China Buys Smithfood. BE Afraid. Be VERY Afraid

Sunday, June 2, 2013 7:50

Chinese firm, Shenghua International, has offered up nearly 5 billion USD for Smithfield Foods. The world’s largest pork producer.

It is a deal that I have I have to admit I didn’t see coming, but largely because the memories of Shanghai’s flotilla of pork is still fresh.  Setting that aside, and aligning with the  fact that China’s food supplies have grown thin, then the deal itself makes a lot of sense.  Particularly as China needs to modernize its pork supply to meet the next 15 years of guaranteed growth.

That being said, memories are still fresh, and not surprisingly there are more than a few people asking questions about what it means for US pork supplies once they are owned by a Chinese firm:

Smithfield sale to China would come at time of crisis for world food standards. Chinese unlikely to prove they would maintain the pork giant to US standards, making this deal something of a long shot

Far be it from me to discount or dismiss the roots of what will likely become an emotional issue in the US, I do find this deal interesting given the size of the Chinese market and the fact that Smithfield had been having difficulties entering the market.

For me, the deal seems to be focused a lot more on that element (i.e. exporting US pork) and the transfer of technology and processes to improve China’s own systems rather than Chinese pork finding space in the US market.  BUT… a big question mark will remain over Smithfield for a long time should the deal go through regardless as China’s food industry is what it is, and whether it is pigs floating down rivers or pet treats that kill house pets, the failures that have occurred in China’s food systems are what they are (sadly) known for at this point in time. So, were anything on the order of 16,000 pigs float down the Mississippi or it be found that the pigs are being fed plastic, it would certainly be interesting as the news would go out unfiltered to consumers both the US and China.

That is the risk side of the equation.

The opportunity side is a bit different, and for the US this is where things could get interesting as China’s market for pork would almost certainly expand once the deal is approved by US agencies. Going back to a post I wrote last year, pork (and other agricultural products) have attributed a large portion of their growth to China.  An economy that employs a large number of people, seasonal and non-seasonal, on the farm and off.  So, were this deal to go through, then you could expect related pop in the wider industry.

It’s a deal to keep your eyes on.

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