Drug shift, global markets sealed Smithfield-China pork deal

By Kenric Ward

WASHINGTON – U.S. feed subsidies, spotty inspections and a decision to scale back use of a controversial drug made Smithfield Foods an enticing buy for Chinese pork producer, Shuanghui International.

Reversing the usual pattern of importing work and exporting product, the Chinese are purchasing the “bricks and mortar” of the Virginia-headquartered company and keeping operations Stateside.

Shuanghui announced last month it would buy Smithfield, America’s largest pork producer, after Smithfield began scaling back use of ractopamine, a growth accelerator that makes for leaner hogs.

Ractopamine is banned in China, but widely used by U.S. pork processors. By going off the drug, Smithfield enhanced its market position in China, the world’s No. 1 pork consumer.

“China is closed to the U.S. market, except for Smithfield,” company CEO Larry Pope told investors last month, prior to the announcement of the $7.1 billion deal (including Shuanghui’s assumption of $2.4 billion in Smithfield debt).

“We have two of our plants which represent 43,000 hogs a day, a little over 10 percent of the industry, that we can ship into China and are shipping into China every day,” he said.

Pope said a third Smithfield plant was due to become ractopamine-free this month, taking half of Smithfield’s total production off the chemical.

Industry observers call Smithfield’s move a shrewd one.

“It wasn’t about good quality food, it was to increase the price of Smithfield,” said Elisabeth Holmes, an attorney with the Center for Food Safety.

By cutting its use of ractopamine, which is also banned by Russia and the European Union, Smithfield carved itself more global market share.

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