Smithfield sale warrants close federal review

Published 11:17 am Saturday, June 29, 2013

by Randy Forbes

For Virginians, Smithfield Foods represents a taste of home. When news broke of a merger agreement between China’s largest meat processing enterprise and Smithfield, many mourned the loss of a hometown company to a Chinese firm.

Others called the deal a boon for both parties. However, many questions remain unanswered.

China is still learning how to produce food safely and in mass. Its ability to regulate food origin and supply is uncertain, and China has not shown itself trustworthy when it comes to food safety.

Over the past several years we’ve seen China at the center of several food safety scandals – tainted milk, dead pigs floating in Shanghai’s Huangpu River and tainted raw pork. Even Shuanghui, the company purchasing Smithfield, has a history of safety scares; pork products from Shuanghui-controlled farms contained a harmful food additive banned in the U.S. and China.

Meanwhile, it isn’t clear how the deal might affect our own food supply.

Shuanghui will likely boost exports to China from Virginia-based Smithfield. However, eight states with Smithfield presence have laws barring foreign ownership of agriculture land. We don’t know the fate of these companies, but we cannot ignore the possibility of our food supply being greatly diminished should the plants close.

Furthermore, because Smithfield will no longer be publicly listed, it will have fewer disclosure requirements of management and production practices.

Some argue that interfering in the Shuanghui-Smithfield deal is an infringement on free enterprise. But this is not truly a free market transaction, as there is evidence to suggest Shuanghui has strong ties to the Chinese government.

In fact, Shuanghui’s purchase of Smithfield is made possible only by means of a $7.9 billion loan, half of which comes from the state-owned Bank of China.

Free trade is also in question. The Chinese delisted U.S. pork producers from exporting to China, slapping them with onerous rules and regulations. A truly free market would afford U.S. businesses the same opportunities as their Chinese counterparts. China’s record proves this is not likely, and as such, these one-sided transactions cannot be deemed examples of free enterprise.

Finally, we need to ask what will happen to Smithfield’s intellectual property. Shuanghui could absorb Smithfield’s knowhow and technology — particularly in genetic breeding – to gain a competitive edge globally. Valuable intellectual property generated in the United States could be lost to China in the process.

So what’s needed?

We need certainty that Shuanghui will maintain Smithfield’s commitment to quality. We need to be sure that Smithfield will operate safely under Shuanghui’s ownership. We need to know the impact on our own food supply.

We need to know whether this is truly an independent decision between two companies or if the Chinese government is involved at some level. We need insight as to what extent Smithfield will be at the command of its Chinese owner and whether Smithfield will be able to make market-driven decisions. We need to know how all of this affects the U.S. market.

We can address these questions with a few simple steps.

First, the president should place the secretary of agriculture on the Committee on Foreign Investment, whose job it is to identify national security concerns in foreign investment but is not currently structured to do so in regard to food safety. Although this has not traditionally been a national security issue, it is rapidly becoming so and deserves robust analysis by subject matter experts.

Second, the U.S. Department of Justice’s Antitrust Division should assess the market impact. We need to know whether this may be a merger that would harm both competition and consumers.

The Antitrust Division, in cooperation with the Federal Trade Commission, has a duty to identify and investigate mergers and acquisitions that raise competitive concerns. As there are legitimate concerns regarding whether this is an independent decision, apart from the Chinese government, an investigation from a competition standpoint is warranted.

These questions may create a level of scrutiny China is not used to facing, but they are questions that Americans have come to expect to meet our health and safety standards and to ensure the best economic future for the United States.

Editor’s Note: This column first appeared in the Thursday, June 27 edition of The Virginian-Pilot.