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Food and National Security: The Shuanghui-Smithfield Merger Revisited
Used under creative commons license from chenevier

Last week, the U.S. treasury approved the largest takeover by an international firm of a U.S. food company. It paved the way for China’s largest pork processor, Shuanghui, to merge with Smithfield, the U.S.’s largest pork processor. The fact that it was a Chinese company stirred up so much controversy that the Senate Agriculture Committee held a hearing July 10 entitled,  “Smithfield and Beyond: Examining Foreign Purchases of American Food Companies.”  A major concern was foreign ownership of the U.S. food supply and whether the U.S. review process of foreign takeovers addresses food safety and “protection of American technologies.” There was little doubt that this merger would be approved by Treasury’s Committee on Foreign Investment in the United States (CFIUS): Shuanghui is willing to absorb over $2 billion of Smithfield’s debt; U.S. hog exports to China are expected to increase; and private equity firms on both sides of the Pacific will profit from a much stronger global hog processing company in two of the largest pork markets in the world (See IATP's blogs Two Converging Rivers: Understanding Shuanghui’s acquisition of Smithfield and Shuanghui acquires Smithfield: The view from China and IATP's webinar China, Smithfield and the Global Meat Industry)

This was a rare time when the U.S. Senate agriculture committee tackled the question of how developments in the food industry affect national security and whether this deal sets a bad precedent. Their analysis of course was limited to whether China would steal U.S. technology on pork genetics, feed and slaughtering, whether the deal would weaken U.S. food safety, result in job losses and hurt U.S. hog exporters. What the hearing could and should have addressed is how this deal will exacerbate the extreme corporate concentration of the U.S. (and global) meat industry, the resulting impact on hog farmers and rural communities, working conditions in processing plants and the continued offloading of environmental and public health costs generated by global companies like Smithfield and Shuanghui onto the American (and Chinese) public.

Rather than curbing corporate concentration, the House of Representatives has gone one step further in its version of the Farm Bill to limit USDA’s authority to protect against unfair practices in the livestock and poultry sectors. A letter sent September 9 by over a 140 U.S. organizations (including IATP) to the Senate and House agriculture committees called for a rejection of such a provision in the House version of the 2013 Farm Bill. The letter states:

During the 2008 Farm Bill process, Congress heard extensively from livestock and poultry producers, farmer organizations, and consumer groups about anti competitive and unfair business practices that unfortunately have become commonplace in the livestock and poultry sectors of our agricultural economy. As a result, the final 2008 Farm Bill included provisions to require USDA to write regulations to address the most egregious of these practices and to define certain terms in the statute. Section 11102 of the House version of the 2013 Farm Bill would repeal the 2008 Farm Bill provision that addressed these concerns and place a broad limitation on USDA’s authority to enforce many aspects of the Packers and Stockyards Act of 1921.

The critical issue here is the concentrated power of the livestock industry. And we are heading in the wrong direction. The Shuanghui-Smithfield deal fundamentally highlights the global nature of this industry and its trend towards further concentration. The CFIUS approval shows U.S. administration support for that trend as does the House version of the Farm Bill. Isn’t the corporate takeover of the U.S. food supply a national security issue?

In 2010, the U.S. Department of Justice and the Department of Agriculture held five public hearings on the role of antitrust in U.S. agriculture—the livestock industry was a critical part of that discussion. Sadly, there was little follow up after the rigorous examination of the industry. Over 15,000 comments were submitted by farmers, consumers, researchers, industry and elected officials.

The Global Development and Environment Institute (GDAE) submitted a paper titled Buyer Power in the U.S. Hog Markets: A Critical Review of the Literature. They found that the U.S. pork industry has gone through rapid concentration in just 25 years—with four packers controlling two-thirds of the market. Smithfield controlled 31 percent of that market, being the only buyer in the U.S. Southeast. The share of hogs sold in the open market dramatically dropped from 62 percent to just 8 percent in 15 years (1995-2010). This is the oppressive effect of the meatpacking industry on small and independent livestock producers. And it has left producers with little choice and little power, forcing low spot prices for hogs in the market (below the cost of production) and “unusually large variation in prices.”[1] Trade union representatives of workers in meat packing plants also complain of the concentrated power of the food retail industry in further pushing down the supply chain and forcing poor worker conditions. According to GDAE, the top four U.S. food retailers went from 19 percent control of the market to nearly 60 percent in a period of 12 years (1997–2009). Farmers, workers and the public all lose in such a scenario. And it makes our food system beholden to corporate greed.

In a letter submitted to the U.S. Administration on the Smithfield deal, a group of organizations raised several objections about the Shuanghui-Smithfield merger. They also underlined problems with Smithfield:

While Smithfield’s safety record is better than Shuanghui’s, the company is not without blemishes. In 2013, Smithfield recalled 38,000 pounds of sausage over concerns that the products might contain plastic fragments. In 2012, Smithfield’s packing plants in Poland recalled 13,600 pounds of meat products for microbial or labeling issues. In 2011, Smithfield recalled 216,000 pounds of flavored pork loins that may have contained unlabeled dairy ingredients that could pose an allergy risk to consumers.

There have been many complaints against the company for environmental issues as well, particularly in North Carolina, home of much of the company’s production. The National Sustainable Agriculture Coalition reports that 600 residents in Wake County, North Carolina have filed complaints against Smithfield that the company’s hog waste lagoons and manure applications are causing problems for them.[2]

China’s farmers, consumers and environment are also confronting similar problems with commercial and specialized hog production (see IATP’s Feeding China’s Pigs). The critical issue here is not the nationality of the industrial livestock company, but its size, practices and market power. It’s the ability of a few companies to change the entire system of producing livestock in a globalized world where people, the environment and public health come out as losing entities. Our government has a responsibility to rectify this injustice—reversing corporate concentration of this industry is the first step in that direction.

To better understand the role of the global meat industry around the world, IATP will be publishing a series of reports on China’s livestock sector in the coming months.