Effects of merger on U.S. pork industry not yet known

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The full impact on the U.S. pork industry of a merger between Smithfield Foods - the world's largest pork producer - and Chinese firm Shuanghui are not yet known, Purdue Extension agricultural economist Chris Hurt says.

If approved, the merger could provide new market opportunities for U.S. hog producers and also offer Shuanghui the opportunity to adopt Smithfield's health, sanitation and environmental standards.

"The largest potential advantage for the U.S. pork industry is that Shuanghui is the largest processor and distributor of meat products in China," Hurt said. "China is the largest producer and consumer of pork. At this early stage it is unclear if this merger will result in more U.S. pork products being exported to China. However, this clearly opens the trade door for increased business to China, which already was the third-largest destination for U.S. pork in 2012."

But the merger isn't without risks, he said. Large corporations can sometimes fail to adapt to quickly changing global markets. It also brings up concerns among U.S. producers and consumers about the loss of U.S. ownership and what that means for U.S. control.

Another concern, Hurt said, is that while the United States and China are trading partners, the countries have very different social and political policies, which could play into whether the merger can be finalized.

The merger still must run through approval channels in both nations. If approved, the transaction likely would take place later this year.

Growing incomes and demand have resulted in a Chinese pork market with a 3 percent annual growth rate. The U.S. market, on the other hand, is stagnant, meaning Americans will consume the same amount of pork in 2013 as they did in 2005.

"The mature U.S. consumer market for pork means the industry must turn elsewhere if it wants to grow," Hurt said.

In recent years, the Chinese government has made food availability a top priority. While the country mostly had followed a self-sufficient model by meeting pork demand with increased domestic production, Hurt said they also have shown a willingness to import pork products when the internal supply couldn't meet demand. China likely sees Smithfield as an added way to source an important food for its consumers.

"Even tiny changes that shift in the direction of importing more pork could have positive impacts for U.S. producers because China is such a huge market," he said.

The Chinese also stand to benefit from the merger because of the country's problems with food safety and sanitation. The U.S. pork industry has a longstanding reputation for food safety, sanitation and environmental integrity.

While some in the U.S. pork industry have argued that regulations have added to production costs, Hurt said this might be a case where those lofty standards have helped create higher Chinese demand and prices for pork exports.

Smithfield Foods also offers Shuanghui an established global pork production and distribution system. Smithfield currently produces and distributes pork in North America, South America and Europe.

"While the outcomes are uncertain, the hopes are that the Smithfield Foods merger can be a new model for meat production and processing in a world increasingly dominated by global sourcing and distribution," Hurt said. "If so, the merged organization has the potential to grow and hopefully favor the U.S. industry."



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michael    
kansas  |  June, 03, 2013 at 10:20 AM

I am amazed that none of our "professionals" in; producer organizations, academe or legislature are questioning the wisdom of having the largest pork producer/processor in the world owned by a Chinese communist party controlled company. Considering the food supply is as strategically important to every country as aircraft production or any other industry, why are there no calls - at all - for halting this sale? I'm not saying we should stop it, but it seems this should be a greater concern for the U.S. and Europe in general than is being expressed.

Yvonne    
Southeast  |  June, 04, 2013 at 04:40 PM

Agree with Michael. As a grassroots grain grower, as well as involved in the ag economy in the Southeast, this merger should be approached with caution. It is odd that most/all of the academics and professionals seem to be overlooking the fact that Smithfield, while large, appears to have been a poorly run company, the executives will gain an $84 Million in Bonuses (see Bloomberg), and the farmers who have loans with Smithfield for pork houses will apparently now have loans owned by Chinese financial firms. I hope that other pork companies, both large and small, will begin advertising their products as 'grown and owned by the USA" to test the waters. Most of the 'business or academic professionals' are not receiving farm level checks generated by themselves, but instead are getting paid with taxpayer dollars from the federal or state level. Domestic Food security has been a stalwart and comfort of the United States. While the review is mixed thus far in the Southeast, there are far more questions than answers, and we have learned to look for the problems before grasping the opportunity. I, for one, am boycotting Smithfield products for the time being, and am spreading that word to neighbors who want to know what they can do to help. This is concerning the grassroots, sensible thinking consumer as well as farmers. Why couldn't Smithfield have sold part of the company, gained access to markets and kept a controlling interest, instead of selling the entire conglomerate? The Smithfield higher-ups have done this with little thought for what can happen to the small communities this affects most of all. Caution, Caution, Caution BEFORE we shout Hooray!


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