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Satiating Chinese Appetite for Pork: China Looks to U.S. as New Source for Meat

May 30, 2013 at 12:00 AM EST
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JUDY WOODRUFF: Next: A Chinese company made the biggest play yet for a U.S. company in a bid for Virginia’s Smithfield Foods.

China’s appetite for pork keeps growing and growing. It’s now the largest market for pork products in the world.

WOMAN: When I was young, my family could only afford to have pork once or twice a year. We were poor, and our clothes were covered with patches.

JUDY WOODRUFF: With increasing prosperity and more consumption of luxury goods across China, meat consumption has quadrupled over the past 30 years. Now China’s largest meat processor Shuanghui, known as Shineway in the Western world, has turned to the world’s largest pork producer.

NARRATOR: Smithfield Pouch Pack, a new way to love bacon.

JUDY WOODRUFF: Shineway is offering to buy Smithfield Foods for $4.7 billion dollars. Smithfield is headquartered in Smithfield, Va., right outside Norfolk. It’s been a family-owned company since 1936 and some Smithfield workers said yesterday they want to keep it that way.

Curtis Bond appealed to CEO C. Larry Pope.

CURTIS BOND, Smithfield Employee: We work hard. We helped build this country — I mean, the company from the ground up. A long time ago, before my generation, there were other generations that help build this. So, I hope that he would think about it a little more and give it some thought.

JUDY WOODRUFF: Locals in Smithfield also expressed worry about losing jobs if the company is sold.

MAN: You know how it goes with mergers. Then, soon, there will be layoffs. Then they will be moving the foundation or moving the headquarters.

JUDY WOODRUFF: But Smithfield CEO Pope says, if anything, the deal will create jobs, and he dismisses any fears of Chinese meat flooding the U.S.

C. LARRY POPE, CEO, Smithfield Foods: There is no plan to move China-produced pork to the United States. That wouldn’t make any sense. That’s sort of like exporting ice to the Eskimos. It’s a dumb idea.

JUDY WOODRUFF: It’s not a done deal. Smithfield says rival bids may still come from companies in Brazil and Thailand.

For more on what this deal might mean both here and in China, we turn to two economists who follow these matters.

Steve Meyer is president of Paragon Economics, an agricultural markets analysis firm. He formerly served as director of economics for the National Pork Producers Council. And Thilo Hanemann, he tracks Chinese global investment at the Rhodium Group, an economic research firm.

Welcome to you both.

Thilo Hanemann, to you first. Why would the Chinese be interested in Smithfield?

THILO HANEMANN, Rhodium Group: Right.

The Smithfield-Shuanghui transaction is actually quite representative for a common motive that we see for Chinese acquisitions in U.S., which is not primarily to expand into the U.S. market, but becoming more competitive in the fast-growing home market. So, as the clip has shown, pork consumption is still growing at very fast rates back in China, but there are tremendous problems with the food safety there.

So, by acquiring a company in the U.S., Shuanghui hopes to tap into the quality control expertise of that company, transferring some of that expertise back to its Chinese infrastructure, and at the same time using an American household brand name to cater to domestic Chinese consumers.

JUDY WOODRUFF: And, Steve Meyer, right now, what portion of the world meat market, pork market does Smithfield have?

STEVE MEYER, President, Paragon Economics: Well, Smithfield Foods is the largest producer in the world of pork — for hogs and pork.

They have a market share on the processing side somewhere around 24 or 25 percent in the United States. They have about 16 percent of the U.S. breeding herd. But we need to remember that the U.S. pig industry, though large and important, is a fraction of what is in China. They have 10 times as many pigs as we have, in China.

So it’s a very large market already. It’s growing because of those income factors that you have cited earlier. And people there love pork. As so, as they get more money, they’re going to improve their diets and add more meat protein to those diets.

JUDY WOODRUFF: Is there a role — in listening to this, before we get much further on the question of meat and pork, I want to come back to you, Thilo Hanemann. Does the Chinese government play a role in all of this? How do you see that?

THILO HANEMANN: Well, people always have that understanding that Chinese outgoing investment is all government-directed and part of a grander strategy.

But I think the truth is actually quite the opposite, that restrictions on the government side are a major factor why we’re only seeing this investment happening now, and not earlier, because the Chinese government has — had imposed very strict controls on the outflow of capital, and only recently, the regime of capital outflows has been reformed somewhat.

So, I think they’re playing a more supportive role in retracting from that field and letting Chinese companies do those global deals. So, I think, in that specific deal, the influence of the government is fairly low.

JUDY WOODRUFF: So, this company — this is a company that seems to be moving because it thinks it’s — it thinks it’s a good move.

Steve Meyer, what does this bring to Shuanghui, the Chinese company, if it were able to be able to pull off this merger?

STEVE MEYER: Well, I think, to support what Thilo said a while ago, this is an issue of them accessing a consistent supply.

The United States’ pork production doesn’t change a lot from year to year. We have been on a steady uptrend for many, many years, so, a consistent supply of high-quality, wholesome products. China has had trouble with their supply chain in the past. They have some endemic disease problems that at times have caused large death losses among pigs there and shorted the market there of pork products.

So, I think the big thing is access to this supply. It’s access to professionalism and expertise of the Smithfield Foods staff and management.

JUDY WOODRUFF: And from the perspective — from the American perspective, staying with you, Steve Meyer, what should the concerns be? We heard the workers at Smithfield saying they’re worried about their jobs. We know, today, we talked to other folks in the meat — or the veterinary medicine field who say there are concerns about safety down the road, especially if the company were to take all the processing to China.

STEVE MEYER: Well, I mean, that’s — I guess that’s always a possibility.

At this point, I think you have to take them at their word that they’re not going to make any big changes. This is a successful company. There’s not a lot of reasons to start toying with this thing. Some of the fears that have been expressed are some things about food safety — which Larry Pope is right — this is not going to be something where we import Chinese product.

We have a competitive advantage over China. They’re going to take our product to their market, not bring it here. So, I don’t think food safety is an issue. It doesn’t change the structural characteristics of the U.S. pork production or processing sectors. It doesn’t change the amount of vertical integration that’s here.

I don’t see a negative of this for the U.S. pork industry. As a matter of fact, I think it is a positive because I think it will help grow our exports China and provide opportunities not only for Smithfield, but for other producers and other processors in the United States to increase their production. And in doing so, that increased production should keep our domestic prices at some competitive equilibrium, like they have been in the past.

We might have been short-term price increases, but I don’t see anything long-term, as long as our producers are allowed to respond to market signals.

JUDY WOODRUFF: Thilo Hanemann, how would China look at some of these same questions, these concerns we’re hearing from — from folks in the U.S., whether they’re worried about jobs, whether they’re worried about food safety, market share, and so forth?

THILO HANEMANN: Right.

I very much support what Steve just said. I think, if you look at the deal and its commercial logic, what the Chinese company is really interested in is the local supply chain the local expertise and the made-in-the-U.S. brand.

So, it would be very foolish for them to sell the local operations or even bring some of the processing back to China. It will certainly bring some of the expertise back and ask the management team and the experienced staff that they have to streamline some of the domestic value chains and distribution channels.

But I think, overall, the Chinese company and certainly also the Chinese government will see this as a positive contribution to domestic food security and efficiency.

JUDY WOODRUFF: Steve Meyer, what about just the idea that such a big part of the American meat/pork business could be foreign-owned?

STEVE MEYER: Well, that’s something that Americans, you know, we have to decide how — our comfort level with that.

It is not the first time this has happened. I remember, in the ’70s and ’80s, the Japanese, we feared that they were going to buy the whole country. They own Pebble Beach. My goodness, that’s a serious deal.

Before that, it was the Arab countries. And so I don’t know if it’s going to last a long time. But we do have to be comfortable with that. And while there’s a committee that will review this, I don’t see any national security issues. There’s been concerns raised about food security.

Well, if we exported all the pork that Smithfield produces and processes, as long as we can respond to the market, we will grow more. And we have plenty of food in the United States. We can argue about distribution sometimes, but, still, I don’t think there’s a real issue there that merits a lot of hand-wringing on our part, even though, at some point, we have to be concerned about foreign ownership. I don’t think we’re nearly at that point, in my mind, at this point.

JUDY WOODRUFF: Among other things, it’s interesting. As Americans are eating less pork, the Chinese are eating more.

Gentlemen, thank you both for being with us, Steve Meyer, Thilo Hanemann.