Poultry Blaze Thrusts Shunghui Into Spotlight
A major poultry plant disaster in northeaster Jilin province is casting an awkward spotlight on pork processor Shuanghui as it tries to convince wary US consumers and politicians of the benefits of its pending $7 billion purchase of US rival Smithfield Foods (NYSE: SFD). Not surprisingly, a US trade union representing many Smithfield workers has used the Chinese tragedy to issue a carefully worded statement implying that similar disasters could happen in the US if the Shuanghui-Smithfield merger proceeds. While this looks partly like politics, I personally believe the concerns aren’t completely groundless since China’s food industry doesn’t exactly have a strong track record for good business practices.
Before we look at the newly issued statement from the United Food and Commercial Workers International Union, which represents 16,000 Smithfield workers, let’s quickly review the latest facts on the disaster at a Jilin poultry factory last Monday. That disaster saw a blaze break out at the plant, ultimately leaving around 120 people dead. The cause of the blaze is still under investigation, but reports have said that many people couldn’t escape from the factory because many of the exits were locked.
The US-based United Food union issued its statement late last week, saying the tragedy “shines a light on the serious worker safety issues that are seen throughout the entire poultry industry.” The statement cites another major disaster that occurred at a poultry factory in the US state of North Carolina in 1991, leaving 25 dead, to highlight that the problem is a global one.
But reading between the lines, this statement seems like a clear attempt to play on potential fears by US consumers and politicians towards the Shuanghui deal. In effect, the message seems to be: If Shuanghui is allowed to buy Smithfield, this kind of major disaster might happen in the US. I doubt we’ll see much more discussion of the Jilin fire in public with regard to the Shuanghui deal, but I also am fairly certain this issue will come up when the US considers whether or not to approve the purchase.
I’ve raised this issue before, namely the potential that Chinese food companies could export some of their bad business practices to the foreign rivals that they’ve started acquiring in the last couple of years. I looked at the issue in November last year, when Bright Foods, one of China’s top food companies, became embroiled in a series of scandals that resulted in unprecedented fines by the government in its home city of Shanghai. (previous post)
The list of scandals surrounding Bright included the discovery of blue particles, banned additives and other harmful substances in some of its milk products, and the delivery of sour milk to homes. Those incidents collectively painted a picture of a company that was more interested in profits than consumer safety, just as Bright was embarking on a major acquisition spree in Australia and Europe.
While this statement from United Food does seem somewhat opportunistic, designed to win more concessions from Shuanghui, I do think the union is raising a legitimate point that China’s growing taste for global food M&A has broader implications beyond simple trade. China’s poor safety record at home, combined with many companies’ disregard for other basic worker rights, is a serious problem.
I doubt Chinese companies would deliberately export these poor business practices to their overseas acquisitions. But there’s still the very real possibility that some of these practices could inadvertently find their way into their overseas acquisitions, potentially endangering both the employees at those operations and also consumers of their products. All that said, I don’t think the China poultry plant blaze will kill the Shuanghui deal. But it could force Shuanghui to make more concessions and outline specific measures it will take to ensure that China’s less desirable business practices don’t find their way into Smithfield’s operations.
Bottom line: A major disaster at a Chinese poultry plant could force Shuanghui to offer concessions to ensure it will operate Smithfield according to western standards.
