Smelling Truffles: Should you be Investing in the American/Chinese Pork Trade?
An extremely controversial purchase has been debated on Wall Street regarding the sale of American pork juggernaut Smithfield Foods to Chinese conglomerate Shanghui International. It’s easy to laugh or cringe at the fact that one of the last commodities the US has an advantage on over the Chinese is its number of pigs. This sale has the potential to slap the American market hard in the face.
Whatever payoff an investment in Shangui will have in the immediate wave of this sale is tempting, but it may in fact have longer lasting drawbacks to the market at large and your portfolio, not to mention the American position as the most competitive market on the planet.
BACON, PATTY OR LINK?
It’s impossible to deny that there isn’t money to be made by investing in Shangui. This is the biggest purchase of an American company that China’s ever made, offering $4.7 billion for Smithfield. Obviously, its stock is going to skyrocket. Defenders of the purchase also claim that it will be a great boon to the American farming industry. Corn and farm feed producers and veterinarians arguably will see a giant demand for their services as the Chinese demand for pork has grown like crazy.
That part might be true. Much of the Chinese population has still been living on agrarian diets since the Great Leap Forward tried to modernize the country. However, with a decline in traditional Buddhist beliefs, the demand for pork and other meats has risen with its blossoming middle class. Advocates who argue that pork eating in America is on the decline because of health concerns and cost seem to forget or ignore that US pork demand has gone up nearly 155% in the past five years.
WHERE’S THE MEAT?
China’s government has always placed priority on feeding its own people before it feeds others. Several global rice shortages in the past decade have been due to the country’s commitment to keeping its products home when needed before shipping the excess out to the rest of the world. This is fine when it comes to domestic products, but what happens when they own a vital link in the American food chain? Shangui claims that it will keep production under current management on US soil, but there is no guarantee that this will be a lasting arrangement.
If China ever shuts the valve on the US pork supply, those profits from Shangui shares will evaporate instantly, along with countless other commodity and agricultural shares.
The idea that China could demand nearly every pig on American soil without argument is scary enough. But, even in times of plenty, Shangui definitely isn’t the safest bet when it comes to handling food. A short list of their food crimes includes selling rice tainted with cadmium, mutton that happened to be made of rats, and the genuinely scary and rampant use of deadly chemicals in their pork. Shangui has come under fire more than once for feeding chemicals to their pigs to make the meat leaner, which also happens to make humans who eat it painfully sick.
If that’s not bad enough, China hasn’t bat an eyelash when it comes to using grow-hormones to breed larger pigs for more meat. This practice is illegal in the US and Europe because it is despicably inhumane on top of being a serious health hazard. How long can a company this apathetic towards its consumers’ health possibly remain profitable on the American exchange?
I KNOW A SHORTCUT
On its largest scale, investing in Shangui adds fuel to the fire of China’s foreign purchases. The past few years has seen them absorb energy companies throughout Europe, Asia and the Middle East, not to mention brokering a deal with Nicaragua to build an alternative to the Panama Canal. The Smithfield acquisition is likely the first step in China cornering the global agricultural trade and compromising America’s place in the economic hierarchy.