Smithfield Foods, Inc. is the largest pork producer and processor in the United States.
Founded in 1936 as the Smithfield Packing Company, Smithfield Foods, Inc. is headquartered in Smithfield, Virginia, with facilities in 26 U.S. states, including the largest slaughterhouse and meat-processing plant in the world, located in Tar Heel, North Carolina. It also has operations in Mexico and in 10 European countries, with a global total of over 46,000 employees and an annual revenue of $13 billion.
The recent acquisition of Smithfield Foods, Inc., by Chinese food producer Shuanghui International has left many Americans feeling concerned about the future of food safety.
These feelings are heightened with the news that tainted dog treats from China have been linked to hundreds of animals dying from a mystery illness.
The purchase of Smithfield was the largest Chinese investment in a U.S. company, with the deal valued at $7 billion, including $4 billion in cash.
Shuanghui will now have access to food science secrets that were proprietary to Smithfield Foods. It can use this technology to directly impact competition with other U.S. food companies.
I spent seven years working in the food technology sector and I can attest that the proprietary technologies held by a respective company provide a strategic advantage over other companies in the industry. The genetics technology held by Smithfield Farms can be used by Shuanghui in China on its pigs, which would dramatically affect the export of U.S. pork to China, potentially decreasing it.
Smithfield officials have maintained that they made this deal to increase the export of U.S. pork to China. The company has been very demonstrative about this operational imperative in order to allay the fears of the American public that Chinese pork would be imported for use in the Smithfield product line.
However, Shuanghui is a huge conglomerate with several subsidiaries and is known throughout the food industry to have very loose management structure. In 2011, a Shuanghui subsidiary was caught putting a banned chemical into pig feed to make the animals leaner.It is this type of blatant sabotage of products and willingness of Chinese companies to cut corners that has U.S. consumers worried that will become the new order of business at Smithfield.
Chinese companies have brought tainted dry wall, pet food and other food products into the United States in recent years. This deal has caused many Americans to question food safety policies especially in companies with foreign ownership.
Many Americans called upon Congress and the Committee on Foreign Investment in the United States to block this purchase of Smithfield Foods. Congress admitted that they couldn’t block the purchase of a U.S. company by a foreign entity unless it involved computers or national security.
Some members of Congress were so concerned about the Smithfield acquisition that they are discussing in the U.S. Senate whether food security could fall within the national security umbrella. If that dialogue has traction and the law is revised, then the Senate could potentially block future purchases by foreign entities.
The CFIUS reviewed and ultimately approved the transaction of Smithfield to Chinese ownership. Its decision raises the question: Is this the start of a trend where more Chinese companies are going to seek to obtain U.S. companies in the food industry?
That trend of Chinese involvement in the U.S. food industry could have drastic implications on food safety. In my experience with the U.S. Food and Drug Administration, I have found that the agency is overrun with responsibilities so it relies on voluntary compliance and not inspections or other methods of enforcing the food safety standards.
The further involvement of Chinese food companies in the U.S. food marketplace also has the American public and the food industry concerned about the integrity of the supply chain. The Chinese reputation for degradation of products and disregard for the regulatory controls in the industry precedes them. The supply chain could very easily be compromised with more Chinese companies being integrated into the U.S. food industry.
Shuanghui maintains that it was interested in obtaining Smithfield Foods to meet increased demand for pork products in China. This increased demand is being driven by their rising middle class coupled with the trend in China to move away from vegetables and rice toward a diet of increased protein consumption.
Furthermore, Shuanghui has stated to the media that it needed to acquire a U.S. company with the technology to help them improve food safety in the pork products marketplace in China. The pork industry in China has had a number of very notable safety issues, including an incident in which dead pigs were dumped into a river near Shanghai.
Food technology and safety protocols used by Smithfield are going to be integral for Shuanghui to expand its capability to meet the rising demand for pork in China.
In the end, this deal could portend a future where China is forced to obtain other food companies in the United States and throughout the Western world because of the poor environmental conditions in China.
These conditions, along with the tremendous demand of an enormous population, will be the impetus for China to seek outside help via the purchase of Western companies. This trend will probably alienate China on the international stage but the Chinese don’t have many other constructive pathways to address the issues in food safety that have plagued their country.
The U.S. public has to have a constructive dialogue and determine how we can implement government safeguards to insulate the U.S. food industry from involvement from Chinese investment and ownership in the future.
Brazil and New Zealand have safeguarded their agricultural systems from Chinese intervention and the United States has to consider similar safeguards. Our society and the future generations of Americans depend upon it.
H/t CODA’s Sol Sanders
Dr. C is the Editor of Consortium of Defense Analysts.