Smithfield and Shuanghui: Yes, Please --- And A Bit of History, Too

The proposed sale of Smithfield Foods Inc. to China-based Shuanghui International Holdings Ltd. marks a great leap toward the end of the world as we know it. Or so some would have us believe. Public interest groups Food and Water Watch and the Center for Food Safety, for example, fear that the deal will endanger the quality and safety of American meats. Their argument is that Shuanghui will apply its inferior quality control to our food chain. Iowa Republican Senator Chuck Grassley’s worry list is longer: The deal may affect national security. It will lead to higher prices for consumers and lower ones for hog farmers. Americans will end up eating pork made in China.

There’s no way to predict how the sale will affect farmers (except that demand for hogs will surely increase), but this much is clear: It’s unlikely that the quality of our meats will decline or that we’ll be buying hot dogs and pork chops that carry labels reading “Made In China.”

That’s because Shuanghui chairman Wan Long isn’t interested in supplying food to Americans, let alone applying Chinese quality control standards to his acquisition. His concerns are precisely the opposite: He’s interested in feeding Chinese consumers, not American ones, and in particular, he wants to feed China’s urban population.

Indeed, the key to understanding this “takeover” lies in China’s rapidly growing cities, about which more in a moment. But Mr. Wan knows that Chinese hog farmers can meet demand only by reinventing the way they raise livestock and by improving the quality of the hogs they sell. To do that, Shuanghui International needs expertise of a sort that no one in China’s agricultural and food processing sector has.

So Wan is buying it. And who better to buy it from than the people who created and operate the world’s most efficient meat supply system?

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The American way of making meat offers a way to supply high quality, safe, low-cost protein to billions of people who don’t live on farms. That’s a crucial point, and one best understood by looking at this acquisition from a historical perspective. (See? I can’t avoid it!)

Americans began building a “modern” meat-making system just over a century ago at a moment when they confronted precisely the problem that the Chinese face now: an imbalance between rural and urban populations. In the 1860s, only about a quarter of Americans lived in cities; by 1920, more than half did. Today, about 80 percent of us live in an urban place.

Why does that matter? Here’s a fact about urbanites that is so obvious that most of us overlook it: city folks don’t grow their own food. Instead, they rely on farmers, the very people whose numbers drop even as more people depend on their output.

In 1860, for example, about 60 percent of Americans were farmers, making food for themselves, for the 25 percent of the population that lived in cities, and for shipment abroad. By 1920, fewer than 30 percent of Americans lived or worked on a farm, but more than half the population lived in a city. Today nearly all of us live in an urban place, but less than two percent of us work as farmers. (Most of the twenty percent who don’t live in an “urban” place reside in unincorporated areas or in towns with populations of less than 2,500.)

Put another way, two percent of Americans make food for 98 percent. We don’t notice that imbalance because we enjoy an extraordinarily efficient food supply system; in the U. S., food is everywhere we want to be.

That abundance and seamless efficiency didn’t happen overnight. Building our food system required decades of entrepreneurship, inventive creativity, and legal tinkering (including, it’s worth noting, the construction of agricultural “subsidies” that allow farmers to enjoy standard of living “parity” with urbanites).

Between 1900 and 1910, for example, urban growth outpaced agricultural technology and farmers struggled to keep up with demand. That gap between supply and demand produced predictable results: high food prices. (The phrase “high cost of living” entered the lexicon during those years as escalating food costs provoked head-scratching on the part of economists, and food riots on the part of angry urbanites.)

Farmers and others, including economists, scientists, and government officials, scrutinized the agricultural sector, trying to figure out how to increase its efficiency and thus its yields. Over the next century, they devised new technologies and techniques to do so: Tractors and other tools, hybrid crops, commercially manufactured livestock feeds, fertilizers, and herbicides and pesticides. “Integrated” management systems that coordinated the production and transfer of foodstuffs from farm to factory to grocer to consumer. Genetics research to improve livestock carcass yield.

The making of meat in particular was transformed into a well-oiled machine that required relatively little land (urban growth drove up land prices) or labor (as more Americans opted to live in cities, farmers faced chronic labor shortages). The quality and, yes, the safety of meats increased even as their prices dropped.

Today many Americans are critical of the way farmers raise livestock and meatpackers process beef, pork, and poultry. It’s true that so-called industrial livestock production operations can and do generate pollution, aren’t particularly pleasant neighbors, and rely on a form of organization that echoes that of a factory. It’s true, too, that packing plants move at rapid speeds and rely on unskilled labor.

But Americans adopted and promoted these methods of livestock production and meat processing in order to ensure abundant supplies of low-cost meat for an urban society. They aren’t perfect, but they place minimal demands on land and labor.

But hyper-efficient agricultural production and food processing do more than feed urbanites. Those are also the cornerstones of a "consumer economy," which is the kind of economy we have here in the United States. (*1) Consumer economies are based on the making, selling, and buying of non-essentials --- think cars and cosmetics, shoes designed for style rather than function, iPads and televisions.

The cornerstone of a consumer economy is disposable incomes; citizens must have money to spend on non-essentials. One way to ensure that consumers consume is with credit. In the 1920s in the U. S., for example, General Motors created the General Motors Acceptance Corporation (GMAC) to provide low-interest loans so that Americans could purchase cars.

But a crucial factor in sustaining a consumer economy is low-cost food. The less money people must spend on food, the more they can spend on video games, books, and cell phones. How to get cheap food? By devising hyper-efficient methods of food production and processing. (*2)

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Back to China, a nation whose urban population has grown at a remarkable pace. In 1970, 83 percent of Chinese lived in rural areas working as farmers who fed themselves and the 17 percent that lived in cities. Today, however, 51 percent of Chinese live in cities. The agricultural 49 percent, many of whom rely on methods that haven’t changed in centuries, struggle to keep pace with demand.

And more urban stomachs are on the way: The Chinese government has laid plans to move some 21 million people a year off of farms and into cities. (For a recent in-depth story about this plan, see this piece in the New York Times.) One consultancy group predicts that by 2025, 65 percent of China’s population will live in a city.

The rationale for this plan? The Chinese government has decided, for better or for worse, that its future lies in building a “consumer” economy.

The campaign to depopulate the countryside is seen as the best way to maintain China’s spectacular run of fast economic growth, with new city dwellers driving demand for decades to come.

“An objective rule in the process of modernization,” [said one Chinese official] “is we have to complete the process of urbanization and industrialization.” (both quotes from New York Times)

But this plan will only work if all those newly arrived city folks have money to spend (and so far, that part’s not working too well). One way to increased the “supply” of disposable income is --- you guessed --- by ensuring an abundance of cheap food.

And so, as Americans did a century ago, the Chinese must figure out how to match agricultural output by ever fewer farmers to ever-growing urban demand. They must improve not just agricultural efficiency but quality control, too. (There’s ample evidence that many of the food nightmares that have unfolded in China in recent years are due primarily to farmers scrambling to keep up with demand using technologies and skills that aren’t up to the task.)

And that is why Shuanghui wants Smithfield. Like other American meat processors, Smithfield is an old hand at feeding urbanites, but it’s also a master at coordinating farm, food processor, and consumer demand. Smithfield, like other American livestock- and meat-supply operations, operates an “integrated” production process, organizing high tech hog breeding, farrowing, and feeding operations at one end, streamlined packaging and distributing systems at the other, with as-automated-as-possible slaughtering and packing operations linking those two pieces.

That’s what Shuanghui is buying: Smithfield’s managerial, technical, agricultural, and scientific expertise.

Neither Wan Long nor China’s leaders are fools. They know that, historically, when the human beings have no food, political unrest follows. The Chinese must resolve their farm-city food equation; it’s in the world’s best interest that they do so.

If that requires the Chinese to buy American expertise, please: have at it! Better that than political turmoil that will make the events of 1949 or the Cultural Revolution look like small potatoes indeed. Only this time, every person on the planet will be dragged into the chaos. If the sale of Smithfield can help prevent that, more power to it and to Shuanghui International.

But at a time when American agriculture is under attack from Pollanist reformers, and many people crusade to transform modern livestock production into a pastoral, but antiquated, idyll, the Smithfield sale reminds us of the benefits of our meat supply system. If we turn our backs on it, we may not like the return to the past that our future will become.


*1: Americans began shifting to a consumer economy about a century ago. The project gained impetus during the Great Depression of the 1930s. President Franklin Roosevelt’s New Deal aimed at “priming the pump”: putting money into Americans’ pockets so that they could buy stuff and thus generate employment.

But Americans began the transition to a consumer economy only after they’d successfully built a “producer” economy: During the nineteenth century, Americans focused on building transportation infrastructure as well as factories for the manufacture of goods that furthered industrial development: rail ties and sewer pipes, machine tools and steam engines. By the end of the nineteenth century, that foundational structure was in place and they shifted their attention to manufacturing consumer goods --- radios, clothing, cosmetics, and cars. Americans bought such goods prior to twentieth century, of course, and they continued to invest in and manufacture producer goods after consumer consumer gained supremacy. But in the twentieth century, the economy revolved around making and getting (relatively) unnecessary “stuff.”

*2: Getting to “cheap food” isn’t as easy as it sounds because it requires a society to overcome the “paradox of plenty”: When food is abundant and supplies are greater than demand, consumers enjoy low prices, but food producers --- farmers --- earn little profit. If the reverse is true and demand outstrips supply, food prices rise. Farmers profit, but consumers howl.

Thus the fundamental contradiction of a consumer economy: the paradox of plenty (or, as farmers call it, the pain of plenty). Urbanites demand that farmers produce an abundance of foodstuffs. But if farmers comply, they earn little profit and so either can’t or won’t produce more. And so the consumer economy has grown hand-in-hand with one of the great balancing acts of American politics: the need to guarantee cheap food on one hand and income parity for farmers on the other, a need that spawned the programs and policies known collectively as “farm subsidies.” This balancing act was and still is complicated by the fact that most Americans live in cities and don’t produce their own food.