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Nuts & Bolts

May 30, 2013

Hurt: Effects of merger on U.S. pork industry not yet known

The full impact on the U.S. pork industry of a merger between Smithfield Foods - the world's largest pork producer - and Chinese firm Shuanghui are not yet known, Purdue Extension agricultural economist Chris Hurt says.

If approved, the merger could provide new market opportunities for U.S. hog producers and also offer Shuanghui the opportunity to adopt Smithfield's health, sanitation and environmental standards.

"The largest potential advantage for the U.S. pork industry is that Shuanghui is the largest processor and distributor of meat products in China," Hurt said. "China is the largest producer and consumer of pork. At this early stage it is unclear if this merger will result in more U.S. pork products being exported to China. However, this clearly opens the trade door for increased business to China, which already was the third-largest destination for U.S. pork in 2012."

But the merger isn't without risks, he said. Large corporations can sometimes fail to adapt to quickly changing global markets. It also brings up concerns among U.S. producers and consumers about the loss of U.S. ownership and what that means for U.S. control.

Another concern, Hurt said, is that while the United States and China are trading partners, the countries have very different social and political policies, which could play into whether the merger can be finalized.

The merger still must run through approval channels in both nations. If approved, the transaction likely would take place later this year.

Growing incomes and demand have resulted in a Chinese pork market with a 3 percent annual growth rate. The U.S. market, on the other hand, is stagnant, meaning Americans will consume the same amount of pork in 2013 as they did in 2005.

"The mature U.S. consumer market for pork means the industry must turn elsewhere if it wants to grow," Hurt said.

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