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Smithfield Foods is the world’s largest pork producer and processor, an operation that has grown and thrived over the years as the meat industry consolidated into a handful of powerful companies controlling U.S. pork, chicken and beef output.
It is one of the most vertically integrated operations in the meat industry, which means the company manages hogs from birth to slaughter. At the urging of consumer groups and some agriculture groups, congressional committees through both Republican and Democratic administrations have held oversight hearings to look into consolidation trends but found no antitrust violations.
However, the proposed $4.7 billion sale of the Virginia-based Smithfield to Shuanghui International Holdings, one of China’s largest meat processors, is reviving interest on Capitol Hill into consolidation, though the Justice Department has not raised antitrust concerns.
If joined together, the resulting company would be the world’s largest pork processor. Opponents of consolidation say the process reduces competition among buyers and gives meatpackers greater market leverage over ranchers, hog farmers and poultry producers.
The Senate Agriculture Committee called in Smithfield President Larry Pope on Wednesday to defend the pending sale. Although Congress has no role in approving the merger, the committee was following in a tradition of members of Congress spotlighting politically sensitive foreign deals.
Foreign companies acquiring or buying stakes in U.S. companies is not out of the norm. Federal government data on foreign investments in the United States shows that in 2011, British companies invested $442 billion, German companies nearly $216 billion and Dutch companies more than $240 billion. China still has a relatively small investment footprint in the United States.
But the interest in Smithfield is not difficult to understand. Pork is the top meat consumed in China and the rest of Asia, and consumption there is growing while it remains flat in the United States.
Matthew J. Slaughter, associate dean at Dartmouth’s Tuck School of Business, said that although Chinese companies’ acquisitions in the United States have grown, they make up a small slice of the overall transactions involving foreign firms.
“While Chinese investment in the United States has dramatically increased since 2008, rising from less than $1 billion to $6.7 billion last year, the absolute level is still quite low,” Slaughter told the Senate Agriculture Committee.
However, he said the Fortune Global 500 list shows an increasing number of Chinese businesses among the world’s most powerful companies.
“With companies in China and other developing countries seeking new ideas, new brands and new customers beyond their fast-growing home markets, the trend of investment into the United States from fast-growth emerging markets like China is likely to continue,” Slaughter said.