Sort & Cull

Barring either an unlikely objection from the Committee on Foreign Investment in the U.S. (CFIUS) or some unnamed player who suddenly surfaces to outbid Shuanghui, Smithfield Foods will soon be packing bags and leaving on a not-so-slow boat to China.

Of course, that's just a figure of speech. Moving vans will not be encircling Tarheel. Neither will plant workers be applying for passports en masse or enrolling in Tai Chi and calligraphy classes.

On the other hand, I assume that buyers and sellers at this bargaining table fully understand that Smithfield managers will be really racking up the frequent flyer miles in the years ahead. The conventional wisdom on Chinese capitalists is that they are amazingly long on cash and painfully short on state-of-the-art managerial skills.

My experience tells me that the former can often solve the latter PDQ, especially given something like China's proven work ethic and ingenuity.

Yet it would be naive to think Smithfield executives can just wave their corporate wands and transform the Chinese porkscape into a model of global efficiency. There are at least two major speed bumps.

First, the current system of pork production in China is essentially a vast network of small producers. That's just not how the pioneering integrators at Smithfield roll.

The second barrier to quickly recreating the Smithfield production magic is China's ongoing struggle with environmental pollution. From dirty air to foul water to dangerous blood levels of lead, China is a mess, so much so that government officials may be less than eager to sanction and promote large-scale livestock operations that typically bring waste challenges of their own.

Frankly, we should thank our lucky fortune cookies that the Smithfield business model is at least temporarily lost in translation. China is already the world's largest pork producer. What kind of price-depressing surplus could U.S. producers be facing if the Chinese pork machine was truly efficient?

You can bet that none of these short-term difficulties were lost to Shuanghui negotiators. But while it may take some time to recast Chinese pork production in the image of Smithfield, they saw something far more immediate in terms of value that justified the $4.7 billion price tag.

And what was the long hanging fruit that proved irresistible? In a word, branding.

Not only was Shuanghui well-positioned with a big sack of cash to shop for a global leader in pork production and market, it was in desperate need of a radical image makeover.

Shuanghui became embroiled in a scandal over tainted meat two years ago, when it was forced to recall its Shineway brand meat products from store shelves on fear that some of it contained a banned feed additive called clenbuterol.

Since that time, a spate of ugly food safety stories (e.g., from rat meat passed off as pork to thousands of pig carcasses floating on a river) has flooded China, making it extremely difficult for Shuanghui to reestablish integrity and confidence with consumers.

Employing the wholesale and brand recognition of Smithfield was no doubt seen as the perfect way to reconnect with China's growing pork appetite.

In case you've missed it under recent headlines, China's per-capita pork consumption last year was 86 pounds, up from 70 pounds in 2002. Needless to say, consumption in this country is moving in the opposite direction. Per-capita pork consumption in the U.S. was 58 pounds last year, down from 66 pounds in 2002.

In hindsight, it makes perfect sense why Smithfield have been moving so aggressively toward ractopamine-free hogs, the exact feed additive banned by China.

CEO Pope and other Smithfield captains clearly viewed China as the golden highway for U.S. pork exports. While these guys have resumes that qualify them as marketing visionaries, I suspect the fact that Shuanghui had been knocking on the door didn't exactly dim their focus.

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(AG)