Ag Policy Blog
Chris Clayton DTN Ag Policy Editor

Thursday 05/30/13

Smithfield to China: Get Big and Get Bought

Several perspectives and concerns were raised Wednesday about the sale of Smithfield Foods to Shuanghui International, a deal worth more than $7 billion when debt is factored in.

To me, it was worth looking at the ties of Smithfield to the history of the U.S. pork and meat-packing industry as now-global companies continue to market local or historic brands. Smithfield owns the labels to companies such as Farmland Foods and Premium Standard Farms. Going back even farther are labels such as John Morrell, Eckrich and Patrick Cudahy.

Cudahy was an Irish immigrant whose family eventually bought and built meatpacking companies in Milwaukee and Omaha.

In terms of issues involved with the sale, as the Washington Post stated, "The deal may become a test of U.S. attitudes toward China as it moves through likely reviews by the Justice Department and Committee on Foreign Investment in the United States."

A line in the news release from Smithfield explaining Shuanghui, stated "Shuanghui is committed to continuing the long-term growth of Smithfield, and continuing to work with American farmers, producers and suppliers who have been critical to Smithfield's success.

"Shuanghui will continue its long-term strategy and vision to become a global leader with strict adherence to the highest standards of quality control and safety compliance."…

That said, it was just last month that the world was wondering about the situation with hogs floating down a river in China.

The Center for Food Safety questioned the sale, given the number of food scandals in China. Shuanghui has been tied to some of those, including admitting to adding banned additives to its feed two years ago.

“This company, through lack of oversight, caused one of the largest food scandals in China,” said Elisabeth Holmes, an attorney for CFS. “The practices of this company in terms of what it allows and what its priorities are, it’s certainly going to affect the U.S. operation. What’s the standard going to be?”

The Wall Street Journal reported that in Hong Kong people are worried because, well, they want to make sure their meat doesn't come from the rest of China. "We are very concerned about safety, because our customers are really concerned about food origin. We have to rely on reliable sources," said , Winson Chan of Million (Far East) Ltd., who told the WSJ he sells Smithfield products to the city's two largest grocery chains, PARKnSHOP and Wellcome. "That's why some of our customers were concerned about the acquisition."

Forbes, reporting from Beijing, cites the deal will further open up China to U.S. exporters. Shuanghui is assuring it will be the leading pork supplier to China. “Nobody has got a dominant share. It’s wide open,” says Joel Haggard, senior vice-president for Asia at the U.S. Meat Export Federation (USMEF).

Forbes also noted that Smithfield has been the leading U.S. company in seeking to certify its pork is free of ractopamine. China has set even stricter standards for certifying and Smithfield was the first major U.S. company to step up.…

Yet, the WSJ editorial page, in lamenting the sale somewhat, of course blamed the whole thing on (drum roll please ) --- ethanol. U.S. politicians have only themselves to blame, the WSJ said. “Then again, Smithfield has also suffered as government distorts the low-margin livestock business, most notably by diverting corn to fuel via ethanol subsidies and mandates. Roughly two-thirds of the cost of raising a hog is the price of grain, which has surged in recent years. The irony is that if anyone exposed Smithfield to a foreign takeover it is the ethanol lobby and the politicians who bow before it.”

Senator Chuck Grassley, R-Iowa, issued a release citing his concerns about the further vertical integration of meatpackers and the lack of access for smaller market participants. He noted that vertical integration was one of the selling points among Smithfield and Shuanghui in closing the deal.

“The fact of the matter is that vertical integration leaves the independent producer with even fewer choices of who to buy from and sell to and hurts a farmer’s ability to get a fair price for his products. Concentration also leads to consumers having fewer choices and higher costs at the grocery store. The Justice Department should take a close look at this agreement."

A counter argument would be that small producers would probably have a niche to build a more local, higher-premium brand that would cater to consumers less willing to buy from a foreign-owned, global packing company.

Grassley also added that the deal "highlights the need for Country of Origin Labeling. Like so many Americans, I would rather eat pork, beef and poultry raised in the United States. The deal only makes it more logical to ensure that American consumers know exactly what they are paying for and eating.”

In Smithfield, Va., the locals were rightly concerned, as the Virginian Pilot reported Thursday. The "ham capital of the world" was caught off-guard by the announcement as well.…

I can be found on Twitter @ChrisClaytonDTN

Posted at 7:49AM CDT 05/30/13 by Chris Clayton
Comments (1)
A case where packer livestock ownership must be stopped now .Feeding pigs for a chinese firm in the US is not in anybodies interest.
Posted by melvin meister at 9:50PM CDT 05/30/13
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