Smithfield Foods

US pork producer owned by China’s ‘No. 1 butcher’ eyes new markets amid fears of trade war

But analyst says impact of possible trade war on Smithfield Foods will be limited

PUBLISHED : Tuesday, 27 March, 2018, 9:19pm
UPDATED : Tuesday, 27 March, 2018, 11:27pm

Smithfield Foods, the United States’ leading pork producer, which is owned by Hong Kong listed WH Group, is looking to expand into new and current markets amid fears of a trade war between Beijing and Washington. The US is a major business segment for WH Group, the world’s largest pork producer.

“If the tariffs are actually imposed, that will be part of our equation [for deciding] where we sell our pork,” said Ken Sullivan, executive director of WH Group and the chief executive of Smithfield Foods, which was acquired by the former in 2013. “We are finding new markets and we will continue to do so.

“It’s not like we have extra meat, we don’t. We sell every pound of meat that we make, so it’s always about where is now the best market,” he said on the sidelines of a press conference announcing WH Group’s full year results in Hong Kong on Tuesday.

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The Chinese company grabbed headlines when it acquired Smithfield for US$4.7 billion in 2013. Its US business contributed 59.3 per cent of its turnover last year, almost doubling the amount of its turnover in China, followed by Europe.

Sullivan said some of Smithfield’s current international export markets, such as Japan and South Korea, recorded strong performances last year, with business in South Korea up by 36 per cent for 2017. Sullivan said he expected the company to expand its business in these markets.

“Japan has always been a good market for us, we are developing new business in Japan as we speak,” he said. “Our acquisition of Farmer John is a positive thing for the Japan market – Japanese customers love West Coast products.”

“The impact of a possible trade war will be limited,” said Barney Wu, an analyst at Guotai Junan Securities. “The focus should be on the performance of WH Group’s new meat products, as some current meat products with a high profit margin didn’t do that well in the fourth quarter last year,” said Wu.

A report by Credit Suisse says imports accounted for only 3 per cent of China’s total pork consumption, and that the US contributed only 10 per cent towards its total import volume.

If the tariffs are actually imposed, that will be part of our equation [for deciding] where we sell our pork
Ken Sullivan, executive director of WH Group and chief executive of Smithfield Foods

As far as the export of pork to China is concerned, there was a slump in international exports last year as the domestic price of hog remained weak, said Wu. “Exports of fresh pork from Smithfield to China didn’t account for a large proportion, so the impact … might be limited,” he said.

Smithfield exports about a fourth of its fresh pork products, its main export category, to international markets, of which one-third is exported to China, according to Luis Chein, a group director of the company.

WH Group, with a market capitalisation of about HK$123 billion (US$15.67 billion), is dubbed China’s “No. 1 butcher” and has maintained a leading market position in hog production, as well as processed and packaged meats globally. The company derives a majority of its revenue from packaged meats, followed by fresh pork and hog production, among others.

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The company reported a net profit of US$1.1 billion for 2017, up 7.5 per cent year on year, while revenue for the period was up by 3.9 per cent to US$22.4 billion.

Shares in WH Group plunged by as much as 10 per cent at one point last week, after China said it would levy tariffs on US goods, including agricultural and steel products. Beijing was responding to an announcement by US President Donald Trump that his administration plans to impose US$60 billion in penalties on Chinese imports.

The company’s shares have extended their losing streak this week, closing down 3.12 per cent on Tuesday.