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A Chinese company called Shuanghui is set to buy Virginia-based Smithfield Foods in a $4.7 billion deal. While Smithfield claims the title of world’s largest pork producer, it continues to have historic and financial ties to the Virginia town where it got its name. Kojo explores the local impact of the sale and looks at how it could affect the global food supply chain.
- Corby Kummer Senior Editor, The Atlantic; Author, "The Joy of Coffee: The Essential Guide to Buying, Brewing and Enjoying" (Houghton Mifflin, 1997)
- Patrick Evans-Hylton food writer; author, "Smithfield: Ham Capital of the World"
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world, it's Food Wednesday. Later in the broadcast, what we can learn about Afghanistan from families making carpets in a remote village.
MR. KOJO NNAMDIBut first, 80 years ago, a Virginia family started a small pork packing company along the Jamestown River in Smithfield. Today that company, which is now the largest pork producer in the world, may soon pass into the hands of Chinese owners.
MR. KOJO NNAMDIChina's most prominent meat producer, Shuanghui, is set to buy Smithfield Foods on a $4.7 billion deal. Expected to be China's most expensive American purchase yet but the deal has many Americans squeamish. While Smithfield owners claim the buyout would only increase exports to China many find it hard to forget headlines about China's tainted milk, adulterated meat and most recently 20,000 dead pigs floating on a river near Shanghai.
MR. KOJO NNAMDISo what happens if a Chinese company does take over Smithfield Ham? Joining us to discuss is Corby Kummer. He is a food writer and senior editor at The Atlantic magazine. He joins from studios in Boston. Corby Kummer, good to have you.
MR. CORBY KUMMERIt's good to be here.
NNAMDICorby, Shuanghui, the company hoping to buy Smithfield had a less than perfect record but allow me to back up for a second and talk in broader terms about China ramping up its investment abroad. According to the research forum known as the Rhodium Group, Chinese investment in American companies could reach an all-time high this year. But can you explain why China's biggest American purchase yet might be a pork producer?
KUMMERSure. I think that it's best to understand this in terms of technology transfer. That a lot of what China wants is access to slaughtering and processing machinery that they don't have and American industry does. And, you know, so many Chinese purchases are about gaining access to technology and pole-vaulting ahead when they have the manpower, they have the land and they certainly have the capacity in terms of raising animals.
KUMMERThey just haven't gotten the technological systems that Smithfield does and the U.S. does and so this their way of ramping up for the enormously increased demand that the Chinese growing middle class has to eat more protein and to eat more meat.
NNAMDIShuanghui, the company hoping to buy Smithfield has a less than perfect track record on food safety. A couple of years back its pork products were found to have traces of clenbuterol, a growth enhancing chemical that is banned both in the U.S. and in China. Could the sale of Smithfield actually have an effect on food safety standards here in the U.S.?
KUMMERNo, I don't think so. You know, I think that if anything it's going to be, people are so worried that somehow the idea of the Chinese owning a large American company means that American companies are going to take this as license to decrease their own food safety standards.
KUMMERWhereas it's been the opposite. There's a similar drug clenbuterol which indeed in 2011 sickened hundreds of people in China because their pork was, their pigs were eating feed that was tainted with it. But they already outlaw a similar growth promoting chemical called ractopamine.
KUMMERWhich the U.S. doesn't and already eyeing the Chinese market Smithfield had agreed and started to reduce by half the amount of pigs that were allowed to have ractopamine so that they could have access these markets. So in certain ways Chinese demands are much more stringent than U.S.
KUMMERAnother reason to be less alarmed, although I think there's lots of alarming aspects of this purchase, but another reason to be less alarmed is that the Chinese at the moment have absolutely no interest in exporting pork here at least with this purchase.
KUMMERIt's gaining access to more product for themselves and also to higher value product. So evidently cut and processed meats which Smithfield excels at and produces in much greater volume than Chinese companies that are the kind that go right into supermarkets and you get a much higher profit margin, are much less produced in China which does a much less refined and rawer form of meat processing.
KUMMERSo again, it's the technology to make this high value, high margin products and those are the ones that are going to make money for the Chinese firm which has a lot of American capital behind it which is a really interesting aspect of it, that "The Wall Street Journal" and "The Financial Times" and others and "The Guardian" have reported on how much venture capital from America is involved in this purchase. So in any case they're getting access to a market for a higher value product than Chinese pork producers now sell and make.
NNAMDICorby Kummer is a food writer and senior editor at "The Atlantic" magazine. He joins from studios in Boston. You can join the conversation by calling 800-433-8850. How do you feel about a Chinese company owning local pork production? 800-433-8850 or you can send email to email@example.com.
NNAMDIJoining us now by phone is Patrick Evans-Hylton. He is a food writer based in Norfolk, Va. He's the author of several books including "Smithfield: Ham Capital of the World." Patrick Evans-Hylton, thank you for joining us.
MR. PATRICK EVANS-HYLTONThank you, so glad to be here.
NNAMDIPatrick, today Smithfield calls itself the world's largest pork supplier. How much meaning does this buyout have locally in Smithfield?
EVANS-HYLTONWell, it has a lot not only economically, but also culturally. You know, a white fluffy buttermilk biscuit that's split open and stuffed with an ethereal slice of country ham is one of our culinary calling cards in our area.
EVANS-HYLTONIt's not only something that we enjoy to eat, but more importantly something that we really identify with culturally and I don't think that a lot of people want to turn that biscuit and see a "Made in China" sticker on the bottom of it.
NNAMDIPatrick, for those who have not been to Smithfield, what is the town like?
EVANS-HYLTONIt's literally Mayberry. It's a very small quaint town, it was established in the early 1700s. In fact, Smithfield Foods owned Smithfield Inn which was, has been an inn since 1752 and is one of the places that can likely claim that George Washington slept there.
EVANS-HYLTONIt's a lot of small shops, it's a lot of folks there. It's a town of about 8,000 people and somehow there's a tie to Smithfield Foods throughout the town whether you actually work there or not because they've been so good about philanthropic different endeavors and all too, just recently even paying $800,000 I believe for public restrooms for tourists to enjoy downtown as they're shopping and dining.
NNAMDI800-433-8850, what do you think Smithfield Foods means to the state of Virginia? Give us a call or send email to firstname.lastname@example.org. You can send us a tweet @kojoshow. Patrick, what are Smithfield residents saying about this potential sale?
EVANS-HYLTONI think that everybody is very, first of all, just confused, you know, what is going to happen. There's always that great unknown. I think that, you know, there are some people that wish things could've been handled a little bit differently.
EVANS-HYLTONThe Mayor of Smithfield himself did not even hear it from somebody at Foods, they just call it Foods down here. He actually heard breaking news on television, the town manager got a text from his wife that heard it on television. So I think the people are, you know, a little confused. I think they're also, and likely so, weary about what this shift dynamics, the culture shift at the company potentially could have.
NNAMDIPatrick, the Smithfield company has been operating in Smithfield since 1936 but today it has plants and it has workers around the world. how much of the Hampton Roads region is still, how many people so to speak in the Hampton Roads region are still employed by the pork company?
EVANS-HYLTONWell, there's about 3,800 people in Virginia that's employed by Smithfield Foods so it does have an impact economically but I think too because we think of Smithfield, the Smithfield name being so synonymous with something that's so culturally important to Virginia that that's a factor too that has to be weighed.
EVANS-HYLTONAnd even people's minds outside of this area, you know, too when they start thinking about the food and food ways and although Foods has been around since 1936 it really can be traced back to the very first labeled food product that was being sold on wide scale basis from the 1700s, Mallory Todd first produced country hams in Smithfield, sold for export and so that lineage of buyouts and everything, really this company does go back to the 1700s.
NNAMDICorby Kummer, I'd like to get back to you. American companies have taken advantage of relaxed labor laws in countries like China for manufacturing their products but with Smithfield a Chinese company could be off shoring pork production to the U.S. So how would regulations in the American meat industry be beneficial to a Chinese company?
KUMMERWell, I'm glad you're getting back, while I think about when I think of Smithfield besides what, you know, must be a very pleasant downtown and my mouth is watering at the idea of the biscuit despite the label that I might find on the bottom.
KUMMERBut what I really think about is water cleanliness and worker safety.
NNAMDIWe're going to get to that but go ahead.
NNAMDINo, go ahead, go ahead please.
KUMMERNo, no, I'll let you get to that but it's all you can think about when you think about both China and the U.S. is already U.S. environmental standards, there's so much the attitude of violate and then apologize and pay the fines rather than wait until you're inspected and start the right way.
KUMMERAnd in 1997, I've just been reading up, Smithfield received one of the largest clean water act fines in U.S. history. That whole fine was point .035 percent of one year's sales, $12.6 million. So how much of a difference is that going to make to companies in the future and the hundreds of dead pigs in a Shanghai river tributary that was used for drinking water around the Shanghai area because they died and they were just being disposed of the way millions of gallons of pig manure can inadvertently seep into water supplies.
KUMMERI believe that American companies try to segregate it, just doesn't always work. And there are these accidents all the time. So it's the huge scale and the complete opposition of what we think of as the family farm and what Smithfield might promote in its beautiful Mayberry town versus what the reality of the conglomeration and mergers has been that has made Smithfield such a huge international player. And what the Chinese are doing now, we're seeing the demise of family farms all over the world and this merge is just one more sign of it.
NNAMDIPatrick, Smithfield's pork producers, as Corby just pointed out, don't have the best reputation. The company has faced fines for polluting the Chesapeake Bay as he mentioned. Criticism over how it treats immigrant labor and also undercover videos that show animal abuse. How has the pork companies name held up in its hometown?
EVANS-HYLTONWell, I think that there, you know, certainly there are two Smithfield's as Corby was saying. The, a visitor doesn't scratch too far under the surface and you do see that quaint Mayberry. Around here, folks do know about the violations and one of those things, too, that if you have strong financial ties to Smithfield Foods, if you're a shop owner in town, if you work for the company, you accept it as fact.
EVANS-HYLTONThere, you know, are people that aren't so directly tied that are very concerned about -- because when it goes into the Pagan River that does feed right into the James River, which ultimately comes into the Chesapeake Bay. So there are people that are very, very concerned about that. And I think that that's another weariness that we have since China doesn't have the best reputation. Obviously they're going to uphold to American laws but also, as Corby said, there's -- it doesn't always seem to really make much difference what a large company sometimes wants to do anyway when they're just going to get a smack on the wrist kind of fine.
NNAMDIPatrick Evans-Hylton is a food writer based in Norfolk, Va. He's the author of several books including "Smithfield: Ham Capital of the World." Patrick, thank you so much for joining us.
EVANS-HYLTONThank you so much. I enjoyed it.
NNAMDIWe're going to take a short break. When we come back, we'll continue our conversation with Corby Kummer about Smithfield and China. Corby Kummer is a food writer and senior editor at The Atlantic magazine. I'm Kojo Nnamdi.
NNAMDIWelcome back to our conversation with Corby Kummer. We're talking about Smithfield goes to Shuanghui. Corby Kummer's a food writer and senior editor at The Atlantic magazine. We're taking your calls at 800-433-8850. Corby, Americans may be eating less meat, but in some cases they're still paying more for it. The beef prices have soared due to droughts. Do you have any idea whether this buyout could affect food prices either at home or abroad?
KUMMERI think that if anything, because American pork consumption is lowering versus the steep rise in China and India, the countries that have rising middle classes, it's possible that an increased exportation of American pork could result in higher prices. I don't think that's cause for alarm because I'm one of those snobbish elitist foodies who thinks that you should be paying a slightly higher price if it has anything to do with better treatment of workers and more humane treatment of animals.
KUMMERAnd hoping that the USDA's inspection service -- the USDA -- yesterday the Times had an op-ed citing a newer port by the USDA of its own inspectors. I'm talking about the really -- the desperate lack of inspection that the USDA's inspector general report has. For example, there were 110 million pigs processed in 2011 by 626 plants and serial violations of standards in plants that just kept working because both the workers are undertrained. They work long hours. So if prices rising can mean better treatment of workers, you know, I'm all for it.
KUMMERBut in general, the trend is downward in meat consumption partly because of health concerns, partly because of price in the United States. So a short term price rise I don't think is going to be a huge curbing affect in weather Americans eat more or less pork. I think it's going to be trends and what people think is right for their health. And the news about red meat is just increasingly bad, especially...
NNAMDIYou got to...
NNAMDIOh, I'm sorry to interrupt. We got an email from Donna who said, "Tell me how this will help any of us in the U.S.A. or the citizens of China other then the investors. Many people are thinking of health factors and are trying to cut back on eating meat. We're trying to improve the conditions of lifestyle and should be trying to use less land for the use of raising livestock. So who does the sale benefit aside from the investors?" And her sentiments seem to be simpatico with those of Jack in Silver Spring, Md. Jack, you're on the air. Go ahead, please.
JACKYes, thanks, Kojo. You know, I look at this as another example of basically the investor's money, having money busy making money. And, you know, nobody doing a darn day's work to earn the money. You know, we got a lot of people basically being undercut in this country all the time, selling the businesses down the road, selling the jobs down the road for a couple of percent on the bottom line for the stock market, which is great.
JACKWe have a stock market that's like a giant, yet we've got -- despite the statistic of people being measured as unemployment -- we've been in this depression that you know has been more than 10 percent unemployment for years now. Yet we turn around and we let things like this, you know, keep going down. I'm kind of beside myself about it and it's been a product line that I've used for years. I won't be buying anymore Smithfield products. And quite frankly, I would encourage others not to.
JACKYou know, talk about, you know, the power of the dollar or the checkbook, if you will. I think people have an opportunity. You know, they wanted to buy Hershey chocolates out a few years ago. People said, no we're not going to have any part of that. I think people need to stand up for the jobs. I mean, they say it's all going to be okay, everybody's going to keep their job. But you know that's only a short term resolution until they look at the money and what it's costing and where's the cheapest way to go.
JACKAnd unfortunately we have a -- briefly and I'll get off the line here -- we do have a tenancy to look at the bottom line before we look at basically the people that make the bottom line happen.
NNAMDIAnd Corby Kummer, Jack is not an elite food writer but obviously he feels that this is really not about people or workers at all but merely about investors.
KUMMERI think anyone who's followed the sale's very aware of that considering the offshore holding companies and the U.S. venture capital that is so much a part of this. So the issues that it raises are the control of the U.S. food supply going out of U.S. hands. We're about to be running, I think, on the website, a piece that draws a lot of attention to the state-by-state laws about how many acres of farm land and estate a foreign company is allowed to buy. Because more and more prime farm land in the United States is falling into the hands of foreign companies.
KUMMERAnd in a free market, you know, that's just fine. There's nothing wrong with that. There shouldn't be anything protectionist. And I'm not saying that we should be Japan, which reserves an enormous amount of its land for rice production and it causes all kinds of urban concentration and high food prices. I would never advocate that kind of protectionism but I think it's something that a lot of U.S. citizens should be thinking about in the future as foreign capital starts buying up farm land and farms.
NNAMDIYou mentioned Japan. Brazil is also imposing strict rules on foreign companies that want to own farm land. But do you think the U.S. will ever consider imposing those kinds of regulations?
KUMMERYou know, I think it will. And I think that's going to be part of the conversation in the next few years and something that more and more activists and, you know, libertarian lawmakers, for that matter, are going to become concerned about. Because farm lane falling out of the control of the United States I think is different from say Rockefeller Center or huge high-profile U.S. trophy properties falling out of the hands of the United States because will we ever be able to control it again?
KUMMERAnd as we're hoping to control -- to shift more and more land production to food in a much more sane way that's less consolidated, that's more diversified, that can feed more people in a smaller restricted local area by being more diverse, less mono-cropping. But if the prime farm land isn't even U.S. owned anymore, it's not going to allow U.S. farmers, especially young farmers of the younger generation, any chance of getting a leasehold or getting a career.
NNAMDIWell, Corby, one Smithfield investor has been encouraging Smithfield Foods to split itself up rather than accept the Shuanghui buyout. Ultimately how do you think that deal will -- do you think that deal will sell?
KUMMEROh, yeah, I think that...
NNAMDIAnd would that be a better idea?
KUMMERSorry. No. I don't know about that split up because it struck me as still financially driven as opposed to being in terms of...
NNAMDIIt's investor-driven, yes.
KUMMER…investor -- returning any kind of diversification in land or restoring water standards or diminishing the scale of the farm industry that -- and industrial production that Smithfield represents. So I think the deal is going to go through and that a lot of the U.S. lawmakers' objections that I've seen are so kind of out of the ballpark of what people really should be considering. Which is environmental standards and worker humanity, the way workers are treated and the way animals are treated as opposed to regulation. But those don't seem to be the objections that are being raised by lawmakers. And I think that deal's going to go through.
NNAMDIAllow me to go to David in University Park, Md. David, you're on the air. Go ahead, please.
DAVIDThanks, Kojo. I think it's possible that there might be two positives to come out of this deal. And I've thought about this quite a bit. The first one concerns China. China's economic development really is in desperate need of a regulatory food safety regimen that's relatively free of corruption. And we have that here. It's flawed but we do have that. And if a bad actor like Smithfield can begrudgingly brought into compliance, as they have been here, I think that'll be a real good example in China as they attempt to build such a regimen there.
NNAMDIOkay. Allow me to have Corby Kummer comment on that.
KUMMERYou know, I think it's a very valid point. And something I wanted to bring up is that part of the Food Safety Modernization Act, which was a triumphant when it was passed a few years ago, but a complete tragedy in that it has never been sufficiently funded to be able to put it into place. A very large part of that was foreign food safety standard and installing USDA -- and that's a different agency -- but installing U.S. inspection plants for exportation of foods including in China.
KUMMERAnd I'm pretty sure the FDA has already been supervising plants in China, but it's nothing like at the scale that the Food Safety Modernization Act envisions and that the FDA would like to be able to implement. Yes, we are importing more and more food. And when you look at farmed fish coming from southeast Asia and China and the paltry amount of inspection it receives, as well as meat, there are lots of things to be alarmed about. But I would advocate for people to write into their congress people and say, fund the Food Safety Modernization Act.
NNAMDICorby Kummer is a food writer and senior editor at The Atlantic magazine. He joined us from studios in Boston. Corby, thank you so much for joining us.
KUMMERAlways a pleasure.
NNAMDIWe're going to take a short break. When we come back, what we can learn about Afghanistan from families making carpets at a remote village that you won't even be able to find on a map. I'm Kojo Nnamdi.
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