China Buys World's Biggest Pork Producer

A Chinese company has agreed a multi-billion dollar deal to buy the biggest pork producer in the US.

Shuanghui International said it would pay a premium to buy US meats icon Smithfield Foods for \$4.7bn (£3.1bn).

The acquisition appears to have been planned for some time because Smithfield weaned the first of its animals off a controversial feed additive last year.

Shuanghui, which controls China's largest meat-processing company, will pay cash and assume debt in a deal that values Smithfield at \$7.1bn (£4.6bn).

Shares in Smithfield rose more than 30% on news of the takeover.

Both companies said that Shuanghui's goal was to access US pork supplies for the giant Chinese market and that Smithfield's management would stay in place.

"Chinese consumers like American pork. US farmers want to export their pork," Shuanghui managing director Yang Zhijun said.

"Together we can be a global leader in animal protein ... No other combination has such a great opportunity."

The Chinese have had a taste for pork that dates back 6,000 years, but now struggle to rear enough cheap pigs to feed a massive population.

Local feedstock land scarcity and rising imported soybean costs means foreign pigs are cheaper and can be sold at a premium, as Chinese consumers grow weary of repeated food contamination scares.

Smithfield said that, accounting for changes to the US corn market, it should be able to produce slaughter-ready pigs for \$1.37 a kilo - compared with recent prices in China of more than \$2.10.

The company produced 6.5 billion pounds, equivalent to 2.9 million metric tons, of fresh and packaged pork in 2012.

Around a third of China's local pig production remains with smallholdings and is inefficient, pushing prices up compared to the US economy of scale.

China is on course to consume 53.1 million tons of pork in 2013 according to the US department of agriculture, with just 1.58% - 840,000 tons - coming from imports.

The American firm currently has around 1% of the Chinese market but the share is expected to grow to 4% post takeover.

Smithfield quietly weaned the first of its animals off the additive ractopamine last year, which might have helped open the door for the acquisition.

Used for more than a decade in the US livestock industry to help pigs quickly build lean muscle instead of fat, the additive had begun to ring alarm bells among some major meat importing countries around the globe.

US media reports of ractopamine-fed pigs becoming sick fuelled questions among food safety critics last year about the potential long-term impact on human health.