China's largest meat processor, Shuanghui International Holdings, agreed last week to acquire the world's biggest pork producer, Smithfield Foods, for €3.63 billion, a deal that seems inevitable when you consider China accounts for half the world's pork supply and consumption.
It's the largest takeover of a US company by a Chinese company, and the deal could have ramifications for Irish food businesses, which are keen to get a foothold in the Chinese market. Irish food and agribusiness firms such as Kerry, Glanbia and Keenan's have signed deals in China in recent months.
Irish exports
Pork exports were Ireland's second most important export to China last year and, as reported here last week, SPAR China is already one of the region's biggest importers of Irish pork.
Shuanghui says the deal will make American pork exports to China easier and make Chinese consumers trust the Shuanghui group more. The deal will double the number of US jobs directly related to Chinese-owned direct investments.With debt acquisition, this deal is worth more than €5.36 billion.
For Shuanghui, the deal offers access to a substantial supply of pork, and one with proven safety standards; food safety is a major issue in China after a raft of scandals involving poor quality control.
With more than 60,000 employees, the integrated food company operates farm-to- fork operations, but raises only 400,000 of its own pigs a year, a fraction of the 11 million it needs, and it relies heavily on local breeders. Small farms can be problematic in terms of quality control: small farms around Shanghai were blamed for the 16,000 rotting hog carcasses that floated down the Huangpu River this year.
Shuanghui was involved in a scandal about tainted meat two years ago, when it was forced to recall its Shineway brand meat products from shop shelves after reports that products contained the banned additive clenbuterol. Smithfield owns well-known brands such as Eckrich, Armour and Farmland, which are likely to go down well with Chinese consumers who mistrust domestic brands and favour overseas brands.
Restructuring
Based in the city of Luohe in the central province of Henan, Shuanghui was set up by the local government in 1958. The group's chairman, Wan Long, known as "China's butcher-in-chief" was appointed head of the firm in 1984 and steered it through a restructuring and a successful initial public offering in 1998. After the local government sold its stake in 2006, Shuanghui transformed itself into its current complicated structure.
Shuanghui of Hong Kong owns businesses including food, logistics and flavouring products. It is the biggest shareholder in China's leading meat processor, Henan Shuanghui Investment & Development.
Who knows, perhaps the Shuanghui deal will provide a template for further moves by Irish firms in the Chinese market.
