Cuban cigars are internationally recognized for their quality and their cost. Over 2,000 people from 70 countries came to the 20th Habanos Cigar Festival in Havana earlier this month. Festival-goers had the opportunity to purchase premium cigars from the island as well as participate in an auction for humidors and other collectible items. The festival is also a fundraiser for Cuba’s public health system.
Among the festival goers were members of China’s rising economic elite. Alex Wong from Hong Kong purchased a humidor from the festival for more than $300,000 as well as an exclusive line of cigars made for the festival.
“It’s very exciting for me, this humidor is a beautiful piece of art. Not only do I have the honor to bring it home, but the money is for a really good cause,” Wong told Xinhua.
Growing Chinese market
China is quickly becoming a significant market for Cuban tobacco products. Demand for Cuban cigars spiked in China since 2013. Between 2013 and 2014 imports of Cigars, Cigarillos, and Cigarettes from Cuba jumped from $0.6 million to $3.4 million. Growth remained strong in 2015 and 2016 when imports grew by 9.4 and 26.5 percent, respectively.
The growth in imports of tobacco products appears to have continued in 2017. Habanos S.A., a joint venture before the Cuban state and Imperial Brands Plc, saw a 33 percent increase in sales in China last year, according to Reuters.
Spain and France are the largest importers of Cuban cigars. Imports of Cuban cigars, cigarillos, and cigarettes to Spain and France in 2016 were $27 million and $5.1 million, respectively. Chinese imports in 2016 were $3.9 million.
Although Spain and France remain the largest markets for the Cuban tobacco industry, they have been shrinking for several years. French imports peaked in 2007 when the country imported $2.7 million in goods. In Spain, the market peaked in 2013 at $8.7 million in imported goods.
While China may be a rising market for luxury goods like Cuban cigars, its importance as a consumer of Cuban goods has fallen drastically. Rising from less than $100 million in 2000, Chinese imports of Cuban goods peaked in 2007 at $1,115 million, or nearly 20 percent of Cuba’s gross domestic product at the time.
Besides a brief recovery between 2009 and 2011, China’s importance as a destination for Cuban goods has been falling since the global economic downturn. In 2016, Cuban imports in China dropped by a third from its 2007 peak to $273 million.
Largest market still out of reach
Cuban tobacco is primarily grown in western Cuba. This luck of geography ensured that the industry was mainly unhurt by Hurricanes Irma and Maria in the summer of 2017. For some islands, including the United States territory of Puerto Rico, last year’s hurricane season was especially devastating.
Geography would also seem to benefit Cuba since it is less than 100 miles from the largest economy in the world. However, international politics prevents Cuban exporters from taking advantage of this proximity.
While President Barack Obama took measures to normalize relations between the United States and Cuba, his successor has a more traditional foreign policy approach to relations with the only communist country in the Americas.
Direct access to the United States tobacco market would be a significant win for Cuban cigar makers. In 2016 the US imported $1,332 million in cigars, cheroots, cigarillos, and cigarettes, including $626 million from the Dominican Republic, $159 million from Nicaragua, and $154 million from Mexico.
For the time being, however, it appears that Cuban tobacco exporters will have to look to growing demand on the other side of the world rather than in their own backyard.