Protein

With Smithfield Deal, China Expands Its American Pork Pipeline


A customer requests for a cut of pork at a market in Shanghai, China

Photograph by Tomohiro Ohsumi/Bloomberg

A customer requests for a cut of pork at a market in Shanghai, China

(Corrects value of U.S. pork exports to China)

Announcing his company’s $4.7 billion acquisition by China’s largest pork producer, Smithfield Foods (SFD)‘s chief executive used the moment to stress how the deal is designed to send more American pork to Asia, a boost for U.S. farmers. In other words: Relax. Shuanghui International Holdings won’t be sending Chinese pigs to your local Kroger (KR) store.

“People have this belief … that everything in America is made in China,” Smithfield President and CEO Larry Pope said on a conference call today. “I like to tell people, ‘Open your refrigerator door, look inside.’ Nothing in there is made in China, because American agriculture is the most competitive and efficient in the world. This is the one place America can absolutely compete. This is exporting America to the world.”

The subtext was clear: When it comes to filling their dinner plates with meat sold by a massive Chinese conglomerate, plenty of American consumers might get nervous. Just last March, in an incident that made global headlines, Chinese authorities fished thousands of dead hogs from a Shanghai river—and that was only the latest in a prolonged series of food and consumer product scares that have included tainted pork, fish, baby formula, and cosmetics. In 2011, Shuanghui apologized to consumers for purchasing pigs that had consumed clenbuterol, a feed supplement designed to make pork leaner.

Joe Schuele, a spokesman for the U.S. Meat Export Federation, says foreign ownership of a U.S. meat producer isn’t likely to stir safety concerns, citing the 2007 acquisition of Swift & Co. by Brazilian conglomerate JBS (JBSS3:BZ). “I really haven’t seen consumer pushback,” he says. “The ownership doesn’t change the regulatory system that they’re under.”

As part of the deal, Smithfield’s Pope said he would get to keep his same job. So would his company’s 46,000 employees, with no plant closures or job cuts expected. The $34-per-share cash deal—or $7.1 billion, including debt—is expected to close later this year after regulatory reviews, including by the federal Committee on Foreign Investment in the United States. In a client note today under the headline, “This Little Piggy Goes to Market,” J.P. Morgan (JPM) analyst Ken Goldman speculated that China’s “tarnished reputation” in the protein industry may lead to a compromise solution in which an American holds a position of power at Shuanghui or possibly regulations governing “how much of the new company’s pork must stay in the U.S.”

Pope told analysts that Smithfield’s exports to China would likely continue to rise as more of its product moves into Shuanghui’s distribution system, helping hog farmers command higher prices. U.S. pork exports to China more than tripled from 2007 to 2012, to $886 million, according to the U.S. Meat Export Federation. Chinese consumers eat about 88 pounds of pork per capita each year, an amount likely to double in the next few years as incomes rise, Bloomberg News reported in March.

Bachman is an associate editor for Businessweek.com.

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