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Why China's 'pigging out' on American pork

Wednesday, May 29, 2013 - 02:31

May 29 - China's Shuanghui International has agreed to buy U.S. pork producer Smithfield Foods for $4.7 billion sparking many questions ranging from why, to where are pork prices heading, to what happens to food security and food safety given China's track record. Havovi Cooper reports from New York.

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China's pigging out! Literally... One of its biggest meat packers, Shuanghui International, is buying Smithfield Foods for 4.7 billion dollars in cash. If completed, that will be the biggest takeover to date of an American company by a Chinese one. So why is the east 'hogging' the west? Industry experts say it may have a lot to do with food safety concerns in China. In March more than 16,000 rotting pigs were found floating in one of Shanghai's main water sources. Even worse, Chinese police recently broke a crime ring that passed off more than 1 million dollars in rat and small mammal meat, as mutton. Steve Meyers of Paragon Economics in Iowa says that the Chinese are 'sick' of bad food. SOUNDBITE: STEVE MEYERS, PRESIDENT, PARAGON ECONOMIC (ENGLISH) SAYING: "We think there's a lot of speculation that some food safety issues in China over the last year or so have driven the interest of a major supplier in the country to go elsewhere for raw material supplies. We're a very dependable supplier of pork, so I don't see any concerns on our end of the thing. I think that may be one of the motivators on the Chinese end." Health concerns aside, Scott Shellady, who trades at the CME for Trean Group, says the deal boils down to simple economics -- supply and demand. China's current population is 1.3 billion and that's rising half a percent every year. SOUNDBITE: SCOTT SHELLADY, SENIOR VICE PRESIDENT OF DERIVATES, TREAN GROUP (ENGLISH): "At the end of the day the China region and its per capita consumption is probably more, no definitely more, than double the U.S. annual per capita consumption so whatever reason they may tell you they're buying it, they're really only buying it for one reason. They want our hogs." But 'pulling pork' out of the U.S. will have an impact on prices. In the past year hog futures have risen nearly 9 percent on global demand. SOUNDBITE: SCOTT SHELLADY, SENIOR VICE PRESIDENT OF DERIVATES, TREAN GROUP (ENGLISH): "This is going to make things a little bit more expensive. It's probably going to make the futures market a little tighter or at least the hog market a little tighter as far as supply going forward." Given the testy relationship between the U.S. and China - this might be a tough sell...So far this year, Chinese companies have bought 10 U.S. firms worth 10.5 billion dollars. That's just 20 percent of all takeovers in the U.S. by foreign firms. To head-off concerns about food security or food safety, Shuanghui says U.S. operations will remain under American management control and staff. Some analysts feel that assurance could help Shuanghui bring home the bacon.

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Why China's 'pigging out' on American pork

Wednesday, May 29, 2013 - 02:31