May 31, 2013
Will Chinese Ownership of Smithfield Affect U.S. Retailers?
China needs pork, a lot of it. And so Shuanghui International’s (Shineway Foods, in English) $4.7 billion bid to acquire Smithfield Foods, the world’s largest processor and producer of pork, makes perfect sense. But because the deal involves a Chinese company, there are concerns being expressed in some corners that the deal may not be a positive from the perspective of American interests.
To take a step back, the acquisition represents the largest takeover of a U.S. company by a Chinese business. If the deal is approved, it most certainly means that more of what Smithfield produces will be exported to China.
Smithfield Foods’ CEO C. Larry Pope is extolling the virtues of the deal as a means to open more markets to the company.
"We do not anticipate any changes in how we do business operationally in the United States and throughout the world," said Mr. Pope, in a statement. "We will become part of an enterprise that shares our belief in global opportunities and our commitment to the highest standards of product safety and quality. With our shared expertise and leadership, we look forward to accelerating a global expansion strategy as part of Shuanghui."
Mr. Pope and four other top executives at Smithfield stand to make more than $85 million in the deal.
- Shuanghui International and Smithfield Foods Agree to Strategic Combination, Creating a Leading Global Pork Enterprise – Smithfield Foods, Inc./ Shuanghui International Holdings Limited
- Smithfield Foods Acquisition by Chinese Meat Giant Hits A Lot of Hot Buttons – brandchannel
- Smithfield Bosses to Get $85.4 Million From Chinese Deal – Bloomberg News
- China Makes Biggest U.S. Play – The Wall Street Journal (sub. required)
- China’s Pork Deal May Hinge on the Risk for an Uproar – The New York Times (tiered sub.)
BrainTrust
Recent Discussions
Discussion Questions
What is your reaction to Shuanghui International’s proposed acquisition of Smithfield Foods? If approved, how do you think it will affect American retailers and consumers?
Poll
If this pending deal “makes perfect sense” as stated above, it’s because 1) Larry Pope and 4 other Smithfield executives will make $85 million off the deal and still have their jobs, 2) Shuanghui will control the marketing of the world’s pork supply as well as put pressure on the Japanese, large current buyers of Smithfield pork, to seek additional sources for their pork needs. That would create a higher worldwide demand for pork products with resulting higher costs.
The vital effect of such a deal would take another American asset and convert it to a Chinese one. Food dominance at all levels should be preserved in the USA. We have seen lots of that given up in recent decades in autos and electronics.
With China’s huge population and future food needs that will divert much pork from the U.S. to China no matter how independent the Chinese say they will let Smithfield operate. Possibly, China could eventually nationalize Smithfield since its an active Communist nation. It could then increase prices to American consumers which would affect their cost of living as other meat products would rise also.
Retailers would just blend opportunistically into the mix and U.S. pork farmers would make more money.
My concern is the cost to the Americans, as imports increase. This will surely increase prices, as supply dwindles. China can control what it wants for themselves, and unless they ramp up production, Look Out Bacon Lovers, as the other producers will follow along with increases.
There is nothing we can do about it, as the offer made was huge for the investors, and overall, Capitalism wins, but prices will definitely go up.
First we exported refined gas to China—and the price went up.
Then we exported natural gas to China—and the price went up.
Now we can begin exporting methane gas to China—and the price will????
Global markets, and their impact on domestic prices, are reality. But this one will be a one way street until U.S. regulators approve Chinese meat imports into the U.S.—which may be never. And maybe with good reason.
Good time to start a hog farm I think.
I think consumers will react to the acquisition of Smithfield brands: Eckrich, Farmland, Armour, Cook’s, Gwaltney, John Morrell, Kretschmar, Curly’s, Carando, Margherita, and Healthy Ones. Larry Pope may talk about business as usual, but he won’t have the last word on operations. If there is a lot of coverage about the acquisition, retailers and consumers will likely express concerns about quality control and health practices. There’s been much press about China’s standards at a lower level than what American consumers expect. This may be a good opportunity for those brands still owned by US companies to leverage ownership and all it implies (health…US Economy) as a point of differentiation.
I personally think that the American consumer will react in the way which the new media prescribes. It is how most of them make decisions. The news, talk shows, etc.
In reality, China needs food sources and Smithfield was a good choice. Some of the initial reaction to this in the media world was around the food being made in China and shipped back here. Huh?
Business is business and is China really as bad as some think? Let’s see how it goes and quit guessing.
The sale of Smithfield is a major concern for our national security. I’m all for active and friendly trade relations with China (as we all must be in the new world order), however, we need to be very cautious in the structure of deals.
In particular, we need to be careful with the Smithfield deal as it sets a precedent for future business conduct. Let’s be sure that we aren’t tempted by a play for maximum individual gain. It is much better to think bigger—about the larger interests of US business and making sure that we are having fair dealings on both sides of the table, for everyone’s sake.
I’ve lived in several countries including Japan and briefly in China. I imagine the Japanese and many of our European friends are shaking their heads as another group of individuals sell out our national interest for some dollars. In Japan and Europe there is a pride in keeping what is a home-grown treasure at home.
We increasingly read about China hacking our national security and stealing plans for high tech personal and governmental inventions. China has undermined our trade balance and where we have an advantage they buy us out when they can’t get what they want by less expensive means.
Sadly, many of our politicians are even more cheaply bought off than our titans of industry.
Our new friends in China will be welcomed into the American market with all the parades and parties every one else got. But the fun really starts when the parties are over and it is time to go to work. The Chinese are used to an orderly and somewhat narrow bureaucracy to contend with. That’s all about to change in the land where the streets are paved with gold and foreign investors are made to pay for them. Anyhow, time will tell if they are ready for the big leagues or just have the money to play and lose like so many others.
I believe in capitalism. This is capitalism. Get over the fact it is China. That is the way a free market is supposed to work. You can’t have it both ways.
Effect? Prices go up.
So…I am strongly supportive of this deal, as I am of Walmart’s (and others’) expansions into the Chinese retail market. I have argued extensively that the peace and prosperity of the world is largely driven by aggressive commercial activity, not by a lot of brain-dead government policy: “Retailing: the Trojan Horse of Global Freedom and Prosperity.” Interlocking commercial interests always work in favor of peace: Only an idiot will kill his own customers!
Also, my judgment is that China does NOT represent a substantial military danger. Not that it couldn’t be. But you have a country of 1.4 BILLION people, large numbers of whom have seen and experienced the benefits of freedom. The Chinese “leadership” reminds me of the poster I saw of the company “boss,” who saw his employees racing into the future with innovation, wistfully commenting, “There they go! And I must hurry after them, for I am their leader!” 😉
See, I can’t help but think back to the stories of poisoned pet food and antifreeze in toothpaste—let alone some of the things that Chinese food companies have done to their own people, forget about what they’ve exported to others. My concern as a consumer, watching Congress duke it out over spending money—and how has the FDA been impacted by the sequester?—is, how long before those “money saving” tactics make their way into a business that right now many Americans trust, or at least, trust much more so than any Chinese counterpart? And will the FDA really have enough time or people to make sure that doesn’t happen?
But perhaps I am an exception. Perhaps most Americans’ memories aren’t that long.
Available supply for the US going down with demand constant or increasing, means prices go up. Drive demand to other meats, possibly resulting in increases across the category. Not what the average American household needs.
I was going to make a (Maxwell Smart type) joke about “the old pork as a strategic weapon ploy” but it seems others beat me to it…only they weren’t joking. I find the comments here startling: importing cheap goods is fine; well no it’s not because we have a trade imbalance…fine, we’ll offset that by exporting things; no, can’t do that either. Exactly what kind of trade do people like? I wonder, but it’s apparently not with China.
Who remembers a time when Japan was allegedly taking over the U.S. and we were encouraged to “buy American” and to fret the sale of U.S. assets to the Japanese? It wasn’t that long ago…but it is easy to see now that it didn’t sink the U.S. If anything, a market opened (followed by many more) and it brought America’s strengths in innovation to the fore. Now the Chinese are cast in the role of economic villain, and the results will be the same. It will make everyone better.
As for the price question, you have to think about the short term and long term. In the short term, yes prices will rise. In the long term, though, that provides the incentive to increase supply. Ultimately unit costs are decreased and prices could well go down. If prices go up, I suspect regulation will be the bigger driver.
Living in Hong Kong, our family is very cautious about where a product is made, not the home of the corporate headquarters. Recently, there was a scare about a premium brand of milk imported here from usually safe Australia. I teach a Globalization class and I tell my students that we must think about the culture of a local economy we want to sell to, not some faceless world icon. Chinese companies are good, and some are bad. I don’t know Shuanghui so I can’t comment. But let’s not criticize them right away because they’re not American. I liked the comment that American consumers will respond the way American media responds—CNN and Fox, go at it!
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If this pending deal “makes perfect sense” as stated above, it’s because 1) Larry Pope and 4 other Smithfield executives will make $85 million off the deal and still have their jobs, 2) Shuanghui will control the marketing of the world’s pork supply as well as put pressure on the Japanese, large current buyers of Smithfield pork, to seek additional sources for their pork needs. That would create a higher worldwide demand for pork products with resulting higher costs.
The vital effect of such a deal would take another American asset and convert it to a Chinese one. Food dominance at all levels should be preserved in the USA. We have seen lots of that given up in recent decades in autos and electronics.
With China’s huge population and future food needs that will divert much pork from the U.S. to China no matter how independent the Chinese say they will let Smithfield operate. Possibly, China could eventually nationalize Smithfield since its an active Communist nation. It could then increase prices to American consumers which would affect their cost of living as other meat products would rise also.
Retailers would just blend opportunistically into the mix and U.S. pork farmers would make more money.
My concern is the cost to the Americans, as imports increase. This will surely increase prices, as supply dwindles. China can control what it wants for themselves, and unless they ramp up production, Look Out Bacon Lovers, as the other producers will follow along with increases.
There is nothing we can do about it, as the offer made was huge for the investors, and overall, Capitalism wins, but prices will definitely go up.
First we exported refined gas to China—and the price went up.
Then we exported natural gas to China—and the price went up.
Now we can begin exporting methane gas to China—and the price will????
Global markets, and their impact on domestic prices, are reality. But this one will be a one way street until U.S. regulators approve Chinese meat imports into the U.S.—which may be never. And maybe with good reason.
Good time to start a hog farm I think.
I think consumers will react to the acquisition of Smithfield brands: Eckrich, Farmland, Armour, Cook’s, Gwaltney, John Morrell, Kretschmar, Curly’s, Carando, Margherita, and Healthy Ones. Larry Pope may talk about business as usual, but he won’t have the last word on operations. If there is a lot of coverage about the acquisition, retailers and consumers will likely express concerns about quality control and health practices. There’s been much press about China’s standards at a lower level than what American consumers expect. This may be a good opportunity for those brands still owned by US companies to leverage ownership and all it implies (health…US Economy) as a point of differentiation.
I personally think that the American consumer will react in the way which the new media prescribes. It is how most of them make decisions. The news, talk shows, etc.
In reality, China needs food sources and Smithfield was a good choice. Some of the initial reaction to this in the media world was around the food being made in China and shipped back here. Huh?
Business is business and is China really as bad as some think? Let’s see how it goes and quit guessing.
The sale of Smithfield is a major concern for our national security. I’m all for active and friendly trade relations with China (as we all must be in the new world order), however, we need to be very cautious in the structure of deals.
In particular, we need to be careful with the Smithfield deal as it sets a precedent for future business conduct. Let’s be sure that we aren’t tempted by a play for maximum individual gain. It is much better to think bigger—about the larger interests of US business and making sure that we are having fair dealings on both sides of the table, for everyone’s sake.
I’ve lived in several countries including Japan and briefly in China. I imagine the Japanese and many of our European friends are shaking their heads as another group of individuals sell out our national interest for some dollars. In Japan and Europe there is a pride in keeping what is a home-grown treasure at home.
We increasingly read about China hacking our national security and stealing plans for high tech personal and governmental inventions. China has undermined our trade balance and where we have an advantage they buy us out when they can’t get what they want by less expensive means.
Sadly, many of our politicians are even more cheaply bought off than our titans of industry.
Our new friends in China will be welcomed into the American market with all the parades and parties every one else got. But the fun really starts when the parties are over and it is time to go to work. The Chinese are used to an orderly and somewhat narrow bureaucracy to contend with. That’s all about to change in the land where the streets are paved with gold and foreign investors are made to pay for them. Anyhow, time will tell if they are ready for the big leagues or just have the money to play and lose like so many others.
I believe in capitalism. This is capitalism. Get over the fact it is China. That is the way a free market is supposed to work. You can’t have it both ways.
Effect? Prices go up.
So…I am strongly supportive of this deal, as I am of Walmart’s (and others’) expansions into the Chinese retail market. I have argued extensively that the peace and prosperity of the world is largely driven by aggressive commercial activity, not by a lot of brain-dead government policy: “Retailing: the Trojan Horse of Global Freedom and Prosperity.” Interlocking commercial interests always work in favor of peace: Only an idiot will kill his own customers!
Also, my judgment is that China does NOT represent a substantial military danger. Not that it couldn’t be. But you have a country of 1.4 BILLION people, large numbers of whom have seen and experienced the benefits of freedom. The Chinese “leadership” reminds me of the poster I saw of the company “boss,” who saw his employees racing into the future with innovation, wistfully commenting, “There they go! And I must hurry after them, for I am their leader!” 😉
See, I can’t help but think back to the stories of poisoned pet food and antifreeze in toothpaste—let alone some of the things that Chinese food companies have done to their own people, forget about what they’ve exported to others. My concern as a consumer, watching Congress duke it out over spending money—and how has the FDA been impacted by the sequester?—is, how long before those “money saving” tactics make their way into a business that right now many Americans trust, or at least, trust much more so than any Chinese counterpart? And will the FDA really have enough time or people to make sure that doesn’t happen?
But perhaps I am an exception. Perhaps most Americans’ memories aren’t that long.
Available supply for the US going down with demand constant or increasing, means prices go up. Drive demand to other meats, possibly resulting in increases across the category. Not what the average American household needs.
I was going to make a (Maxwell Smart type) joke about “the old pork as a strategic weapon ploy” but it seems others beat me to it…only they weren’t joking. I find the comments here startling: importing cheap goods is fine; well no it’s not because we have a trade imbalance…fine, we’ll offset that by exporting things; no, can’t do that either. Exactly what kind of trade do people like? I wonder, but it’s apparently not with China.
Who remembers a time when Japan was allegedly taking over the U.S. and we were encouraged to “buy American” and to fret the sale of U.S. assets to the Japanese? It wasn’t that long ago…but it is easy to see now that it didn’t sink the U.S. If anything, a market opened (followed by many more) and it brought America’s strengths in innovation to the fore. Now the Chinese are cast in the role of economic villain, and the results will be the same. It will make everyone better.
As for the price question, you have to think about the short term and long term. In the short term, yes prices will rise. In the long term, though, that provides the incentive to increase supply. Ultimately unit costs are decreased and prices could well go down. If prices go up, I suspect regulation will be the bigger driver.
Living in Hong Kong, our family is very cautious about where a product is made, not the home of the corporate headquarters. Recently, there was a scare about a premium brand of milk imported here from usually safe Australia. I teach a Globalization class and I tell my students that we must think about the culture of a local economy we want to sell to, not some faceless world icon. Chinese companies are good, and some are bad. I don’t know Shuanghui so I can’t comment. But let’s not criticize them right away because they’re not American. I liked the comment that American consumers will respond the way American media responds—CNN and Fox, go at it!