June 6, 2013

Outweighing worries they have about the takeover of a major US company by a foreign entity, US pork producers are optimistic that the surprise purchase of Smithfield Foods by a Chinese meat processor will help them tap further into the lucrative Chinese market.

Shuanghui International Holdings is set to buy Virginia-based Smithfield for US$4.7 billion. The deal was announced last week.

"When you hear things like that, you always have mixed emotions, but I always say you need to sit down and think about it and let cooler heads prevail," said Sam Carney, a former president of the National Pork Producers Council, who has grain and livestock operations in Adair, Iowa. "I believe this is going to be an excellent opportunity to export more pork to China."

Currently, about US$900 million of pork is shipped annually to China and Hong Kong. The acquisition last Wednesday (May 29) sent shock waves throughout the agriculture industry despite the benefits of the deal laid out for American pork farmers by Larry Pope, the chief executive of Smithfield.

Pope not only highlighted Shuanghui's access to millions of consumers in China, Japan and other Asian countries, but promised the merger would not result in the closure of any Smithfield facilities and could lead to the opening of more US plants and the creation of additional jobs. Smithfield owns the John Morrell plant in Sioux Falls that employs about 3,300 people and processes an estimated 17,000 hogs a day for fresh pork cuts and processed meats.

Still, farmers are wary of having Smithfield, the world's largest pork processor and hog producer, in the hands of a foreign buyer.

On the other hand, producers fear China could impose further restrictions on how pork is raised in the US, shutting out other US suppliers in favour of meat from the Smithfield business that meets its qualifications. They also worry that a spike in pork demand for the meat in China could increase the chance that more of it heads overseas and, at least in the short-term, lead to shortages and higher prices in the US.

The deal must be approved by shareholders and regulators, including the US Committee on Foreign Investment. Multiple news outlets also have mentioned the possibility of another bidder entering the fray for Smithfield.