Cuba after Castro took over. No way. Lesson learned.(laughing..)

One last thing: Believe than changecan actually happen, even after overwhelming evidence says things never seem toget better.

[Colt45]

What I can assure you, is that Cubans will continue focused in supplying cigarsof unparalleled quality through the global distribution network

and try hard every year to grow the best leaf for export as well.

[El Presidente]

Well unparalleled quality when they get it right

Growing for export means Habanos exported. Internally they clearly designate Export (Habanos) and Domestic (Peso). Even Habanos purchased in Cuba go through HSA first and then sold back to LCDH/Caracol etc.

[sje]

One of the most balanced and passionate men I have had the privilege of eating and drinking with twice

Spiro

[Chaki]

Thank you Jose for sharing this with us.

I too believe change will take place. I just wish it came faster.

[bacalao]

Thanks Jose for your post always love reading them. First generation born in the US both of my parents are from Santiago. Hope all our prays are answered on day and we can all truly enjoy a real Cuba Libre in Cuba.

[nubchin]

Grate reading Mr Jose .

Interesting time ahead .

[NJP]

I enjoy you insight, thank you again

[mazolaman]

Great reading, as always Jose.

It's interesting to read these points from a Cuban persons point of view.

We often pontificate on "what's best for Cuba", when we don't live there.

I too fear for the quality of Cuban Cigars when the demand increases.

Particularly as the quality has been on an upward curve recently.

[anacostiakat]

Bravo Jose!

[Colt45]

Growing for export means Habanos exported. Internally they clearly designate Export (Habanos) and Domestic (Peso).

So cigars, not "leaf" per se? Thanks

[Northwoods]

Great insight. Thanks for posting