hog farmBy Peter Galuszka

For eons, the name “Smithfield” has conjured up rich, salty Virginia ham slices that fit right on Christmas rolls or in crab dishes and with eggs for breakfast. The company that has produced such food for 80 or so years is based (of course) in Smithfield, a quaint Tidewater town the Pagan River just off the James.

But as the food industry has become ultra-mechanized, so has Smithfield Foods’ problems. Back in the 1990s, it was fined $12.6 million for letting hog waste flow into the Pagan River. It later agreed to pay North Carolina $50 million over 25 years for problems at its Tar Heel, N.C. mega-plant.

Although Smithfield has cleaned up its act, or so we’re told, there is unsettling news that the firm will be bought for $4.7 billion by China’s Shuanghui International. If approved, the buyout will not result in moving the corporate HQ out of Smithfield or any firings, but that’s today’s news. As China’s middle class evolves, it tends to like pork products, and the demand to import ham and sausage is strong.

The worry is that you are selling off a major American food producer that has had serious health, environment and labor issues to a firm in China, a country that is notorious for its neglect of all of the above. Shanghai’s drinking water system was threatened a few months ago because the Whampoa River was crammed with diseased hog bodies. Standards are so low that the U.S. won’t let beef be exported, although we get a lot of our Tilapia from China.

The buyout would be the most significant yet for cash-flush Chinese firms and draws similarities to the massive buys Japanese firms made back in the 1980s.

Strict business types might still sound the usual upbeat mantra that China’s a huge market  and yada, yada, yada, but I’ve been hearing that refrain since the days of Denh Xioaping. For realists, the bloom has been off as more evidence comes forward of cyber snooping, lax product safety standards and the utterly venal corruption of Communist Party hacks who still run the show.

Add to the this the idea that you may have gigantic American hog farms in the Southeast or Midwest churning out porkers for the Chinese and one wonders if the corrections taken for safety will remain in place. The hog farm concept sprang onto the scene in the 1990s when firms like Smithfield learned they could mass grow hogs in oppressively crowded conditions and dump their considerable fecal matter into huge ponds whose dams are prone to breaching.

The Raleigh News & Observer won a Pulitzer in the 1990s for alerting the country of what was going on.

Putting a known polluter under Chinese ownership does not sound like a great idea.

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11 responses to “Holy Pig Slop! Chinese to Buy Smithfield”

  1. Fortunately, environmental regulation of Smithfield’s industrial hog farms will remain in American hands, not Chinese. One can question whether U.S. standards are high enough. But I don’t see those standards changing as a result of this acquisition.

    What we may see is more demand from China and, as a consequence, more industrial hog farms.

  2. Peter Galuszka Avatar
    Peter Galuszka

    The standards might not remain in this country but the new ownership’s willingness to adhere to them, sidestep them or challenge them on a continuing basis remains to be seen. Overall, the Chinese have earned a reputation for taking short cuts or ignoring other nations’ standards unless held to the fire. You are seeing this more and more with substandard building materials, solar panels, food, what have you,being exported.

  3. larryg Avatar

    I’m not understanding who benefits from the sale. Is this something strategic for the company or the current owners getting out and taking their money?

    I too agree with Peter. China has a terrible record on not only the environment but food safety. I don’t get good vibes from this.

  4. DJRippert Avatar

    The Chinese can buy all the Smithfield products they want. All they have to do is offer to pay a higher price than the products command elsewhere.

    Why do they need to own the company?

    Smithfield is a public company traded on the New York Stock Exchange. If the Chinese think Smithfield is under-valued and there is a financial profit to be made they can buy and sell the company’s shares.

    Why do they need to own the company?

    Answer: They don’t need to buy the company.

    This is economic colonization.

    If you want to read an interesting article about the acquiring company – http://english.caixin.com/2010-12-09/100205937.html.

    An eight month stock trading freeze? Because there was too much competition?

    This is not like a British company or a Brazilian company buying Smithfield.

  5. Breckinridge Avatar

    Let’s all check back in in 25 years and see if the gap has closed between the US and Mainland China on things like heart disease, hypertension, type 2 diabetes. They already love our cigarettes and now our bacon. It has to have an impact!

    And Larry, the STOCKHOLDERS benefit, and that is what corporate leaders are supposed to care about. Not making bacon — making money. I can’t fault Smithfield for taking such an attractive offer.

  6. Peter Galuszka Avatar
    Peter Galuszka

    Here’s an idea. Instead if allowing the sale, let’s send them bacon (the human kind)

  7. larryg Avatar

    Breckinridge.. I “get it”. But if I were a stockholder, I’d get out because China is probably going to screw up and either get in trouble with the Fed/States and/or kill the Smithfield Brand with some horrible dumbass mistake similar to what they do in China.

    We do not allow a lot of Chinese food products here and even the ones we’ve allowed have been banned.

    I’ll say this though. I gave blood recently and on the intake form – they question you about your travels in Europe and if you were in the armed forces stationed in Europe and guess what – if you were, they don’t want your blood – mad cow disease… – infected cattle – sold to army bases – “local voires” 🙂

  8. Hokie Avatar

    Larry, to answer some of your previous questions, I’ll provide some information I’ve gleaned. The company was sold primarily because it was not performing up to the standards the shareholders expected. There had been an internal push by some of the executives to split the company up, such that it could perform its functions more efficiently. Additionally the company had amassed several billion in debt that the Chinese corporation has accepted. Additionally the sale itself added nearly 50% to the value of the stock. I believe it went from ~$24 to ~$32. So obviously if you hold stock in the company, now would be a good time to sell.

    Given China’s environmental and safety standards, I certainly won’t be eating any of Smithfield’s products any more. More than anything, I’m curious what this will do to the town of Smithfield and the region in general. Smithfield Foods being the highest rated corporation on the Fortune lists in the region.

  9. larryg Avatar

    so Scout, you AGREE that the Smithfield “brand” is at risk?

  10. Breckinridge Avatar

    Larry, If you are a stockholder you will get out because the Chinese are buying your stock. I think this is a cash and debt deal, and the current stockholders are gone.

  11. Peter Galuszka Avatar
    Peter Galuszka

    Still don’t get this. Why don’t the Chinese just buy stock or keep importing Smithfield products? Groveton, a.k.a. Don the Ripper, has this pegged.

    Also,it’s wrong to assume this is a done deal. It has to be approved. One factor may be that the Chinese are not exactly welcoming for U.S. firms taking over Chinese companies, which often are state controlled. Like setting yuan rates, it is anything but a level playing field. The Chinese always go for economic advantage and the usually get it. There is a host of other issues that should be addressed such as trashing our intellectual property rights, internal corruption and the government crack downs on Chinese freedom of expression be it journalistic or artistic.
    When the NY Times and WashPost wrote stories about corrupt Communist officials, they found their computer systems compromised.
    And we’re supposed to smile away the way to Smithfield? Sometimes the comments make us sound like a bunch of yokels. “Geez, Andy, the CHINESE are going to buy Mayberry, Goooolleee!”

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