Getting a grilling

A bystander in the bacon wars

When Shuanghui International completed its $7.1 billion acquisition of Smithfield Foods – the world’s biggest hog producer – it was generally portrayed as the largest purchase yet by a Chinese firm of an American company.

As we suggested in WiC196, the situation isn’t quite so straightforward as that – Shuanghui International is registered in the Cayman Islands and controlled by private equity investors, many of them non-Chinese. Now some of these interests seem keen to cash out, following news that Shuanghui has appointed advisors to prepare for a $6 billion IPO in Hong Kong next year.

The company’s operating arm in China, Henan Shuanghui Development, has also been busy. But in trying to expand its commercial reach, it is provoking confrontation with rivals who don’t want it getting a foothold in their local markets.

In one incident reported at a wholesale facility in Yiyang County in Jiangxi, Shuanghui staff even came under attack by workers from a rival abattoir. Three men intent on sabotage broke into the building on October 3, says the Beijing Times. There was a confrontation with a duty clerk, followed by a fight. The local police detained the clerk for almost three weeks afterwards but failed to apprehend the intruders, says Liu Jintao, a Shuanghui executive.

Speaking at a press conference in Beijing, Liu said this was typical of the treatment suffered by Shuanghui in other parts of the province and that it was time to “take up legal weapons to protect our own interests”.

Shuanghui is actually a major investor in Jiangxi having spent Rmb1.2 billion ($196 million) three years ago on Asia’s largest pork slaughterhouse in the provincial capital Nanchang. But most of its meat is sold outside the province in cities like Shanghai, Nanjing and Hangzhou. When it has tried to sell pork in places like Yiyang, it has run into bitter opposition. “We can produce locally, but they do not want us to sell locally,” Liu complains.

The reason is simple, according to Chen Wenyun, boss of the outlet that was attacked in Yiyang. Since opening at the end of September, his store has sold pork for Rmb22 a kilo, about Rmb5 less than the other wholesalers, generating daily sales far greater than its competitors.

Shuanghui has been trying to reap economies of scale by centralising more of its slaughtering facilities and taking direct control over the meat produced and distributed through its supply chain.

But as it does so, it is biting into markets that have supported smaller and less sophisticated operators. One option is to negotiate with the local abattoirs to give up their traditional business and sign up as Shuanghui wholesalers instead. But some of the slaughterhouses aren’t ready to give ground. Shuanghui says the resistance in Yiyang is not an isolated case and that it has encountered opposition across Jiangxi. This has included seizures of meat consignments and confrontations in which lorries have been blockaded or prevented from unloading.

Another allegation made at the press conference in Beijing was that Ye Jinhua, a senior official in the local trade and commerce bureau, is linked to much of the trouble in Yiyang. He also happens to be the operator of the only slaughterhouse in the county. “For a long time Ye has used his public authority over slaughtering controls to monopolise the county’s meat market, raising prices and causing local consumers to complain,” the Beijing Times suggests.

If Ye did plot the resistance to Shuangui, he must be regretting the subsequent publicity. He is also being accused of ripping off farmers by charging them for VAT, despite duty being suspended on meat in January as part of an effort to keep down prices. “It wasn’t until our press conference that our counterparts [i.e. other pork suppliers] realised that VAT on pork was cancelled at the start of the year, but that they were still being charged the full amount. Now [the suppliers] are collecting all their receipts and trying to find Ye to get a refund,” Shuanghui’s Chen crowed to China Enterprise News.

Reports this week in the People’s Daily suggest that Ye has been suspended and is facing investigation, although officials in Yiyang have refused to comment.

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