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Goodbye U.S. bacon? Smithfield buyout debate continues

DANIEL LOOKER Updated: 07/11/2013 @ 9:58am Business Editor

The Senate Agriculture Committee pondered the effect of a Chinese company's $4.7 billion purchase of Smithfield Foods Wednesday with some members admitting they have little power to stop it.

Will it be the end of bacon as we know it? Will yet another American icon be made offshore? Could it come from U.S. hogs slaughtered here but cured in China, then shipped back to the U.S., without even a "Made in China" label? (Country-of-origin labeling doesn't apply to processed foods.) That's a long-term risk, two China experts, including one who has owned businesses in China, told senators.

Or will we shoot ourselves in the foot by rejecting an investment that honors U.S. grower contracts and has the backing of the United Food and Commercial Workers union?

"The reaction from the U.S. agricultural community has been overwhelmingly positive," Smithfield's CEO, Larry Pope, said. He said he hasn't talked to any hog producers who oppose the deal.

Committee member Sherrod Brown (D-OH) asked Pope if it's likely that the new owner, the Shuanghui Group, would be able to use Smithfield's technology to export back to the U.S.

"I was very clear in my testimony that this is all about exports," Pope said. "And, in fact, Chinese product cannot be imported into the United States today." [Fresh pork and beef exports to the U.S. aren't allowed due to hoof-and-mouth disease in China.]

"I want to be clear, there is no discussion about that," Pope said. "There is a huge protein deficit in that part of the world." Pope said that with American consumers buying less pork, the industry needs exports, especially to China, where consumers eat 20 pounds more pork per capita than Americans.

Nor is it likely that China will take away U.S. exports to Japan, Pope said. Pork prices are 50% higher in China than in the U.S. "The U.S. has an economic advantage in selling to Japan. China is looking at this as an opportunity to feed their people."

Pope told the committee's ranking Republican, Thad Chochran of Mississippi, that for 20 years he's heard the debate about America exporting its jobs to China and elsewhere.

"This is the exact reverse of that," he said.

Pope said in his prepared testimony and later when responding to senators' questions, that the new Chinese owners have made a commitment to continue operating Smithfield in the U.S. without changes. In fact, Pope and other senior managers have signed retention agreements. "Those are payable over a three-year period, and they're not payable if the management does not stay," Pope said.

Senator Heidi Heitkamp (D-ND) asked Pope if he could be certain that in 10 years Shuanghui would honor those commitments to growers and the union. "Those contracts have varying termination dates," he replied. He suggested that Heitkamp ask the union why it backs the sale. And, he added, "As certain as I can be of anything, we will have contracts with growers because we don't have a business without them."

Critics of the sale didn't dispute that the deal is likely to be good for Smithfield and the U.S. in the short run.

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07/11/2013 @ 11:04am Do you really believe it will be the same company ? All the taxable revenue will flow to China and they will break every food saftey rule on the books. Pork prices will rise to China levels and they will poison Americans just like they do their own people. What a bunch of gullible idiots!

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DANIEL LOOKER Re: Re: 07/11/2013 @ 2:32pm Higher pork prices for consumers? I disagree, at least in the short run (several years). China's past history as it takes over industries seems to be similar to predatory pricing that drives competitors out of business. So U.S. consumers might even see cheaper bacon. But U.S. pork producers (and their integrating companies outside of the Smithfield network) could very well be paid lower prices. The critics at yesterday's hearing don't necessarily understand agriculture well, but they know China as well as is possible for an American. For more than 20 years I have considered more trade and less protectionism healthy for American agriculture. But yesterday I found the comments of the critics of the Smithfield deal convincing, and troubling.

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