Fight Club: U.S. Meat Made in China?

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The New Cold War won't be fought with missiles and submarines; it will be fought with oil companies, natural resources…and pigs.

The controversial sale of American meatpacking icon Smithfield Foods (NYSE: SFD) to Chinese hopeful Shuanghui International has become a polarizing issue among investors and citizens alike.

Today we debate the issue of whether it's a good or bad thing to sell this leading U.S. pork producer to a Chinese company.

Check out the fray and don't forget to pick the winner and tell us what you think.

Let's get ready to rumble…

Garrett Baldwin: The Chinese Purchase is Good… For Everyone.

Since its announcement, the multibillion-dollar purchase of Smithfield Foods by Shuanghui International has created a lot of backlash. But it seems that my friend in the blue sweater now has the wool traveling up the back of his neck and covering his eyes.

The Shuanghui purchase is full of positives for the American landscape in more than one way.

Yes, the most obvious beneficiaries are the stockholders and bond holders of the company. Shuanghui International will be paying $4.72 billion in cash and assuming $2.38 billion in debt.

But there are five other reasons to support this acquisition, despite the multitude of objections.

1. American Farmers Are Poised to Profit

The Shuanghui-Smithfield deal is a strong example of global fundamentals at work.

Pork demand from China is at a record high, and Shuanghui has effectively cut out the middle man in pursuit of accessing high-quality pork, something Chinese farming operations struggle to maintain. With hundreds of millions of Chinese poised to join the country's middle class, increased salaries has fueled a dietary transition from a starch-based diet to one that includes pork, chicken, and beef.

But dietary transition goes both ways. Believe it or not, U.S. pork demand is on the decline, as an emphasis on health and wellness, in addition to rising food costs, have influenced consumer behavior.

Based on the corporate structure and agreements with U.S. pork farmers, this agreement allows China to grow its own pork supply chain and service an international marketplace that will provide steady to increasing demand over time.

For U.S. farmers, this will also increase an already-booming pork export market. This sale will keep American farm operations booming.

American corn producers, feed producers, animal health and nutrition providers, infrastructure firms, and anyone who provides directly to the Chinese companies will benefit. And anyone who doesn't want to take part in Chinese growth has the ability to partner with a number of other American pork producers.

2. The United States will Regulate China For Once

For all the concerns about the days when "China will take over the United States," we still have the fairest legal system and the most developed regulatory system in the world.

And while many people have concerns about expanding government in the 21st century, the Food and Drug Administration and U.S. Department of Agriculture remain two of the few bright spots in the global regulatory game.

China has noted that it wishes to adopt Smithfield's vertical pork supply chain structure into its domestic operations. But the operations and rules within the U.S. farming regulatory regime helped shape Smithfield's processes.

From animal health to sanitation, regulation has helped companies in the United States establish best practices, many of which will transfer over to China's international operations.

But the Shuanghui purchase will allow the United States to regulate a Chinese company not only on its food supply, but also through the Security Exchange Commission. For years, concerns about shell companies on the stock exchanges and ADRs with virtually no accountability have cost investors billions of dollars.

This purchase really will allow regulation where regulation is needed: In the Chinese board room.

And while it's easy to dismiss China's lack of regulatory oversight in the past, time has caught up with them on environmental, health, and financial oversight. These are increasingly important matters to the Chinese people and are continually entering the minds of the body politic across the country.

3. This Shines a Greater Light on Commercial Pig Farming

As I've noted before, this isn't a strategic takeover of a major industry in the United States. But vertical pork farming is one of the leanest (no pun intended) production processes of a major commodity category.

But commercial pig farming is a relatively inhumane (in my opinion at least) process that has continued to grow. China's acquisition is specifically tailored to generate increased insight into how U.S. pork producers generate high-quality pork at low prices, through a highly effective distribution network. This acquisition will draw attention to the trends and conditions of international farming operations. And that will create an entirely new set of industry best practices.

But not only is this good for the U.S., but American best practices will expand over to China. Particularly as companies discover ways to be more cost effective and still provide higher-quality foods. And any poor quality meats produced in Chinese commercial farms will only hinder its domestic industry, not help it.

4. It's a Reminder of U.S. Superiority in the Global Business World

This is also yet another reminder of how successful the United States continues to be when it comes to business innovation. Smithfield's vertical farming model is the envy of a country with half of the world's pigs in its backyard.

And as much as it will try to adopt this model, China will struggle without the human resources.

China, like the United States, is struggling to replenish its population of farmers. But the United States has something that no Chinese company does: Access to a world-class education system.

China will not be able to accomplish its goal of producing higher-quality food without American engineers and industry scientists.

This is evident in a number of commodity categories around the world. The Russians, for example, continue to struggle to drill in the Arctic on their own. For these reasons, they have been forced to partner with U.S. engineers. The same goes for China in domestic pork production. It will rely on American ingenuity and experience to build its operations.

5. Capitalism Solves Resource Problems

For decades, we've heard how China and the United States were going to engage in a resource war for food, water, and oil. Capitalism, however, has a funny way of preventing both when properly allocated to resource development.

China's adoption of U.S. pork production will lead to greater cooperation and development of the markets. As animal health and nutrition expands as an international industry, pork quality and yields will increase, farming operations will expand to focus on better ways to produce these products and promote animal health, and the U.S. and China will engage in a bi-lateral relationship that solves problems for both sides.

The U.S. remains the strongest agricultural sector in the world despite this acquisition. China will have to learn the hard way how to compete against American companies and could experience backlash. But in the near-term, this is a good deal for American producers, its rivals, and international markets.

Frank Marchant: China and Smithfield! No Sale!

No, I don't think China should be allowed to buy Smithfield.

Had you asked if the UK, France, Germany or Japan should be allowed to buy Smithfield I would probably have said, "fine."

The reason I feel this way is because I have seen what China is doing globally. I have seen their bullying in the South China Sea. I have seen their expansion efforts reach around the world.

China is at odds with every country in the South China Sea. ,including Taiwan, Vietnam, the Philippines and Japan. China claims they own all of the islands in the South China Sea.

They also seem to have come to another interesting conclusion. The Chinese figured out it is more cost effective to buy the world with gold than it is to conquer the world with bullets.

To that end, the Chinese government has told its business community to "go out and buy" — and buy they have: A few of the businesses China has purchased include:

  • $2.9 billion to buy Australia's Felix Resources.
  • $17 billion to buy Argentina's Repsol YPF.
  • $1.7 billion to buy 60% of Athabasca Oil Sands Corp.
  • $7.2 billion for Addax, a Swiss oil company
  • $2.2 billion for Singapore Petroleum
  • $3.3 billion for Kazakh Oil
  • $1.3 billion for a 20% interest in Angolan oil from Marathon Oil.
  • $877 million for UK-based Emerald Energy

China is also planning to build an alternative to the Panama Canal.

Nicaragua has awarded a Chinese company a 100-year concession to build an alternative to the Panama Canal in a step that will have profound geopolitical ramifications.

As China reaches around the globe, what it can't bully away from property owners it buys. So now Shuanghui International has offered $4.7 billion for the world's largest pig factory!

The track record for Shuanghui International is anything but stellar.

Extreme food safety violations have been alarming and deadly: One of Shuanghui's plants was shut down after it was discovered pigs were fed a chemical that sickens humans while creating leanness in pork.

Noted Chinese food disasters include bacteria-infused pork, rat meat sold as mutton and cadmium-laced rice.

In 2011, growth-enhancing drugs banned in both the U.S. and Europe were used without concern in China.

The Chinese are fully aware that our understaffed U.S. Food and Drug Administration's regulators depend on voluntary compliance, not just enforcement. How safe do you feel knowing our pork supply will be watched over by Shuanghui International?

But more than simply buying Smithfield, the Chinese are demanding that along with its purchase they receive Smithfield's animal-gene technology for use in China, thereby slowing, if not replacing, U.S. pork exports to China.

One of the only areas of trade with which the U.S. has a surplus with the Chinese is in the sale of pork. And contrary to what my colleague asserts, the demand for U.S. pork is up 155% in the past five years.

It makes sense that Shuanghui is willing to pay a 30% premium for the world's largest producer of pork. It's frightening to think what price American citizens will pay for the profitable sale of our largest pork producer.

It is not an accident that both New Zealand and Brazil have taken the lead and blocked Chinese purchases of farming commodity businesses in their countries. We should do the same before it is too late!

Now that you've read this bare-knuckles brawl, it's time to turn in your scorecard.

Choose the winner of this tussle by voting below.

Join the conversation. Click here to jump to comments…

  1. Lady | June 14, 2013

    China's health standards are not as high as our own – just look at the number of new viruses that threaten humans coming from that country. If the Smithfield deal goes through I'll be very disappointed at the greatly increased risk to our food supply. I think American grown is safer than China grown.

    • mark | June 14, 2013

      Where do you get the idea that Americans will be importing Chinese pork?
      weird. The article is about China buying a US producer and exporting

    • AN | June 14, 2013

      I agree. We are lucky that non-Chinese quality control food analysts have detected plastic-laced baby milk, contaminated cat and dg food, etc etc etc. that arrives from China …and is sold everywhere, pretty soon. The operative words are 'non-Chinese QQ'. 'Chinese QQ' is an oxymoron. Home grown, home controlled, and home consumed is the future for non Chinese who value their health and that of their environment; let the Chinese eat their own pork, even if it is 'Smithfield' at the start, the quality won't last; so just don't let them export it to us.

  2. Gizwaldo | June 14, 2013

    Fear, fear and more fear.
    China buys a the biggest pig factory and were all terrified.

    Frank's comment: "China is at odds with every country in the South China Sea. ,including Taiwan, Vietnam, the Philippines and Japan. China claims they own all of the islands in the South China Sea. "

    I wonder how all the neighbours around the US feel about the bullying they've also received and the unfair trade conventions which they have to conform to?

    Its not a war, this is capitalism wielded by a communist state forced into it for basic survival.
    This is what we get when you let bankers and other capitalists write our laws.
    With $3tn US dollars and the fed trashing the US dollar what else is China gonna do for survival?

    Just get on the bandwagon and buy up the stocks for the next western company you may think the chinese will want to buy next.

    Simple.

  3. Solomon Fang | June 14, 2013

    What's so difficult rearing pigs? Americans should not kid themselves that they are the only people in this world with the ingenuity to rear pigs. This jingoistic chest beating is unbecoming of the greatest nation in the world. You should lead by example like your great athletes and scientists that a free America ultimately means a free world. Why deprive shareholders of a fair profit. It is though it is the only game in town.

    • One World | June 14, 2013

      China's government has in the past 30+ years taken advantage of both the hardworking Chinese people and the good intentions and wishes of other peoples. It has been encouraging Chinese companies to play underhandedly. Shuanghui, for one, has been selling in China and Asia millions of tons of sausages loaded with preservatives and colorings and stabilizers allowing these sausages shelf-life of years instead of the usual weeks. Do we need Shuanghui's unethical practices in the US when it acquires Smithfeld? China needs to live by common universal values before the rest of the world including the US can accept it as a fair player in the game. Chinese people living in the US have a particular responsibility to let their friends in China know this.

  4. Kim | June 14, 2013

    I like what both had to say, but believe more of what Frank said, if that makes sense. Not everything should be about the Board Room and making money. In this case as in most Ag companies I believe America should retain ownership, just have contracts that are very lucrative to the American companies, there is no reason to sell out. Obviously they believe they can make money with a 30% premium, so keep the company in American hands, give them a 30% premium (to Smithfield) contract to keep the Chinese happy in pork. Some of that premium charge could cover the cost of inspectors to be kept on site, and awarded to pork farmers so they can increase their herds or bring others into the pork farming business. We all know it is extremely expensive to stay in compliance with PETA, as well as all the other farming governmental entities. This would not only commit China but also Smithfield to the American Pork Farmer.

    • Shirley | June 14, 2013

      I agree… I do not like China buying any of our industries here in the States.. I am of the old school, Give them an inch and they will take a mile. It is patently clear that China has no good will towards our country. Smithfield should just cut a contract withthem as you suggested and retain control of their company.

    • Bob | June 17, 2013

      Why sell the goose that lays the golden eggs? It appears to me pork export can make everyone happy without giving up control of a very important source of protein. Greed appears to be the motivator. Will chicken be next? What will happen to the price of pork when we have to compete with the chinese demand put on what would be a chinese owned company? Pork has been a reasonably priced food in my household for years. Chicken as well. Don't sell out what is another well built american agricultural industry!!! Send china pork that is controlled here, "if it ain't broke don't fix it."

  5. fasron25@verizon.net | June 14, 2013

    China wants to not just take over a few industries but is working on controlling a good portion of the world just like the Muslims. Look at the elephant trade of Ivory in Africa where China has decimated the herds for the tusks and cxould care less how many of these beautiful animals are killed. China thinks only for itself. This family has stopped buying Pork period.

    • One World | June 14, 2013

      Chinese companies encouraged by their government have been conducting many other much more horrible acts around the world. We need to let Chinese government know that the world condemns these acts, for the common good of all peoples.

  6. Nz Sez | June 14, 2013

    Sorry Mr Marchant, your comment at the end of the article that New Zealand refused to sell land to Chinese interest is in error.

    16 dairy farms were sold to a Chinese company in 2012, read this if you want to follow it up: http://www.nbr.co.nz/article/ministers-approve-crafar-farm-sale-chinese-cw-108479

    • Frank H. Marchant | June 17, 2013

      Nz Sez,

      I stand corrected, thank you for your input Nz.

      Frank H. Marchant

  7. K T Kristoffersen | June 14, 2013

    China is an extremely well honed bureaucratic machine. Everything is carefully planned and calculated. China needs and wants to achieve global control of agricultural and energy supplies. With the current western economic situation it is likely they may well succeed.

    • Carla | June 14, 2013

      I agree. Not a good feeling!

      Plus, here in calif supermarkets, large % of even our fresh vegs are not grown in USA. Unbelievable!

      I suspect china also will try to capture and control mineral mining in space.

  8. Wily Willy | June 14, 2013

    Garrett used about twice as much space, but his long-winded presentation certainly does not win as he defends an unruly, voracious pet, China. China will reform and become a decent member of the world community WHEN PIGS FLY.

    • Proud American | June 14, 2013

      How much has Chinese government paid Garrett to write his piece of nonsense?

  9. Gerald ladd | June 14, 2013

    Having foreign concerns owning your power supply, food, and from what I read, some
    of our arms are manufactured off shore, isn't good. They can shut it off at will. Too
    much control.

  10. Fred | June 14, 2013

    Near 5 yrs: great for US. Long term: US held hostage to higher pork prices when China wishes; entry point for future Chinese purchases of other US ag businesses to influence or control world food supply when the time comes. This sale may further
    Enable China to dominate agriculture long term.
    Garrett's Points 1 and 5 are valid. Points 2-4 are hyperbole. Shrewd deal By the Chinese.
    Counter point: Shanghui in 5-10 yrs may sell off Pork production and slaughter at a loss which are tough businesses to successfully manage. Distribution is easy. Time will tell if they can be successful, and if so will they wish to hold US agriculture hostage.
    Wish I had bot Smithfield instead of owning a hog farm! LOL.

  11. Emerson Rawding | June 14, 2013

    Lets blast away. Lets buy their water supply.

  12. randy | June 14, 2013

    Can you say " Boycott"

  13. Arnold Kirschner | June 14, 2013

    It seems American companies can't get rid of their manufacturing facilities for the big score fast enough. The USA won't wake up to that danger until we are a third rate nation with a handful of "Haves" and the rest of us in servitude. That will be the end result if we don't do anything about this. We now have 10% manufacturing and for full employment, with living wages, we need 20%. We are on that slippery slope!

  14. william | June 14, 2013

    I am still trying to figure out why Smithfield felt compelled to sell out at all, even if it weren't to China. Was it to get rid of their $2+ billion debt? And how many American workers will lose their jobs? As for oversight and quality control, one only needs to check the data on product recalls. The vast majority of these are products made in China, and the vast majority of those products were from American companies doing business with China. So much for your "oversight" Mr. Baldwin.

    • Mith Radates | June 14, 2013

      And how soon will we see lots of Chinese workers given H1 visas to enter the US and work at Smithfield? They will learn the processes, genetic engineering science, be able to travel at will within the US, and take back to China all they learn. The Chinese are very smart. If we can't be smarter, we at least need to realize how smart (and ruthless) they are.

      • Lynn | June 15, 2013

        It is interesting that your observation corresponds so closely with the current discussion of immigration reform. I also agree with Kim that America should retain national ownership of all food supply and agricultural companies. First, we need to be able to control the quality of our food supply and to be able to feed our citizens; that is a sovereign obligation. We also need to pay attention to some of the major fights and new legislation regarding water rights (essential for survival) currently going on in the USA. While Emerson suggests that we buy China's water rights, actually. ours are the one's up for sale with the help of new legislation and regulations being passed. (Check out what just passed in Texas). Our garment industry has been decimated, we can no longer clothe ourselves without imports.
        As for Garrett's endorsement of America's universal educational system as a defense, how long can it be maintained if our governments keep cutting funding for public schools and siphoning tax dollars into the PRIVATE pockets of testing publishing companies (the accountability craze) and private school vouchers.
        Wake up, America! We have been sold out.

  15. Rose | June 14, 2013

    What Garrett says is good in a perfect world. This is NOT a perfect world. Too much greed, corruption etc…. The worst possible scenario usually prevails. When will we put ethics ahead of the bottom line? I already feel sorry for the poor pigs… Us humans, we're stupid anyways. We deserve what we get.

    PS: I hope all the stupid, greedy jerks out there get reincarnated as pigs and get a taste of it first hand of what they're doing.

  16. Michael | June 14, 2013

    Frank is right. The track record of the government in health and safety is unremarkable, at the least. As it is now, I do not knowing eat any food product made in China.

    The good news is that maybe Americans will eat less pork.

  17. tom l | June 14, 2013

    Shuangui's environmental record is abyssmal if not criminal. If any of their ethics bleeds over into US operations, take cover!

  18. Louise | June 14, 2013

    Eventually, the name Smithfield being what it is, U.S. consumers will be buying Chinese-grown pork. The Chinese are savvy about investment, but I'd question their expertise in sanitation, and suggest that any cook who prepares Chinese pork take a loooong time cooking it. China isn't known for quality control and hygiene. Trichinosis, a bunch of nasty little bugs that get into the human body via undercooked pork, can prove fatal! Has everyone forgotten the rat poison-laced dog food of a few years ago? Have we taken leave of common sense?

  19. Tuss Famlier | June 14, 2013

    Just another excuse where money is more important. Forget the Chinese and lets do it ourseleves..We had better watch it, our the Chinese will be running our world.

  20. Sam | June 14, 2013

    This is just another example of what our inappropriate governmental expenditures for the last 60 plus years have wrought. If, instead of wasting trillions of tax dollars waging war in Vietnam, Iraq, Afghanistan, etc. and expanding a welfare state that has demonstrably not achieved any victories in the war on poverty, the US had left those dollars in the private sector to create industries and jobs we wouldn't have sent so many dollars to China that it has to find ways to spend it. (Victor Hugo would be proud of that sentence.) We, US citizens, by not voting out the non-leaders in D.C. (Yes, that means most of our good ol' reps and senators and presidents.) have allowed our future income to be sent to China, through their purchase of our treasury bonds, and they are just buying the things they know will help their citizens in the future.

  21. Ruth Torrey | June 14, 2013

    I just want to make sure I know the brand name they'll be selling under. Then I'll know what NOT to buy.

  22. Mark | June 14, 2013

    They are buying poisen, Pork that is fed GMO corn. This should not be eaten by anyone. There cancer rates will triple then they will want to buy a cancer center or 1000. Their one kid per family will all have autisum, (bummer). Goggle, Autisum and GMO's. They will now be sending poisen to there own kids, Just like they did to our dogs and cats here. They poisen there own babies with with their baby formula. They sell kid toys with lead in the paint. Something will never be right with that place. It is a country with no morals. America used to have them. It worked. It's over now.

    • Ed the Grocer | June 14, 2013

      It will be the only way export GMO corn in the future, buy feeding it to a pig first. GMO corn, arsenic for the parasites, and truck loads of antibiotics for disease – the best stealth weapon ever. Realistically, the Chinese government is trying to satisfy the 300,000,000 middle class that would like to buy their food in nice packages in a nice super market. Too bad for them.

  23. enthusceptic | June 14, 2013

    STO is quoted on the NYSE – not a US company – but it has expertise that the Russians need, and work in the Arctic. The developed world is much bigger than just the US of A, and that's a good thing.
    Capitalism has exploited millions of people, making only a few rich. "Free market" is a better term. We must work for making it a reality.

  24. Fred | June 14, 2013

    This article is the bigest compilation of LIES and MISINFORMATION, it's shocking. Claims like "in 2011 growth promoting drugs were banned both in US and Europe.
    They were NEVER BANNED in US, in fact the opposite is true, they were banned in China and more than 20 other major countries. US is still pumping "ractopamine" in pork, claiming they can't make money without it. How is it going to expand markets, if US pork is banned in more than 20 countries (others joining the crowd). This will make the US operation uncompetitive.
    And other lies, like, US has "world class education", where did you hear that?
    And references to "regulatory oversight", it DOESN'T EXIXST, it's completely corrupt, both USDA and FDA, pandering to big Agra, and ignoring health crisis it is causing in our whole nation.
    Was in Sir John Temleton who advised me in his newsletter "don't sell your business and put the money in stocks"?
    Well this is my advice, do what you do well, and stay out of food business, because you are completely ignorant of it. You treat it like "another commodity", which it is, but only from investment perspective. But it makes our nation healthy, or sick. Right now, it's making it sick.

  25. Doris Kelsey | June 14, 2013

    I think the sale is good for us in the short term. However, in the long term we are going to regret it. Exports of pork will increase as soon as the deal is finalize. We can expect prices to increase of both pork and corn, and to a lesser degree, soybeans. However, when the depression hits and we lose our reserve currency standing, we will get VERY hungry as we watch our food ship to China. And they will no longer have our then worthless currency, they would have spent it buying our food production. Our farmers will be their slaves.

  26. Mr Shivers | June 14, 2013

    Never to purchase Smithfield products again, sucks because I live in their home state. No Smithfield allowed in my house just like no China made anything allowed. When I see the tag made in China, I toss it, burn it, destroy it no matter what it is. No communist country is going to poison my family like China has been poisoning our children, our pets, our monetary system.

  27. Richard | June 14, 2013

    Mr Marchant is complaining about the same things the USA did as it rose to power. Now the shoe is on the other foot. Funny he should mention the Panama Canal (where the Chinese have major investments). Panama is a country which the US stole from Colombia and built a fraudulently owned military canal. The list goes on and on; El Salvador, Nicaragua, Chile; all countries where the CIA created havoc. At least the Chinese are buying, not stealing these companies

  28. croploss | June 14, 2013

    The Chinese bought a bloated, poorly run top heavy, and out of control executive bonus system in about the only ag related company in the whole US that is not doing well. They really are trying to put lipstick on a pig! Maybe they will improve it, they could hardly make it worse. I bet we won't see thousands of pig carcasses floating down the Ohio, or Mississippi rivers as recently happened in China.

  29. walt | June 14, 2013

    In the end, share holders will make money and our pork exports will grow. American workers and farmers will make the same money now as before. There will eventually be a "poison pork" crisses from the chines management of it and the small farmers will get more regulations on top of all they deal with now. Remember the recent food act that passed into law … now it is against the law to sell from your garden at the end of your driveway with out permits and inspections.

    And you wonder why there is a shortage of young farmers in the US.

  30. allan frisby | June 15, 2013

    New Zealand has sold a huge dairy farm to the chinese that went broke,but the product from it must be processed in New Zealand.The chinese work on the theory that they take our exports &with out them it would be hard for us to survive, it gives them a leg in the door to buy land.Any one interested google " crafar farms New Zealand "

  31. Greg | June 16, 2013

    I don't trust China. I don't eat pork, I pitty those who do and get it from Smithfield. Think for yourself; do research! Make sure you Honey you eat is USA or Canada. Vote with your money. !!!!

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