April 24, 2020

WH Group Ltd. struggles amid ASF, COVID-19 issues

According to Bloomberg news, COVID-19 and African swine fever is threatening production at Hong Kong-based WH Group Ltd., one of the world's top pork producer.

Like COVID-19, ASF is currently incurable and researchers have yet to come up with a vaccine. China's pork production fell 29% in the first three months of 2020; the swine disease has slashed the size of the country's hog herd by about half.

Smithfield Foods, the Virginia-based subsidiary of WH Group, shut three of its US plants this month because of COVID-19. They include a processing facility in Sioux Falls, South Dakota, that accounts for about a quarter of the company's US revenue.

When Smithfield announced the indefinite closure, more than 200 workers were sick; that number has risen to more than 700—almost half the state's total. With the Sioux Falls site alone handling about 5% of all hog processing in the US, the maker of Farmland bacon, Farmer John hot dogs, Eckrich sausage, and Armour ham warned of possible supermarket shortages. "The closure of this facility, combined with a growing list of other protein plants that have shuttered across our industry, is pushing our country perilously close to the edge in terms of our meat supply," Smithfield Chief Executive Officer Ken Sullivan said on April 12. "It is impossible to keep our grocery stores stocked if our plants are not running."

WH also is trying to avoid hits from the US-China trade war. Following President Trump's first tariffs against its products in 2018, China placed retaliatory tariffs on US pork imports, raising the price of American-made Smithfield meat to Chinese consumers. Still, WH managed to import about 410,000 tonnes of US pork into China last year, versus about 125,000 tonnes a year earlier.

When Shuanghui International Holdings, the precursor to WH Group, paid about US$4.7 billion for Smithfield in 2013, some US lawmakers expressed concern that Chinese ownership would create national security risks, including the possibility of Americans losing access to some pork products. The US allowed the acquisition, and now questions about availability may again arise.

Given the higher prices for pork in China, the US business is not as lucrative as WH's China operations. While China accounted for only about one-third of WH sales in 2019, it generated about 47% of segment profit. WH's US$13.2 billion of US revenue last year was about 55% of its total sales, down from 60% in 2015, but only 46% of segment earnings.

About six weeks before Smithfield closed its South Dakota plant, workers asked the company to implement such safety measures as checking temperatures and staggering lunch schedules for employees, says Kooper Caraway, president of the local arm of the AFL-CIO, which is assisting plant employees. "The management did not take the workers' demands seriously and did not implement any of the procedures," he says. "It wasn't until dozens of workers tested positive that the management decided to implement these things, but by then it was too late."

A company spokeswoman says that WH Group, through its Smithfield unit, has been adopting what the company calls stringent and detailed safety processes and protocols at its US facilities. Following the Sioux Falls plant's closure, Smithfield announced US$100 million in bonuses for employees, including those who cannot work because of exposure to the coronavirus. That followed an earlier US$20 million pledge.