Shuanghui’s generous proposal
Four months after that phone call, Larry Pope sat before the U.S. Senate Committee on Agriculture, Nutrition and Forestry. The deal had been publicly announced in May. Shuanghui had made an attractive offer – a 30 percent premium over Smithfield’s publicly traded share price.
As CEO, Pope stood to earn at least $26.9 million in bonuses from the sale of America’s largest pork company.
The U.S. Treasury Department was in the midst of reviewing the takeover for any national security risks. That review, by an obscure office within the department, was to remain classified per U.S. law.
There were calls for a public hearing. U.S. Sen. Chuck Grassley from Iowa said he wanted to know whether the Chinese government controlled Shuanghui. Debbie Stabenow, the Michigan senator who headed the agriculture committee, wanted to know the same and called Pope to testify.
It wasn’t mere curiosity. Two years earlier, the Chinese government had signaled its strong desire for overseas agriculture. It had unveiled its five-year plan, which amounts to the Communist Party’s roadmap for the country’s economy. A major focus of this plan: buying up overseas farmland and foreign food companies.
In 2011, the year the five-year plan was announced, Chinese nationals owned $81 million worth of U.S. farmland.
By the end of 2012, the Chinese owned $900 million in U.S. farmland – a 1,000 percent increase – making them the largest buyers that year, according to the U.S. Department of Agriculture.
The Smithfield deal included another $480 million in U.S. farmland, which would push the Chinese stake to nearly $1.4 billion in less than two years.
Pope calmly addressed the senators in his measured Southern cadence. He assured them the Smithfield deal was simply the case of one private company buying another. He testified that the Chinese government had absolutely no management control in Shuanghui.
Pope explained that the deal would create jobs in the U.S., not destroy them. Shuanghui’s plan to import more American pork would ramp up production at Smithfield’s 460 hog farms, creating more money for farmers and more jobs at the slaughterhouses.
“China is looking to another market to help feed its growing demand,” Pope said. “I think it is good for America. I think this is the opportunity America has been looking for to import jobs.”
Stabenow pushed back. She wanted to know why Smithfield could not increase its sales to China as an American company and why only a takeover by a Chinese firm would open the doors to the world’s largest pork market. The Chinese government was unfairly blocking American hog farmers from exporting there, she said.
If the situation were reversed, if Smithfield tried to buy Shuanghui, the Chinese government never would allow it, Stabenow concluded.
Pope found a more sympathetic ear in U.S. Sen. Pat Roberts from Kansas, which is a key state for the production of livestock feed.
American grain companies had supported the deal. In the past five years, China has become their biggest foreign customer.
Roberts lampooned criticism of the deal, asking Pope, “Did you realize you were the victim of a Chinese communist plot?”
Laughter broke out in the hearing. Pope chuckled.
“Senator, I did not,” he said.
“And the control of your company somehow to allow China to control the pork industry?” Roberts asked, laughter erupting again.
“Senator, I was not aware of that,” Pope responded, a smile spreading across his face.
ListenNathan Halverson takes us inside this major investigation of
Smithfield Foods, producer of the iconic holiday ham, was one of America’s flagship food companies, steeped in centuries of U.S. tradition.
The Virginia-based pork company derived its ham from a curing process Native Americans taught settlers five centuries ago. It owned part of Main Street in the bucolic town of Smithfield – including a restaurant, a historic Southern hotel and the company’s nearby headquarters.
C. Larry Pope, its president and CEO, had a fireplace in his sprawling executive office, which looked more like a hunting lodge than the command center for what had become America’s largest pork business.
But in 2013, a Chinese firm bought this quintessential slice of Americana – Main Street and all. The takeover, valued at $7.1 billion, remains the largest-ever Chinese acquisition of an American company.
Naturally, it riled patriots and protectionists. Pope’s mother asked him why he sold to the communists. Pope also had to defend himself in the local newspaper: “These are not Russian communists. They like Americans.”
Some xenophobia was to be expected. Anti-Chinese racism in America goes back nearly as far as, well, holiday ham.
But behind the usual flag waving and Red Scare antics lies a stark new reality: Chinese companies, at the urging of their government, have launched a global buying spree, a new phase in their unprecedented economic experiment. And they’re targeting a resource that climate scientists, economists, the U.S. government, even Wall Street, all forecast will become dangerously scarce in the coming decades: food.
Food is poised to become the oil of the 21st century, with scarcity and demand creating a situation ripe for wars, riots and uprisings.
“We have a situation in the world food economy today where the growth in demand is exceeding the supply,” said Lester Brown, a food economist and founder of the Earth Policy Institute.
Food – namely crops such as soy, wheat and corn from which most other food products, such as pasta, bread and livestock meat, are derived – is in dwindling abundance as the world’s population grows ever larger, adding 220,000 mouths to feed every day. At the same time, global warming is destroying up to 2 percent of the world’s crop production every decade, according to the United Nations.
“It is part of the transition from an age of surplus to one of scarcity,” Brown said.
It’s a daunting prospect for those of us expecting to be alive in 2050, when the planet’s population is projected to reach at least 9 billion. Will we be able to feed everyone? Will politicians be capable of negotiating a global solution to vital food and water supplies?
The Center for Investigative Reporting helped launch an initiative called Food for 9 Billion in 2011 that set out to answer some of these questions. As part of that effort, I spent nearly a year examining the Smithfield Foods takeover. What I learned goes far beyond pork.
The world is set for a geopolitical struggle over food.
The Chinese government already is dealing with looming food shortages within its own borders as tens of millions are eating more as they move from poverty into the middle class. The government is pushing Chinese businesses – both state-owned and privately held – to gobble up agricultural resources from around the world, including Africa, Europe and the United States.
With the Smithfield purchase, a Chinese company now owns 1 in 4 pigs raised in the U.S.
The question for U.S. lawmakers is: Did the Smithfield takeover represent business as usual for international commerce, or did it signal a concerted effort to control food supplies by one of the world’s most powerful governments?
If the Chinese government was involved in the 2013 deal, some influential U.S. lawmakers say they need to take action to protect against foreign intervention in a vital U.S. resource.
Pope, along with others who stood to benefit from the Smithfield deal, dismissed the Chinese government’s role in the takeover. The government does not control Shuanghui International or its acquisition of Smithfield Foods, they said at the time. This is simply one private company buying another.
“Shuanghui is not a state-controlled company,” Pope said in the summer of 2013, when U.S. regulators still were reviewing the deal for national security risks.
He testified to Congress that the Chinese government has no management control over Shuanghui.
That, however, is not the case.
The largest-ever Chinese acquisition of an American company began with an unexpected phone call in March 2013.
Larry Pope sat in his office. An accountant by training, he’d spent the past 33 years climbing through the ranks of Smithfield Foods, the nation’s largest pork company and the largest employer in Smithfield, Virginia, a pastoral town of 8,200.
Pope’s office overlooked a tranquil tributary of the James River, where the first settlers sailed and established Jamestown about 30 miles away. Scattered around his office were memorabilia signed by NASCAR legend Richard Petty, whom the company sponsored and whose car was emblazoned with the Smithfield logo.
Pope had moved into the role of chief executive at Smithfield Foods seven years prior, taking the reins from the grandson of the company’s founder. He oversaw the company’s operations, including 46,000 worldwide employees, a research lab that had genetically engineered the leanest pigs on earth and nine slaughterhouses, including the world’s largest in North Carolina.
The company processed 32 million pigs a year. On average, one pig moved through a Smithfield Foods processing plant every second to be slaughtered, butchered, packaged and shipped for consumption. Bacon, ribs and other pork cuts made Smithfield a multibillion-dollar company.
Smithfield supplied restaurant chains such as McDonald’s and Denny’s and many grocery stores in the United States. It represented the height of America’s industrialized farming, owning everything from hog farms in Iowa to slaughterhouses outside Chicago and warehouses and distribution trucks that crisscrossed the United States, Canada and Europe.
But Smithfield Foods was struggling. Its share price had fallen over the past five years. The company had gone through a series of layoffs. Major shareholders were getting restless. They wanted Pope to take drastic measures.
The phone rang in Pope’s office. It was Russell Colaco, an investment banker with Morgan Stanley. Pope knew Colaco and his reputation as a big-time dealmaker. And Colaco knew Pope’s interest in buying a 20 percent stake in China’s largest meat company, Shuanghui International.
Pope’s plan to expand Smithfield Foods – and fend off his anxious investors – included tapping into China’s booming consumer market.
The Chinese already consume half of the world’s pork, and they are growing wealthier and hungrier for meat every year. In a single generation, China’s fast-growing wealth has transformed a nation of impoverished rice and noodle eaters into the world’s largest middle class, which can increasingly afford meat in its diet.
But getting Smithfield pork into China wasn’t simply a matter of shipping it overseas. The Chinese government maintained strict restrictions on pork imports from the United States, including banning any meat containing a growth hormone commonly used by producers such as Smithfield. So Pope had negotiated – using a Chinese interpreter – with Shuanghui’s chairman, Wan Long.
Wan had transformed a government-owned slaughterhouse, where he was appointed manager in 1984, into China’s largest meat company, eventually listing it on the Hong Kong stock exchange and becoming its largest individual shareholder.
Pope proposed to Wan that they take a 20 percent stake in each other’s companies. Smithfield would gain a powerful ally in Wan, who is politically connected to China’s top leaders and also a member of the National People’s Congress.
The partnership would be equal, reflecting the fact that although Smithfield Foods generated more than twice the revenue and was far more advanced in terms of global reach and pork technology than Shuanghui, growth rates in China were far higher.
China had the consumers. America had the pigs. It was a match made in free-market heaven.
Pope picked up the phone. Colaco cut straight to the deal. The Chinese were ready, he said. But it wasn’t a partnership they wanted.
“What is it?” Pope asked.
“They’d like to buy all of Smithfield.”
Pope was taken aback.
“Russ, that wasn’t the call I was expecting.”
“They are very interested in making this happen.”
“Smithfield is not for sale,” Pope shot back.
But then Pope equivocated. The shareholders were on his mind. Smithfield needed to boost sales. A potential fortune lay in China.
“But I do like this discussion,” he finished.
Both Pope and Colaco told me that they remembered the call as cordial and succinct. They hung up, agreeing to talk again.
Pope, who had thought he could maneuver his way into the booming Chinese market, suddenly faced a takeover from the very place he had sought refuge.
The Chinese didn’t want to save him. They wanted to buy him.
Who’s behind the Chinese takeover of a U.S. pork producer?
FAQ
Who is the owner of Hatfield meats?
Is Hatfield American made?
Where does Hatfield pork come from in the United?
What meat brands does China own?
Who owns Hatfield food company?
The two Clemens brothers then purchased the Hatfield plant with their brothers, Ezra and Lester. The company has been owned and controlled by the Clemens family ever since through the private Clemens Family Corporation, which operates primarily through the Clemens Food Group. The Hatfield manufacturing operation remains non-union.
Where is Hatfield meats made?
Hatfield Meats is primarily a pork meat packing company based in Hatfield, Pennsylvania. It produces over 1,200 different fresh and manufactured pork products. Hatfield’s distribution is primarily on the U.S. East Coast, and several international markets.
Did China buy Smithfield Foods?
One year ago this month, a Chinese company bought America’s largest pork producer, Smithfield Foods. The $4.7 billion deal is the biggest Chinese acquisition of a U.S. company to date. Nathan Halverson from the Center for Investigative Reporting looks into the Chinese government’s role in the takeover.
Is Smithfield a Chinese company?
Located in Smithfield, Virginia, Smithfield was purchased by the Hong Kong-based WH Group for $4.7 billion in 2013. At the time, it was dubbed “the biggest Chinese takeover” of a U.S. corporation, one of the U.S.’s biggest producers of industrial meat.