NOBULL: On Becoming China’s Farm Team — Sadly, there may be only one potential upside to this deal for most A mericans…

On Becoming China’s Farm Team

Posted on 06 November 2013 by Ellen Croibier.

Reposted from The New York Times

On Becoming China’s Farm Team

Mark Bittman | November 5, 2013 | NY Times

Look at the $4.7 billion purchase in September of the pork producer Smithfield Foods by Shuanghui International Holdings Ltd. — the Chinese firm that counts Goldman Sachs among its backers — from the standpoint of the Chinese. As this century’s economic titan, they had to “take a position” in United States pork. China’s population of nearly 1.4 billion is not only growing rapidly but growing wealthier rapidly, and flattering us by emulating our consumption patterns (for better or worse) while having trouble replicating some our production systems.

China has notorious problems with food safety; urban Chinese consumers distrust the quality and safety of their own food system, and express clear preference for imported food when it is available. What to do when you are the largest pork supplier in China, you have production and quality problems, must meet the ravenous demand for more meat from hundreds of millions of paying consumers, and the international supply is abundant? You buy the world’s largest pork producer and processor, together with that firm’s vaunted supply chain, quality controls, brand value and consumer appeal.

Sadly, there may be only one potential upside to this deal for most Americans, and that one is ironic. We might see a marginal improvement in the quality of industrially produced pork by ridding it of ractopamine, a lean-meat growth stimulant whose effects on humans are sufficiently questionable that its use for meat production is illegal in the European Union, Russia and China. Smithfield says that as of June, 50 percent of its pork is ractopamine-free, the better to please its new masters.

But can Americans buy Smithfield pork without ractopamine? Maybe, maybe not. At the moment, there’s no way to know.

The other upsides are for the Chinese, and of course, Smithfield shareholders, though Smithfield executives would have you believe otherwise. Larry Pope, Smithfield’s C.E.O., who is no doubt glowing about what turned out to be a $34-per-share premium, was cheerleading in his testimony this past summer before the Senate committee on Agriculture, Nutrition and Forestry. He said that the purchase — the biggest ever of a United States company by a Chinese one — “provides enormous benefits … for American manufacturing and agriculture,” and claims it will result in more production, jobs and exports.

“It’ll be the same old Smithfield, only better,” Mr. Pope said.

The Chinese produce and consume half the world’s pigs. They have a pork strategic reserve not unlike our petroleum reserve. Really. They’ll buy more pork from us when they can and need to, but not simply because a Chinese company owns the factory. (Would you, for example, be more likely to buy a Kia if Goldman Sachs bought the Korean carmaker? For that matter, can you be certain that they haven’t?) If they did, and pork became scarcer, prices would climb; producers might consider that a good thing but consumers would not. Almost anything that reduces consumption of industrially produced meat is a plus, but reducing its production is equally important, and there’s the rub, or one of them.

The benefits for Shuanghui are crystal clear: As is the case with 90 percent of the pork produced in the United States, almost all of Smithfield’s “farms” use now standard techniques, including large (average: 2,000 pigs) concentrated animal feeding operations, or CAFOs,in which pigs are confined, fed with legal but problematic drugs and use enormous amounts of feed, water and energy while generating giant lagoons of manure. (That Smithfield has made some progress in manure disposal and even confinement are minor if not insignificant factors when the entire production model is assessed.)

Smithfield has also bred what might be the world’s leanest and therefore most profitable pork, using genetic research paid for in part with tax dollars through public support of research at land-grant universities. Technologically speaking, the almost inconceivably huge Chinese pork industry is primitive. This is an instantaneous technology transfer that doesn’t involve spying but cash.

Given what they just outsourced, why would the Chinese not want to buy the whole shebang? According to Kai Olson-Sawyer, a research and policy analyst at the Grace Communications Foundation who has blogged extensively on this subject, “The CAFO system has major impacts on environmental and human health, rural communities and animal welfare. And basically, taxpayers pay for it all: we subsidize the production of cheap grain used as feed, and are ultimately stuck bearing the environmental, public health and socioeconomic costs of industrial livestock production.”

The fact is that China is going to be a net importer of food more or less forever: it’s got a fifth of the world’s population (and eats a fifth of the world’s food), but only nine percent of its agricultural land and scarce water resources. (The average pig takes nearly 600 gallons of water to produce a pound of meat.)

So even more than a technology grab, the Smithfield deal is a land and water grab. We still have the world’s most enviable combination of arable land, rainfall and temperate weather, and there’s no practical technological substitute for any of these. It’s the consumption of these resources, along with the manure deposits, that make the Smithfield deal, to paraphrase Warren Buffett, a form of colonization by purchase rather than conquest. In short, the deal, as Minxin Pei wrote

in Fortune, is “really about owning access to America’s safe farmland and clean water supplies.”

Put aside for a moment the arguments of those who see a better way to eat and produce food more sustainably. And put aside that most Americans remain ignorant of how food is produced and the effect that production has on land, water, energy and even climate. Just say this: all agriculture has impact, which means it uses resources and leaves behind waste. We implicitly accept some of that impact because we want, for example, the pork.

The Smithfield-Shuanghui deal guarantees China the pork while offloading the downsides (the “externalities”) of pork production onto The Land of the Free. It guarantees us cropland devoted to chemical-dependent monoculture; continued overuse of water and other resources, none of which we can afford to squander; and great big stinking piles of manure. In sum, it transfers the environmental damage of large-scale pork production from China to the United States without even guaranteeing us pork with as few chemicals as that shipped to China.

Welcome to China’s farm team.