THE ISRAEL LOBBY ENTERS STATE GOVERNMENT

RISE OF THE VIRGINIA ISRAEL ADVISORY BOARD

By Grant F. Smith

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9

State Subsidies Behind Sabra Dipping Company Hummus Market Dominance

People of this country don't want some flash-in-the-pan hummus," said Sabra chairman Yehuda Pearl… "When it's 3 a.m., which hummus do Americans trust for their pita chip–dipping? Some new hummus that makes a lot of promises about taste, or a hummus with over 20 years’ experience serving the American people? The Onion

In 2008 the satirical website The Onion published that “news” item titled “Sabra Hummus blasted rival Cedar’s  hummus Monday for lacking the ability, competence, and texture that Americans deserve from their hummus.”

Like many stories from The Onion, the piece contained a disturbing kernel of truth. At that time, there was indeed a competition underway to become America’s leading hummus brand between Cedar’s and Sabra. At a deeper level, there is also an ideological battle about cultural appropriation as well as state subsidies and big business vs small private entrepreneurship in a growing market.

Hummus (alternatively hommus or houmous) is a chickpea (garbanzo bean) spread of blended olive oil, pureed sesame seeds, lemon juice, garlic and salt. Written recipes for Hummus originate in Cairo cookbooks from the 13th century.

The base ingredient of hummus, chickpeas, are great for a healthy diet. A one cup serving provides a high dose of fiber and protein along with minerals and vitamins. But they do not grow just anywhere. One reason hummus is popular among Palestinians and Jordanians is that all of the ingredients may be found in the garden or local market.

Chickpeas are a dryland crop. In the United States they are mostly grown in Montana (35 percent), Washington (32 percent) and Idaho (19 percent.) In 2017 the U.S. cultivated chickpeas on 6.2 million acres, with an average yield of 1,152 pounds per acre.[1] The U.S. could grow more, given sufficient market demand. Unfortunately for East Coast hummus producers, shipping from the drylands crop regions will continue to be a cost factor, unless research produces a more suitable variety (discussed later).

The U.S. market for hummus started slowly. In the mid-1980s Abe and Layla Hann, originally from Beirut Lebanon, started a small hummus and tabbouleh salad business in their kitchen for the local market 35 miles north of Boston. Their positive assessment of potential local market demand proved correct. Their products took off and the pair founded Cedar’s Mediterranean Foods in Lawrence, Massachusetts. By 2005 the privately held company expanded to Haverhill with over 400 employees. Cedar’s CEO claimed that the number of U.S. households with hummus in the refrigerator grew from 13 percent in 2013 to 24 percent in 2015.[2] He predicted 30 to 35 percent growth and the need to expand existing plant from 88,000 square feet to over a quarter million.

Cedar’s namesake is the Lebanon cedar, which is displayed on the nation’s flag, national airline and coat of arms. Lebanon has long been known as the “Land of Cedars.” The legend traces further back than modern Lebanon. The ancient Mesopotamian poem the Epic of Gilgamesh describes the hero Gilgamesh and his companion Enkidu’s mission to a legendary cedar forest. Some Babylonian versions of this early work of literature claim that cedar forest was located in “the Lebanon.”

Sabra Dipping Company, like Cedar’s,  started out with branding tied to regional symbolism. Israeli born Zohar Norman established Sabra in New York with the fellow Israeli Yanko family in 1986. Yanko owned the “Tzabar” (“sabra” in Hebrew, which refers to a Jewish person born in pre-1948 Palestine) spreads and salad packaged goods brand in Israel. In 1994 the owner of Blue & White Foods, LLC purchased a 50 percent stake in Sabra. Blue & White refers to the Israeli flag, which was aligned with the company’s business of distributing Israeli produced food in the U.S. Blue & White’s owner Yehuda Pearl bought out Sabra’s owners in 2002 and sold a majority stake to Israel’s Strauss Group in 2005.

Strauss Group

Strauss Group founder Richard Strauss fled the Nazis to Palestine in 1936. He joined the Haganah organization which the British branded a terrorist outfit, to smuggle ammunition and push the English out of Palestine.[3] Strauss formed a dairy company to sell excess production from his 20 cows. Business grew, but also grew dependent on government subsidies. The company received Israeli government bailouts when it faltered in the 1950s.[4]

Strauss Group long traded on its support for the Israeli military, claiming on its website that:

Our connection with soldiers goes as far back as the country, and even further. We see a mission and need to continue to provide our soldiers with support, to enhance their quality of life and service conditions, and sweeten their special moments. We have adopted the Golani reconnaissance platoon for over 30 years and provide them with an ongoing variety of food products for their training or missions, and provide personal care packages for each soldier that completes the path. We have also adopted the Southern Shualei Shimshon troops from the Givati platoon with the goal of improving their service conditions and being there at the front to spoil them with our best products.

The Golani Brigade has long been criticized for using Palestinian civilians, including children, as human shields, harassing Palestinians at checkpoints, collective punishment, ransacking homes and intimidation.[5]

Strauss Group cultivated a joint venture in Israel which was led by Ronen Zohar in 1993. Zohar rose to become CEO of Strauss Frito-Lay (2000-2005) before being dispatched to the U.S. In 2008 Strauss inked a U.S. joint-venture with PepsiCo to distribute Sabra hummus. The success of this joint venture has now become central to VIAB’s advice to Israeli companies that they partner with a U.S. company.You can cut out 80 percent of your cost factors with the right partner and probably time to money can increase five times.”[6] To this day, Yehuda Pearl remains as partner and Chairman of the Board of Blue & White Foods which holds Sabra as its subsidiary company.

Given Strauss Group’s history of seeking government support, it looked to Virginia for the biggest possible handout. Sabra’s first dollop of taxpayer cash was delivered by Governor Tim Kaine who authorized $350,000 in seed funding from the Governor’s Opportunity Fund at the Virginia Economic Development Program to finance a Sabra production facility.[7] The funding was based on matching funds from Chesterfield County where Sabra opened for business. Virginia also promised to cover the cost of job training to Sabra employees through VEDP’s Job Investment Program.

According to market tracker Statista, Sabra’s share of the U.S. market jumped from 17.3 percent in 2006 to 60.7 percent in 2015. Over the same period Cedar’s fell from 15.8 percent to 4 percent.[8]

Unlike its partner PepsiCo, Sabra has never developed much of a taste for diversity among CEOs, who are invariably Israeli. In 2018 Tomer Harpaz replaced Shali Salit-Shoval, who returned to Israel. Shalit-Shoval replaced Ronen Zohar who became CEO after leaving the Strauss Frito-Lay joint venture in 2007.

In contrast, PepsiCo’s CEO Indra Nooyi led the company from 2006-2018. The Indian American is ranked as one of the world’s 100 most powerful women, and was courted to join Amazon’s board of directors after leaving. Nooyi was replaced by Ramon Laguarta, born in Barcelona, Spain who became PepsiCo’s sixth CEO. Laguarta, rose through the ranks from his start at a Spanish candy company through PepsiCo’s European operations, overseeing acquisitions in Russia and handling complicated government affairs.

Sabra’s demand for Virginia handouts is unending. In 2013 VIAB secured a $31,127 grant from the Tobacco Region Revitalization Commission  for Virginia State University to establish chickpea production in Virginia through “on-farm research.” This involved planting 350 test plots in Virginia over a six year test period to identify the ideal “Sabra” chickpea.[9] In mid-2018 Sabra announced it wanted to expand its facility by 38,000 additional square feet, and began maneuvering for even more state funds and tax breaks.

 

 

2009 Location

Governor's Opportunity Fund - VEDP

 $              350,000

Virginia Jobs Investment Program

 $                50,000

Total

 $              400,000

2012 Expansion

Commonwealth's Development Opportunity Fund

 $              250,000

Virginia Jobs Investment Program Grant

 $                83,250

Enterprise Zone Job Creation Grant (Estimated)

 $              320,000

Chesterfield Opportunity Fund

 $              200,000

Enterprise Zone 5 Year M&T Tax Grant (Estimated)

 $              330,000

Waiver of Fees (Estimated)

 $                51,900

Total

 $              1,235,150

2013 Expansion

Commonwealth's Development Opportunity Fund

 $              350,000

Virginia Investment Performance Grant

 $              500,000

Virginia Jobs Investment Program

 $                84,849

Enterprise Zone Job Creation Grant (Estimated)

 $                40,000

Chesterfield Opportunity Fund

 $              385,000

Enterprise Zone 5 Year M&T Tax Grant (Estimated)

 $              687,500

Waiver of Fees (Estimated)

 $              252,000

Total

 $              2,299,349

Grand Total

 $            3,934,499

 

Sabra Dipping Company – Strauss Group government subsidies.

Entering the Sabra plant facility grounds, traveling down “Sabra Way” is like a border crossing between central American countries. There is a guard post hut with armed security. Present proper credentials, and the checkpoint gate is lifted. Fail to present a compelling case, and you can avail yourself of the large circular turnabout. On a small hill, two flags fly at equal height. The American flag, and the Sabra flag. In the distance rests a plant of impressive dimensions. But was the capital investment in the plant sufficient to meet the terms of Sabra’s performance agreement for state funding? What about the promised numbers of full-time jobs? There is no way the public can find out.

Sabra’s performance Agreement

The first few pages of Sabra’s 2012 performance agreement with the providers of state funding seem serious. If Sabra did not generate its promised number of high-paying full-time jobs, or make a sufficient capital investment for plant expansion, it would have to return the funds. Chesterfield County and the Virginia Economic Development Partnership undertook the fiduciary obligation to audit Sabra. Sabra was required to annually provide “detailed verification reasonably satisfactory to the Locality, the Authority and VEDP of the Company’s progress on the Targets.”[10] But the performance agreement cuts out any potential public watchdog oversight or verification by predetermining that any tax payment information be entirely exempted from public disclosure.

Publicly released data received via the Virginia Freedom of Information Act is revealing, but not of performance. As the verification for capital investment, Sabra simply had The Dennis Group, a Sabra contractor and its designated food production factory builder, issue a series of two-line letters. In 2015 The Dennis Group certified that “the current committed capital investment for the Sabra Dipping Company’s Project Obed for building and process equipment is $68 million.” [11] The letter did not say the funds had been spent, placed in escrow, or anything final. In 2016, The Dennis Group was a bit less conditional, saying, “committed capital investment for the Sabra Dipping Company’s Project Ruth for building and process equipment construction is $29 million.” The figures from the letters were simply repeated in internal Virginia state documents closing out the $350,000 Governor’s Opportunity Fund Grant. In other words, there was no independent certification or audit of capital investment by any disinterested third party.

For year 2013 certification of the “Governor’s Opportunity Fund Grant Recipients” compliance of jobs creation, a mere notation from a Virginia Jobs Investment Program official was all that was needed. It read, “Per VJIP manager, all projected jobs covered under the FJIP agreement were disbursed by July 1, 2016.”[12]

What the paper trail reveals is that none of the parties have any incentive to look too closely at what’s going on, and so they don’t. Auditing the performance agreement is a perfunctory effort undertaken by parties under no checks and balances.

MOU with Virginia Tech

Thanks to VIAB, Strauss Group has already planted a flag at one of Virginia’s leading educational innovators. This happened via a memorandum of understanding (MOU) with Virginia Polytechnic Institute and State University known as Virginia Tech. Virginia Tech offers 280 degrees and maintains a research portfolio of half a billion dollars, the only Virginia institution in the top fifty in terms of research expenditures. Virginia Tech serves 34,000 students at its main campus in Blacksburg, Virginia and facilities in six regions of the state as well as a branch in Switzerland.

Virginia Governor Terry McAuliffe visited Israel in summer of 2016. While there, the memorandum of Understanding was signed between Strauss Group (owner of the Sabra  joint venture) and Virginia Tech. The governor held more than 20 high level meetings during his 46 hour tour. Were it not for the five donors accompanying the entourage to Israel (who have never been publicly named or included on news releases about the trip) the visit and MOU may well not have happened. According to Nathan Shor:

Getting those five donors to Israel, game changer, total game changer.

In Ralph’s [Robbin’s] case, he worked for months to set up the meeting. We had a trip scheduled one time with McAuliffe. And it got cancelled. He had all these meetings set up. It got postponed for about 3 months. But try to get everybody’s schedule back for all those meetings he had, he must have had half a dozen really high-level meetings for potential business to come to Virginia, or vice versa. Ralph had to get those all rescheduled. That’s probably the worst part of his job is trying to schedule those trips. [13]

Never publicly released, the memorandum of understanding is lop-sided. Most of the tangible benefits accrue to Strauss Group. It also inserts VIAB into a position of greater influence over the Virginia Tech academic community research priorities. Prior to the MOU, this influence was informal, such as during the planning phase of Project Jonah when VIAB needed its authoritative rubber stamp of approval over its fish farm plan. VIAB had to pay for it. Post MOU, it seems unlikely VIAB will have to compensate Virginia Tech for access to its experts.

The MOU obligates Virginia Tech to support the commercialization of Strauss Group products in the U.S. market, without justifying why a land-grant university dependent upon state and federal funds should be working to guarantee the success of a foreign commercial enterprise. But at least Strauss flatters while at the same time being honest that it sees Virginia Tech as mostly a useful tool, rather than a partner, stating outright that:

WHEREAS Strauss, an F&B global [food and beverage] company, is a leader in food tech innovation, and Virginia Tech is a proven center of academic excellence and a connection to industry that supports a path to commercialization.[14]

The first “ask” in the MOU is that Virginia Tech work to develop a variety of chickpea that can be successfully grown in Virginia’s climate while meeting “pre-determined commercial requirements.” It is also tasked to work on a “super smart greenhouse project in Southwest Virginia, a micro dairy facility and precision agriculture” though the relationship of these projects with Strauss business lines is not clarified. It may be that they are not at all related, other than being VIAB portfolio projects involving other Israeli companies. Indeed, in the MOU VIAB is identified as the very first entity that Virginia Tech should look to in “identifying potential projects” in a list that includes the Virginia Economic Development Partnership, Center for Innovative Technology, and other Virginia universities, and of course the Tobacco Commission and Virginia Coalfield Economic Development Authority.

Virginia Tech is welcome to develop projects with Israel, but only one named entity is provided as a potential partner, the BIRD Foundation.[15] When Virginia Tech experts do go to Israel, their task is predetermined, according to the MOU, which says:

A Virginia Tech expert(s) can visit Israel on a yearly basis to meet with all of the candidates to select companies to invite to Virginia Tech for meetings that can include technical meetings, marketing meetings, consultations with other experts with the purpose to assist the company in developing and executing "market entry model" needed to enter the US market. The VIAB will be requested to assist with this program.

The MOU is somewhat of a microcosm of the 1985 U.S. Israel Free Trade Area Agreement,[16] in which all of the market access and financial privileges accrue to mostly the Israeli side of the deal, and virtually nothing on the U.S. side.

Sabra is hungry for more state subsidies. Although not yet verifiable, it looks as though VIAB’s code name for another round of state subsidies for Sabra’s plant is “Vegan Non-Meat producer and Packager.” Yehuda Pearl, the 49 percent Sabra Dipping Company stakeholder from Blue & White Foods has also developed a taste for Virginia State support, as we shall see in the case of UBQ in the next chapter.

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[1] “Chickpeas” Agricultural Marketing Resource Center, revised October 2018, https://www.agmrc.org/commodities-products/vegetables/chickpeas

[5] Sherwood, Harriet “Former Israeli soldiers break the silence on military violations,” the Guardian, May 6, 2011 https://www.theguardian.com/world/2011/may/16/former-israeli-soldiers-break-silence

[6] Hoch, Dov and Pomerantz, Sherwin, “US Financial Incentives for Israeli Companies” Presentation at the Israel American Business Summit, May 29, 2019

[7] Harris, Al, “Dipping into their options: How officials lured hummus maker to Va.” Richmond BizSense, November 26, 2008. https://richmondbizsense.com/2008/11/26/dipping-into-their-options-how-officials-lured-hummus-maker-to-va/

[8]“Hummus dollar market share in the United States in 2006 and 2015, by brand” Statista, https://www.statista.com/statistics/441085/us-hummus-dollar-market-share-by-brand/

[9] VIAB Board Meeting Minutes, December 5, 2013.

[10] “Governor’s Development Opportunity Fund Grant, Chesterfield Opportunity Fund Grant” performance agreement executed by Sabra Dipping Company on June 5, 2012.

[11] The Dennis Group letters released by Chesterfield County.

[12] Survey of Governor’s Opportunity Fund Grant Recipients, released by Chesterfield County.

[13] Hoch, Dov “What VIAB Does and How it Benefits Virginia,” speech at the Weinstein Jewish Community Center, Richmond, VA, April 4, 2019. Introduction and remarks by former president of the Jewish Federation of Richmond Nathan Shor

[14] Virginia Tech Strauss Group Memorandum Of Understanding https://IsraelLobby.org/VIAB3/Strauss_Group_MOU_ocr.pdf

[15] The Binational Industrial Research and Development (BIRD) Foundation was founded in 1977. It is jointly funded by the U.S. and Israel and has an endowment of $110 million.

[16] The cumulative U.S. bilateral trade deficit with Israel in goods since inception and adjusted for inflation is $182.25 billion. U.S. exporters continue to struggle for market access. See “U.S. Israel Free Trade Agreement Damage Assessment” IRmep, June 20, 2019 https://www.irmep.org/pdf/6202019ILFTA.pdf