The Smithfield Foods Deal: Seeking Greener Pastures Abroad
   2013-06-09 15:12:08    CRIENGLISH.com      Web Editor: Sun Wanming

By Stuart Wiggin

Shuanghui International's pending acquisition of Smithfield Foods, the largest pork producer in the US, in a deal worth 4.7 billion US dollars, has led to many concerns stateside that Shuanghui could use Smithfield as a channel through which to filter Chinese pork into the US market. Since the deal was first announced there has been a stream of articles looking at the reasons behind the deal and the possible effects for both China and America. China's questionable food safety record has led to unfounded fears of substandard Chinese pork flooding the US market. Others claim that the deal is merely part of an effort by Chinese companies to obtain the raw materials that the country needs in order to enable its fast-growing economy to continue its upward trajectory whilst also meeting the demand for US pork.

However, as Pei Minxin, the Tom and Margot Pritzker '72 Professor of Government at Claremont McKenna College, pointed out recently that, "In 2012, the number of hogs slaughtered by Smithfield, which has about a quarter of the US slaughter capacity, would account for only 3 percent of China's slaughtered hogs. In other words, Shuanghui may be able to source more of its pork from Smithfield's modern, efficient, and safe pig farms and processing facilities, but the quantity that can be exported to China in the foreseeable future will be minuscule relative to the size of the Chinese market."

So, importing pork is surely not the major goal, which leads one to look towards the expertise that Shuanghui will be able to glean from Smithfield. The deal provides the country with technology that would boost food security; a requirement under the 2011-2015 Five Year Plan. Yet Pei goes on to state that one of the motivating factors behind the deal "is that far-sighted Chinese entrepreneurs fully understand that, because pollution has contaminated major parts of China's food chain, their future profit opportunities lie in buying the entire food-production process abroad. Bagging Smithfield, in this sense, is not about getting its hogs, pork-processing technology, or even premium brand. It is really about owning access to America's safe farmland and clean water supplies."

This may certainly be part of the long term thinking behind the deal, but the short to medium term effects should not be downplayed, as they are likely to have a massive bearing upon the long term direction of the Smithfield Foods operation under Shuanghui International. Peter Kelly, Professor of Agricultural and Resource Economics at Renmin University told CRIENGLISH.com, "I think the short term and the long term [effects] may be different, and actually I'm not particularly concerned about either one. In the short term I think there's going to be exports of pork from the US to China, so Americans don't need to worry too much about Chinese pork coming in during the short term, because that's not where the comparative advantage is. In the very long term I think China is going to improve its food safety standards in the way that Japan has developed a reputation for high quality products in recent decades. For that matter, the US used to have a lot more problems with food safety than it does now."

As for the topic of pollution and environmental degradation, some have argued that this deal could help to improve the environment here in China as a result of the knowledge transfer that Shuanghui will gain from the Smithfield deal. Peter Kelly noted that production practices will certainly change as a result of the technological transfer, "to the extent that some of Smithfield's technologies both to improve productivity and to improve the environment, or labor, or animal welfare standards [will be] adopted in China." However, Kelly was less optimistic about mature production practices having a huge effect on the level of pollution in the country, stating, "I don't think it's going to have very much effect on the amount of pollution in China. It could reduce the amount of pork production in China; it could improve pork production practices in China. On the other hand, to the extent that the pork industry is consolidating in China, from an ecological perspective, raising larger numbers of animals in one place can overwhelm the local environment."

So, it seems that Pei's theory of gaining access to safe farmland and clean water supplies holds weight, though this would obviously be part of a long term process; of which the Smithfield deal is presumably just the beginning. The 2012 Environmental Conditions Report, released by China's Ministry of Environmental Protection, found that 57.3 percent of the groundwater in 198 cities throughout 2012 was "bad" or "extremely bad", with more than 30 percent of the country's major rivers classed as "polluted" or "seriously polluted." Unless these figures and observations can be drastically improved upon in the coming years, one begins to understand why companies which rely heavily on the land and environmental conditions in order to pursue agricultural business might want to quite literally seek greener pastures abroad in mature markets where private property rights are more secure and access to clean resources is guaranteed.

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