Road Warrior

Question of the Month: Chinese Purchase of Smithfield

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Without a doubt, the most popular issue I have been asked about this month, and perhaps this year, by e-mail and at face-to-face and virtual seminars has been my thoughts on the Chinese proposed purchase of Smithfield Foods Inc. headquartered here in Virginia. My response is, “Welcome to the wild world of global economics.”

The purchase does not surprise me since this rumor has been persistent in my circles for the last two years. The Chinese buying Smithfield Foods is about the purchase of a brand and it is China’s movement to increase food safety and upgrade its overall food system.

Several factors accentuated this purchase. First, the new Chinese leader, Xi Jinping, has a background in the pork industry and he visited Smithfield Foods over a year ago. Second, China is the world’s largest consumer of pork. Third, food safety issues have been very prevalent in China in recent years. With the Chinese government focusing on improving diets of its people and social control in the rural to city migration, this purchase fits their vision.

Comparing and contrasting China’s pork industry to the U.S., 70% of pork production in China comes from herds with 500 or less animals, while about 87% of production in the U.S. comes from herds of 2,000 and greater. There are over 14,000 slaughterhouses in China, contrasted to 600 in the U.S., resulting in tighter control from producer to consumer in the U.S. Another interesting point is that the Chinese consume 85 lbs. of pork per person annually compared to 59 lbs. in the U.S. Pork consumption in China has increased by 15 lbs. per person since the year 2000.

The bottom line is that this is most likely one of many major purchases globally of agricultural systems by groups from the emerging nations. Initially, both large and small producers in the U.S. should benefit. The niche markets for pork in the U.S. will be on fire as a result of consumer perception, particularly in affluent urban areas. In the long run, producers will have to utilize technology, information, and engineering systems in an efficient manner to remain ahead of the curve in the wild world of global economics.

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What's Road Warrior?

Dave Kohl is an ag economist specializing in business management and ag finance. He can be reached at sullylab@vt.edu.

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