By Doug Palmer
WASHINGTON, July 10 The head of Smithfield Foods
on Wednesday faced tough questioning from U.S. lawmakers
concerned the proposed sale of Virginia ham maker to China's
largest pork producer could hurt U.S. food safety and lead to
higher prices for American consumers.
"I think to your constituents back home, it's the same old
Smithfield," company President Larry Pope told members of the
Senate Agriculture Committee. "Nothing's going to change. This
is going to be an American company. We will continue to operate
like an American company."
The sale of Smithfield Foods, the world's largest pork
producer with more than 46,000 employees in 25 states and four
countries, to Shuanghui International Holdings for $4.7 billion
would be the biggest Chinese takeover of a U.S. company to date.
Pope acknowledged he would benefit significantly from the
proposed sale, but declined to say how much he would gain.
Congress has no direct role in approving or blocking the
transaction, but the Senate hearing sheds light on issues facing
the Committee on Foreign Investment in the United States, a
panel led by the Treasury Department that examines whether a
foreign purchase of a U.S. company poses any national security
"This is a precedent-setting case and we owe it to
consumers, producers and workers to ensure we are asking the
right questions and evaluating the long-term implications,"
Senate Agriculture Committee Chairman Debbie Stabenow said in a
prepared opening statement.
"Smithfield might be the first (Chinese) acquisition of a
major food and agricultural company, but I doubt it will be the
last. That is why we must take a long-term view of what is
happening," she said.
The Smithfield, Virginia-based company makes ham, sausage,
bacon and other prepared meats under labels including Eckrich,
Gwaltney, Armour. It has argued the deal is good for United
States because it will boost pork exports, and good for China
because it will help meet the country's growing demand for pork
as hundreds of millions of Chinese move into the middle class.
But some have questioned what kind of production practices
Shuanghui could bring to the United States, especially after
revolting images this year of thousands of rotting pig carcasses
floating down the Huangpu River that runs through Shanghai
raised concerns about food safety practices in China.
"Regardless of where the ownership is, this company is going
to have to operate under the laws of the United States. We're
not operating under the laws of China. We're operating under the
auspices of the USDA and food inspection process," Pope said.
Lawmakers have also expressed concern about the impact on
the competitiveness of U.S. pork production if Shuanghui gains
access to Smithfield's valuable technology and hog genetics.
Stabenow noted that Shuanghui is offering to pay a 30
percent premium for Smithfield even though the American company
has been struggling to make a profit.
"That, to me, raises questions about the economic
motivations of the purchase. Is Shuanghui focused on acquiring
Smithfield's technology, which was developed with considerable
assistance by U.S. taxpayers?" Stabenow asked.
Pope said he expected the deal to "drive growth and
expansion not only for our growers but for the entire U.S. pork
industry." He said China's huge protein deficit made it unlikely
it would become a significant pork exporter.
"China is responsible for 50 percent of the world's pork
consumption and their demand is still growing, whereas pork
demand in the U.S. has been declining for almost 15 years," Pope
told the agriculture panel.
The panel also heard from witnesses critical of deal,
including Daniel Slane, a businessman who serves on the
U.S.-China Economic and Security Review Commission, a watchdog
panel established by Congress to monitor the Asian heavyweight.
Although Pope told senators the "Chinese government has
absolutely no ownership stake or management control in
Shuanghui," Slane painted a different portrait of the company,
which he called state-controlled.
"Many of the largest Chinese enterprises, including
Shuanghui, maintain strategic ties to the Chinese government,
whether through direct ownership or control, preferential access
to massive government subsidies and personal links to the
Chinese government," Slane said in his prepared remarks.
Professor Usha Haley, director of the Robbins Center for
Global Business and Strategy at West Virginia University, also
questioned Shuanghui's independence and said it would likely
continue to benefit from generous Chinese subsidies that would
put pressure on other U.S. pork producers.
"U.S. competitors would be forced to reduce their profit
margins to compete, and in this consolidated industry,
cost-cutting and bankruptcies would ensue in a very short time,
perhaps in as little as two to three years," Haley said.
The Shuanghui-Smithfield union provides China access to U.S.
land, water, brands and technology, but "the risks are clearer
than any long-term benefits" for the United States, she said.