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Shuanghui's Acquisition Deal Win-win for China, US

04 June 2013

CHINA & US - China's largest meat processor's acquisition of a leading US pork producer will be a win-win deal that benefits both countries, a Chinese expert said on Friday.

The deal comes at a time when the United States is producing more pork than it can consume while China faces growing pressure to feed its population with quality, safe protein products, said Dr Feng Yonghui, chief analyst with Beijing Zhongke Yiheng Modern Farming Information and Technological Institute.

Shuanghui International agreed to buy Smithfield Foods for $7.1 billion, or 34 dollars per share, on Wednesday, breaking new ground for Chinese takeovers of overseas companies that have so far focused on energy, mining and other natural resources.

Chinese people's consumption of meat has increased fourfold since China opened up its economy in the 1970s, according to a joint research report by Rabobank and the Earth Policy Institute.

To meet rising domestic demand, China has imported around 400,000 tons of pork annually in recent years, with pork consumption in 2012 set to reach 52 million tons, the report shows.

Yet some US lawmakers have expressed their concern over the deal's impact on food sufficiency in the United States, where Smithfield claims a 30-per cent market share.

Dr Feng and Smithfield itself have been quick to try to quell such worries. "The deal is unlikely to cause big changes in the United States," according to Dr Feng. "The US market has reached saturation, as is evident in low retail prices and meat processors' low profit margin."

He also noted that meeting domestic demand will be the top priority for US meat producers, regardless of how attracted they are to the Chinese market.

In a company announcement, Smithfield said Shuanghui will not bring major changes to the company's US operation.

"We do not anticipate any changes in how we do business operationally in the United States and throughout the world," said Larry Pope, president and chief executive officer of the firm.

According to Dr Feng, the deal will lead to increased exports to China of excessive pork produced in the United States and thus ease UStrade deficits, a major source of trade frictions between the world's two largest economies.

Shuanghui said it is "especially attracted to Smithfield for its strong management team, leading brands and vertically integrated model."

"For the first time, Chinese food producers can get a closer look at how their experienced American peers monitor and control food quality throughout the entire supply chain," Dr Feng noted.

"We can learn a lot from the industry leader: intensive hog-rearing, efficient organization, strict safety control and effective environment protection measures," said Wan Long, chairman of Shuanghui International.

Shuanghui's reputation was battered in 2011 for its use of hogs fed with clenbuterol, a chemical banned in China that makes pork leaner but can cause health problems if consumed by humans.

Food industry use of drugs aiding lean meat growth has raised health concerns in many countries, as slack oversight increases the risk of abuse by food producers seeking sheer gains.

It is reported that Smithfield has weaned its hogs off animal feed that contains ractopamine, a chemical approved by the US Food and Drug Administration to boost lean meat growth in commercially raised hogs.

The move has bolstered Smithfield's pork exports to countries that ban such practices, including China.

"Smithfield commands a very strict food safety management system, bringing the entire supply chain under its vertical integration model," Mr Wan said. "Once the deal is complete, we will strengthen our exchange in this area and introduce best practice to enhance safety and quality in China's meat processing industry."

"We are likely to see more cooperation in the future between Chinese food companies and their American counterparts," Dr Feng predicted.

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