DeLauro, Warren Demand Answers on Shuanghui-Smithfield Foods Deal
WASHINGTON,DC—Congresswoman Rosa DeLauro and Senator Elizabeth Warren wrote to four topmembers of the Obama Administration today, demanding public answers on theproposed deal between Smithfield Foods and Shuanghui International Holdings. Asoutlined in the letter, the potential merger raises real food security andsafety worries, and U.S. global economic competitiveness concerns.
"Theproposed Shuanghui acquisition of Smithfield Foods is a highly consequentialmerger of two large food producers that warrants careful scrutiny byregulators," they wrote. "As regulators responsible for promoting free and faircompetition in the marketplace, ensuring strong intellectual property laws andeffective enforcement, reviewing foreign acquisitions of U.S. companies, andprotecting the safety of our food supply, we believe your views on key issuesrelated to this proposed merger are critical."
DeLaurois a longtime advocate for ensuring America's food supply is safe andaffordable for consumers. She is a former Chairwoman of the subcommitteeresponsible for funding the Agriculture Department. Warren is a well-knownconsumer advocate.
Theletter follows in full:
June 26, 2013
TheHonorable MichaelFroman
Ambassador
U.S.Trade Representative
TheHonorable Eric H. Holder,Jr.
AttorneyGeneral
Departmentof Justice
TheHonorable Jacob J. Lew
Secretary
Departmentof theTreasury
TheHonorable Tom Vilsack
Secretary
Departmentof Agriculture
DearAmbassador Froman, Attorney General Holder, and Secretaries Lew and Vilsack:
Wewrite to express our deep concern with regard to Shuanghui InternationalHoldings Ltd. potential acquisition of Smithfield Foods. As regulatorsresponsible for promoting free and fair competition in the marketplace,ensuring strong intellectual property laws and effective enforcement, reviewingforeign acquisitions of U.S. companies, and protecting the safety of our foodsupply, we believe your views on key issues related to this proposed merger arecritical.
Asyou know, on May 29, China's largest pork producer Shuanghui announced it wouldacquire the United States' largest pork producer and processor Smithfield for$4.72 billion. The deal amounts to the largest takeover to date of an Americancompany by a Chinese one. It also represents the first major investmentby a Chinese firm in the U.S. food and agriculture sector.
Ratherthan open its market to U.S. food products, China's policy is to attainself-sufficiency in its food supply while maintaining food processing andproduction in China. China is seeking to do this in the same way that itconducts business in other sectors, purchasing a foreign company to obtain itsknowledge and technology to then build its own competing product.
Inthis case, Shuanghui will learn vertical integration and acquire other Americantechnology to quickly build up its own domestic production. Thisacquisition, in addition to the approximately $10 billion in agriculture sectorinvestments made by China in other countries, allows Chinese companies enhancedaccess to intellectual property. As China increases its domesticproduction, it will better compete against U.S. companies in markets around theworld.
Moreover,consolidation in our food supply chain is generally problematic because a foodsafety issue with one company can quickly impact consumers across the countryand the world. Consolidation with overseas ownership can only make itmore difficult to ensure the food Americans consume is safe.
Whileinitially the deal may increase U.S. exports to China, over time the UnitedStates could in fact begin to import pork products from China. Such adevelopment would raise a host of food safety concerns as China's food safetysystem remains wholly inadequate leading to unsafe exported foodproducts.
Foodsafety concerns in China include melamine identified in pet foods and baby formula,unsafe levels of cadmium in rice, and rat meat being sold as mutton. Notably,in 2011, Shuanghui was found to have produced pork laced with the drugclenbuterol, which is linked to serious human health risks. In March 2013, morethan 7,000 dead pigs were found floating in the Huangpu River. Just asChinese consumers question the safety and security of their food supply, soshould we as public officials on behalf of American consumers.
Sincejoining the World Trade Organization in 2001, China's food exports to theUnited States tripled to 4.1 billion pounds of food in 2012. Yet,oversight of China's food producers has not kept up with the sharp increase inimports. The Food and Drug Administration (FDA) inspects less than 2percent of imported produce, processed food and seafood. Even with aMemorandum of Understanding between the FDA and China's Certification andAccreditation Administration signed in 2010, the FDA only conducted 10inspections of food facilities in China in fiscal year 2012.
Allof these issues raise a number of questions that we believe should bepublically answered so that American consumers and businesses have a completeunderstanding of the ramifications of this potential deal. Accordingly,we appreciate your response to the following:
1.Consolidation in the agriculture industry crowds out smaller farmers andproducers and leads to fewer options and higher costs for American consumers.What benefits will this proposed acquisition have on the opportunity for smallmarket participants in the agriculture sector to compete and for consumers tohave options to make pork purchases at reasonable prices? Along withSmithfield, will other farmers have access to China's market?
2.As a non-market economy, China favors employment and domestic growth over theprofitability of its enterprises, which may cause this proposed merger to havelarger implications for the entire U.S. pork sector. How will otherU.S. companies compete in the marketplace against an entity that does not placenormal commercial considerations as its primary goal? Will U.S.competitors be forced to reduce their profit margins to compete? IfU.S. companies hope to maintain profit margins, what cost-cutting measuresshould we expect?
3.Smithfield operates facilities in 26 states that will be impacted by thisacquisition. What assurances are included in the proposed merger to ensure thatSmithfield continues to meet domestic food safety and animal welfarestandards? What impact will the new management structure with Shuanghuiownership have on operations, including workforce size, at thesefacilities? Could some of these facilities potentially close with foreignownership of agriculture land? What will be the term of thesecommitments?
4.U.S. pork producers have by and large been unable to secure access to China'smarket. With a growing desire for protein, rather than opening up themarket, a Chinese company is purchasing a U.S. company. What commitments aremade in this proposed acquisition to put Smithfield's expertise towarddeveloping China's pork production? As this new merged company profits, whatare the benefits to U.S. investors and what are the benefits to Chineseinvestors?
5.Shuanghui's development is central to China's effort to create an industrialmeat industry. Shuanghui has invested aggressively in new facilities to betterservice the cities of Beijing and Tianjin. It's acquisition of Smithfieldwill likely allow Shuanghui to drastically scale up China's meat industry. Whatimpact will this have on the ability of U.S. companies to compete in the globalmarketplace, including increasing exports to countries in competition withShuanghui? What provisions will be put in place to assess the access that allU.S. pork producers will have to the Chinese market or will Smithfield havepreferential access as a Chinese-owned company?
6.The United States Trade Representative continues to place China as one of 10countries on its Priority Watch List of countries that are the worst violatorsof intellectual property rights. What intellectual property agreements,including related to Smithfield's animal gene technology, are proposed in thismerger and what steps must be taken to ensure U.S. intellectual property isprotected?
7.China is not yet approved to ship meat and poultry products to the UnitedStates. China is, however, in the process of being certified as"equivalent" to U.S. meat inspection standards. At the same time, theDepartment of Agriculture weakened its oversight of foreign meat and poultryproducers when it moved from conducting annual on-site audits to relying on a"Self Reporting Tool" and conducting audits every three years. Whatassurances can you provide that the Shuanghui-Smithfield merger will not prematurelylead to equivalence certification and export of potentially unsafe porkproducts from China to the United States? What level of access do you believethe Food Safety and Inspection Service will have to Shuanghui facilities inChina?
8.What ability will U.S. consumers have to differentiate from pork products thatare of U.S. origin as opposed to those of Chinese origin that will, presumably,be marketed here in the United States under the Smithfield label? What country of origin labeling will be required, if any?
Theproposed Shuanghui acquisition of Smithfield Foods is a highly consequentialmerger of two large food producers that warrants careful scrutiny byregulators. The Committee on Foreign Investment in the United States (CFIUS)is reviewing the proposed acquisition to determine its impact on U.S. nationalsecurity.
Webelieve the potential impact on U.S. global competitiveness and U.S. foodsafety and security of this proposed acquisition are national securityconsiderations. Regardless, we believe your answers to our questions arecritical to shedding light on the numerous ramifications the deal may have onAmerican consumers and the country at large. We thereforerespectfully request that responses to these important questions are publiclyprovided well in advance of any final consideration of this transaction byCFIUS.
Thankyou in advance for your response.
Sincerely,
RosaL. DeLauro
ElizabethWarren