Shuanghui’s Planned Takeover of Smithfield Food Is a Big Deal

What to eat. What not to eat.
June 10 2013 11:53 AM

Red Meat

Smithfield Foods and Communist China are a match made in heaven.

(Continued from Page 1)

In 1992 contract farming accounted for 5 percent of U.S. hog production, according to the USDA. By 2004, 67 percent of hog production was under contract. In 2010 just 5 percent of hogs were sold on the open cash market. The remaining 95 percent of all hogs were either owned outright by a company like Smithfield or sold under some kind contract outside the spot market.

Smithfield embodies a new, command-and-control form of meat production that now dominates the industry. Central planners at company headquarters can analyze market trends and decide when to cut or boost production on farms that are scattered around the countryside. This system has also snuffed out the kind of transparent, competitive trading markets that most people associate with capitalism. Instead, Smithfield sets the price of hogs through confidential contract terms it negotiates with farmers. In short, the system has characteristics more often associated with communism than capitalism.

Smithfield wouldn’t be the biggest pork company in the world today without the help of American policymakers. Antitrust authorities at the U.S. Departments of Justice and Agriculture gave their blessing to a string of more than 40 mergers that allowed Smithfield to become the colossus it is today. The key responsibility lay with the Justice Department, which has the power to block mergers that it deems anti-competitive. Smithfield bought out the biggest players in the business, corporations like Premium Standard Farms and Murphy Family Farms, which were both considered corporate titans back in the quaint days of the 1990s. (Premium Standard Farms made about $900 million in annual revenue at the peak of its success; today’s Smithfield takes in about $13.1 billion.)  

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Meanwhile, on the state and federal level, the meat industry beat back proposed legislation that would have curbed Smithfield’s power by prohibiting meatpackers from owning livestock. Lobbying groups rallied opposition to such measures in Congress. (The American Meat Institute, an industry group, wrote that such a restriction would “result in reduced coordination, efficiency, and global competitiveness of the beef and pork sectors.”)

Many politicians were comfortable handing control over the U.S. hog industry to corporations like Smithfield. After all, Smithfield has done a good job of providing a steady supply of cheap, safe pork. There have been food recalls, to be sure, but the meat industry has come a long way since the days of The Jungle. When American consumers pick up a package of pre-sliced ham at the grocery store, they don’t often worry, Is this meat tainted, and will it kill me?

Chinese consumers aren’t so lucky. Shuanghui has been involved in a series of food scandals that would be unimaginable for a U.S. food company. Shortly after Shuanghui’s offer to buy Smithfield was announced, the International Business Times provided a chilling roundup of the company’s bad behavior: In 2011 Shuanghui sold pork from animals that had consumed a banned feed additive called clenbuterol, which makes pigs leaner but can also sicken humans. (Shuanghui apologized following the clenbuterol scandal.) Last year, maggots were discovered in Shuanghui ribs. Sausages had high levels of bacteria, and some of them contained unidentified black threads. Just last month, Shuanghui sausages were reported to be spoiling long before the sell-by date. Chinese meat production still resembles The Jungle quite a bit, but censorship laws in China stymie the work of any local Upton Sinclairs who might want to investigate the company’s practices.

In a conference call with investors last week, Smithfield CEO C. Larry Pope said that Smithfield will keep its current practices in place, and he presented the deal as a way for Shuanghui to bolster its own safety record, rather than cutting corners in Smithfield’s operations. “There will be no impact on how we do business operationally in America and around the world as a result of this transaction,” Pope said, according to a transcript of the call that a Smithfield representative provided to me. (Smithfield declined to comment for this article.)

But though Pope plans to stay on as Smithfield’s CEO, he’ll now be answering to Shuanghui executives, not shareholders. Shuanghui bosses will take the reins of Smithfield’s massive farm network, and a pork division that processes about 27.7 million hogs and 3.8 billion pounds of fresh pork each year. This doesn’t mean that Shuanghui will have a free hand to do whatever it wants: Smithfield’s slaughterhouses will still be overseen by safety inspectors with the U.S. Department of Agriculture, who stand in the processing plants and watch meat roll by on conveyor belts. But Smithfield has wide latitude in how to raise its animals.  This means that, thanks to Smithfield’s share of the market, any drug, growth hormone, or feed additive approved by federal regulators could become the industry standard overnight just because Shuanghui’s executives want them to be. (Shuanghui, for its part, has denied any intention to change Smithfield practices; the company’s managing director, Yang Zhijun, said during the conference call, “We have worked with Smithfield for many years. We like it the way it is. We will not change the people, the places, the products, the leaders. We want business to stay the same but better.”)

The Shuanghui acquisition seems likely to go through. The deal is under review by the Committee on Foreign Investment in the United States, which can block foreign entities from buying U.S. companies if the deal threatens national security interests. Foreign ownership of a meat company doesn’t seem to have the national security implications that foreign ownership of critical infrastructure like ports or nuclear plants might. After all, consumers can always become vegetarian if things go south.

But the Shuanghui deal would have a very real impact on America’s food system. If Shuanghui is allowed to gain control over more than a quarter of America’s pork supply, there is a risk that there will be even less accountability in a food system that is already highly consolidated and opaque. Consumers today depend on Smithfield executives to decide how hogs are raised and how pork is processed. In the future, those decisions could be outsourced to China. Smithfield’s farmers today hope that the company will honor their contracts over the long term and keep their paychecks coming. In the future, American hog farmers will pin those hopes on a company thousands of miles away that is not answerable to U.S. shareholders. If the deal closes, a sector of the American meat industry that resembles Communist China will get a lot closer to the real thing.

Slate’s coverage of food systems is made possible in part by the W.K. Kellogg Foundation.

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Christopher Leonard is the author of The Meat Racket. He is a Schmidt Family Foundation fellow at the New America Foundation. Follow him on Twitter at @CleonardNews.

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