[Senate Hearing 113-247]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-247

                         SMITHFIELD AND BEYOND:
                     EXAMINING FOREIGN PURCHASES OF
                        AMERICAN FOOD COMPANIES

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                         NUTRITION AND FORESTRY

                          UNITED STATES SENATE


                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION


                               __________

                             JULY 10, 2013

                               __________

                       Printed for the use of the
            Committee on Agriculture, Nutrition and Forestry






[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






        Available via the World Wide Web: http://www.fdsys.gov/
                                   _____

                         U.S. GOVERNMENT PRINTING OFFICE 

87-565 PDF                     WASHINGTON : 2014 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Printing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001















            COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY



                 DEBBIE STABENOW, Michigan, Chairwoman

PATRICK J. LEAHY, Vermont            THAD COCHRAN, Mississippi
TOM HARKIN, Iowa                     MITCH McCONNELL, Kentucky
MAX BAUCUS, Montana                  PAT ROBERTS, Kansas
SHERROD BROWN, Ohio                  SAXBY CHAMBLISS, Georgia
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
MICHAEL BENNET, Colorado             JOHN HOEVEN, North Dakota
KIRSTEN GILLIBRAND, New York         MIKE JOHANNS, Nebraska
JOE DONNELLY, Indiana                CHARLES E. GRASSLEY, Iowa
HEIDI HEITKAMP, North Dakota         JOHN THUNE, South Dakota
WILLIAM ``MO'' COWAN, Massachusetts

             Christopher J. Adamo, Majority Staff Director

              Jonathan W. Coppess, Majority Chief Counsel

                    Jessica L. Williams, Chief Clerk

              Thomas Allen Hawks, Minority Staff Director

       Anne C. Hazlett, Minority Chief Counsel and Senior Advisor

                                  (ii)



















                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

Smithfield and Beyond: Examining Foreign Purchases of American 
  Food Companies.................................................     1

                              ----------                              

                        Wednesday, July 10, 2013
                    STATEMENTS PRESENTED BY SENATORS

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan, 
  Chairwoman, Committee on Agriculture, Nutrition and Forestry...     1
Cochran, Hon. Thad, U.S. Senator from the State of Mississippi...     3

                               Witnesses

Pope, Larry, President and CEO, Smithfield Foods, Inc., 
  Smithfield, Virginia...........................................     5
Slaughter, Hon. Matthew J., Associate Dean for Faculty, Signal 
  Companies' Professor of Management, Faculty Director of the 
  Center for Global Business and Government, Tuck School of 
  Business, Dartmouth College, Hanover, New Hampshire............     6
Haley, Usha, Professor and Director, Robbins Center for Global 
  Business and Strategy, West Virginia University, Morgantown, 
  West Virginia..................................................     8
Slane, Daniel, Commissioner, U.S.-China Economic and Security 
  Review Commission, Washington, DC..............................    10
                              ----------                              

                                APPENDIX

Prepared Statements:
    Brown, Hon. Sherrod..........................................    34
    Grassley, Hon. Charles.......................................    36
    Haley, Usha..................................................    40
    Pope, Larry,.................................................    58
    Slane, Daniel................................................    65
    Slaughter, Hon. Matthew J....................................    71
Document(s) Submitted for the Record:
Stabenow, Hon. Debbie:
    United Food and Commercial Workers International Union, 
      prepared statement.........................................    80
    United Food and Commercial Workers, ``Summary of Data on Food 
      Safety''...................................................    83
    ``China Food Prices Continue Climb'', article, Wall Street 
      Journal, September 6, 2011.................................    86
Question and Answer:
Stabenow, Hon. Debbie:
    Written questions to Daniel Slane............................    88
    Written questions to Larry Pope..............................    88
    Written questions to Usha Haley..............................    88
Brown, Hon. Sherrod:
    Written questions to Larry Pope..............................    89
    Written questions to Daniel Slane............................    90
    Written questions to Usha Haley..............................    90
    Written questions to Hon. Matthew J. Slaughter...............    91
Cochran, Hon. Thad:
    Written questions to Hon. Matthew J. Slaughter...............    92
Gillibrand, Hon. Kirsten:
    Written questions to Larry Pope..............................    93
    Written questions to Daniel Slane............................    94
    Written questions to Usha Haley..............................    95
Grassley, Hon. Charles:
    Written questions to Usha Haley..............................    96
    Written questions to Larry Pope..............................    96
    Written questions to Daniel Slane............................    96
    Written questions to Hon. Matthew J. Slaughter...............    96
Haley, Usha:
    Written response to questions from Hon. Debbie Stabenow......    98
    Written response to questions from Hon. Sherrod Brown........   101
    Written response to questions from Hon. Kirsten Gillibrand...   105
    Written response to questions from Hon. Charles Grassley.....   107
Pope, Larry:
    Written response to questions from Hon. Debbie Stabenow......   112
    Written response to questions from Hon. Sherrod Brown........   112
    Written response to questions from Hon. Kirsten Gillibrand...   114
    Written response to questions from Hon. Charles Grassley.....   118
Slane, Daniel:
    Written response to questions from Hon. Debbie Stabenow......   122
    Written response to questions from Hon. Sherrod Brown........   122
    Written response to questions from Hon. Kirsten Gillibrand...   123
    Written response to questions from Hon. Charles Grassley.....   124
Slaughter, Hon. Matthew J.:
    Written response to questions from Hon. Sherrod Brown........   127
    Written response to questions from Hon. Thad Cochran.........   128
    Written response to questions from Hon. Charles Grassley.....   128


 
                         SMITHFIELD AND BEYOND:
                     EXAMINING FOREIGN PURCHASES OF
                        AMERICAN FOOD COMPANIES




                        Wednesday, July 10, 2013

                              United States Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 2:32 p.m., room 
562, Dirksen Senate Office Building, Hon. Debbie Stabenow, 
Chairwoman of the Committee, presiding.
    Present or submitting a statement: Senators Stabenow, 
Brown, Klobuchar, Gillibrand, Heitkamp, Cochran, Roberts, 
Boozman, Johanns, Thune, and Grassley

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE 
 OF MICHIGAN, CHAIRWOMAN, COMMITTEE ON AGRICULTURE, NUTRITION 
                          AND FORESTRY

    Chairwoman Stabenow. Good afternoon.
    The Senate Committee on Agriculture, Nutrition, and 
Forestry will now come to order.
    Before we begin the hearing, I just want to take a moment 
for our Committee members to say again how proud I am of this 
Committee in working together in a bipartisan way to pass the 
Farm Bill, not once but twice, two different distinguished 
Ranking Members.
    We know there are some challenges in the other body but I 
am confident that the leadership and the role models that we 
have set in working together will ultimately prevail.
    I just want to thank everyone again for working hard, 
listening to each other, being willing to make some compromises 
in the interest of passing a bill and making agreements and 
sticking to them and working hard.
    Senator Cochran, I want to thank you also for your 
leadership in doing that; and I am proud that we have been able 
to get that done.
    From the very beginning of human history, we have seen 
civilizations rise and fall based on their ability to feed 
their people. That is why food security is absolutely essential 
to National security, and it is why food and agriculture are 
such an important and unique part of our American economy.
    Not a day goes by that every one of us in this room is 
reminded of the importance of a safe, affordable, and abundant 
food supply. It can be easy for Americans to forget that food 
does not just show up in the grocery store. Sometimes I feel we 
have to remind people of that. It is a process that requires 
risk taking, sound business practices, and a whole lot of hard 
work from the 16 million people whose jobs rely on agriculture.
    That is why the news of Shuanghui International's proposed 
purchase of Smithfield Foods, the largest purchase of a U.S. 
company by a Chinese firm, raises so many questions. Smithfield 
might be the first acquisition of a major food and agricultural 
company, but I doubt it will be the last.
    That is why we must take a long-term view of what is 
happening. We need to be having this conversation and 
evaluating what is in the best interests of American families 
and our American economy because the importance of our food 
supply, and security, and safety cannot be underestimated.
    First, is our approval process adequate to handle issues 
unique to food security and safety? Important question, this is 
a precedent-setting case and we owe it to consumers, producers, 
and workers to ensure we are asking the right questions and 
evaluating the long-term implications.
    Last week, Senator Cochran and I along with a number of 
members of this Committee urged the Secretary of the Treasury 
to include the USDA and FDA in the review process of this 
transaction by the Committee on Foreign Investment in the 
United States, and that is why we will be meeting later today 
with officials from the Department of Treasury in conjunction 
with the Banking Committee so that Senators can get briefed on 
the CFIUS process. We also ask that this be the process in the 
future for transactions involving the food supply.
    I firmly believe that economic security is part of our 
National security and that it should be considered when our 
government reviews foreign investment into the United States. 
Unlike other countries, the United States does not currently 
undertake such a review and I believe that needs to change.
    Second, we need to evaluate how foreign purchases of our 
food supply will affect our economy broadly, and frankly, 
whether there is a level playing field when it comes to these 
kinds of business acquisitions.
    Could this sale happen if it were the other way around? 
Could Smithfield purchase Shuanghui? Based on what we have 
heard from many experts already, it sounds like the answer is 
``no''. I hope we can get some clarification on this point from 
our panelists today.
    We need to be evaluating the long-term market implications 
of this deal for American workers, pork producers, and the 
farmers who grow grain and feed ingredients.
    Despite the strength of America's pork sector, Smithfield 
has been struggling to make a profit, and yet Shuanghui is 
offering to pay a 30 percent premium for the company. That, to 
me, raises questions about the economic motivations of the 
purchase.
    Is Shuanghui focused on acquiring Smithfield's technology, 
which was developed with considerable assistance by U.S. 
taxpayers? As with all of our food companies, Smithfield has 
benefited from years of public investments improving feed 
rations, living conditions, environmental impact, food safety 
and efficiency.
    Can we really expect increased access for our pork products 
in China, a country that already produces five times as many 
hogs as we do and that uses barriers to keep U.S. pork out of 
the country? Can we expect that after the company has adopted 
Smithfield's excellent technology and practices, they will 
increase exports to Japan, our largest export market, in 
competition with U.S. products? Most importantly, will we see 
volatility in prices and other long-term economic impacts?
    In the short-term, I know this deal looks good for our 
producers. This also needs to be a good deal in the long-term. 
It is our responsibility to ask the right questions to make 
sure that we are thinking in the long-term about these issues, 
that is why we are here.
    One pork company alone might not be enough to affect our 
National security, but it is our job to be thinking about the 
big picture and the long term for American food security and 
economic security. Because as we all know on this Committee, 
and we have all said so many times, food security is a part of 
our National security.
    I would now like to turn to my good friend and Ranking 
Member, Senator Thad Cochran, and I appreciate very much your 
leadership on the Committee.

STATEMENT OF HON. THAD COCHRAN, U.S. SENATOR FROM THE STATE OF 
                          MISSISSIPPI

    Senator Cochran. Madam Chairman, thank you for holding this 
hearing. We are very anxious to learn more about the facts with 
respect to the proposed transaction that this Committee will be 
considering today.
    We want to thank you, Madam Chairman, for your impressive 
leadership of the Committee and the example you have set by the 
passage of a Farm Bill that still has us beaming with pride 
over the success of that undertaking.
    We likewise, think it is important for us to follow your 
leadership again in the analysis and review of this proposed 
transaction between Smithfield Foods and Shuanghui because, 
first of all, it is one of the most widespread in terms of 
possible economic impact of a transaction or acquisition of a 
U.S. company by a Chinese company in history. That is what we 
are being advised.
    But it is the questions that flow from this that bring us 
to this point, and we are anxious for our witnesses to touch on 
that and things that we should know so we will appreciate the 
economic consequences for our country as well as the possible 
benefits that will flow to the individual companies that are 
involved.
    The U.S. economy has long benefited from investments from 
overseas. We hope to be able to make some assurances or draw 
some conclusions about the consequences in advance of this 
transaction that is under review today.
    We are proud of our American agriculture producers and our 
food processors and distributors. We have the best in the world 
and we are proud of that and we want to keep it that way.
    But today, we are here to listen to our witnesses to help 
better acquaint us with what we think we need to know.
    Thank you for your cooperation with our Committee.
    Chairwoman Stabenow. Thank you very much, and we welcome 
all of our witnesses. We very much appreciate your time today 
and let me introduced each of you. Senator Brown is going to 
introduce one of our witnesses and then we will ask each of you 
to speak for five minutes.
    We welcome whatever written testimony you would like to 
give us as well. Also any other follow-up testimony after today 
that you would like to give us we would welcome as well.
    So, I will introduce everyone together and then turn to our 
first witness.
    Our first witness on the panel is Mr. Larry Pope, President 
and CEO of Smithfield Foods. Mr. Pope has served as president 
and chief executive officer of the company since 2006. He 
previously served as president and chief operating officer from 
2001 to 2006 and vice president and chief financial officer 
from 2000 to 2001. Mr. Pope's over 30-year career at the 
company spans a variety of senior management roles and 
responsibilities which provide an in-depth knowledge of the 
company and broad experience in operational finance accounting 
and risk management matters. So, we welcome you today.
    Our second witness on the panel is Dr. Matthew Slaughter, 
Associate Dean for Faculty at Tuck School of Business at 
Dartmouth College. Dr. Slaughter joined Dartmouth's faculty in 
1994, focusing his research on the economics and politics of 
globalization. From 2005 to 2007, Dr. Slaughter served as a 
member of the Council of Economic Advisors for President Bush. 
Recently, Dr. Slaughter has focused on the global operations of 
multinational firms and on labor market impacts of 
international trade and investment. We welcome you as well 
today.
    Our third witness is Dr. Usha Haley, Professor of 
Management and Director of the Robbins Center for Global 
Business and Strategy at West Virginia University. Dr. Haley's 
extensive research includes over 200 articles and presentations 
and multiple books that explore companies and business 
environments in India, China, Southeast Asia, and Mexico. Her 
research on Chinese subsidies has also supported trade 
regulations in the United States and the European Union. 
Welcome to you.
    Finally, I would like to turn to Senator Brown for the next 
introduction.
    Senator Brown. Thank you, Madam Chairman. I want to 
introduce Dan Slane, Commissioner on the US-China Commission, 
third term on that commission, appointed by Speaker Boehner, 
formerly worked in the Ford White House a few years ago.
    Dan Slane has an understanding, a particularly good 
understanding as you will hear from his testimony, as you will 
hear from his speaking today and see his written testimony, 
seeing China both as the threat and the opportunity both that 
it can be and is to our country in terms of economics and in 
terms of National security, and I think he has a particularly 
acute understanding of that and I look forward to hearing him 
also.
    As a former member of the Iowa State University Board of 
Trustees, he proudly always wears his lapel pin signifying 
that, football season, basketball season, academic season 
alike. So, thank you.
    Chairwoman Stabenow. Senator Brown, you had me up to that 
point. As a Michigan State University graduate, I need to have 
my green and white on today, Commissioner.
    Mr. Pope, welcome.

 STATEMENT OF LARRY POPE, PRESIDENT AND CEO, SMITHFIELD FOODS, 
                   INC., SMITHFIELD, VIRGINIA

    Mr. Pope. Afternoon. Good afternoon, Chairwoman Stabenow, 
Ranking Member Cochran, and members of the Committee. My name 
is Larry Pope. I am the President and Chief Executive Officer 
of Smithfield Foods, a global food company and pork producer 
based in Smithfield, Virginia.
    I appreciate this opportunity to offer testimony to the 
Committee today. At this time, I would like to summarize my 
written testimony which I submitted for the record.
    We at Smithfield are very excited about our announced new 
partnership with Shuanghui, the majority owner of China's 
largest pork processor. It provides enormous benefits for our 
two companies, for American manufacturing, and American 
agriculture.
    It is a partnership that is all about growth and improving 
the agricultural environment in both the U.S. and China. The 
combined company expects to help meet the growing demand for 
pork in China by exporting high quality poor products from the 
U.S. This means increased capacity for U.S. producers, more 
jobs in processing, and more exports for the U.S. economy.
    At the same time, we will continue to supply our same high 
quality, renowned products to U.S. consumers as well as other 
markets around the world. In short, this partnership for growth 
is good for our business and for the producers and the 
suppliers with whom we work.
    The reaction from the U.S. agricultural community has been 
overwhelmingly positive. The Michigan, Indiana, North Carolina 
Pork Producers Association, the North American Meat 
Association, industry leaders, and numerous individual 
producers have expressed support for this transaction.
    Growth is also very good for Smithfield's employees and our 
communities. We have a saying. It will be the same old 
Smithfield only better. Let me be clear. Shuanghui intends to 
retain Smithfield's management team, its plants, and all of its 
employees.
    Shuanghui recognizes Smithfield's best in class operations, 
outstanding food safety practices, and our 46,000 hard-working 
employees.
    There should be no noticeable impact on how we do business 
operationally in America and around the world as a result of 
this acquisition except that we plan to do more of it.
    Shuanghui will honor our collective bargaining agreements 
in place with Smithfield's union-represented employees as well 
as existing wage and benefit package arrangements for our non-
represented employees.
    These commitments, combined with the opportunities for 
growth created by this deal, have elicited the support of the 
UFCW and our employees.
    With respect to agriculture, we expect this transaction to 
drive growth and expansion not only for our growers but for the 
entire U.S. pork industry. Smithfield Foods owns 400 hog farms 
and has contracts with over 2000 family farms across the 
country. Our agreement with Shuanghui will maintain all of 
these contracts and arrangements.
    Moreover, this transaction creates a terrific opportunity 
through growth in exports for U.S. hog farmers to expand to 
meet the growing Chinese demand.
    The integrity of our brands, our record of safety, the 
safety of the U.S. food supply, and the recognized 
effectiveness of U.S. food safety standards are key drivers of 
value that Shuanghui places on Smithfield.
    Our brands are recognized as representing the highest 
quality, safest and most desired product throughout the world 
including China. Our combined company thus has every incentive 
to ensure the continued safety and excellence of our products 
and brands.
    This transaction is about exporting high quality meat from 
the U.S. to China to meet their growing demand. This 
combination will not result in any U.S. imports of food from 
China. Moreover, all food products imported into the U.S. are 
already subject to rigorous inspections and controls by 
America's regulators to ensure their integrity, safety, and 
wholesomeness. U.S. pork producers are the best and the most 
efficient in the world.
    We have voluntarily sought review of this acquisition from 
the Committee on Foreign Investment in the U.S. where the 
transaction is already undergoing a thorough review.
    I appreciate this opportunity to address the Committee and 
I welcome your questions.
    [The prepared statement of Mr. Pope can be found on page 58 
in the appendix.]
    Chairwoman Stabenow. Thank you very much
    Dr. Slaughter.

STATEMENT OF THE HON. MATTHEW J. SLAUGHTER, ASSOCIATE DEAN FOR 
  FACULTY, SIGNAL COMPANIES' PROFESSOR OF MANAGEMENT, FACULTY 
DIRECTOR OF THE CENTER FOR GLOBAL BUSINESS AND GOVERNMENT, TUCK 
 SCHOOL OF BUSINESS, DARTMOUTH COLLEGE, HANOVER, NEW HAMPSHIRE

    Mr. Slaughter. Committee Chairwoman Stabenow, Ranking 
Member Cochran, and fellow Members, thank you very much for 
inviting me to testify on these important and timely issues of 
how foreign purchases of American companies affect U.S. jobs 
and overall economic strength.
    In my testimony, I will make three main points that 
together help explain the many benefits that the Shuanghui 
acquisition of Smithfield Foods should bring to Smithfield's 
stakeholders including its employees and to the broader U.S. 
economy.
    First, merger-and-acquisition transactions have long been 
the main strategy by which global companies establish and 
expand operations in America. Acquisitions of U.S. companies by 
foreign entities are an everyday reality in the today's global 
economy.
    Indeed, here in 2013 there have already been nearly 500 
such acquisitions, about three every business day. These 
transactions have long been critical for the United States to 
benefit from inward foreign direct investment.
    For decades, the vast majority of new FDI into America has 
come in the form of M and A transactions rather than via 
greenfield investments that establish a brand-new company.
    From 1987 through 2006, the United States received $2 
trillion in new FDI, of which 88.8 percent was accounted for by 
foreign companies buying American companies.
    The second main point of my testimony is that U.S. 
affiliates of global companies, despite accounting for far less 
than 1 percent of U.S. businesses, have long performed large 
shares of America's productivity-enhancing activities that lead 
to millions of the kind of high wage jobs that America needs in 
this slow recovery from the great recession.
    In 2010, the U.S. subsidiaries of global companies produced 
about 6 percent of all U.S. private sector output. They 
undertook over 14 percent of both non-residential, private 
sector capital investment and of total U.S. private R and D. 
They accounted for almost 18 percent of U.S. exports of goods, 
and they did all of this while purchasing almost $2 trillion 
dollars in intermediate inputs from other U.S. companies.
    All these activities contribute to millions of high-paying 
jobs here in America. In 2011, these U.S. affiliates employed 
5.6 million workers in the United States, 5 percent of total 
private employment, at a per-worker average compensation of 
over $77,000, more than a third above the U.S. average and at 
higher unionization rates than at other U.S. companies.
    The third main point of my testimony is that all public 
information about the Shuanghui-Smithfield transaction 
indicates it will benefit Smithfield's stakeholders and the 
broader U.S. economy by maintaining a high innovation 
enterprise.
    A primary motivation for Shuanghui is to access and learn 
from Smithfield's expertise in a number of related areas, 
including its strong management team, its leading brands, and 
its vertically integrated business model. This motivation 
accords with much of the historical pattern of inward FDI into 
America.
    Consistent with this historical pattern, and as Mr. Pope 
explained, post acquisition Smithville plans to operate largely 
as it does today. All key leaders and management teams will 
remain in place, all collective bargaining agreements and wage 
and benefit arrangements will be honored with all employees, 
and no plants or facilities will be closed.
    There is nothing inherently worrisome or unusual about the 
Chinese aspect of this transaction. What about the risks of 
state-owned enterprises? Although SOEs remain prominent in 
China, Shuanghui is not one. In fact, its stakeholders include 
Goldman Sachs.
    What about possible risks to Smithfield's intellectual 
property? IP theft in China has quickly become one of the 
gravest threats to the global economic system and to innovative 
U.S. companies and their workers here at home.
    In this context, it is important to see that the Smithfield 
transaction offers exhibit A of the ideal solution to this 
grave problem, an American company being paid by a Chinese 
company billions of dollars for its ideas in a transparent 
market-based deal.
    Indeed, Shuanghui seeks to deploy Smithfield's expertise, 
products, and brands in China largely through boosting 
Smithfield's exports to China to better meet surging poor 
demand driven by rising household income growth in Chinese 
families. These greater exports will help reduce the U.S.-China 
bilateral trade imbalance that last year reached a record $315 
billion.
    There also appears to be nothing inherently worrisome about 
the food aspect of the Smithfield transaction. As with many 
industries in food manufacturing, global companies have long 
played an important role in the U.S. economy. These global food 
companies already today employ over 200,000 American workers.
    Let me close by placing the Smithfield transaction in the 
context of an America that today continues to confront too few 
jobs and too little economic growth. The good news is there is 
a future in which America can create millions of good jobs 
connected to the world via international trade and investment.
    Should it ultimately goes through, a smooth Smithfield 
purchase would send a valuable signal to China and to the world 
that the United States welcomes inward investment at a time 
where it is especially needed.
    Thank you again for your time and interest in my testimony. 
I look forward to answering any questions you may have.
    [The prepared statement of Mr. Slaughter can be found on 
page 71 in the appendix.]
    Chairwoman Stabenow. Thank you very much.
    Dr. Haley.

STATEMENT OF USHA HALEY, PROFESSOR AND DIRECTOR, ROBBINS CENTER 
  FOR GLOBAL BUSINESS AND STRATEGY, WEST VIRGINIA UNIVERSITY, 
                   MORGANTOWN, WEST VIRGINIA

    Ms. Haley. Good afternoon, Chairwoman Stabenow and 
Committee members. I have submitted my full statement to the 
Committee which I ask be made part of the hearing record.
    My name is Usha Haley, currently Professor and Director of 
the Robbins Center for Global Business and Strategy, West 
Virginia University.
    I have researched Chinese business and global strategy for 
almost 15 years. The point of my testimony is that this 
takeover provides long-term benefits to China, Henan province 
and Shuanghui, and short-term benefits to Smithfield's managers 
and shareholders. But, the medium and long-term benefits to 
U.S. consumers, industry, and society are questionable and the 
risks outweigh the benefits.
    Shuanghui is a highly subsidized and opaquely managed 
Chinese private company. This largest takeover of an American 
by a Chinese company will double the number of our jobs tied to 
Chinese direct investment.
    As Australian and African experiences with China show, 
problems arise. After the acquisition, Smithfield will not 
trade publicly and information will come from Chinese reports. 
This deal will affect food safety, how we do business, and 
compatibility with our policies.
    In China, politics trumps economics. No free market exists 
for China's food products and arguments of the efficiencies 
from global logistics fall short. When subsidies and negative 
externalities such as pollution exist as they do here, markets 
can no longer set prices.
    U.S. pig farming is a consolidated, modern industry with 
economies of scale. The Chinese pork industry is fragmented, 
small-scale, and low tech as in the paper and other strategic 
Chinese industries we studied. Labor costs there were similar 
to food processing, under 7 percent from purchases. Scale 
economies mattered. Yet, in five years China moved from net 
importer to largest manufacturer and exporter.
    We found that subsidies gave China that hidden advantage: 
free loans, cheap raw materials, energy, and land, and tech 
acquisition support.
    Shuanghui's subsidiary almost certainly gets subsidies from 
its province just as competitor Yurun Pork with subsidies to 
net profits of 36 percent.
    Pork processing is a strategic industry for China. 
Shuanghui's subsidiary is Henan's largest employer in the 
province's pillar industry. Beijing's indigenous innovation 
policies also subsidize applied research in pork processing.
    A state-owned bank may finance the Smithfield take over. 
Another will help with exports. Smithfield could become the 
lowest rung of the commodity supply chain.
    High-value manufacturing would move to China leaving low 
value, low tech pork production here. Shuanghui could insert 
local hogs and re-export processed food back to the U.S. under 
the Smithfield brand.
    But evaluating Shuanghui is difficult. The Smithfield bid 
included Goldman but also New Horizon, founded by Winston Wen, 
the former Chinese prime minister Wen Jiabao's son. In China, 
annual reports and formal reporting relationships never tell 
the full story.
    Chairman Wan Long is a member of China's National People's 
Congress that formalizes the Chinese Communist Party's 
measures. Accounting data provide little information on these 
business-government links. Incomplete information could impact 
the stock market, company evaluations, pricing, and other food 
producers' competitive positions.
    There have been outrageous food safety violations. 
Shuanghui fed pigs the banned chemical clenbuteral. Chinese 
food horrors include glowing pork, cadmium rice, rat meat sold 
as mutton, toxic milk, et cetera, et cetera. 16,000 dead pigs 
floated down a Shanghai river in March.
    Smithfield's Larry Pope recently said, ``Open your 
refrigerator door, look inside. Nothing in there is made in 
China because American agriculture is the most competitive and 
efficient in the world.'' Mr. Pope is wrong. China shipped four 
billion pounds of food to the U.S. last year including half the 
apple juice, 80 percent of the tilapia, and more than 10 
percent of frozen spinach.
    The U.S. has periodically banned numerous imported Chinese 
foods. Supermarkets display imported foods' country of origin 
but restaurants do not. Also processed imported foods require 
no such labeling.
    IP protection in China is also poor. Increased counterfeit 
American food products from China will lead to brand dilution 
and loss of U.S. export markets.
    With record subsidies, China is encouraging buying foreign 
food assets and farms. Smithfield is the first and we should 
prepare for others in agriculture as a matter of national 
interest.
    For China, Smithfield provides benefits of American land, 
water, brands, and technology. As Continental Grain argued, 
benefits even to Smithfield's shareholders are unclear. In a 
conference call with analysts, Shuanghui's managing director 
said, ``We want the business to stay the same but be better.''
    Today, Mr. Pope echoed this sentiment. Neither explained 
how Smithfield would become better without technology or know-
how from Shuanghui. Neither elaborated on better for whom, the 
question that CFIUS and this Committee should be asking on 
behalf of the American people.
    Thank you for the opportunity to appear here today. I stand 
ready to answer any questions.
    [The prepared statement of Ms. Haley can be found on page 
40 in the appendix.]
    Chairwoman Stabenow. Thank you very much.
    Commissioner Slane.

 STATEMENT OF DANIEL SLANE, COMMISSIONER, U.S.-CHINA ECONOMIC 
         AND SECURITY REVIEW COMMISSION, WASHINGTON, DC

    Mr. Slane. Chairwoman Stabenow, Ranking Member Cochran, and 
members of the Committee, thank you for the opportunity to 
appear today.
    Prior to serving on the U.S.-China commission, I owned and 
operated three plywood factories in China. The U.S.-China 
Economic and Security Review Commission, on which I serve, has 
not taken a position on this proposed transaction and has not 
made any public statements on it. The views I present today are 
entirely my own.
    Shuanghui's purchase of Smithfield is part of China's far-
reaching program of foreign investments aimed at gaining as 
much control of key foreign sources of supply as possible. I 
remain concerned that many of the largest Chinese enterprises, 
including Shuanghui, maintains strategic ties to the Chinese 
government whether through direct ownership or control, 
preferential access to massive government subsidies, or 
personal links to the Chinese Communist Party. It is important 
to understand that the Chinese government is really behind 
China's global economic expansion.
    With 21 percent of the world population, China has only 7 
percent of the productive farmland. The country suffers from 
severe water shortages in its northern half and extensive 
surface water and air pollution. When you couple this with the 
growing demand for meat, you can begin to understand the 
enormous challenges faced by China's leadership and its agro 
industry.
    China does not have sufficient farmland to grow as the 
feedstock required to produce the amount of meat and dairy 
demanded by their citizens. China is on track to spend a record 
amount on the purchase of food assets and farms. The drive for 
agricultural assets in South America, Australia, Africa, and 
other locations has ignited concerns for lawmakers around the 
world.
    In my view, the purchase of Smithfield by China is the 
first of what I would expect to be many forays into rural 
America. China's purchase of Smithfield is driven by two major 
factors.
    Number one, China wants some control over the commodity 
price of pork. With Smithfield's commanding domination of the 
U.S. pork industry, they can have some impact on pricing.
    Number two, the Chinese want Smithfield's valuable 
technology in hod genetics. Smithfield also has some of the 
most advanced meat processing technology and manure management 
techniques that help foster industrial scale hog production. It 
is interesting to note that U.S. taxpayers help finance much of 
Smithfield's growth through USDA grants.
    Now, I would like to turn to the potential impact this 
purchase may have on our economy. Number one, Shuanghui's 
takeover of Smithfield will exacerbate a pattern of U.S. trade 
relations that have taken hold over the past 10 years whereby 
value-added production is shifted to or owned by China to the 
detriment of U.S. workers and businesses.
    It raises the question of whether allowing a Chinese 
company to dominate our pork processing industry is in the best 
interest of the United States. If this deal is approved, it 
will open the door for other purchases of U.S. food companies 
by Chinese firms or investors.
    Our agriculture and food sector is unusually concentrated 
with just a few companies dominating the market in each link of 
our food chain.
    Number two, another risk is that this deal will do little 
to improve overall market access for U.S. pork. China is 
unlikely to abandon its policy of self-sufficiency meat 
production. A more likely result is a closed market, 
intracompany trade between Shuanghui and the Smithfield. Given 
Smithfield's massive output, it alone might suffice for China's 
limited quota of U.S. pork.
    Number three, this deal has been promoted as a way to 
facilitate U.S. pork exports to China, but ultimately, 
Shuanghui could export pork back to us. The adoption of 
Smithfield'S hog genetics and processing technologies will 
dramatically improve hog production in China and could allow 
Shuanghui to reverse the global flow of pork products, and if 
approved, begin the export of Chinese pork to the U.S..
    Shuanghui is expected to apply for approval to re-export 
pork products processed from imported U.S. hogs and may even 
apply to ship pork from hogs raised in China.
    Number four, providing foreign competitors access to 
Smithfield's technology and intellectual property could 
disadvantage our domestic hog industry both here and globally.
    Shuanghui is expected to adopt Smithfield's hog genetic 
lines that could weaken U.S. pork opportunities.
    Shuanghui has extensive supply chain and distribution 
system in China and throughout Asia with operations in Japan 
and South Korea. The merger would improve the position of 
Shuanghui's mainland China processing plants by sharing U.S. 
technology and expertise and potentially allowing Shuanghui to 
undercut U.S. pork exports to the Pacific Rim. It will limit 
the ability of other U.S. exports to get a foothold in this 
market.
    In conclusion, I think it is reasonable for you to expect a 
wave of Chinese investments into our food and agricultural 
industry. As China becomes a global player and a fierce 
competitor in American markets, its political system and state 
capital ideology pose a threat.
    With that in mind, the commission in its report to Congress 
last year made the following recommendation. Congress examine 
foreign direct investment from China to the United States and 
assess whether there is a need to amend the CFIUS statute to, 
number one, require a mandatory review of all controlling 
transactions by Chinese state-owned or state-controlled 
companies investing in the United States.
    Number two, add a new economic benefits test to the 
existing National security test that CFIUS administers, and 
three, prohibit an investment in a U.S. industry by a foreign 
company whose government prohibits foreign investments in that 
same industry.
    Thank you for allowing me to testify.
    [The prepared statement of Mr. Slane can be found on page 
65 in the appendix.]
    Chairwoman Stabenow. Thank you very much to each of you.
    Let me just start the questioning with something simple. If 
you can do yes or no that would be great, and that is and we 
will start with Mr. Pope.
    If this transaction were to happen in the reverse, would 
China allow Smithfield to buy Shuanghui?
    Mr. Pope. Senator, I am not sure I am an expert on reverse 
mergers into China and so I would yield to those at the panel 
who have more expertise in terms of that. But, I know there are 
U.S. acquisitions into China. I could not really answer that 
question one way or the other.
    Chairwoman Stabenow. When you and I met, you talked about 
originally looking at your buying a portion of their company, 
their buying a portion of yours. There was an attempt at that, 
what happened there?
    Mr. Pope. We had a discussion about five years ago about 
Shuanghui buying 20 percent of Smithfield and Smithfield buying 
20 percent of Shuanghui. Chairman Wan and myself had that. Then 
over the period of time that did not occur.
    I do not remember any involvement of the Chinese government 
approving or disapproving. In fact, I am not sure anyone in the 
government was even ever aware of the conversations and so I do 
not think there were any regulatory barriers to that. There 
were more business issues associated with that, and we had 
subsequent conversation even since then.
    Chairwoman Stabenow. Okay. Thank you.
    Dr. Slaughter, yes or no, could that happen in reverse?
    Mr. Slaughter. I do not know. I do know that China's 
amazing growth since 1978 has come in some basic sense by the 
government getting out of the business of running business. 
They had a complete command and control economy for decades. It 
remains a work in progress.
    Chairwoman Stabenow. Okay, Dr. Haley.
    Ms. Haley. No, as a matter of fact, it would not happen. 
That same question was raised in a Chinese blog, Weibo, and a 
big debate about it followed. Everybody said no there as well.
    The reason is this is a strategically important industry; 
and as most people in China know, the power of the state has 
actually been increasing vis-a-vis-private interests in China 
as a proportion of total production. So this is, no.
    Chairwoman Stabenow. Commissioner Slane, could this happen 
in reverse?
    Mr. Slane. Absolutely not, Madam Chairwoman.
    Chairwoman Stabenow. Okay. I do have another question. I do 
want to say that, Dr. Slaughter, one of the things that you 
said was concerning to me if I heard correctly. You were saying 
that, as we all know, we have issues of intellectual property 
theft with China. This is no secret. There has been a huge 
issue in all kinds of industries, manufacturing and so on.
    But then you said the ideal solution to the problem of IP 
theft is this situation. Does that mean you think the ideal 
solution is for China just to buy all our companies and then 
they would have all our intellectual property?
    Mr. Slaughter. No, Senator. My point is right now we know 
that hundreds of thousands if not millions of American jobs are 
lost because of IP theft in China.
    Chairwoman Stabenow. Right, but why is it ideal? Why having 
a Chinese company buying an American company the solution? That 
is the solution to IP theft?
    Mr. Slaughter. So, around the world in lots of industries 
including the United States there is an active market around 
companies for the exchange of ideas. So, companies create ideas 
through their hard R and D and lots of different innovation 
efforts and the companies deploy those assets for themselves 
but a lot of times the motivation for M and A transactions 
across companies is precisely to gain ideas of others. So, 
having market mediated transactions like that is far preferable 
to theft.
    Chairwoman Stabenow. It is absolutely. I would suggest that 
following the rules is preferable to theft as well. So, let me 
ask one other thing before turning to colleagues; and that is, 
we have been told that Shuanghui wants to buy Smithfield 
because need more pork and want it sourced from the United 
States.
    But, if that were true, if that were true, American 
producers would be happy to do that today. Right now our pork 
producers in Michigan would be more than happy if they would be 
allowed to sell into China which they are not.
    Now, Smithfield is a unique situation as an integrated 
facility, business. But, we spent $23 million this year to 
promote U.S. meat exports but we cannot open the Chinese 
market. They use illegal, unscientific food safety standards to 
block both pork and beef.
    I am all about exports. As a member of the President's 
Export Council, I want to see export our products; but it seems 
to me removing the unfair barriers from China would be a lot 
quicker and more efficient than just saying that the only way 
we can get in is if they own our company. That does not make 
sense to me.
    Commissioner Slane, I wonder if from your perspective if 
you might speak about this.
    Mr. Slane. Yes. Madam Chairman, this is really all about 
control, and the Chinese could easily go out and buy pork on 
the market. The problem with that is they subject themselves to 
huge price increases, and they learned in the iron ore and the 
coal business that it was better for them to buy the mines than 
to just buy the ore.
    So, here what they have found is that multinational, 
vertically integrated meat processing companies have a cost and 
price advantage. So, they have told their domestic industries 
like Shuanghui go out and find these companies and acquire 
them. This is all about trying to control the price of pork, 
and at the same time, they are getting the value added benefit 
by purchasing Smithfield.
    Chairwoman Stabenow. Thank you. I am over my time.
    Senator Cochran.
    Senator Cochran. Well, my reaction to the testimony of the 
last witness is that there are many more negative factors that 
should be considered by our Committee than positive ones if 
this merger or acquisition goes through. Is that inaccurate?
    Mr. Slane. No. I would agree with that, Senator. I think 
the endgame, from the Chinese point of view, is to ultimately 
dominate our domestic pork market. They will take Smithfield's 
technology. They will integrate it into China.
    They are converting from backyard hog production to 
industrial scale. They need the technology for manure handling, 
for genetics, for the meat cutting, that sort of thing. The 
history is that once they digest all of this and they get their 
industry up, then they will start to try to export their pork 
to us.
    So, I think their endgame is to ultimately dominate in the 
long-term.
    Senator Cochran. Well, if you were serving as a member
    of the U.S. Senate, would you consider this to be in the 
public interest of the United States or not?
    Mr. Slane. No, I would not. There are four problems here as 
I see it in approving this transaction. The number one problem 
is that if this transaction is approved, how do you stop other 
Chinese companies from coming in and buying our food processing 
companies in the United States?
    For example, COFCO is the largest grain trading company in 
China, and they are a state-owned entity. They have publicly 
announced that they are seeking acquisitions of U.S. companies.
    So, if this transaction with Smithfield gets approved, I do 
not know how you stop other state-owned and state-controlled 
Chinese companies from coming in and buying our food companies.
    The second thing that offends me is they can buy our 
companies but we cannot buy their companies. And, you know, 
there is just something really fundamentally wrong with that; 
and I think that the endgame is to dominate our markets. That 
bothers me.
    The final thing is that what we are doing here, if this is 
approved, is you are importing a radically different economic 
system in a system in which we espouse free-market, and that is 
a potential for conflict, as I see it.
    For those reasons, I would be opposed.
    Senator Cochran. Do you know of anybody who is for it?
    Mr. Slane. I am sorry, sir.
    Senator Cochran. Do you know of anybody who is in favor of 
the transaction being approved?
    Mr. Slane. Yes.
    Ms. Haley. Two here.
    [Laughter.]
    Senator Cochran. You are outnumbered.
    Mr. Slane. Mr. Pope has no choice, and I think Dr. 
Slaughter supports it.
    Senator Cochran. Well, I am going to give them an 
opportunity to tell us why this is in the public interest of 
the United States and why we should recommend approval, or do 
we have the power to decide as a political body of the United 
States that it should not be permitted to be approved.
    Mr. Pope. Senator, I hope you are not expecting me to tell 
you the powers of the U.S. Senate and the U.S. legislative 
process. I will leave that to you smart guys up there as I am 
just a meat processor in the business world.
    But, yes, I clearly am in favor of this transaction. I 
think it is good for America. I think this is the opportunity 
that America has been looking for to import jobs.
    There has been a discussion for the last 20 years about 
jobs being exported out of this country into China and things 
made in China and shipped back into the United States.
    This is the exact reverse of that, that is, China looking 
to another market to help feed its growing demand and 
realizing, as the other witness indicated, they have a protein 
shortage and Asia is likely to be protein short for a very long 
time.
    China consumes 50 percent of all the world's poor 
production, and Asia consumes substantially more of the 
remaining, a substantial proportion of the remaining 50 
percent. That is the area of the world where pork is the number 
one protein. Pork is number three in the United States. People 
in China eat substantially more per capita than they do in the 
United States.
    This is a wonderful opportunity for the U.S. to do what it 
does best which is to produce agricultural products that ship 
those around the world. This helps with the balance of payments 
and trade. This creates jobs. This creates opportunities for 
American farmers to grow.
    This seems like all the things, if you were writing down 
what would be positive, this is all the good things in life, 
what America is trying to do. So, thank you.
    Senator Cochran. Thank you very much.
    Chairwoman Stabenow. Thank you very much.
    Senator Brown.
    Senator Brown. Thank you, Madam Chair, and I appreciate 
Senator Cochran's line of questioning.
    For Mr. Pope and Commissioner Slane, do you think USDA 
should be involved in the CFIUS review of this proposed deal?
    Mr. Pope.
    Mr. Pope. We have absolutely no objection to that and 
support that process.
    Senator Brown. Okay. Mr. Slane.
    Mr. Slane. Senator, I would totally support that. It is one 
of the weaknesses of CFIUS.
    Senator Brown. One of the weaknesses is in that you do not 
expect that CFIUS will decide to include USDA in the process?
    Mr. Slane. As you know, they are not included now so my 
hope is that they would become a permanent member of CFIUS and 
maybe some of the other agencies as well.
    Senator Brown. Especially if it is a food safety issue?
    Mr. Slane. Right.
    Senator Brown. Mr. Pope, we know this is a good deal for 
shareholders. We know the long-term benefits for workers and 
farmers and I heard what you said to Senator Cochran's 
question. But, the long-term benefits for workers and farmers 
and American consumers to me are not so clear but let me ask 
you something. Financially, what is at stake for you personally 
and for top management of Smithfield in this deal?
    Mr. Pope. I think we are on record and publicly, I think 
there is a public, in our preliminary proxy we filed what the 
benefits are to me personally and my senior management team. 
So, I certainly stand to benefit from this. I am a shareholder 
in Smithfield Foods and have been. I have been with the company 
over 30 years and have acquired the ownership shares that I 
have over a very long period of time. And so, the company has 
done well and so I do stand----
    Senator Brown. Could you be more specific whatever you said 
publicly and share that with the committee?
    Mr. Pope. I do not have those numbers right here in front 
of me but I will be glad, if it is okay with this Committee, I 
will be glad to make sure you get the exact accurate numbers. I 
will be glad to get that back to you.
    Senator Brown. Could you give us a range? I cannot believe 
that you have not heard some of these numbers that will benefit 
you and other top management at least in some range that you 
could share with the Committee?
    Mr. Pope. Well, I certainly have, I certainly am a 
significant shareholder. So, my shareholdings, I am going to 
receive the $34 a share that every other Smithfield Foods 
shareholder is going to receive; and as well, I have some 
equity awards that have been awarded over a very long period of 
time; and finally, I have got a retention.
    Shuanghui, in order to make sure that the management team 
stays in place, is putting in place retention agreements with 
our top executives to ensure that nothing changes. And, so 
those are payable over a three-year period and not payable if 
the management team does not stay.
    So, what I am going to alternately receive is still subject 
to the management team staying in place and continuing to run 
this company.
    Senator Brown. All right. You said something, Mr. Pope, 
that I liked, the recognition that American business, it has 
almost become maybe the first time in economic history, as far 
as I can see, where the business plan of a large number of 
companies in one country, our country, has to shut down 
production in the U.S., move production to a foreign country, 
China, then sell back into the original country.
    I do not know that has happened that I had seen in world 
history to any appreciable degree. You are saying that you are 
sort of the flip side of that. I am not sure that I quite 
follow that.
    But talk to us, and this question is for both Mr. Pope and 
Commissioner Slane. How likely is it that the adoption of 
Smithfield processing technologies will allow Shuanghui to 
export pork to the United States?
    Mr. Pope. Well, let me be----
    Senator Brown. I am sorry. Because what I am concerned of, 
as Chairwoman Stabenow is, of, you know, what can happen with 
the technology and that it does not create American jobs. It 
really goes the other way.
    So if you would discuss that and then Mr. Slane.
    Mr. Pope. Senator, I think that is a, the concern that so 
many have posed is what is the opportunity that Chinese 
product, which some consider to be of a lesser standard, are 
going to be imported back into this country.
    I was very clear in my testimony that this is all about 
exports. This is not about imports. In fact, Chinese product 
cannot be imported into the United States today and they had no 
plans and no applications in place and I have the highest 
respect for what the U.S. Department of Agriculture does in 
this country.
    In any event if any application was ever done, all of that 
product would be subject to USDA standards just as products 
manufactured in the United States are today.
    I would not suspect it would have the same level of 
scrutiny that our product have manufactured in this country 
today; but I want to be clear, there is no discussion about 
that. There is a huge protein deficit in that part of the 
world. So, this is not about exporting product from China to 
the U.S. It is about exporting U.S. product to China.
    Senator Brown. Well, it may not be today but we have seen, 
this is a different issue but it is also not. We have seen the 
pharmaceuticals, contaminated pharmaceutical ingredients coming 
from China to the United States in the form of heparin and in 
death as a result.
    We have seen other kinds, just not the same kind of respect 
for food safety, drug safety, toys, paint, lead-based paint on 
toys all the kinds of back-and-forth sales from that country 
that have not observed the same kinds of standards we have.
    Mr. Slane, if you would comment on what Mr. Pope said.
    Chairwoman Stabenow. It has to be very short.
    Mr. Slane. Yes. In the short term, you are going to see, 
you are not going to see any imports, and I think that the 
long-term endgame here is to dramatically increase production 
in China. The overriding principle of the Chinese is food 
security, and they do that through self-sufficiency. They do 
not want to be dependent upon a foreign country for their food. 
So, their endgame is to get their production up to a certain 
point. And historically when you look at steel, toys, paper, 
all kinds of other industries, they start overproducing and 
then they will start to export.
    Chairwoman Stabenow. Thank you very much Senator Roberts.
    Senator Roberts. Thank you, Madam Chairwoman.
    Mr. Pope, Smithfield voluntarily agreed to undergo a 
review--I emphasize voluntarily--by the Committee on Foreign 
Investment in the United States, i.e., CFIUS, a marvelous 
acronym.
    At the time what were your expectations of the CFIUS 
review, and I would urge you to respond with regard to their 
very rigorous interagency review to determine the effect on 
National security. What was your expectation of this?
    Mr. Pope. Senator, we feel like we have a fully transparent 
process here and we are more than open to review by anybodies 
and any agencies within the U.S. government, and so we 
voluntarily did make the submission to CFIUS to ensure that 
they did the review, to ensure that there was not a National 
security issue associated with this.
    I do not want to opine in terms of how CFIUS is going to 
conduct that review. It is done in a confidential way, and they 
certainly do not share with me what they are thinking. Maybe 
you have a better understanding of that.
    Senator Roberts. Yes. I was going to say that really falls 
under our oversight responsibility. Perhaps that should be the 
focus of another hearing.
    Did you ever expect that the Senate Agriculture Committee, 
CFIUS two, would hold a hearing on the acquisition of 
Smithfield Foods and the CFIUS process?
    Mr. Pope. Is the question----
    Senator Roberts. Did you expect that? I mean, did you 
expect that this Committee would hold a hearing on the 
acquisition?
    Mr. Pope. I do not know that I contemplated that, no.
    Senator Roberts. Did you realize you were the victim of a 
Chinese Communist plot?
    [Laughter.]
    Mr. Pope. Senator, to this moment I am not sure I 
understand I am the victim of a communist plot.
    Senator Roberts. The control of your company would somehow 
allow China to control the pork industry, were you aware of 
that?
    Mr. Pope. Senator, I was not aware of that.
    Senator Roberts. Well, they own our debt so, you know, you 
have got to be careful here.
    Given the high demand for safe and nutritious pork and pork 
products in China, which you have underscored and others have 
as well and even agreed to by the last two witnesses, what will 
be the impact on the acquisition for American pork producers 
and processors?
    I am talking about growth here. Can you be specific? How 
can others benefit from this?
    Mr. Pope. Senator, that is almost the cornerstone of the 
rationale for this transaction for America. The China, it is 
feeding the population with high quality products from the 
United States. For the U.S. producer, this is and opportunity 
once again to grow.
    We, as an industry, have struggled with growth in this 
country. Americans are eating less pork today than they were 15 
years ago. So, without the opportunity to grow outside the 
United States, there is no opportunity for the U.S. pork 
producer to expand.
    So, the U.S. farmer does not have an opportunity, does not 
have an opportunity to grow his business. This is it to the 
largest market in the world.
    Senator Roberts. If China is unable to buy American pork 
either through this acquisition or other means, where will they 
turn to meet their population's demand for an additional high 
quality pork?
    Mr. Pope. Senator, they would look to, they can look to 
other countries. They could look to----
    Senator Roberts. What countries?
    Mr. Pope. They could look to Brazil. They could look to 
Canada, potentially into Western Europe although pork 
production is very expensive in that continent. And so, the 
U.S. is the natural place. We have enormous respect and that is 
a compliment to the U.S. farmer.
    Senator Roberts. What about the consumer in regards to 
prices at the grocery store in regards to pork products?
    Mr. Pope. Senator, was the question about the U.S. 
consumer?
    Senator Roberts. American consumers.
    Mr. Pope. I do not expect there to be a significant impact 
of this on U.S. consumers because we have the ability to expand 
this business and meet that need.
    Senator Roberts. I have one question here for Dr. 
Slaughter. Welcome back. Moving beyond Smithfield in terms of 
the overall landscape for food and, to some extent, beverage 
companies, there has been a lot of talk about this setting an 
example and then we will have an avalanche of foreign 
investment here.
    Are there other iconic American brands and companies with 
foreign direct investment? If so, what are a few examples.
    Mr. Slaughter. Sure, Senator. Think of automobiles, think 
of information technology. So, those are two industries that 
have long had a tremendous amount of inward investment into the 
United States and strong U.S. companies have undertaken a lot 
of investment outwards to the rest of the world.
    Senator Roberts. Maybe Chrysler and Fiat in Michigan?
    Mr. Slaughter. Yes, great example. Think of the Apple 
iPhone that I have got in my briefcase. You know, designed by 
Apple in California, assembled in China is what it says right 
now. IT is a great example of an industry where the flow of 
ideas----
    Senator Roberts. What about agriculture? We have three 
seconds here.
    Mr. Slaughter. Agriculture as well. So, I was like from my 
hometown Cargill a great global engaged company that sells a 
lot around the world.
    Senator Roberts. Thank you.
    Chairwoman Stabenow. Thank you very much.
    Senator Johanns.
    Senator Johanns. Thank you, Madam Chair.
    Just an observation or two before I get to my questions. 
You know, one of the things that American agriculture is facing 
is that 95 percent of the world's population does not live 
here. They live someplace else in the world.
    You look at a market like China, it is a growing market, 
dramatically growing as a matter of fact, not only a lot of 
people but as their standard of living continues to increase, 
one of the first things they will look to is a better food 
supply. So, they look to the United States.
    The other thing about China is that if there is a trade 
imbalance relative to agriculture, that is in our favor. We 
sell them more than they sell to us. Why? Because of some of 
the things that were mentioned today.
    I look at this transaction and I think, well, could they 
move production to China. Well, they have got a water problem, 
a very serious water problem. If they cannot get water, they 
cannot very well raise corn.
    I just think the problems of moving production are too 
great for China to overcome over the long-term. So, I do not 
see much possibility there.
    Could they move processing to China? Well, they certainly 
have a labor force but the product is here; and if they cannot 
raise the product in China, it makes more sense to come here, 
find the product, find the country where it can be grown. That 
is here in the United States.
    But, I think here is the problem that we are struggling 
with and the reality is, just to be very candid, there is not 
really a legal mechanism in place that really reviews this much 
or that could likely stop it. I appreciate you submitted to 
CFIUS. Quite honestly, the standard is such that there just is 
not much that can be done here.
    I suppose Congress could act; but if our experience with 
the Farm Bill is any indication, that is probably not going to 
work out too well. You know, the Senate might do something but 
you kind of wonder what would happen in the House. The House 
could do something, you kind of wonder what would happen in the 
Senate.
    But here is the problem in dealing with this transaction; I 
think for us and for the people that we represent. There is 
something really offensive about the reality that they can do 
this here but a very aggressive company like Smithfield, which 
has kind of redesigned pork production in the United States, 
could not do this in China.
    Mr. Pope, that is not a hard question. It is not. You know 
for a fact you could not do in China what they are doing here 
with Smithfield. The Chinese regulators would laugh at you if 
you said, well, I will just buy Shuanghui; and to us, that is 
just very, very difficult.
    So, how do we do something here that is realistic, that 
really gets to the essence of what I think our people are 
concerned about and that is; is the food supply going to be 
protected? At the end of the day, is China going to pick the 
Chinese versus America because they will now control what 
percentage of the U.S. pork production? It will be a very large 
percentage.
    So, how do we ensure our people back home that pork will be 
available, that it will be affordable? We will still have the 
kind of controls that I think they hope we will have.
    Mr. Pope, hard question for you. But how do I go back home 
and tell Nebraskans, do not worry, this is a good transaction 
for you?
    Mr. Pope. Senator, you are right. I know it is troubling 
with respect to the openness of the U.S. marketplace versus 
other countries in the world who have different approval 
processes. So, I will not speak to whether we could buy 
Shuanghui or not. I have not tried so I would just be 
speculating.
    However, I think there is an important thing here. We have 
a strong food safety program under the USDA, the HACCP programs 
we have inside our plans, integrity of the brands, and the 
sophistication of the management teams we have in place in 
these businesses.
    We are going to protect these brands and we are going to 
protect this in business. And, if we do not, the U.S. 
inspectors are going to do it anyway.
    This is a highly regulated industry. The U.S. government, 
tight inspection protocols are in place on every pound of meat 
we produced in every plant, and those on the agriculture 
Committee, you know that. You know how tight those inspection 
processes are.
    That is why people around the world take such comfort in 
the USDA stamp on product that they receive, and they are going 
to continue to have that assurance that anything, regardless of 
where the ownership is, this company has got to operate under 
the laws of the United States.
    We are not operating under the laws of China. We are 
operating under the auspices of the USDA and the food 
inspection process and our own developed HACCP programs beyond 
that.
    So, I think to your constituents back home, it is the same 
old Smithfield. Nothing is going to change. This is going to be 
an American company. We are going to continue to operate like 
an American company, and we are going to continue to protect 
these brands.
    The conversations I have had with those people at 
Shuanghui, this is one of the things that they are trying to 
buy. They want us to help them develop those food safety 
protocols and help to protect their food supply.
    Senator Johanns. Thank you, Madam Chairwoman.
    Chairwoman Stabenow. Thank you very much.
    Senator Grassley.
    Senator Grassley. I am going to start with Dr. Haley and 
Commissioner Slane. Do you agree with Mr. Pope's answer to 
Senator Robert's question about the benefits of U.S. pork 
producers and processors to expand and to grow domestically as 
a result of this transaction?
    Ms. Haley. No, I do not. I do not think Shuanghui is buying 
Smithfield for its pork. All of Smithfield's production is 
about three percent of what China produces. Shuanghui is buying 
Smithfield for its brand name and to assuage the horrible 
reputation that China has so far as food production goes and 
exports of food.
    Smithfield has gene technology which is a strategically 
important industry for China. This acquisition is bolstered by 
indigenous innovation policies because China wants to move up 
into value-added production. Shuanghui already is in value 
added production as regards China.
    Senator Grassley. So, now are you speaking to the point, 
though, that you think it will expand American production?
    Ms. Haley. I think we will be producing more pork, a steady 
line of pigs will be going to China but I also think that there 
are going to be other side effects. For example, competitors 
will now be dealing with a Shuanghui Smithfield that is as 
inscrutable as any other Chinese company, any sort of strategic 
information will not be made public, for example. It will go 
through that morass of Chinese dissemination. Competitors will 
be dealing with----
    Senator Grassley. I think you have answered my question and 
I would like to get Mr. Slane.
    Ms. Haley. Okay. Sorry.
    Senator Grassley. Then I want to get into some other 
things. Go ahead.
    Mr. Slane. Senator, last year the Chinese consumed just 
under 120 billion pounds of pork. They imported 1.5 billion 
pounds, a little over 1 percent. Smithfield exported 1.2 
billion pounds of pork. Smithfield has the capability to supply 
the import needs of pork to make up the difference in the 
Chinese economy without any other U.S. pork producer 
participating.
    Senator Grassley. It is my understanding four producers in 
the United States or processors control 74 percent of the 
market. So, I am always concerned about antitrust and 
competition issues.
    This would be to any of you that want to answer. Do you 
have any concerns that the transaction could increase anti-
competitive and predatory business practices in the pork 
industry domestically?
    Ms. Haley. Well, I think it is going to be very difficult 
for competitors because they are not going to be able, in this 
very tightly controlled industry, they are not going to be able 
to decipher what one major company is doing. Yes, it will.
    Mr. Slane. Senator, how does an American company compete 
with a company, a Chinese company that has no cost of capital, 
that has enormous subsidies made available to them; and in 
effect, American companies are not competing with a Chinese 
company but with the Chinese government and they cannot win 
that competition.
    Ms. Haley. That is right. And, the Chinese government has 
come out publicly and said that. They said we encourage those 
acquisitions which translated means we subsidize and facilitate 
those transactions.
    Senator Grassley. Well, Dr. Slaughter, you had a different 
point of view in your testimony on that. You obviously disagree 
with them. I would like to have you convinced me when we 
thought a few years ago that the Chinese, whatever, CNOOC or 
whatever the oil company is should not buy Unical because we 
thought it was against our national interests, and maybe even 
our National security interest.
    Since food is such an important part of National security 
why this might not be a problem from that point of view. And 
you said that the Chinese government does not have much to do 
with this small, you said small company in China.
    Mr. Slaughter. So, I think, first of all, Senator, I think 
that CFIUS's review of this transaction is entirely warranted. 
I served on CFIUS, in fact, during the time of that particular 
transaction when I served in the government before.
    The interagency process works well in CFIUS. I think that 
this is a transaction, given its novel nature, where precisely 
a careful look at CFIUS makes sense.
    Second, I agree a lot with what Commissioner Slane and Dr. 
Haley have said about the challenges of growing food in China. 
Although, I gently would disagree and say the major goals for 
the Chinese government here is to maintain social stability, 
given the demands of their population for safe and cleanly 
produced food.
    Senator Grassley. So, you said you do not think the Chinese 
government had much to do with this company that is buying 
Smithfield; but on the other hand, the Chinese government is 
very concerned about social cohesion and all that sort of 
thing.
    So, how do you know they are not pushing the company to buy 
Smithfield and so the government has got an involvement in it, 
the Chinese government has and involvement in it?
    Mr. Slaughter. So, the new leaders in China today have been 
very explicit about trying to have what they call more balanced 
and harmonious economic growth focused less on exports, more on 
meeting the needs of the households and families in China. And, 
I view this transaction as consistent with that effort to try 
to bring cleaner growth to China.
    Senator Grassley. Thank you, Madam Chairman.
    Chairwoman Stabenow. Thank you very much.
    Senator Boozman.
    Senator Boozman. Thank you, Madam Chair, and thank you and 
the Ranking Member Cochran for having this really important 
hearing. This is something we have all heard about for a while 
and, you know, we are concerned, the American public is 
concerned so it is good to have the discussion.
    I think all of us are really concerned that you have a huge 
company in the sense of controlling a good part of the market 
and then again what is that going to be the effect on 
consumers, what is that going to be the effect on the American 
worker is the bottom line.
    Tell me, Mr. Pope, my understanding of the reason that 
China wants to do this is in the sense that, as has been 
alluded to, they need protein. They need the pork. If right now 
they do not have the grain to do that over there, it takes four 
or five pounds of grain to make a pound of pork so it makes 
sense to raise the pork where the grain is at. Is that true?
    Mr. Pope.
    Mr. Pope. Senator, I think that is exactly true. That is 
not any different than the way that pork and meat is produced 
in this company. Meat is largely produced where the grain is 
and in China has had a policy of attempting, as many countries 
have, to be self-sufficient in feeding their population. 
However, I think they have concluded that is going to be a 
difficult process; and one solution to that is to import the 
product.
    Senator Boozman. Again, like I say, I am just trying to 
understand their reasoning. So, they send it back, you know, in 
the sense a lot of it goes back, perhaps, I would assume it 
would. But again, our producers backfill what goes back 
theoretically and you sell more grain, you sell more pigs. Is 
that too simple of an understanding?
    Mr. Pope. Well, I think our producers--and some are in the 
room here today with me--have overwhelmingly supported this. 
The producers see this----
    Senator Boozman. That is a good point. And again, I have 
visited with some of the large producers also. And, where are 
they at? I mean, are our large producers, small producers, are 
they for this or against it or?
    Mr. Pope. Senator, I do not believe that I have gotten any 
feedback from any producer who is opposed to this. They are 
overwhelmingly supportive of this. It is the opportunity to 
grow again. I do not know of any producer who is opposed to 
this today.
    Senator Boozman. Mr. Slane, Dr. Haley, have you met with 
any of our producers? Do you know if they are for or against 
this?
    Mr. Slane. I have not talked to any, Senator.
    Senator Boozman. That would probably be a good idea.
    The other thing too is that began to me in the hearing we 
are drifting into all kinds of things.
    Dr. Haley, I share your concern with food safety; and yet 
if we are not doing a good job in that regard because we have 
got all kinds of stuff coming in here now; and again, I am not 
saying I am supporting or against it. I am just trying to find 
the information.
    But, there is a lot of product coming in here right now and 
we needed to do a better job of that than we do.
    Commissioner Slane, I do not understand in the sense, you 
know, that if your argument is that we should not do this, 
allow this to be done here because if we cannot do it over 
there. I mean there are countries that we deal with that we 
cannot buy property in and yet we allow them to buy property 
here. I mean, there are all kinds of other situations like that 
comes about.
    I have great fear of the Chinese, you know, as you are 
alluding to in the sense, I have traveled in Africa a lot and 
understand, you know, some of the methods that are used. But, 
apart from that, that is really not a very good argument, is 
it?
    Mr. Slane. Only in the extent that we should have the same 
opportunity in these other countries to acquire their companies 
and there is just something fundamentally wrong economically in 
not allowing this. And, our commission recommended that CFIUS 
be modified in that we reject applications where we cannot buy 
that same company in that country.
    Senator Boozman. Right. And again, I understand that and, 
like I say, to me that is kind of a separate deal in the sense 
that is a huge problem that we have got in many countries 
throughout the world.
    The other thing I would like to ask about, if you are 
knowledgeable, is I am told that as far as, you know, this 
being the rocket science as far as the pork production that it 
is pretty easy.
    I used to have a bunch of cows and, you know, worked the 
genetics hard that way. I mean, this is an industry that is a 
pretty stable industry that the access to genetics and things 
like that, if you want to obtain it, I mean, there is not a 
great mystery in the feed mix or this or that. Is that true or 
false?
    Mr. Pope. Senator, I think that, in terms of technology, I 
think essentially what we do, we do not have any patents. It is 
commercially available.
    Senator Boozman. Thank you, Madam Chair, and began, thank 
you for having the hearing. I think this is very helpful.
    Chairwoman Stabenow. Thank you very much.
    Senator Thune.
    Senator Thune. Thank you, Madam Chair.
    I appreciate you all coming in and answering our questions. 
I think one of the issues with this acquisition, we are 
probably not going to see a month from now or a year from now 
any visible impact on the Nation's livestock industry, our 
Nation's food supply or food safety for that matter, but I 
think we need to look at these in terms of what the impact will 
be five years down the road, 10 years down the road, how the 
Nation's food supply might be impacted, our food safety might 
be impacted.
    You have 20 percent of the world's population living in 
China. So obviously, food security is a high priority, 
especially since only 8 percent of the world's crop land is in 
China. China is going to have to look beyond its borders to 
ensure a steady and stable food supply.
    But, we have got to ensure that China's food security and 
adequate supply does not come at the expense of ours here in 
the United States.
    I want to ask a question. Mr. Pope, you had mentioned, and 
I think the quote is, it will be the same old Smithfield only 
better, and that Shuanghui is committed to maintaining our 
operations, our headquarters, our relationships with producers, 
our labor contracts, and our quality brands with the highest 
reputation for food safety.
    I think we are all encouraged to hear that as Smithfield 
has been a great asset to the American food supply in the past 
decades. But, I am wondering if maybe you could elaborate on 
any assurances that have been given to business partners, 
producers, employees, consumers that Smithfield will be, in 
fact, as you put it, the same old Smithfield.
    Mr. Pope. Sure. Thank you, Senator. I would love to address 
that. Shuanghui has been very forthcoming in terms of their 
commitments in their public statements on the announcement of 
this deal of their commitment.
    So, they are well aware that this is a large acquisition 
going on in the United States, and they are well aware of the 
public overview and concern about this transaction. So, they 
are very knowledgeable and very thoughtful about what they are 
committing to realizing that they will be held accountable of 
that.
    The fact that the overwhelming support of so many different 
organizations and participants in the pork industry have come 
forward with this should give you some assurance that Shuanghui 
is going to live up to their commitments.
    I have known these folks for several years. They have 
always lived up to their commitments to us. They are the leader 
in their country. They are partnering with the leader and the 
largest pork producer in the world, with the largest pork 
consuming country in the world, with the largest processor in 
that country. The marriage is sort of very natural and very 
automatic.
    In terms of commitments, I am very grateful for the fact 
that people at the UFCW, the unions have stepped forward and 
said we understand. They are going to honor our contract.
    Our producers in the industry, of the hog of producing 
industry, many have stepped forward and said we salute this 
transaction as well as many of our competitors in this industry 
have also come forward saluting this transaction as good for 
this industry for the long-term.
    I have got over 30 years with Smithfield, and so I have an 
enormous investment emotionally in this company, and I am going 
to make sure, I am still going to continue as the CEO of this 
company, and I am going to have a hand in the future in the way 
this company continues to operate, and I realize we are going 
to be held accountable to the scrutiny of the American public 
and the regulatory process in this country, and I am very 
comfortable.
    Shuanghui 100 percent endorses that; and in fact, the North 
Carolina pork producers just today were meeting with Chairman 
Wan in China and just put out a press release in the last few 
hours complementing their meeting with him and his commitment 
as the chairman of Shuanghui, the commitment to maintain the 
food safety standards that Smithfield has been placed today.
    So, as good as an assurance as anyone can have, they are 
making public statements on the record that they are going to 
maintain the management team and our operations and our food 
safety standards.
    Senator Thune. Mr. Slane's testimony identified Shuanghui 
as being a, and I quote, Chinese state-controlled company, end 
quote. In your testimony, you state that Shuanghui is a private 
holding company based in Hong Kong.
    Would you agree that Shuanghui is a state-controlled 
company?
    Mr. Pope. No, I would not agree, Senator, that it is a 
state-controlled company. I think that is fairly easy to 
research. So, I would just ask Mr. Slane to do the research and 
maybe he just got some bad information.
    Senator Thune. Mr. Slane.
    Mr. Slane. Chairman Wan is a high-ranking Member of the 
Chinese Communist Party and a 15-year veteran of the National 
People's Congress. He was appointed to the position by the 
Chinese Communist Party and he answers to the Chinese Communist 
Party; and if he does not do what they say, they will remove 
him or worse.
    In addition, he controls the majority of stock and the 
voting rights of Shuanghui; and finally, Senator, and the Bank 
of China, which is controlled by the Chinese government, is 
financing the cash, the 4.7 billion, in this transaction. The 
Bank of China does not finance any transactions unless they are 
told to by the Chinese Government.
    By any definition, this is a state-controlled company.
    Ms. Haley. May I add two more things as to why it is state-
controlled?
    Chairwoman Stabenow. Very quickly.
    Ms. Haley. Its subsidiary was listed on the Shenzhen stock 
exchange. You do not get a listing like that without some kind 
of state support.
    Several government people have come out and said openly 
that they support this acquisition. That does not happen unless 
there is something else going on, some other influence.
    Chairwoman Stabenow. Thank you very much. Thank you.
    Senator Heitkamp.
    Senator Heitkamp. Madam Chairman, I apologize for coming in 
and out. I had another significant meeting to my State and 
wanted a chance to listen to all the questioning, and I know 
that a lot of the ground that I wanted to cover has already 
been covered.
    I just have one quick question of Mr. Pope. You know, it is 
always good to get a lot of commitments on the front when you 
are negotiating a deal and when you want to make people happy 
and you want to come before a panel like this and say things 
are going to go well.
    But, what are the legal requirements that contracts be 
maintained, that all of the things that have been promised will 
actually come to fruition now and into the future or is this 
just part of what we are talking about now and tomorrow after 
the acquisition is finalized those commitments go away?
    Mr. Pope. Senator, many of those commitments that I made 
reference to our legally binding contracts under U.S. law. So, 
they have no choice but to honor the contracts we have with our 
union employees as well as the 2000 contracts we have with our 
contract growers. We have those in place and they have no 
choice but to honor those contracts.
    Senator Heitkamp. No contract is permanent. So, what is the 
termination dates on those contracts?
    Mr. Pope. Obviously, Senator, those contracts have varying 
termination dates. But, the fact is that Shuanghui realizes 
that an important asset they are buying here is the management 
team in place, our employees in place, and the relationship we 
have with our growers and our suppliers.
    They would not be paying a 30 percent premium to the market 
without realizing that they are getting a valuable asset and 
the discussion that was being held earlier this year about the 
potential breakup of this company into parts by other 
interested parties created some of this interest by Shuanghui 
and other interested parties because of the value of his 
vertically integrated model.
    Senator Heitkamp. Can you state with any legal certainty 
that in 10 years you can come back here and say contracts 
similar to the contracts that you have today with your growers 
will be in tact and that you will have union contracts in 10 
years?
    Mr. Pope. Senator, obviously, it is difficult for me to 
project the future. However, as certain as I can be about 
anything, I am virtually positive we will have the contracts 
with our contract growers because we do not have a business 
without them. Our contract growers are, one of the most 
important assets this company holds is the ability to work with 
power producers. That is a key asset. Beyond the brands that 
the company owns, that is probably the second most important 
asset we have.
    The union, the relationship we have with United Food and 
Commercial Workers I would ask you to ask them themselves, they 
have come up so much supportive of this. They are highly 
confident that the company will continue to recognize them as 
the unions in place and have contracts that are favorable to 
their employees or to their workforce.
    Senator Heitkamp. You know, not to belabor the point, but I 
think the concern here is that in anything like this that is 
going to have a fair level of controversy, as you can see, from 
the panel today there is always a lot of commitments that are 
made and, you know, we like to envision that in 10 years we 
will come back and say we were right. It all worked out. And, I 
certainly hope that is the case.
    But, just be aware that there is a fair amount of cynicism 
and concern about this transaction, and part of that is borne 
out of concern for what is going to happen to the intellectual 
property of this company.
    As you have mentioned over and over again, the quality of 
the work that you do, the intellectual product, the know-how 
that you have, once that has been acquired as an asset of a 
Chinese company, will we then see that basically undermine pork 
production in our country. That is the concern.
    You know, this ground has been plowed and I thank the 
Chairwoman for having the hearing but again I hope in 10 years 
you are right.
    Chairwoman Stabenow. Thank you very much.
    I want to talk a little bit more about exports because a 
shining star for us in the United States is agricultural 
exports. We have for every 1 billion of dollars that we invest 
we have about 5000 jobs created. So, we have a surplus in terms 
of exports in agriculture which is very, very important.
    Pork is very export dependent. You need to export, and 
right now if China opened its doors and did not apply illegal 
and unscientific food safety standards, you could just export 
to them. Create a lot more jobs. I think that would be 
terrific.
    Other producers, independent producers that are configured 
differently than Smithfield could do that right now but that is 
not what we are talking about.
    My question is, now that Shuanghui will have access to 
Smithfield's production technology and genetics and improved 
food safety practices, is it possible--I am sure they are going 
to increase their own efficiency. They said that is why they 
are willing to pay a premium for the company, and Japan sits 
right next door which is our largest export market from the 
United States.
    Why would China not export to Japan?
    Mr. Pope.
    Mr. Pope. Senator, that is a very good question, and 
certainly it is a concern that the industry has is Japan is a 
very important market for the pork industry, and you are right 
again about the importance of exports to the health of the pork 
industry.
    I like to say exporters have become the lifeblood of the 
pork industry; and when we do not have sizable exports, the 
industry suffers significantly as a result of that.
    Today, China could and does, and does, export into Japan 
very limited amounts. There are very, very tight food safety 
standards between, in Japan with respect to Chinese product; 
and so they have to have plant approvals. I am sure you and 
your staff know that.
    There has been very little but there is some. And so, the 
thing that gives me comfort is the economics. Pork is 
substantially more expensive in China than it is in the U.S. It 
probably surprises many people to hear that. Pork prices are 50 
percent higher in China. It is not a cheaper market. It is a 
higher market.
    They have an economic disadvantage in shipping to Japan 
because they do not have the grain. They have got to import the 
grain. The grain has got to be grown someplace else. It has to 
be shipped to China. They do not have anywhere near the 
productivity in their herds and so that the pigs do not stay 
alive.
    It is much more expensive for their economic disadvantage. 
And, the U.S. has an economic advantage in selling to Japan, 
and the deficit that exists in China today I think is a very 
real deficit but I think it is an opportunity for U.S. exports.
    I think they are looking, China is looking that this is an 
opportunity to feed their people, to satisfy the civil issue 
that they have got to solve in giving safe food to their 
people. It is not about an opportunity to import product and 
then exported back out to Japan.
    Chairwoman Stabenow. But again, Mr. Pope, they could feed 
their people by opening their markets to the great American 
pork products that we have, and of course, they have chosen, 
and I understand they would like your brand. It is an excellent 
brand.
    One of the concerns or questions I have is whether or not 
your brand which will be put on Chinese pork which has been 
less than stellar is going to be a problem for your brand down 
the road.
    But, I wonder if Dr. Haley and Commissioner Slane would 
like to talk about the economics of all of this.
    Ms. Haley. Well, I do not think--as I said before, that 
China or Shuanghui bought Smithfield for the pork. Smithfield's 
production is just 3 percent of Chinese production. But what I 
see happening is what is happening in other industries such as 
paper, steel, glass, solar. We spent the last five years 
looking at these industries.
    Higher value-added manufacturing will move to China; and by 
that I mean, processed products, and they will use the 
Smithfield brand name. We will continue to export pork, a 
steady stream will go on to China with all sorts of negative 
externalities such as pollution mounting, perhaps soy and other 
interrelated feed industries will have their prices going up as 
well.
    We will be exporting more pork but we will be importing 
more processed foods from China. So, we will be exporting more 
commodities as we have been doing. We currently import 560 
percent more technologically advanced products from China than 
we export to it.
    So, we will be importing their processed foods and we will 
be exporting our commodity. And, as we will be importing more 
than we will be exporting, our trade deficit will continue to 
grow.
    China is not seeing this as just one acquisition. Shuanghui 
has government support. These going-out companies have 
government support and they see Smithfield as a foot in the 
door. There are going to be very many acquisitions in 
agriculture. I have spoken to people in China and this 
acquisition is being very carefully monitored. There are other 
companies that are waiting in the wings to buy more American 
companies; and so, this is a weighty decision and I think this 
really has to be looked at very carefully as to what we want to 
do with the agricultural sector in this country.
    Chairwoman Stabenow. Thank you.
    Commissioner Slane.
    Mr. Slane. Senator, I think it is important to note that 
Shuanghui as production and distribution systems in Japan and 
South Korea so they are obviously penetrating that market; and 
with the subsidies from the Chinese government, I think 
eventually long-term they could undermine U.S. exports to those 
markets.
    Ms. Haley. Yes.
    Chairwoman Stabenow. Thank you. My time is up. If there are 
other members that have questions.
    Senator Thune.
    Senator Thune. Thanks, Madam Chair.
    I just wanted to take advantage of Mr. Slaughter's 
expertise while we are here and ask a question. I would like to 
hear, in your words, what you see as the long-term implications 
of the merger and acquisition on the American food 
manufacturing industry. And to be more precise, is this 
acquisition going to be a job creator for American workers?
    Mr. Slaughter. Thank you, Senator. It has every potential 
to do so; and if I could echo Mr. Pope's response to your 
question earlier about the long-term, the one dimension in 
which I hope he is wrong is that in five to ten years 
Smithfield does not have 46,000 employees in America, they have 
56-or 66,000.
    Most of the growth in the world is outside of the United 
States. I will echo the Chairman Stabenow's nice framing. The 
number I will give economically is 22 million. There are over 
22 million under and unemployed Americans in America today.
    We need to try to create for the next five to ten years 
approximately 20,000,000 new jobs in America, and a lot of 
those jobs are ideally going to come from American workers and 
their businesses being connected to opportunities in world 
markets.
    Yes, there is a lot of legitimate concerns about the 
economic development of China but I think the engagement of 
China and the rules-based, transparent policymaking process is 
critical to try to allow American workers like those at 
Smithfield and throughout a lot of other industries to be 
connected to that growth in China.
    Senator Thune. You, in your testimony, mentioned foreign 
direct investment in the long-term as being boom to the 
American economy. I am wondering if you see any situation in 
which foreign direct investment might be a detriment or be an 
untenable risk to the American economy.
    Mr. Slaughter. So, anytime there is a foreign investment 
that raises a legitimate National security concern for America, 
that foreign investment should be looked at closely if not 
forbidden; and again, I think the CFIUS process has decades of 
being a well-run and well-managed process for reviewing those 
kinds of National security concerns.
    My thought in that interesting question is clearly 
individual transactions sometimes do not work well for the 
parties involved; but when you look at the clear historical 
records for America over the decades, inward foreign direct 
investment like this particular transaction has generated large 
benefits for American workers in the broader economy.
    Senator Thune. Thank you, Madam Chair.
    Chairwoman Stabenow. Thank you very much. I think this has 
been a very important and very thoughtful hearing and very 
informative. I appreciate everyone being here today.
    We have a number of issues that have been raised and I 
think, from my perspective I remain concerned about the 
adequacy of our government's review process for these 
acquisitions of our food supply.
    I really believe this is a precedent-setting case. I am 
concerned when Dr. Haley talks about more waiting in the wings 
to come which just says to me that we need to be thoughtful on 
behalf of American consumers and producers in the broader 
economy to make sure that we are looking at the adequacy of the 
review process and what is in the best interest of our country.
    I want to remind the members that we are going to be with 
the Treasury Department, we are going to be going across the 
hall now to meet with those that are involved with this review 
process and we will have questions for them as well.
    Any additional questions for the record should be submitted 
to the Committee Clerk by five business days from today, that 
is 5 p.m. on Wednesday July 17.
    This is important. I hope that we will continue to see a 
strong, robust pork industry in America and that I have no 
doubt that our standards will remain high in this country, and 
we certainly want all the right things to happen. But I think 
there are legitimate issues here about what this is all about 
and the long-term implications for what will happen to the 
industry.
    Thank you very much for joining us.
    [Whereupon, at 4:06 p.m., the Committee was adjourned.]
      
=======================================================================


                            A P P E N D I X

                             JULY 10, 2013



      
=======================================================================



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

=======================================================================


                   DOCUMENTS SUBMITTED FOR THE RECORD

                             JULY 10, 2013




=======================================================================


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

=======================================================================


                         QUESTIONS AND ANSWERS

                             JULY 10, 2013



      
=======================================================================


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                  [all]
