4:11pm

Wed May 29, 2013
Business

Smithfield Deal Highlights China's Reliance On U.S. Farmers

Originally published on Wed May 29, 2013 7:18 pm

Transcript

MELISSA BLOCK, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, HOST:

And I'm Robert Siegel. Smithfield Foods, one of the country's biggest meat producers is being sold to a Chinese company, the price $4.7 billion. If approved by regulators, this will be the biggest acquisition in history of a U.S. corporation by a Chinese company. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Smithfield will be purchased by Shuanghui International Holdings, which agreed to pay a hefty 31 percent premium over its current stock price. In exchange for paying so much, Shuanghui will be acquiring one of the most famous names in the American meat business, the owner of Armour and Farmland brands.

Ronald Plain is a professor of agricultural economics at the University of Missouri.

RONALD PLAIN: Smithfield is the world's largest pork producer. They raise more hogs than any other company and process more pork than any other company in the world. So if you want to get big in a hurry, buy Smithfield.

ZARROLI: Plain says the deal comes at a time when the Chinese consumer market has grown enormously and Chinese consumers eat a lot of pork.

PLAIN: To say that China's the largest consumer of pork is almost an understatement. Half the world's pork is produced and consumed in China.

ZARROLI: As the Chinese market has grown, it's been rocked by a series of scandals about food quality. Shuanghui itself was cited for injecting an illegal food additive into some of its products. It later apologized and agreed to change its practices. Then, earlier this year, thousands of dead pigs washed up in a river near Shanghai. Their origin was never determined but the incident raised fears throughout China.

Carla Norfleet Taylor is an analyst at Fitch Ratings.

CARLA NORFLEET TAYLOR: So consumers are very concerned about food safety and Smithfield provides a high quality source of product for Chinese consumers.

ZARROLI: This growing demand for U.S. meat products in China is a huge opportunity for American hog farmers and pork producers who have been hard hit by rising grain prices in recent years. But there are also big potential problems. The reputation of the Chinese meat industry being what it is, U.S. consumers may not like the idea of a Chinese company buying Smithfield. And Smithfield CEO Larry Pope took pains to emphasize today that no one would be bringing Chinese pigs or pork into the United States.

LARRY POPE: This is not a strategy to import Chinese pork into the United States. This is a strategy to export pork out of the United States.

ZARROLI: Pope also assured investors that Chinese management would be hands off and his company would still be controlled by Smithfield's Virginia headquarters. The deal has to be approved by U.S. regulators. Carla Norfleet Taylor says they're likely to look at the impact of the deal on the domestic meat industry. As demand for U.S. meat grows in China, it could drive up prices in this country.

TAYLOR: I do think there will be some political concerns about a Chinese company owning the largest U.S. pork producer in the U.S., mainly positioned from the standpoint of what does this mean for U.S. consumers.

ZARROLI: But Smithfield officials argue that this deal represents a big potential windfall for the American agricultural business. They say this isn't a case of a Chinese company undercutting a U.S. rival on price and selling products more cheaply here. Chinese consumers, they say, have a huge growing taste for meat and especially pork. And right now, they're eager to buy it from U.S. farmers. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.