June 4, 2013

 

 

The recent news that China's Shineway (Shuanghui International Holdings Ltd.) has agreed to purchase Smithfield Foods Inc. leaves much speculation for a boost in US pork exports to China in coming years.

 

However, according to the US Grains Council (USGC), the resulting increased pork import programme is unlikely to hold off China's expected future corn import programme.

 

Bryan Lohmar, USGC director in China, says it will be extremely difficult for Shineway to significantly increase US pork exports to China simply through its control of Smithfield in coming years.

 

"Let's say Shineway seeks to increase US pork to China by one million tonnes per year. Even if it does somehow manage to increase production and meet such an ambitious export target, that much additional imported pork would displace only 3-3.5 million tonnes (118-138 million bushels) of corn demand in China, or less than 2% of China's total corn demand," he said.

 

"Considering USDA forecasts nearly 20 million tonnes (787 million bushels) of annual corn imports in China within the next 10 years, even this large hypothesised increase in pork exports would only reduce projected imports by less than 20%."

 

Lohmar goes on to say that boosting US pork exports by such a large amount will be difficult for both physical and political reasons.

 

Smithfield's total US pork production is estimated at just over two million tonnes in 2012. "Expanding production by an amount significant enough to put a sizeable dent in China's corn import programme would require enormous growth. This growth would take time, require new facilities, and would almost certainly be faced with environmental and other interests that are already challenging the expansion of large swine operations in the US," said Lohmar.

 

Such an increase in China's pork import programme would also be challenged by China's large and rapidly growing modern pork industry, particularly if it comes from only one player, Shineway.

 

While Shineway is one of the largest pork producers and the largest processed pork producer in China, it still represents only a small part of China's total pork production, and there are many other large players with interests in China's domestic swine industry.

 

Shineway itself has substantial pork production investments in China and would not want to diminish the value of those investments, Lohmar says. As the company itself stated, Shineway is likely much more interested in improving both its production practices and also improving management of its integrated pork operations.

 

Like Smithfield, Shineway has a farrow-to-retail supply chain with branded products sold throughout China. Managing this supply chain and the various risks involved while ensuring integrity to build its brand is a daunting challenge.

 

Learning how Smithfield successfully accomplished this in the US and other countries is likely the main benefit to Shineway. Access to Smithfiled's modern pork production practices, genetics and technologies is also a major benefit. Together, these benefits could easily justify the price Shineway is paying for Smithfield.