Smithfield deal boils down to China's appetite

Smithfield deal boils down to China's appetite

ACCORDING to a Cornell University expert, the purchase of Smithfield — the largest U.S. pork producer and processor — by a Chinese company comes down to two things: China's appetite for pork and profits.

Cornel College of Agriculture & Life Sciences development sociologist Mindi Schneider said last week that Shuanghui International's bid to purchase Smithfield is primarily driven by a need to service a massive and growing Chinese pork market.

"China's commercial pork sector is already technologically on par with that in the U.S.," she said. "Large-scale commercial operations in China use the same hog breeds, feeds, housing and production methods as comparable operations in the U.S. and elsewhere."

Schneider's comments are something of a contrasting sentiment to others who have painted the deal as amounting to a technology buy for Shuanghui, with the Chinese firm looking to tap into the superior genetics and technical expertise owned by Smithfield.

"This deal is primarily about securing pork for Chinese consumers and profits for Shuanghui's domestic and international shareholders," she concluded.

Schneider's research focuses on the Chinese pork industry. She wrote a 2011 report for the Institute for Agriculture & Trade Policy on the implications of a growing pork sector in the country.

Her report, published two years prior to the announcement of the Smithfield deal, seems somewhat prescient now.

"Increased liberalization of trade is taking its toll on China's rural population," Schneider wrote. "Smallholder farmers struggle to access markets, meet new market standards, cover costs of production and maintain an adequate farm labor force."

Instead, many young rural residents moved to town, leaving the elderly to tend their farms and homesteads alone, she added.

With young smallholder farmers literally on the run, it's little wonder that China's pork companies have their eyes peeled for large-scale production opportunities, wherever they may be.

Earlier this month, the Senate Agriculture Committee held a hearing to discuss the merits of the Smithfield transaction (Feedstuffs, July 15), and Sen. Chuck Grassley (R., Iowa) last week called for additional scrutiny of the proposed sale.

"As far as the food supply (goes), as China gears up its own pork production, some of that pork may find its way into the U.S.," he said. "No one can deny the unsafe methods utilized by some Chinese food companies, and to have a Chinese food company controlling a major U.S. meat supplier — without strong safety inspection standards, without any shareholder accountability, without robust quality control mechanisms — frankly, that's concerning for me."

One pork industry insider told Feedstuffs last week that from the producer's standpoint, the deal is all about opening China's market to more U.S. pork. Industry leaders are operating under the presumption that once the transaction is completed, Smithfield will be the proverbial camel's nose under the Chinese tent, and increasing volumes of U.S. pork exports will follow shortly thereafter.

That depends, of course, on whether U.S. regulators sign off on the deal at all.

Volume:85 Issue:29

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