If the embargo were to end

The other day while watching news I viewed a few reports on Cuba's anniversary, Fidel's brother, and Obama's suspected plans on embargo. I was madly channel surfing so I don't have any real information.

While just smoking a cigar and browsing through CP I wondered what effects on pricing would an end to the trade embargo have on Cuban cigars. I am assuming that if retailers in the U.S. suddenly had Cuban cigars in their inventory the demand for them would drastically increase because of those who previously had no source. It has been many years since I took Economics but wouldn't that demand increase cause a price increase in Cuban cigars?

or

Would the demand stay relatively the same but the supply be greater with more retailers having them causing a price decrease?

or

Would the price stay relatively the same being controlled by the manufacturer?


Maybe I should just go to bed....


what do you think?

KusoJijii said:

The other day while watching news I viewed a few reports on Cuba's anniversary, Fidel's brother, and Obama's suspected plans on embargo. I was madly channel surfing so I don't have any real information.

While just smoking a cigar and browsing through CP I wondered what effects on pricing would an end to the trade embargo have on Cuban cigars. I am assuming that if retailers in the U.S. suddenly had Cuban cigars in their inventory the demand for them would drastically increase because of those who previously had no source. It has been many years since I took Economics but wouldn't that demand increase cause a price increase in Cuban cigars?

or

Would the demand stay relatively the same but the supply be greater with more retailers having them causing a price decrease?

or

Would the price stay relatively the same being controlled by the manufacturer?


Maybe I should just go to bed....


what do you think?

Click to expand...

In Economic theory, a large increase in demand drives supply down, and prices up.

I would speculate that there are already a lot of cigars that end up in the U.S.
So, some percentage of what goes elsewhere, might not make that trip, and come straight to the U.S.
I would also supsect that if the Embargo ends, that SCHIP would not be too far removed, either before or after.
This might make buying from overseas more economical, but who know what strategy, if any, Uncle Sam has for that.
So while there would be a definite, and possibly large, increase in demand, It could very well be not be as large as some
imagine.

You would think that Altadis / Cuba must have a strategy, good or bad, to deal with this if it happens.
I also think that as the novelty and curiosity dips down, and production ramps up, that after a year or two, we might have a decent supply/demand.

It would be chaos at first; you'd have everyone including the anti smoking nazi's wanting to purchase Cuban cigars - novelty only. After a few years the novelty will wear off, and the sales and production will normalize back to how they were during the embargo.

I believe we will see the embargo lifted within the next few years. When and if it happens, you'll probably see Cubans being sold at your local grocery store! We'll just have to wait and see...

If Cuba lifts the embargo, there will be lots of Americans heading down to Havana for the cheap hookers.

I don't see the Trading With the Enemy Act going away anytime in the near future. Cuba's government will have to change from it's current dictatorship which is presently controlled by people who HATE us before anything will change. That won't be for a very long time.

It's all in their hands, the ball is in their court. If the Cuban people continue to tolerate and accept the lowlife criminals who run their country or can't or won't do anything about it then nothing with change regarding the Trading With the Enemy Act nor should it.

Rod said:

When and if it happens, you'll probably see Cubans being sold at your local grocery store! We'll just have to wait and see...

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Now THAT would be a sight to see! I would be in serious trouble checking out with a POP display full of Cubans staring at me. Ooohh man! :whistling:

CoventryCat86 said:

I don't see the Trading With the Enemy Act going away anytime in the near future. Cuba's government will have to change from it's current dictatorship which is presently controlled by people who HATE us before anything will change. That won't be for a very long time.

It's all in their hands, the ball is in their court. If the Cuban people continue to tolerate and accept the lowlife criminals who run their country or can't or won't do anything about it then nothing with change regarding the Trading With the Enemy Act nor should it.

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Since you ignored my question and simply posted your opinion of Cuban politics then you can try to answer me this. Do you boycott the U.S. companies that currently do business in Cuba?

I have a feeling you'd see more fakes than you do now.

Once the embargo ends there will be a frenzy to buying cuban cigars.
Prices will go up and quality will go down, at least in the short term.

Over the long run, I think it will bring about some interesting blends of tobaccos.
I also think that the quality of Cuban tobacco will eventually become better then it is currently.
Techniques and quality controls that growers like Arturo Fuente and Padron use will migrate to Cuba and improve the quality of their tobaccos

Rod said:

When and if it happens, you'll probably see Cubans being sold at your local grocery store!

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And there still would be some idiots that would hollow them out for drug purposes.

CoventryCat86 said:

I don't see the Trading With the Enemy Act going away anytime in the near future. Cuba's government will have to change from it's current dictatorship which is presently controlled by people who HATE us before anything will change. That won't be for a very long time.

Click to expand...

I don't think that the government of Cuba hates the US. It's not like they've shied away from engaging other capitalist democracies (Canada, pretty much the entire EU, etcetera). The people of Cuba have a lot of reasons to pursue direct engagement with the US, including shared cultural and economic touchpoints.

Likewise, the US has no particular reason to stay away from even the most odious dictatorships. The primary outstanding issue is the nationalization of private US assets during the revolution without compensation. We've certainly ignored that in the past (think Saudi Aramco, think China) and and will in the future when it suits our interests. We're all conscious of the partisan political issues which obstruct a resolution and no more needs to be said on the topic.

The embargo is a reciprocal deal; Cuba doesn't take our goods and we don't take Cuba's. That said, given the current political alignment and a slow but steady trend of political and economic reform under Raul Castro, it'll be difficult to continue to justify.

That said, the nail in the coffin isn't likely to be political but commercial; if US firms recognize that they can make more money in Cuba than out of it, they'll flex their lobbying muscle on the issue and clear it up in no time at all. At present they don't, or already do as well as they can through using European subsidiaries and intermediaries, or have bigger fish to fry in general. They certainly have bigger fish to fry at present.

As for Cuban cigars. The basic economic theory states that given limited supply and increased demand, prices will go up. On the other hand, in the past, Habanos SA has jacked supply (decreased quality) to increase foreign currency flow, necessary for macro reasons. If Cuba embarks on increasing market liberalization, it's not too big a stretch to project that there will be significant net capital flows into Cuba for tourism, economic development, and resource industry, which reduces the demand on Habanos SA to bring in hard currency.

Given that situation, Habanos SA may adopt a hybrid strategy (and if it sells domestic marketing rights to a US firm, the US firm involved will probably adopt a similar hybrid strategy). They'll identify top-tier labels (Montecristo, H. Upmann, Partagas, Cohiba) and let the price drift upwards, further restricting distribution (say, to Habanos SA certified merchants, just as Davidoff does - in fact, using Davidoff's marketing channels would be a stroke of genius) to increase scarcity value. The mid-tier labels will increase distribution, and in order to increase production of these labels they'll likely blend in tobacco from elsewhere in the region. The bottom tier labels, mixed and short filler cigars, will be mass-marketed in the US as they are elsewhere, and they'll produce as many of these as humanly possible.

Just my opinion, I'm not an economist (but I play one on TV).

Rod said:

It would be chaos at first; you'd have everyone including the anti smoking nazi's wanting to purchase Cuban cigars - novelty only. After a few years the novelty will wear off, and the sales and production will normalize back to how they were during the embargo.

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I think Rod hit the nail on the head but he forgot one factor - fakes / counterfeits.

If the embargo were to go away, I think at first everyone and their dog would "want to try a Cuban" and the demand will skyrocket. Prices will go absurdly high as the demand would at least initially far outstrip the supply. My fear is that in an effort to keep up, the quality of Habanos may take a beating for a year or two.

During this time of scarce availability and unnaturally inflated prices, the market will be primed and ripe for counterfeits. Folks that have no cigar knowledge will the type that will want to "try a Cuban" and as such, won't have even considered that they are prime targets for counterfeit smokes. They not only won't know enough to know what they are smoking, it won't have even occurred to them that this is a possibility.

What will happen to the NC brands that have Cuban counterparts will be interesting. I wonder what will happen to brands like Cohiba, H.Upmann, Montecristo, Punch, etc. once you can by the "real deal" in this country.

Long and short of it is that it will be a real mess for guys like us in the short term. Stock those cabinets, gentlemen.

Regards - B.B.S.

MadMonk said:

I would also supsect that if the Embargo ends, that SCHIP would not be too far removed, either before or after.

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Health insurance for children?

There's too many variable to guess a real estimate of the economics here, in my humble opinion of course.

1) Cuba is still going to be communist, so you have a hard currency / soft currency issue
2) There will be a Habanos SA distributor assigned to the US, who will use our courts to control the market well I would think, we don't see many fake anythings here outside of New York.
3) Open borders now mean that supply will rocket in from all corners of the world, stabilizing on currency and pushing us back to supply/demand.

My guess, imagine that French wines had been illegal in the US for the past 50 years. Now, some people smuggled them in and a lot of Napa stuff is better than 90% of french wines, but still.... I wouldn't envision any cigar store selling less than 80% Cubans for the first 3-5 years. Like Rod says, people who don't even smoke will be buying some for the cigar "Renaissance"

Then you're going to have every dominican, nicaraguan etc.... suddenly shift their blends to include cuban leaves. Basically over a 3 year period all of the stuff we smoke now ceases to exist.

If Cuba was the US (or france for that matter), we'd see an instant tier split on cigars from what we have now being extremely premium, to Reserva/LE being untouchable. Then they're lower stuff would be amplified to provide supply in the 20$ range with what we're used to smoking hitting probably 30-60 a stick and then LE's being 100 a stick (like Casa Fuente).

However Cuba is not the US and is very short sighted with some of this stuff and in no way equipped for a massive increase in demand. I would expect most quality to decline dramatically for 3-5 years.

Also, expect LCDH's popping up in the us like Hard Rock's. And expect Havana to get an actual "Hard Rock Havana!" and that to become the premier spring break destination for Florida. Just what we need, they'll never forgive us! :whistling:

I'd really be interested to see what happens with healthcare, they have so many doctors it's ridiculous, and a completely state subsidized health care system. I wouldn't be surprised if they get a flood of Americans inbound for medical care and they supply at cost, again hard / soft currency becomes intriguing as Americans flood in hard currency, the Cuban government collects 90% of it, converts it to the local currency and the doctors get a slight raise.

Basically an American spend 1,000 dollars on surgery, saves a bundle, the doctor gets 100 bucks and the cuban government gets 900 just on currency conversion. Think about it.

Here is an interesting article on our agricultural relationship with Cuba. Make what you want of it.

2008 Report

-Mark

Hmmm... If we are going to ebargo every country that ever had a dictatorship and allegedly hates the U.S., we would have a pretty long list of countries on the embargo list. The embargo is political bullshit pure and simple!! If it is not, we should embargo China at the least.. yeah right!!!!

Prices are up 7% for Cubans in Holland this year!
Speculation about Obama lifting the embargo?

Rene

Let the prices rocket. They'll come back down, and in the mean time, my NCs will be just as cheap if not cheaper!

Hey Kujo, do you think that maybe, just maybe, this topic has been discussed before? Thanks for being the 148th person to ask this question and start the discussion again.

Next time, try using the search function.




ps - I recommend you back off from challenging Bill like you did in your smartass post above, it won't end anywhere good.

Gonz said:

Hey Kujo, do you think that maybe, just maybe, this topic has been discussed before? Thanks for being the 148th person to ask this question and start the discussion again.

Next time, try using the search function.

ps - I recommend you back off from challenging Bill like you did in your smartass post above, it won't end anywhere good.

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I searched "embargo" in Cuban forums and went back almost 5 years of threads without seeing a topic that addressed price effect on Cuban cigars post embargo. If I missed it I apologize.

The owner o the site didn't have a problem discussing this yet you and Bill do for some reason. I won't ask any more questions without your permission.


Please close thread.