Alan Guebert: Top reasons to love China’s purchase of Smithfield
June 10, 2013
There are dozens of reasons for American farmers and ranchers to be thrilled – nay, elated! – by Shuanghui International Holding Inc.'s proposed $4.7 billion purchase of Smithfield Foods, Inc., America's biggest pork chop. Here are 10.
Number 10: The U.S. gets back some of the dollars held by China.
While $4.7 billion is chickenfeed compared to the $1.2 trillion of U.S. debt (about 7.5 percent of our $16 trillion total) China holds, look at the bright side: If it buys 300 more U.S. companies the size of Smithfield they'll own us, not our money.
Number 9: In buying Smithfield, China, not Virginia, will be home for "one of the worst-performing large U.S. food companies over the past five years," according to Bloomberg News.
In fact, explained Bloomberg May 31, Smithfield's "negative return of 18 percent in the five years through March 28, " was the second worse record for "any U.S. food company with annual sales of $10 billion or more."
The worst? Another farm favorite: Bunge Ltd., figured Bloomberg.
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Number 8: Shuanghui plans to keep in place the top five of the Smithfield management team that delivered those stinky results and pay them an estimated $85.4 million in bonuses once the deal is completed.
Reports that Smithfield's key American competitors – like Triumph, Seaboard, The Maschhoffs, Prestage, Tyson, Cargill and Hormel – danced for days in their farrowing houses upon hearing the news are mostly exaggerated. It was just hours.
Number 7: Shuanghui claims this deal is a wide one-way street; Smithfield's American-bred, born and butchered hogs will flow to China and no Chinese pork will float to the U.S. either by ship, raft or river.
Number 6: Smithfield's Wilmington, NC, port facility can now be used to import South American corn and soybeans – as it was in the summer of 2012, according to several published reports – for its 862,000 Chinese-owned sows in the U.S. rather than its 862,000 American-owned sows in U.S.
Number 5: Ironically, when (if, in some government circles) the buy-out is complete, a Chinese company – which farrows, feeds and slaughters about one in five American-grown hogs each year – will pay an estimated $16 million to the mandatory, non-refundable U.S. pork checkoff, based on 2012's total checkoff collections of $81 million.
And, irony upon irony, that amount is more than double the $7 million the pork checkoff budgeted last year to boost, as its strategic plan explains, the "U.S. share of global exports of pork" by 2014.
"Sell Smithfield to a Chinese company," however, was not part of the checkoff's published strategy.
Number 4: Most analysts predict the purchase will lead to greater U.S. pork exports to the Forbidden Kingdom. That would be a good thing because American per capita pork consumption, on a carcass basis, continues to slide, down 12 percent (from 66.9 to 59.2 pounds) in the last decade, according to USDA's Economic Research Service.
Number 3: "Unlike other Chinese companies that have loomed large on the world stage," reported the Wall Street Journal, May 30, "Shuanghui isn't state-controlled."
Translation: the country is communist; the company probably isn't.
Number 2: Unlike many U.S. livestock groups and their meatpacker allies, Shuanghui will label all American pork sold in China as "Born, raised and slaughtered in the United States."
That label is worth, oh, say $4 billion or more in China, right now.
And the Number 1 reason to rejoice for the Chinese takeover of Smithfield?
Maybe the world's top pork eaters will be so busy chewing American babybacks that, as reported by the Washington Post just two days before the Smithfield buy-out was announced, many of America's "most sensitive advanced weapons systems" will be safe from "Chinese hackers" who already have "breached … programs critical to U.S. missile defenses and combat aircraft and ships."
Hocks for hacks, as it were.
© 2013 ag comm