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With the political relationship between the United States and Cuba on the mend at last, a new era for business relationships between the two nations seems to be rapidly approaching as well. So far, no U.S. businesses have been allowed to set up operations in Cuba. But tiny Alabama-based Cleber, which sells farm equipment, would like to be the first.
Cleber co-owners Saul Berenthal and Horace Clemmons recently appeared on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 to talk about their long history together, their connections to Cuba and their plans to build tractors on the island designed to suit its small-farm-based agricultural industry. Berenthal and Clemmons also spoke at the recent Cuba Finance, Infrastructure and Investment Summit in New York; the conference was organized by Knowledge@Wharton, The Lauder Institute and Momentum Event Group.
You can listen to the full interview with Berenthal and Clemmons using the player above.
An edited transcript of the conversation appears below.
Knowledge@Wharton: You two have an amazing partnership. You have worked together in one framework or another for 43-44 years. And it started at IBM, correct?
Saul Berenthal: I’ll tell you a little story of how I met Horace. I lived in New York, but I was working on a project in North Carolina for IBM.
There was a new product that was under development for my customer at the time, J.C. Penney. We were working on a point-of-sale device — something not yet released by IBM, so it was super-secret. I was in a lab in North Carolina, and I was given a number to call if I ran into any technical difficulties.
Sure enough, as we were doing the testing, I ran into technical difficulties. I reached for my phone and I called, talked to a guy who says, “I’ll be right there to help.” A few minutes later, I see this guy in overalls coming in. And I said, “Oh my God, am I in trouble.” That’s how I met Horace.
Knowledge@Wharton: Horace, how did it come from your viewpoint?
Horace Clemmons: Well, that’s the first time I met Saul. It was a Saturday. I was at home, and I get a call that says, “You have to go to work.” I wasn’t about to change clothes, so I went in in my overalls. It didn’t leave him a first impression that was very good.
Knowledge@Wharton: Saul, let’s talk about your background with Cuba. You and your wife have been very much involved with trying to aid and rebuild the island’s Jewish community.
Berenthal: That’s correct. I was born and raised in Cuba, and so was my wife. As a matter of fact, she used to live about half a block away from me when we were kids. Being in a small community of Jewish people — at the time, there were about 15,000 of us — we’d all hang around, so to speak. So we knew each other since we were kids. We both left Cuba pretty much at the same time, after the revolution in late 1960. And we, of course, went to Miami. We didn’t last in Miami very long. I figured, if I was going to be an American, I better get out of Miami.
So we both moved — her family moved, and I moved to finish college in New York. After I finished, we got married. And, then, of course, I met Horace at IBM. But after working for IBM for 18 years, he and I decided we were going to build our own company. We did, and we were successful. Sold it, retired, and then started in about 2008 to travel to Cuba, mainly to see what had become of the island since we left, and of course, to establish a little bit of some of the old relationships with some of the Jewish people in Cuba.
We found a lot of need. We found a lot of people who were completely detached from the rest of the Jewish world. So we decided that it would be a good thing to start organizing groups in the U.S. to take to Cuba — cultural exchanges, if you will, in terms of the religion.
“From the Cuban perspective, he told me something that was to me very significant. He said, ‘Cubans are in love with their enemy.'”–Saul Berenthal
Knowledge@Wharton: Many people may be unaware that in the first half of the 20th century, Cuba was a common destination for Jews escaping oppression in Europe.
Berenthal: Correct. Both my parents came from Europe, fleeing from the Holocaust.
They had established themselves in Cuba, and were waiting for an opportunity to come to the U.S. But after a while, once they got established and they were starting to work and be in business, they decided to stay in Cuba. So that’s where I was born and raised.
Knowledge@Wharton: I understand that a lot of the trips you’ve been taking in recent years have involved taking supplies to people in that community down there, supplies that in many cases, they wouldn’t be able to afford.
Berenthal: Correct, correct. Medicine as well as clothing as well as almost anything that you could think of. The community is very small nowadays; there are about 800 Jewish people in Cuba, and three synagogues.
What is happening is that the Americans and the Canadians and the Panamanian Jews go there and help them a lot in terms of some of the needs that they have. But the one thing that is missing is a rabbi. There is no such thing as a Cuban rabbi.
There is also no such thing as kosher food in Cuba. So one of my goals is to bring to Cuba kosher food, which, of course, requires you to have a rabbi who can go through the rites and everything else required to serve it properly. That’s still a work in progress. However, traveling there, I’ve made a lot of good contacts, and learned a lot about the changes that had been going on in the island for the last few years.
I got the opportunity to meet a lot of professors in the University of Havana in the economics department, because I also organize academic exchanges between Cuba and the University of North Carolina, with professors and students from both countries. And because I had built these relationships, I started to understand some of the economic changes that were occurring in Cuba. I always told Horace, “One of these days, we’re going to have an opportunity to take advantage of that knowledge.”
Knowledge@Wharton: And that’s something that you two are in the process of trying to build out right now. Horace, you’ve had the opportunity to go down there a couple of times as well. What has your reaction been to what you’ve seen on the island itself?
Clemmons: Well, I think we all understand what the embargo has done to Cuba, at least from what we read. But going there and seeing what the embargo has done to Cuba is different from reading about it. I tell everybody that having served in combat in Vietnam affected my views on foreign policy. There’s not much that I agree about in how America does foreign policy. I look at how we trade with Vietnam, for example, and the business we do with Vietnam. Yet we pull away from doing business with Cuba.
None of that really makes any sense to me. So when Saul said, “Let’s go do something in Cuba,” there never were any doubts or any qualms about should we or should we not do business in Cuba. I believe we have a moral obligation to try to help improve life in Cuba because of the way we’ve treated them.
Knowledge@Wharton: In some respects, the United States is seen as the country that has a moral obligation to try and help anybody around the world. For us to not do that with Cuba is letting a nation down that could certainly use the help, correct?
Clemmons: Exactly my view. I believe that we can do a lot, and that we are obligated to. I believe if most Americans could go there and look at what we have caused with the embargo — the pain and suffering we have caused that country — I believe we would have more people who would support lifting the embargo.
Berenthal: On the other hand, I want to relay a little story of a friend of mine in Cuba, who I met in Miami. He’s a businessman — a cuentapropista, which is a private sector person.
We talk a lot about exactly what Horace was saying in terms of the relationship between the two countries, and from the Cuban perspective, he told me something that was to me very significant. He said, “Cubans are in love with their enemy.”
Meaning that for 50 years, we have been considered the enemy. And yet, they’re still in love with the U.S. for what we are, for who we are and for what we can do for them.
Knowledge@Wharton: Obviously, Cuba is well-known as an agricultural country. But how did the idea come to you that you should launch a business to produce tractors there?
Clemmons: I think some of it came through our shared experience in technology. We looked at what the IBMs and the big businesses were trying to do to their customers — they were trying to sell them what they had, and weren’t listening to the customers. A lot of our plan just came from listening to what the Cuban people want and what the Cuban government wants. In that agreement that Raul Castro and President Obama signed, I think it was fairly clear that agriculture is one of the key components.
“We’ve seen what happened when America went from the family farms to agribusiness. I believe Cuba will start in the same place. I would hate to see them end up at the same place.”–Horace Clemmons
That gave us the starting point. And, having been born in rural Alabama and walked behind mules with my grandfather, I knew the starting point for agricultural improvement in Cuba was going to be very similar to the starting point for agriculture expansion in the U.S. We’ve seen what happened when America went from the family farm to agribusiness. I believe Cuba will start in the same place. I would hate to see them end up at the same place.
Knowledge@Wharton: So it’s just as simple as being able to provide farmers in Cuba with the opportunity to have a motorized tractor instead of walking behind an animal-drawn plow, correct?
Knowledge@Wharton: How does that process go on? You have the approvals from Cuba to be able to get this started, so what you’re waiting on is the approvals from the United States, correct Saul?
Berenthal: That is correct. The process that we have to follow in the U.S. is to file for a license from OFAC — the Office of Foreign Assets Control — which is the enforcement arm of the Treasury Department in charge of the embargo. They are the ones who regulate the activities.
It was on December 17 when President Obama decided to open up two industries that are very, very significant to commerce with Cuba — one is agriculture and the other is construction. Those choices were not a coincidence. It’s very important to understand that those two industries are very much related as collateral support for the tourism industry in Cuba, which is the most important source of hard currency to Cuba. So the ability to improve agricultural production allows Cuba to be able to feed the tourists who come in. And construction allows them to have places for the tourists to stay. So these two industries come first in the trade deal that the U.S. government has done, in the interest of helping Cuba develop its tourism industry.
Knowledge@Wharton: What you would like to do in Cuba is a little bit of a different model in terms of the operation of providing the tractors, but also providing the equipment necessary if a tractor breaks down, as well, correct?
Clemmons: Saul and I wanted to provide the ability for the Cubans to ensure that they’re safe with whatever they buy. So we’re following what we call an open-source manufacturing model. The tractors will be built with all open-source components, such that the Cubans know that they don’t need us in order to fix the tractor. All the parts are standard parts, so our business in Cuba is dependent on us continuing to provide quality service, not on a specific component.
That way, they can understand that we have to strive for excellence, to provide them the highest quality at the lowest possible price. And what we intend is to use that model not just for the tractors, but, going forward, for construction equipment as well.
We’re trying to set up an architecture that says, as we expand, we’ll try to follow the open source model so that the buyers are not locked in to a particular manufacturer.
Knowledge@Wharton: So, for example, it’s not like you would have to go specifically, say, to John Deere for every part that you might need or, you know, take your pick. Obviously, that model is something very different.
Berenthal: There’s also self-sufficiency. The model that we’re trying to build over there starts with assembling the tractors, but with the components coming from the U.S. The second phase of the project calls for them to be able to manufacture the components and assemble them [in Cuba], therefore giving them the ability to be self-sufficient in producing tractors.
We then help them out as a value-add aspect in phase two of the project, which is an electrical tractor that is charged by solar panels.
Knowledge@Wharton: Once you get the approvals from the U.S. government, what will the process be at that point? Building a manufacturing facility in Cuba?
Berenthal: Correct. And this is where the technicalities of getting the license approved by OFAC come into play. One of the things that the regulations call for is for us to be able to deal directly with the private sector, not to deal with the Cuban government.
If we’re going to build a facility in the Mariel Special Development Zone — which is the plan — then the people who build facilities in Cuba, who are part of the government, would build those facilities.
Berenthal: We went to Mariel, to the people in Mariel that we interfaced with and we asked them, “What if we bring in an American company to build our facility in Mariel? Would you let us do it directly with an American company, so that we can show the people back in the U.S. that we are trying to do everything we can not to benefit the government entity?” They came back to us and said, “Yes, you can do that. We would like you to consider ours, but if you want to use an American company to build your facility, then, yes, you can.” I say this because it shows that the Cuban government, the officials in Mariel, are helping. They want us to do what we’re saying we want to do.
Ana Teresa Igarza, who is the director general of the Office of the Mariel Special Development Zone, has gone on the record several times in newspapers, saying that the project we’re bringing to Cuba is not only attractive, but necessary for Cuba. So they are very interested and are willing to do this. We are, on the other hand, waiting on the American side to give us the license for it.
“A lot of our plan just came from listening to what the Cuban people want and what the Cuban government wants.”–Horace Clemmons
Knowledge@Wharton: It’s very interesting because this is something that does show the desire of the Cuban people and the Cuban government to really affect change. There’s an idea that I think a lot of people here in America have held for the last 50, 55 years — that Cuba doesn’t want our help, Cuba wants to be totally separate from us. From what you’re saying, it’s absolutely the opposite.
Berenthal: Well, I don’t like to get into the politics, but even when the politicians talk to each other — Cuba and the U.S. — you will always hear, “We want to be treated with respect and dignity.” To the Cubans, it’s very important that they are considered equals when dealing with other countries, but specifically, the U.S.
Knowledge@Wharton: Doesn’t the fact that you could go to people in Mariel, and they made this decision, rather than the Cuban government in Havana, represent a little bit of a shift as well?
Berenthal: Well, it’s a little bit more complicated than that. The approval process in the Mariel Zone is what I would call a very flat process. You go to Mariel with a project, you present it to them, they evaluate it to see whether it meets the requirements and it is something they want. If they decide that it is, they bring it immediately to what’s called in Cuba the Council of Ministers, the Consejo de ministros. And in that body, all of the ministries of Cuba are represented, and they have to give approval to the project.
Now, everything in Cuba is done by consensus. It is very important that everybody has the ability to understand and be willing to agree on the project. So what happened in Mariel was that as soon as they approved it and sent it to the Council of Ministers, they evaluated it, they looked into it, and they were willing to say, “Yes, this is something that we want.” Right away, they sent it back to Mariel, and Mariel contacted us and said, “OK, let’s proceed.”
Knowledge@Wharton: Once you get something like this up and running, how many tractors are you hoping to produce over the course of a year? Do you have a ballpark number at this point?
Berenthal: Well, we wanted to start with the ability to produce at least 150 for the market that we believe exists there. But our ability to produce numbers higher than that is obvious. We can produce up to 500, 600, 700 tractors. They are not difficult to put together. But we have to measure what the absorption of the product would be when we start implementing in Cuba.
Knowledge@Wharton: This would obviously be an important piece for the Cuban economy, just in general.
Clemmons: Well, the long-term goal is to export the tractors. Manufacture and export them. And I believe that once we get the electric model, with the export capability, that’s a tractor that will sell almost everywhere. If you look at all the other countries where there’s not good supply of electricity, the solar panel charger will do that. Also, based on what you can see when you look at the distribution of petroleum and what’s happening to petroleum availability, we believe the electrical model will be very significant in the long term.
Knowledge@Wharton: How strong of a battery would you have to have for this type of a vehicle?
Clemmons: When people wonder about that, I say, “There are electric race cars.” OK?
Knowledge@Wharton: That’s true, yes.
Clemmons: Elon Musk has an electric sports car. The technology has moved so far. So even with a tractor, we will have a solar panel recharger.
Knowledge@Wharton: Right on a roof or something?
Clemmons: If you look at an eight-hour day on a farm, you’re not running that tractor for all eight hours. Our goal is to be able to get a design point for an eight-hour operation and an overnight recharge.
Knowledge@Wharton: Where did the idea to do it with a solar power aspect come from originally? From you, Horace?
Clemmons: Well …
Knowledge@Wharton: As Saul points towards you.
Clemmons: Well, I would like to say it came from me, but there’s so much being done with solar today that it’s just a natural evolution. You’re looking at battery capacity — to me, it’s no great leap to say that you can operate a tractor off of batteries.
Knowledge@Wharton: You just showed me a picture of the tractor that they have …
Berenthal: Driver not included.
Knowledge@Wharton: That’s right, driver not included. But you know, it’s a little bit of a smaller tractor than we typically see here in the United States. Is this the norm for the size of the tractors that you are going to be producing?
Clemmons: Yes. That tractor is modeled after an Allis-Chalmers Model G tractor that was first built in 1948 and discontinued in 1955. It was built for the small family farm, so anywhere from 40 to 60 acres.
“It’s very simple to establish trust with Cubans, you just have to understand their culture. In the Cuban business culture, you have to always present the project, not only in economic terms, but what are the social benefits.”–Saul Berenthal
We picked that model because it is proven, with brand-name engineering behind it. And in the years since it was discontinued, all the patents have expired, so it’s a model that we can just copy, which makes it easier for us. We can then upgrade it with some other, newer technology. Like, it had manual lift and we went to hydraulic lift — those kinds of things.
Knowledge@Wharton: It is amazing that you are able to put this concept together. It’s an incredible change — even in the agricultural industry, to be able to think about solar power to run your equipment. But it’s a natural fit, because these machines are out there every day, and as you said, they’re not running 24/7, but they’re running a good bit of the day. And when they’re not, they’re sitting out in the sun.
Berenthal: It’s an especially good fit in an environment like Cuba, where the electrification of the island has not been completed.
Knowledge@Wharton: Right. Going forward, though, how important is the trust that you’ve been able to build up with the people in Mariel and with the government?
Berenthal: It’s very simple to establish trust with Cubans, you just have to understand their culture. In the Cuban business culture, you have to always present the project, not only in economic terms, but what are the social benefits Twitter and what are the cultural benefits of the projects that you are presenting to them? Once you understand what is it that motivates them to do things, and you present it in such a way, it is very simple for them to understand you and trust you.
Knowledge@Wharton: And is doing that, and getting those three components that you just talked about, is that the toughest thing right now for U.S. businesses to be able to really push forward so that they can build relationships?
Berenthal: Correct. When you look at who’s going to Cuba from the U.S. and what are they proposing, they’re all going there to say, “What can we sell you? We have chickens, we have corn, we have soybeans.” No. Cuba wants partners to invest in Cuba.
And investing in Cuba means giving them a project in which they’re going to derive jobs, production capabilities, minimizing their import needs and producing more food for themselves.
Knowledge@Wharton: And you believe that that will happen sometime in the next few years on a mass basis?
Berenthal: If we set up the conditions and we set up the framework in which to do it, many will follow from the U.S.