The major announcement Wednesday of the purchase of Smithfield Foods by the Chinese meat processing firm Shuanghui Holdings was reviewed by Daily Livestock Report (www.dailylivestockreport.com) in today’s edition.
Authors Steve Meyer and Len Steiner report that several sources suggest that the value of this transaction makes this the largest Chinese purchase of a U.S. company to date.
Chinese officials of Shuanghui say they intend to leave Smithfield’s management team in place and have no plans to make changes in Smithfield’s operations. Smithfield CEO Larry Pope says the company would not close any facilities and will leave all employee agreements in place.
Smithfield currently boasts roughly a 26% share of U.S. hog slaughter capacity and a 16% share of the U.S. sow herd, the report indicates. This represents just 1.7% of the Chinese sow herd and 3% of China’s 2012 hog slaughter.
Meyer and Steiner indicate that despite the outcry by small farm advocates and some legislators, the purchase does not change the structure of the U.S. pork industry and should have no impact on the competitive landscape.
They don’t expect that U.S. antitrust laws should come into play in any review of the transaction.
Concerns about potentially transferring U.S. technology to China are also unfounded. “U.S. firms have been actively working with Chinese companies for years and, again, raising and processing pigs probably doesn’t involve much spying or missile technology,” the authors suggest.
On the plus side, the merger will probably enhance U.S. pork exports to China. “It just makes sense that owning a U.S. company will make things smoother for shipments – at least from that company.” The merger will also encourage other U.S. firms to develop closer ties with China, further increasing U.S. exports.
The merger is expected to only boost U.S. hog prices in the short term if U.S. pork exports do in fact grow.
Smithfield’s vertical integration back into production means the system can meet China’s ractopamine-free demands more easily than can non-integrated system.
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