We have seen a remarkable turnaround in the world order in the twenty-first century. China moved into the world market as a seller and buyer of large quantities of products. The singular focus of the Chinese communist government to grow their economy has been so successful that a country that could not feed its people in 1980 is now moving them into the middle class and offering the highest quality food that the world produces.
That brings me to the sale of Smithfield Foods to Shuanghui International (pronounced “Shin High”). The Chinese economy has a strong domestic component of food production. Their farms produce almost 700 million hogs each year (We grow 100 million). But the Chinese middle class is questioning the quality, consistency and food safety of domestic pork. At the same time, China is importing very large quantities of soybeans (projected at 59 million metric tons this year) and is on the verge of buying corn from the United States and South America. To solve both problems, Shuanghui has purchased the largest U.S. pork processer. Smithfield will be able to supply the Chinese consumer with a consistent, quality product that has been processed in a manner that assures food safety to the end of the supply chain. It also allows China to buy less grain by shipping equivalent output to their country as frozen pork.
Questions of the day: How much grain has been fed to a 280 pound pig? What is the carcass weight of that animal? What is the percentage reduction in volume shipped to China by selling pork rather than corn and soybeans (send answer to kenroot (at) gmail.com)?
Is being “sourced” good for the U.S. economy and the U.S. farmer? That has yet to be determined but our goal of more exports of processed American products should advance, and income should be larger, as the Chinese appetite will reach all the way to hog barns in Iowa. The U.S. consumer will now have to bid against the Chinese consumer for pork, so retail prices should remain strong and constant.
But the final question may become: “Who’s on top?” China may question our dominance on the world stage and jeopardize our standing as a superpower. At least this premise of capitalism remains: Consolidation continues.