Let’s start with the ‘Sayings of Chairman Wan,’ the Chief Executive at Shuanghui, the world’s newest well-known meat behemoth, temporarily shoving aside Brazil’s JBS.  He said this about beef: “Chinese traditionally like to eat pork. China doesn’t have the resources to raise cattle on a large scale. If there isn’t a lot of beef, you’ll have to eat pork if you like to eat meat,”

His comment leaves open the strong possibility that he might add some more resources to his portfolio.  U.S. and Australian beef interests, often one and the same when it comes to ownership, should be watching Shuanghui closely, maybe even tidying up their financials just in case a buyer comes calling from deep in the heart of China.  For you doubters, here’s another hint taken from an interview with Chairman Wan Long several years ago: “Our goal is to be the biggest in China, and the leading meat supplier in the world.”

Being the prince of pork won’t get that world domination goal done.  Beef needs to be a part of the Shuanghui portfolio, as does poultry. With big ambitions and big capitalist dollars behind them, to think they won’t be sniffing around America’s feed yards soon is missing the big picture, akin to stumbling into a pasture somewhere in Texas and saying, “Bull, what bull?  I don’t see anything.”  The Smithfield purchase is a buying signal that should be noticed by everyone in American agriculture. 

To cool American consumers’ concerns about huge price hikes caused by a major boost in exports, Chinese consumers like pig heads, feet and offal, products that aren’t on U.S. menus.  It should be seen as an immediate export bonanza by the pork industry.  Later, as Chinese develop a taste for ham, bacon and pork chops, trading in hog futures should be the ag equivalent of owning the keys to Fort Knox.

Concerned about a lapse in food safety? More sayings from Chairman Wan:  “The question of food safety, whether it’s to American consumers or Chinese consumers, is a big deal.  Our nation has a tighter and tighter grip over food safety.”

Well, they don’t have a tight enough grip, yet, but the expertise they gain from Smithfield will get them there quickly. 

Follow the money

Shuanghui isn’t a communist conspiracy to take over the American food supply; it is a red-blooded American capitalist conspiracy.  Nearly half of it is owned by major centers of capitalism like Goldman Sachs, New Horizon Capital and CDH Investments, Singapore’s sovereign wealth fund.  CDH and Goldman Sachs led a group that paid $250 million to buy out to the Chinese government’s stake in Shuanghui seven years ago.

Paul J. Fribourg, Continental Grain’s chairman and chief executive, doesn’t seem to be one of those enthusiastic capitalists, though.  In a mildly worded statement, he said, “Continental Grain congratulates Smithfield on the proposed merger with Shuanghui International.  We have been advocating for value creation and are pleased that the Smithfield board of directors and management are being proactive in realizing value for the benefit of all of its shareholders.”

Continental Grain,owners of 6% of Smithfield, immediately sold its entire position by last Friday at an average price of about $32.88. Shuanghui had offered $34 a share. CG must have been betting on the short end of the deal when they gave away $1.12 per share of that value creation in the quick sell out.

The Wall Street Journal reported that all is well financially with the six top execs at Smithfield, too.  Under the terms of the buyout, they will all receive generous seven figure bonuses for staying with the company. The most generous payment of course, would go to Smithfield Chief Executive Larry Pope who would receive $8.3 million under the program if he remains in his post for three years.

Follow the politics

Charles Grassley, Republican Senator from Iowa, the largest U.S. hog producing state, had some concerns.  A very vocal right-winger who often spoke out on behalf of smaller government with fewer rules and regs so that business would be free to do business, he had to walk a thin, tight rope when he commented on the proposed buyout.

"No one can deny the unsafe tactics used by some Chinese food companies. And, to have a Chinese food company controlling a major U.S. meat supplier, without shareholder accountability, is a bit concerning.

“CFIUS's scrutiny of this acquisition is vitally important. How might this deal impact our national security? What role does the Chinese government play in Shuanghui, like it does in so many other ‘private' companies? These are important questions for CFIUS to get answered," Grassley said.

CFIUS, (Committee on Foreign Investment in the United States) is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person (“covered transactions”), in order to determine the effect of such transactions on the national security of the United States. 

Talking about the buyout with the Des Moines Register, Sam Carney, former president of the National Pork Producers Council, said, “When you hear things like that you always have mixed emotions, but I always say you need to sit down and think about it and let cooler heads prevail.  I believe this is going to be an excellent opportunity to export more pork to China.”

During a phone interview with Smithfield, Virginia’s WAVY.com, Republican right-winger and delegate to that state’s house, Robert Marshall complained, “This is going to cost jobs for Virginians, this is going to cost in health, this is going to cost public confidence.

“The company that wants to buy them, the Chinese company, has deplorable record for safety and processing, I would not buy one pork chop from these people.  Who wants to buy food from a company with a sloppy safety record? If you love your kids, you won’t chance it. A lot of people will lose their jobs because of this.”

It should be noted that Marshall is an extremist who loves to cry wolf and likes to make over-the-top statements that gain him some fast and loose press coverage. 

I’ll give the last word to my friend Raoul Baxter (Full disclosure: he was a long-time Smithfield exec before retiring a few years ago) who wrote this in “Cutting to the Chase,” a blog he does for Meatingplace: “Maybe most important for people to realize about this deal is that Shuanghui has invested in real property and bricks and mortar. Regardless of what happens, that stays in the U.S. Also, as an American subsidiary they are subject to the same laws all American companies are.

“As Shuanghui is already finding out in its initial ‘welcome to America’(as it) is familiarizing itself to American lawyers, particularly the heroes of the class action bar. In tandem you will have the usual complaints from Midwest politicians and some producer groups. Albeit stupid criticism, it will come nonetheless.

“International deals are never perfect. However, in this case, as far as pork demand goes, it will be greatly beneficial to the entire U.S. pork system.”

The opinions expressed in this commentary are solely those of Chuck Jolley, a veteran food-industry journalist and commentator.