Trade

Smithfield Pork, Bangladesh Textiles, and the Cost of Cheap


A hog farm northeast of Collins, Iowa

Photograph by Gary Fandel/Bloomberg

A hog farm northeast of Collins, Iowa

In many ways, China’s growing appetite for American pork is a testament to U.S. competitiveness. After all, Shuanghui International Holdings’ $4.7 billion bid for Smithfield Foods (SFD) could mean more exports and more jobs. It’s not unlike the opportunities that have propelled the expansion of textile trade in Bangladesh, nor is it so different when it comes to demonstrating the perils. In fact, U.S. pig farmers and Bangladesh factory owners both offer lessons on what it takes to compete on a global scale. As the Smithfield deal opens new markets for pork, the challenge is to make sure they’re not pursued at too high a cost.

While the proposed takeover of America’s largest pork producer by China’s largest meat processor has stoked a range of fears—from pricier pork to stores stuffed with Chinese ham—the real concern may be in Iowa. As the country’s top pork-producing state, raising about 28 percent of all U.S. pigs, Iowa illustrates the realities of industrialized farming. On the one hand, it has meant higher productivity, profits, and exports over the past two decades as the average farm has grown to house 10 times as many hogs. That consolidation also led to fewer farms, fewer jobs, and more pressure to keep wage and production costs low. The result is reasonably priced pork that can extract a high cost from the pigs, the workers, and the environment in which it’s produced.

Mass-produced food has been instrumental in lowering the cost of what people eat. At the turn of the 20th century, Americans spent about 40 percent of their income on food. Coming into the 21st century, that figure fell to less than 10 percent. Mass-produced clothing has done the same, churning out garments that practically anyone could afford. (In his landmark 1962 book, The Other America, author Michael Harrington credited garment factories with making the poor invisible and argued, “America has the best-dressed poverty the world has ever known.”) Livestock factories, otherwise known as a concentrated animal feeding operation, have proven equally adept at keeping prices in check.

The challenge is keeping the other costs in control. There’s the temptation to cut corners on safety. This can lead to the collapse of a garment factory in Dhaka, killing more than 1,100 people, or the  manure dumps and overcrowding on hog farms that leave pig and fish carcasses floating on rivers. There are temptations to hire children, illegal immigrants, or poorly educated workers whose job choices are limited. There are concerns over quality of product and quality of life for animals.

Such concerns are not limited to the textile or pork industries, nor are they limited to Americans. Consumers worldwide care about the safety of what they eat—and the impact of what they wear. While Shuanghui had some suppliers feeding their hogs an illegal muscle-building additive called clenbuterol, Smithfield was dealing with hog farmers doing the same with ractopamine. Despite such concerns, most investors remain focused on profitability while consumers remain focused on price. As U.S. wages have faltered nationwide and Iowa’s income gap has widened radically in rural counties, executives have fared well. Smithfield’s management, despite years of underperformance, could get at least $85.4 million from Shuanghai deal, according to Bloomberg News.

That doesn’t mean the takeover is a bad deal for shareholders, consumers, or employees. But any euphoria over the prospect of a bigger market for U.S. pork producers should be tempered by a look at how they got this far.

Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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