It’s long been said that the beef business operates in a global market. If there is any doubt about that, this week’s announcement that hog producer and processor Smithfield Foods sold to a Chinese company should cause beef industry participants to take notice.
The shock value alone was significant. But once those in the beef industry put their jaws back in place and recalibrated their brains to the in-your-face reality that global trade is indeed global, the announcement that Smithfield Foods has entered into a merger agreement with Shuanghui International Holdings Limited was generally viewed as positive.
It was both a shock and a surprise to see a company the size of Smithfield sell to Chinese ownership, says Don Close, vice president and beef analyst with Rabobank’s Food & Agribusiness Research and Advisory group. “Once you get past that shock factor, I’d say implications to the beef side would be very positive. If we have the opportunity to clear that much additional protein out of the U.S. and tighten up remaining supply, I think overall it’s probably good for all protein sectors.”
Shuanghui is China’s largest meat-processing enterprise and China’s largest publicly traded meat products company, according to a Wednesday news release announcing the merger. Shuanghui will acquire all outstanding shares of Smithfield for $34 (U.S.)/share.
According to the release, Smithfield is the world’s largest pork processor and hog producer. “We will become part of an enterprise that shares our belief in global opportunities and our commitment to the highest standards of product safety and quality,” says Larry Pope, Smithfield president and CEO.
From Smithfield’s perspective, it will be business as usual, Pope says. “We do not anticipate any changes in how we do business operationally in the U.S. and throughout the world,” he says.
According to Shuanghui Chairman Wan Long, the company is one of China’s leading pork producers and the country’s largest meat-processing enterprise. “The acquisition provides Smithfield the opportunity to expand its offering of products to China through Shuanghui’s distribution network. Shuanghui will gain access to high-quality, competitively priced and safe U.S. products, as well as Smithfield’s best practices and operational expertise,” Wan says.
Outside of its implications for overall protein supplies in the U.S., Close says the merger raises other questions. “Does this give a positive slant on the U.S. being able to front-door beef into China? Yes, I think it’s a positive step,” he says. “Will I go so far as to think it will require Chinese ownership of a U.S. firm to gain that access? No, I don’t think so. I think the additional trade will probably be enough.”
That’s because China is slowly opening up, he says. “So I think that front-door access would eventually be coming anyway. But I think this will certainly speed up that process.”
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However, that doesn’t mean Shuanghui won’t eventually start pushing its shopping cart down the beef aisle.
“I think there’s a very real chance that this could lead to other specie acquisitions,” Close says. Whether that’s a U.S. company, an Australian company or a beef packer elsewhere, however, remains to be seen. “But I do think they will ultimately have to add other protein components to the business model to be competitive with the other multinationals.”
The acquisition, which is subject to regulatory approval by the U.S. Committee on Foreign Investments, is expected to close in the second half of the year. At that time, Smithfield will become a wholly owned independent subsidiary of Shuanghui International Holdings Limited and will continue to operate as Smithfield Foods.
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