CASE STUDY STATE OF VIRGINIA AGRICULTURAL TRADE

CASE STUDY: STATE OF VIRGINIA & AGRICULTURAL TRADE DR. STUART MALAWER, J. D. , PH. D. PREPARED BY T. HAYMORE, VIRGINIA SECRETARY OF AGRICULTURE & UPDATED BY STUART S. MALAWER E-MAIL: STUARTMALAWER@MSN. COM

George Mason University (Schar School) Dr. Stuart Malawer’s Global Trade Class Virginia Speakers on Trade and Agriculture (2016). 2 Virginia Director of Int’l Trade (Paul Grossman), Virginia Secretary of Agriculture (Todd Haymore) & Stuart Malawer

States, Global Trade and Virginia. 3 In the United States the federal government has exclusive jurisdiction over foreign trade and investment. In particular, it is the Congress and not the President that has the Constitutional right to regulate international trade and investment. However, in fact, states have a great amount of authority to promote trade and investment. This is particularly important as part of economic development strategies. Virginia is one of the leading states in the United States to promote trade (exports) and inward investment for economic development. Promotion of agricultural exports by Virginia is very important. This is done by various incentive programs, trade missions, trade representatives and offices abroad.

Virginia and the Global Economy -- Active International Engagement. 4 In the last five years foreign companies have created more than 15, 000 new jobs and $4. 6 billion in direct investment in the Commonwealth. More than 700 foreign companies have operating subsidiaries or affiliates within Virginia. Small and midsize companies can become major competitors through exporting, especially with the utilization of the Internet, websites, and digital ecommerce. 95% of consumer demand is outside of the U. S. Companies have increased 8 -14% productivity due to export sales and competition. 60% of small and midsize companies do business in more than six countries. Workers at companies that export earn 15% more than workers at domestic-only companies. [Port] 374, 000 jobs, or 9. 4% of Virginia resident workforce, work in port-related jobs. Over $1. 6 billion of total merchandise is received in the Port of Virginia’s Foreign Trade Zone. The Port of Virginia’s Foreign Trade Zone produces over $430 million in exports annually. $1. 2 billion is invested in port-related economic development. The Virginia Inland Port has generated investments totaling more than $620 million. Stuart Malawer, “Trump, Trade and Virginia” (SSRN 2016)

STATEWIDE IMPACT OF AGRICULTURE. 5 Agriculture and forestry are two of Virginia’s Largest Private Industries Economic Impact: $70 b Revenue Annually >$52 b from Agriculture; >$17 b from Forestry Provide >400 k Jobs Via Production, Value-Added & Ripple Effect Industries More Than 10% of all VA Jobs; Every Industry Job Supports 1. 5 Jobs Elsewhere.

Virginia Secretariat of Agriculture 6 Economic Development continues to be a top priority for the administration with the goal of building a new Virginia Economy. Our office is supporting this initiative by overseeing the Agriculture and Forestry Industries Development Fund (AFID). The AFID Fund was created during the 2012 session of the General Assembly and is being embraced by the Mc. Auliffe Administration as an important tool in growing the Commonwealth’s agriculture and forestry sector and helping to make Virginia the leading exporter of agricultural and forest products on the East Coast. Technological advancement is extremely rapid. Growth and application for agricultural and forestry industry sectors are particularly robust. With direct impacts on production practice, product development, business development, and education and career development to address complex tech –based problems and solutions, the Secretariat works to encourage and showcase innovation and advancement around agricultural technology.

International Trade Virginia agricultural exports, which also include forestry products, continue to be sought and valued by global markets. Virginia's agricultural exports are competitive in the global marketplace because of the high quality and diversity of products available for export and the Commonwealth’s excellent sea, air, and land port system. Governor Mc. Auliffe’s strategic plan in agriculture and forestry for continuing to grow Virginia’s economy includes helping existing agribusinesses expand operations, recruiting new agribusinesses to Virginia, expanding international markets for Virginia products, and making strategic investments in rural infrastructure that support job growth in these areas. With more than thirty percent of gross farm income linked to exports, access to vibrant international markets is important to Virginia’s future economic prosperity as Virginia positions itself to be the largest exporter on the East Coast. Virginia Dept. of Agriculture & Consumer Services (VDACS) 7 Established in 1877, the Virginia Department of Agriculture and Consumer Services (VDACS), within the Agriculture Secretariat, promotes the economic growth and development of Virginia agriculture, provides consumer protection and encourages environmental stewardship. The agency is headquartered in Richmond and has several field offices, four regional diagnostic animal health laboratories and a global network of representatives promoting Virginia products internationally.

GOVERNOR MCDONNELL -- 2010 DECISION 8 Full Integration of Agriculture, Forestry Industries into Economic Development, Jobs Creation Agenda First Governor in Modern VA History to Create Strategic Plan for State’s Largest Industries Plan’s International Focus: Capture Benefits of Globalization, Meet Growing Demand in Marketplace; Create International Network

GOVERNOR MCAULIFFE --- MANDATE (2014 – 2017). 9 “Make Virginia The Most Pro-Agribusiness and Forestry Industry State In U. S. ” “Make Virginia the East Coast Capital For Agriculture, Forestry Exports”

AGRICULTURE SECRETARIAT’S TOP PRIORITIES 10 Enhance Domestic Economic Development Expand Existing Operations Recruit New Businesses to Virginia Build Domestic Capacity for New Exports Increase International Marketing & Exports Expand Virginia’s Global Footprint Increase Exports to Key Growth Markets New Exports Build Domestic Capacity

DOMESTIC DEVELOPMENT -- NEW CAPACITY 11 AFID Economic Development Incentive Program Launched in Late 2012 31 Projects To Date: 28 Agricultural, 3 Forestry Private Sector Investment: >$325 million Jobs Announced: 1, 518 Across 24 Localities Average Use of VA Grown Products: 77%, Resulting in More than $454 m Purchase Intentions AFID Facility Investment to Date: >$2. 64 m

AFID FACILITY GRANTS 12

DOMESTIC DEVELOPMENT – ONGOING POLICIES 13 Expand AFID Incentive Program ($2 million) Remains Focused on Opportunities for New Investments, Jobs, VA Grown Purchases; ROI Driven More Than 50 Projects, $750 m Cap Ex Investments, 2, 600 Jobs; $4. 8 AFID “Commitments”

IMPORTANCE OF AGRICULTURAL EXPORTS 14 Globalized Economy = Jobs, Opportunities Here Exports Now Generate Nearly 30% of Annual Farm, Forest Cash Receipts Every $1. 00 From Exports Returns ~$1. 30 to In-State Support Activities: Processing, Packaging, Financing, Shipping, Storing, etc. Export Related Jobs Pay ≥ 15% Than Other Jobs >90% of World’s Customers Outside of U. S.

NEEDS FOR GROWING EXPORT MARKETS 15 Launch VA Agriculture Export Initiative in 2010 New State Funds for Trade Reps in Key Markets >$5 m in International Marketing Since ’ 10 New Marketing Offices: China, India, UK, Russia, Mexico, Costa Rica, Canada; Support Existing HK Post Resources for Governor, Secretariat Trade Missions New Resources for VDACS Trade/Reverse Missions Fill Gaps Where Governor, Secretary Can’t Visit Reverse Missions: “Invaluable” For Producers, Exporters

GROWING EXPORT MARKETS 16 More Than $800 m in VA Facilitated Export Deals Since Initiative Launched in 2010 Solid Growth in Strategic Focus Regions China: >125%; India: >90%; Mexico, Latin America: >250%; EU, CH, Russia: >100%; Canada: >25% Governor Goal: “Make VA the East Coast Leader” Moved from #5 to #2 Since 2010; GA is #1 2014: New Record of $3. 35 Billion in Exports 49% Increase in Ag, Forestry Exports Value From $2. 24 b in 2010 to $3. 35 b in 2014

GROWING EXPORT MARKETS – STATE TRADE INTIATIVES 17 Battling Artificial International Trade Barriers China: Hardwood Logs, Poultry* Oman & Kuwait: Poultry India: Lumber, Leaf Tobacco Morocco: Soybean Oil Advocating Fair/Open Trade Practices TPP; Transatlantic Trade & Investment Partnership (TTIP) Facilitate New Export Opportunities Expand Existing Markets, Target Growth Regions: SE Asia; Mediterranean/Middle East; Cuba

VIRGINIA’S TOP AGRICULTURE EXPORT MARKETS 18 China, $691 m Vietnam, $88 m Canada, $279 m Tunisia, $84 m Switzerland, $174 m Saudi Arabia, $83 m Mexico, $150 m Taiwan, $80 m Russia, $123 m Dom. Rep. , $67 m Japan, $114 m Turkey, $58 m United Kingdom, $110 m Hong Kong, $52 m Venezuela, $103 m Netherlands, $47 m Morocco, $98 m Thailand, $46 m Indonesia, $94 m Jamaica, $45 m

VIRGINIA’S TOP AGRICULTURAL EXPORTS 19 Soybeans, $794 m Soy Oil, $150 m Wood, $326 m Corn, $146 m Soy Meal, $305 m Wheat, $123 m Pork, $258 m Animal Feed, $118 m Leaf Tobacco, $204 m Wood Fuel, $114 m Poultry, $195 m Seafood, $35 m Processed Food & Beverages, $169 m Raw Peanuts, $30 m Cotton, $24 m Animal Fats, $22 m

SECRETARIAT 2017 -- EMPHASIS 20 Meet Governor’s East Coast Capital for Ag, Forestry Exports Goal; Build “New VA Economy” Facilitate New Export Opportunities Move from “Building to Utilizing” Global Network Add to Existing Infrastructure Trade Missions, Reverse Trade Missions Promote Domestic Development = New Capacity Increase Port Utilization, Development Efforts

GROWING EXPORT MARKETS 21 Expand International Footprint S. E. Asia: Vietnam, Indonesia, Malaysia, Philippines, Thailand Growing Region: $305 m in ‘ 14, >15% Increase from ‘ 12 Containerized Grains, Soy; Lumber, Logs, Peanuts, etc. Middle East/N. Africa: UAE, Oman, Saudi Arabia, Kuwait, Qatar, Morocco, Egypt Greatest Growth Potential; $340 m, 30% Increase from ’ 13 Soy Oil, Soybeans, Corn, Other Grains, Poultry

SOME RECENT TRADE MISSIONS 22 Gubernatorial Missions Europe – UK, France, Germany, Belgium, Netherlands. Asia – China, Japan, South Korea. Middle East – Israel. Latin America – Cuba, Colombia. Canada Secretariat, VDACS Lead Missions Canada, United Kingdom, Ireland, Sweden, China, Hong Kong, Indonesia, Thailand, Vietnam, Mexico, Cuba, U. A. E. Reverse Trade Missions Delegations from India, EU, Indonesia, Thailand.

PORT UTILIZATION & DEVELOPMENT 23 Partner w/Transportation Secretary, Virginia Port Authority to Promote “State’s Top Asset” Here, Abroad Support Existing Agribusiness Growth Efforts Recruit New Agribusiness, Related Industries Turn Non, Under-Utilized Port Terminals, Facilities into Working Assets New Investments in Working Assets VA, Agriculture business, Railroads, Related Support Companies

Case Study # 1: Chinese Investment in Virginia --- National Security v. Commercial Transactions. 24 Smithfield Food purchased by Shuanghui (2013). (Video) https: //www. pbs. org/newshour/show/whos-behind-chinese-takeover-worlds-biggest-pork-producer Smithfield Foods, the world’s largest pork producer, was acquired by a Chinese firm in 2013 for nearly $5 billion -- more than the company’s market value. The surprising purchase caused some lawmakers to wonder if there might be a hidden player and national security concerns.

Case Study #2 – Chinese Investment Debacle in Virginia. 25 Lindenburg Industry LLC received $1. 4 million in early 2015 from the Governor’s Opportunity Fund. The company defaulted on a pledge to invest $113 million and hire 349 workers to produce industrial ceramics. Described as a business unit of a Hong Kong investment enterprise, Lindenburg bought but didn’t occupy a former furniture factory. It ran up unpaid bills to contractors. A creditor held a foreclosure auction of Lindenburg’s factory site in December. The state has sued the company’s site consultant in an effort to get the money. The Lindenburg grant is the largest of six state collection actions underway against failed business ventures given public money to create jobs. “Duped: Economic development deal in Appomattox turns into elaborate scam. ”

Emerging Trade Problem – Disconnect between Federal & State Policies. 26 Growing disconnect between the trade and investment policies of the federal government (Trump Administration) and that of states and cities wanting to promote freer trade policies and global transactions for critical economic development. Traditionally even the most conservative states have been in favor of commodity exports.

For example, Virginia is one of the largest agricultural exporters to Cuba. Midwest states are very supportive of freer agricultural trade. 27 Leaving the TPP and threatening to withdraw from NAFTA and WTO hurts trade relations immensely. Just the threat (TPP and Nafta) is already altering agriculture trade flows. Growing concern in the U. S. as to Trump’s trade policies and attack on global trade institutions. General attack on the system of trade rules and institutions that the U. S. was the architect of in the post-war era. Focus on bilateral deficits and bilateral agreements is not shared by the American public, according to recent public opinion polls.