NOBULL: China’s Shuanghui latest foreign entrant to the U.S. protein business

China’s Shuanghui latest foreign entrant to the U.S. protein business

By Tom Johnston on 5/30/2013

Smithfield’s merger with Shuanghui, China’s largest meat processor, brings yet another foreign player to the U.S. protein field, where outside opportunists with plenty of capital largely have found a happy home in recent recessionary years that sapped domestic beef, pork and poultry firms of profitability and made them relatively cheap buys.

Smithfield President and CEO C. Larry Pope said, in fact, that his company got to talking with Hong Kong-based Shuanghui back in 2009, just months after the U.S. economy hit the skids amid the housing market crash and escalating grain prices promised to put a hurting on major animal protein producers. That also was the same year Brazil’s JBS SA, having already bought Swift &. Co’s beef and pork businesses, announced the acquisition of Pittsburg, Texas-based chicken producer Pilgrim’s Pride Corp.

A year later, JBS’s Brazilain competitor Marfrig Alimentos acquired West Conshohocken, Pa.-based Keystone Foods and Mexican conglomerate Sigma Alimentos picked up Phoenix, Ariz.-based packaged meats processor Bar-S Foods. And by the end of 2011 the U.S. industry had seen another Mexican protein giant, Industrias Bachoco, acquire Fort Smith, Ark.-based poultry processor OK Foods (for an undisclosed amount); Korea’s Harim USA scoop up Seaford, Del.-based poultry processor Allen Family Foods in a $48 million bankruptcy deal; and Ukraine’s Omtron buy a $25 million chunk of Georgetown, Del.-based poultry Townsends Inc., also in bankruptcy proceedings.

Omtron is embroiled in a lawsuit with North Carolinian poultry growers as it tries to liquidate assets, but most of the above have demonstrated long-term investments in the United States as a means to access new markets and grow their businesses in ways not available to them in their homelands for reasons including infrastructure and animal disease issues.

Mutual benefits

Beyond the obvious — the cash that U.S. companies might not be able to infuse into their domestic industry — these internationals present new business perspectives, as Bill Roenigk, senior vice president of the National Chicken Council, noted in a previous interview with Meatingplace.

Harim, for example, has expertise in what types of chicken products South Korean consumers here and abroad desire. "They bring not only new thinking and fresh ideas but also expertise in how to better serve a consumer that perhaps hadn’t been fully appreciated or recognized before," he said.

Like Harim and other recent emigrants, Shuanghui stands to gain from America’s streamlined agricultural resources and offers long-term financial stability to the U.S. market. “I think to appreciate this, you have to look at the long-term realities of the ability of China to be more self-sufficient in both grains and proteins. With the present technology, there is no way China can do it,” Raoul Baxter, a former Smithfield executive and international business consultant, told Meatingplace.

He added: “The important thing is that Shuanghui is now investing in real property and in bricks and mortar. You can’t take those things back to China.” Baxter also writes a blog for Meatingplace.

Demand boost

China’s agricultural shortcomings should pave the way for increased — and a more consistent flow of — Smithfield pork shipments overseas and provide benefits to the U.S. pork market.

As Baxter explained, developing countries like China favor whole carcasses because they are the most economical buys. Wealthier countries order more specialized products that they cannot manufacture themselves, but those orders can put pricing pressure on individual parts of the pig. China, however, boasts very skilled and very cheap labor that can make well more than 150 fresh products, meaning the flow of carcasses should continue for an extended period of time.

“As you pull large, consistent amounts of pork out of the U.S., it puts increased demand for the remaining pork within the U.S. across the board,” he said.