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Senators question Chinese takeover of U.S. food company

July 13, 2013

By Annette Birch

The article has been published in The Capital Post,

At a Senate committee hearing on July 10 several senators questioned the long-term effects on national security of a merger of an American company with a Chinese one. The proposed merger involves the U.S. company Smithfield Foods and the Chinese company Shuanghui. Sen. Stabenow (D-Mich.) was especially concerned that the merger would lead to other Chinese takeovers of U.S. food companies.

“It may be the first in the food business, but it will not be the last. We must take a long term view of what is happening. The importance for our food supply and safety cannot be underestimated,” Sen. Stabenow said.

CEO for Smithfield Food, Larry Pope, assured the Senate Committee on Agriculture, Nutrition and Forestry that the merger would not have any noticeable impact on their business, except increased production.

“This is all about exporting products to China. There will be no import of food from China,” Pope said and stressed that China, for several years, has suffered from food shortage due to severe water shortages and insufficient farmland. Doug Wolf, president of the National Pork Producers Council agreed.

“This is a great opportunity for us to get into the Chinese market. It could pick up our economy,” Wolf said.

Smithfield Foods, which is the world’s largest pork producer and processor, was bought in May by the Chinese company, Shuanghui, for $4.7 billion, making it the largest Chinese takeover of a U.S. company in history. The merger is currently under review for its impact on national security by the U.S. Committee on Foreign Investment (CFIS), which must approve the merger. A bipartisan group of committee members, among these Sens. Stabenow, Tcad Cochran (R-Miss.) and other senators has sent a letter to the Secretary of Treasury, urging him the secretary to take a closer look at the impact foreign purchases like Smithfield Foods have on national security.

At the hearing, Commissioner Daniel Slane of the U.S. Chamber of Commerce also raised concerns that the merger is part of an overall Chinese strategy aiming at gaining as much control of the U.S. market as possible.

“It raises the question whether allowing a Chinese organization to dominate the food industry will do any good for the U.S. economy,” Slane said. He emphasized that the Chinese government had a large influence on the Chinese company, Shuanghui, as several of its board members had strong ties with the Chinese Communist Party. He also questioned whether China would really open up its markets to foreign competitors.

Another question raised was whether the merger could pose a threat to the U.S. export of pork to Japan, if China instead of importing pork began exporting it to Japan.

Pope was not concerned the merger would hinder U.S. export of pork to Japan.

“There are very tight food standards in Japan for Chinese products. Pork is 50 percent higher price in China than in the U.S.,” Pope said.

However, Matthew J. Slaughter, faculty director of the Tuck School of Business at Dartmouth College, thought the merger had the potential to be a create more jobs for the 22 million unemployed American in the United States.

“The job opportunities come from opportunities created in the world market. These kind of transactions create large benefits,” Slaughter said.

Sen. Stabenow was not impressed.

“China could feed their people by opening up their markets to U.S. companies,” Sen. Stabenow said and invited the other members of the committee to join her in another meeting about the merger with the Department of Treasury. Sen. Johanns (R-Nebr.) did not, however, see a legal mechanism in place that could stop the merger and he did not think Congress would act.

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