News that the largest pork processor in China, Shuanghui International, would be purchasing American-based Smithfield Foods for $4.7 billion ricocheted among the food and business communities this morning.
According to The Washington Post, it “represents not only the biggest such takeover of an American company by a Chinese firm, but the first of a major U.S. consumer brand.” It also provides Smithfield, the world’s largest hog producer, with a very desirable entryway into China’s vast, pork-hungry market.
The steady stream of news about tainted food scandals in China, which range from melamine in milk to more recent examples, like 16,000 dead pigs being dumped in Chinese river, has some worried unsafe practices will be adopted stateside. Indeed, concerns about Shuanghui are valid. The New York Times reports that Shuanghui was “at the center of a meat scandal after some of its farms were found to have fed a chemical [Clenbuterol] harmful to humans to livestock.”
Smithfield CEO Larry Pope dismisses such food-safety concerns, emphasizing this deal is about American-raised pork products being exported to China—not the other way around.
“There will be no impact on how we do business in America and around the world,” Pope said in a conference call. “This is America exporting to the world.”
The company provided the same reassurance to the Humane Society of the United States (HSUS), which has worked closely with Smithfield and its customers—including McDonald’s, Burger King, Costco, and Johnsonville Sausage (which announced its commitment this morning) to eliminate the use of gestation crates in hog production. Smithfield brings 15.8 million hogs to market each year.
“Smithfield has notified HSUS that their gestation crate policy—which is worldwide—is intact,” Josh Balk, director of corporate policy and supply chain strategy at HSUS, tells TakePart.
“As bad as the pork industry is in the U.S. for animal welfare, it’s even worse in China. Our hope is that Smithfield, which has the most progressive animal welfare policy of any of the large-scale producers, will translate into an increase of animal welfare within China,” he says.
Animal welfare, of course, is only one element of large-scale animal production. Continued use of low-dose antibiotics and controversial drugs like ractopamine administered through the animal feed have been on the radar of consumers, environmental groups and foreign governments that may prohibit certain drugs used in hog production. China and Russia both ban the use of ractopamine, which is used to promote lean muscle, though it is not prohibited here in the U.S. As recently as two weeks ago, Smithfield announced they would raise half their hogs on feed free of ractopamine.
Rising feed costs also continue to impact Smithfield’s bottom line. At the Fortune Brainstorm Green event earlier this month, Smithfield’s Executive Vice President and Chief Sustainability Officer Dennis Treacy said the company is concerned with the U.S.’s ethanol policy; corn makes up 70 to 80 percent of Smithfield hogs’ diets.
“We’re losing money on our hog operations at times, depending on the price of corn. Before ethanol, corn was $2-3 a bushel. Then it went to $8. Now it’s just below $6. But even at $6, it’s doubled and has a dramatic impact on us, which is why we’re looking more closely at sorghum and wheat,” said Treacy.
Even with these important hurdles, the move by the Chinese company makes sense.
“With China’s enormous population and appetite, it imports a dramatic amount of food from the U.S., partly because of food-safety concerns,” he said.