WASHINGTON– The Senate agriculture committee weighed in Wednesday on what would be the biggest Chinese acquisition of a U.S. company in history, saying the purchase of Smithfield Foods Inc. raises concerns about long-term effects on American markets as well as on U.S. grain and pork producers.
Smithfield a Virginia-based company that is the world’s largest pork producer, is set to receive $7.1 billion, including debt, from Chinese food company Shuanghui International Holdings Ltd. if the deal is approved. But some senators remained skeptical of such large Chinese acquisitions of American companies.
“We need to be evaluating the log-term market implications of this deal for American workers, pork producers and the farmers who grow grain and feed ingredients,” said Sen. Debbie Stabenow Wednesday, D-Mich., who ischairwoman of the Senate agriculture committee.
Smithfield Foods president and CEO C. Larry Pope assured the committee that the company would continue to operate as the “same old Smithfield.”
“The new combined company expects to meet the growing demand for pork in China by exporting high-quality pork products from the U.S. This means more production for U.S. producers, more jobs in processing and more exports for the U.S. economy,” Pope said.
Senators questioned Smithfield’s current fiscal situation and the long-term food safety implications of the merger on the American food production industry.
“Despite the strength of America’s pork sector, Smithfield has been struggling to make a profit—and yet Shuanghui is offering to pay a 30 percent premium for the company. That, to me, raises questions about the economic motivations of the purchase,” Stabenow said in her opening statement.
Dr. Usha Haley, professor and director of the Robbins Center for Global Business and Strategy at West Virginia University, agreed with Stabenow, saying, “the risks outweigh the benefits.”
“There is little doubt that this Chinese foray will be the first of many in the U.S. food and agricultural sectors.”
However, industry experts do not see this merger as a fiscal or food safety hazard for U.S. consumers.
In a statement released Tuesday, the North American Meat Association responded strongly in anticipation of the committee hearing and questions regarding the merger.
“Foreign ownership of companies does not exempt these U.S. operations from full compliance with both the food safety and workplace laws of the U.S. It is not appropriate for lawmakers to try to carve out some special new law to impede the legal operations of such corporations,” the association said.
The realities of pork production versus consumption in China have industry groups and analysts convinced that the merger will be good for the American meat production business.
“This has the ability to increase exports to China and that would be a good thing,” Dave Warner, Director of Communications at the National Pork Producers Council, said Wednesday.
“All food imports to the U.S. have to meet our food safety standards and in this case, there’s absolutely no way that would happen with China. They need all the imports they can get,” Warner said.
China consumes roughly six times more pork than the U.S. with average Chinese consumption increasing 5.7 percent per year since 1975, according to the U.S. Department of Agriculture.
“Chinese growth continues to offer prospects for both the pork and grain sectors in the U.S. It may not be possible for China to meet all pork needs with Chinese production, potentially leading to more pork imports,” said University of Illinois economists in a June 26 press release analyzing Chinese consumption data.
Smithfield Food shares slipped 0.6 percent to $32.84 at market close following the hearing Wednesday.