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Smithfield pros & cons for farmers

Jeff Caldwell 05/30/2013 @ 4:05pm Multimedia Editor for Agriculture.com and Successful Farming magazine.

It's the largest merger ever of its kind in agriculture. But how the acquisition of Smithfield Foods by Shuanghui, a large Chinese pork producer, will ultimately affect U.S. hog farmers is largely unclear with factors on both sides of the balance sheet weighing on the situation.

On one hand, the buyout connects the world's largest pork producer with the world's largest -- and growing -- market for pork. This could be a big win for U.S. farmers, says Purdue University Extension livestock economist Chris Hurt.

"The largest potential advantage for the U.S. pork industry is that Shuanghui is the largest processor and distributor of meat products in China," Hurt says. "China is the largest producer and consumer of pork. At this early stage it is unclear if this merger will result in more U.S. pork products being exported to China. However, this clearly opens the trade door for increased business to China, which already was the third-largest destination for U.S. pork in 2012."

That's the good news. The bad news is getting into that market may not be the easiest thing, and it may not be the most fruitful. Big companies like Smithfield can sometimes have a tough time adjusting to a major change in its place in a large market like China. And, the two nations -- already major trading partners -- have considerable cultural, social, and political differences that Hurt says could "play into whether the merger can be finalized," according to a university report.

The move has to happen, Hurt says, because of the current state of the U.S. pork market. It's been largely static in demand growth over the last eight years, while China's grown by 3% a year. That represents a potentially fruitful demand source for U.S. farmers. "Even tiny changes that shift in the direction of importing more pork could have positive impacts for U.S. producers because China is such a huge market," he says.

"While the outcomes are uncertain, the hopes are that the Smithfield Foods merger can be a new model for meat production and processing in a world increasingly dominated by global sourcing and distribution," Hurt adds. "If so, the merged organization has the potential to grow and hopefully favor the U.S. industry."

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