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CFIUS okays Smithfield deal: Let financial games begin (commentary)

CFIUS okays Smithfield deal: Let financial games begin (commentary)

SMITHFIELD'S press people announced that the Committee on Foreign Investment in the United States (CFIUS) cleared China-based Shuanghui International Holdings Ltd. to acquire Smithfield Foods.

CFIUS, not surprisingly, found no national security reasons to kill the purchase. No defense secrets could be "misplaced," no nearby important military facilities would be compromised by ChiComm agents with telescopes and nothing in Smithfield's consumer preference data banks could be spirited away by a dispirited employee.

That leaves two options for those who fear a Chinese takeover of an American food company: (1) rival U.S.-based interests could outbid Shuanghui or (2) fears of potential food contamination by a suddenly sloppy Smithfield quality control team could drive the stock price so low that the capitalists — Chinese and American — behind the purchase abandon the effort.

Reason number one is not likely. Reason number two is a ridiculous fantasy that even the most devout right-wing fear-mongers can't possibly believe. Actually, let me amend that last point. A few will believe it because they really, really want to believe it, but it is still a ridiculous fantasy.

Even though Smithfield's stock has dropped, the value of the brand is the driver behind this deal, everyone involved understands it and it will not be trifled with.

What will happen is that Smithfield's products will remain at their current very high quality level, and a Chinese company will learn some of Smithfield's food safety "secrets," which should help improve the country's overall pitiful record.

Food safety, after all, was declared a non-competitive issue long ago by everyone in the U.S. food business. It should be a non-competitive issue worldwide as well because the modern food business is worldwide, and that's a tide that will never roll back no matter how loudly America's isolationists scream.

The U.S. Meat Export Federation (USMEF) works hard in European, Asian, South American and African countries to promote the advantages of U.S. products, with quality being one of their top selling points.

USMEF, recognizing that, "as the largest importer of all things pork, China can change the pork market with any surge or decrease in its purchasing," has just mounted an important campaign designed to protect our leading market share.

The group noted that even with U.S. pork exports to China down this year due to ractopamine-related restrictions, we still have a 27.6% share: 438.1 million lb. of pork exports valued at $408.6 million were shipped in the first seven months of 2013.

Without that ractopamine issue, pork exports to China would have flirted with the $1 billion mark this year. The banned drug won't be an issue next year, and with the Smithfield acquisition being a done deal, exports should easily pass that mark in 2014.

What's the real issue that should be debated by American food processors? How much Chinese influence is acceptable.

The purchase of Smithfield should be viewed as a stalking horse trotted over here by the Chinese government. The country's rapidly growing middle class means that a lot of the political clout — previously held by the ruling elite — will have to be shared by millions of people with money to spend and bellies to fill. Another famine will not be tolerated.

The Chinese government understands that America can rightfully brag about the quality of our food supply and the efficiency of our production, and they desperately need access to both.

Now that CFIUS has given the "all clear" to direct Chinese investment in an American company, expect bags full of yen to flood our shores and bid up the price of food processors' stock.

I suspect that the only thing Smithfield leader Joe Luter will regret in a few years is that he got in on the bubble too early.

*Chuck Jolley is president of Jolley & Associates, a marketing and public relations firm that concentrates on the food industry.

Volume:85 Issue:38

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