Virginia’s Cuba connection

Mid-Atlantic state’s agriculture business, port hope to benefit from Caribbean island’s demand.    The Commonwealth of Virginia is aggressively courting officials and potential customers in Cuba to buy more products from the state’s agribusinesses as the Obama administration presses ahead with efforts to normalize relations with the Caribbean island nation.
   As President Obama met with Cuba’s Communist leader Raul Castro at the Summit of the Americas in Panama on April 12, the Virginia Maritime Association announced the banquet speaker for its annual conference on May 14 in Norfolk will be Jose Ramone Cabanes, the head of the Cuban interest section in Washington. In March, Virginia Gov. Terry McAuliffe announced that he would lead a trade delegation to Cuba this summer to drum up business for the state’s agriculture sector.
   Since he took office in January 2014 “the mindset was if we can establish a good relationship between Virginia and Cuba via agricultural exports that has an immediate benefit for our ag producers and the Cuban population, but secondly, as the relationship and dynamic between Cuba and U.S. changed, could agriculture serve as a catalyst for Virginia being viewed as a trade partner for future opportunities in other sectors?” Todd Haymore, the state’s agriculture and forestry secretary, told American Shipper in March.
   The United States and Cuba have not had embassies in their respective capitals for nearly 50 years after the United States isolated Cuba for nationalizing American companies, siding with Russia in the Cold War, and repressing its population. Obama is considering removing Cuba from the State Department’s list of state-sponsors of terrorism, which would open the way to restore full diplomatic relations. In mid-December, the president announced several steps to help improve bilateral trade with Cuba, but a free flow of goods in all categories is not possible until Congress lifts a decades-old trade embargo.
   Since 2000, U.S. firms have been free to sell agricultural commodities to Cuba because food is considered humanitarian assistance. Exports peaked at about $750 million, but last year were about $350 million. The value of shipments to Cuba fell about 18 percent in 2014, according to government data. 
   The Peterson Institute for International Economics in a study last year said U.S. merchandise exports to Cuba eventually could reach $4.3 billion a year, while Cuban exports to the United States could reach $5.8 billion. The United States is also missing out on $1.6 billion in potential sales to Cuba in services.
   Virginia established the first exports to Cuba in 2003. Successive governors since Tim Kaine in 2006 have worked to grow agricultural exports with Cuba because it is a market of about 11.5 million people and is a short haul by vessel. Haymore, who is a holdover from Gov. Bob McDonnell’s administration and spent three years in the Kaine administration as commissioner of the Department of Agriculture and Consumer Services, has worked with the Cuban interest section and government purchasers in Havana since 2007 to grow trade.
   By 2012, exports of soybeans, soy meal, apples, poultry, pork and other commodities totaled about $66 million. 
   The commonwealth is now the third leading exporter to Cuba among U.S. states, but export volume has fallen in recent years to about $30 million as Cuba has sourced goods from other states or countries. In the last two years, for example, no apples have been exported from Virginia to Cuba. Complicating trade with Cuba are requirements that transactions be conducted in cash prior to vessel departure and prohibitions on U.S. banks dealing directly with financial institutions in Cuba. Any type of financing has to use third parties, typically in Europe, which adds to the cost of Virginia products compared to those from other countries, Haymore said.
   The McAuliffe administration, eager to regain some of the state’s lost market share, has moved quickly to solidify commercial ties ever since President Obama announced the change in policy towards Cuba.
   The governor, who visited Havana four years ago as a private citizen, recognized the opportunity for boosting the Virginia economy presented by Cuba, Haymore said. Haymore laid the groundwork for an expansion of trade with a visit to the Cuban interest section at the Swiss embassy in 2014. 
   Following Obama’s Cuba announcement, McAuliffe invited the Cuban “ambassador” to Richmond in January to reinforce the message that Virginia is a strong trade partner for all types of goods, even though there is no guarantee how long it will take for full commercial ties to be reinstated. Cabanes visited the Virginia Farm Bureau, Virginia Commonwealth University’s school of business and the Greater Richmond Chamber of Commerce to discuss future economic and educational opportunities with local leaders, and then met with McAuliffe and Haymore at the governor’s mansion.
   Cabanes also spoke in March at the annual agricultural trade conference in Richmond and invited McAuliffe to Cuba.
   No date has been finalized, but the governor’s trip to Cuba is likely to take place in late summer, an Agriculture Department spokeswoman said.
   Haymore said the trade mission will focus on agriculture because food and feed products can legally be sold to Cuba, but officials also will take the opportunity to learn about non-agricultural opportunities that may become available in the future.
   The agriculture secretary said the Port of Richmond, a city property which is now under the operational control of the Virginia Port Authority, could become a greater asset for agriculture and forestry businesses as port officials continue to make infrastructure improvements and increase the frequency of container-on-barge services.
   Several shippers have made him aware of how the congestion experienced at the Port of Virginia is adding costs to their logistics operations, but Haymore said there is a “certain amount of patience and understanding” with the problems built up over time and that new Chief Executive Officer John Reinhart is taking steps to break up the log jams at the truck gates, container yards and rail heads.
   New trade with Cuba would be a cherry on top of record agricultural exports in 2014. Virginia exported more than $3.35 billion in agricultural commodities and forestry products last year, besting the 2013 record by more than 14 percent, officials announced last month. The commonwealth exported $2.9 billion worth of farm and forest products in 2013. Agricultural exports have grown in value by 49 percent since 2010 when the state launched a strategic plan to grow sales to foreign markets. 

This article was published in the May 2015 issue of American Shipper.