It could be the biggest Chinese takeover ever of a U.S. firm. But this deal doesn’t involve Silicon Valley, high-tech widgets or Hollywood stars. Instead, a Chinese firm is proposing to pay a whopping $4.7 billion for a U.S. business that produces … pork.
Shuanghui International’s offer for Smithfield Food has attracted some controversy. One U.S. senator has described it as “concerning”. Others see it more positively: According to the Financial Times, the “deal will help open the Chinese market for US meat producers”.
That’s a growing market. China’s emerging middle class is eating more, and especially more meat, and is increasingly concerned about food safety. But meeting their demands is set to become a bigger challenge as China confronts environmental and demographic issues and the impact of climate change. And that’s part of the reason why Chinese businesses are eyeing up overseas suppliers like Smithfield.
So far, China has been able to meet much of its growing demand itself: Between 1980 and 2011, agricultural output (not all of it food, of course) expanded 4.5 times, thanks in part to increased use of machinery, improved irrigation, and hybrid crops. In parallel, the number of people going hungry has fallen sharply: In 1990, around one in five Chinese was malnourished; today it’s under one in eight. Food security has also improved: In 1978, for example, rural households spent 68% of their income on food; today it’s only around 40%.
Indeed, one – unwanted – marker of China’s success in feeding itself is the rise in overweight and obese people: Between 1991 and 2006, the proportion of overweight people doubled to just under 27%, according to an OECD report.
But, as the latest OECD-FAO Agricultural Outlook explains, maintaining the growth momentum in Chinese agriculture won’t be easy, for several reasons. The first is demographics: China’s countryside faces a double whammy of an ageing population and migration to the cities. In 1992, around 844 million people lived in the Chinese countryside; by 2022, the UN estimates that figure will fall to below 600 million. Not only will the rural population be smaller, it will also be older, meaning there will be fewer skilled workers available to manage increasingly complex farms.
Then there’s land and water, both in short supply. China has only around a quarter of the arable land per person that OECD countries have. Similarly, its water supply per person is only around a quarter the world average. And both these resources are under pressure: More than 40% of China’s arable land is classed as degraded as a result of erosion, salinisation and acidification. Soil contamination is also a concern.
And, of course, there’s climate change: China, like much of the rest of the world, appears to be seeing a rise in extreme weather events. One result is that the country’s variable water supply is becoming even more unpredictable. Droughts in the arid north are likely to become more common, while flooding will become an even more regular feature of life in the more tropical south.
Despite all these pressures, China will probably go on raising its food output. It’s likely to remain essentially self-sufficient for commodities like rice and to remain a net supplier of others – it’s the world’s top exporter of fish.
But in other areas, most notably dairy and meat products, China may rely more on imports. The bid for Smithfield Food could well be an early sign of that. There are other signs, too, of China’s changing food needs: Hong Kong, for example, has had to put a limit on purchases of baby formula to prevent mainland Chinese parents worried by a succession of food safety scares from clearing the city’s shelves. According to the BBC, retailers as far afield as London and Australia have followed suit.
Indeed, China is likely to have an increasing impact on global food markets. On the downside, that could mean a new source of volatility in the world’s food supply. But, as Craig Emerson, Australia’s trade minister pointed out at the OECD Forum, it could also open important new markets: “There’s no doubt that in Asia, and China in particular, as the middle-classes expand, they will want premium agricultural produce … they’re willing to pay a lot for safe, healthy, clean and green produce.”
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