The Chinese Pork Panic of 2013

• By HOLMAN W. JENKINS, JR.

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With its proposed purchase of Smithfield Foods, SFD +0.61% a Chinese company is buying (not stealing) the most important technology in a modern economy. No, not the bioengineering and chemical engineering secrets of pig breeding. Not even Smithfield's expertise in how to manage mass production from conception to slaughter.
The most valuable technology—without which a modern consumer economy would be impossible—is the power of brand reputation that allows consumers to eat the pork that emerges from these opaque industrial processes with confidence.
Though America will afford the world some comic relief by submitting the Smithfield bid to national security review, the bid itself is excellent news. Chinese humans are not made from different stuff than other humans, and the logic of modern markets prevails in China as elsewhere. The deal means China is coming to understand its own stake in the value of intellectual property known as brands and trademarks.
China has been enveloped in food scandals this year and every year for a decade. Each scandal has been greeted with calls for a Chinese police crackdown on tainted products and demands that China adopt Western-style systems of food regulation—as if these play the primary role in keeping us safe.

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Associated Press

They don't. Anybody who holds up the rich and endless diversity of products that flow through consumers' lives versus the inspection staffs of the FDA, the USDA and the Consumer Product Safety Commission knows how absurd the idea is.
Ironically, it is logos that keep us safe—remember the "no logo" campaign of left-wing activists who thought our world would be a better, safer, cleaner, nicer place if companies were forbidden from putting their names on products?
Brand equity is the investment, in real dollars, that companies make in the reputation of the goods bearing their logos—an investment lost or recoverable only at great cost if customers are let down. Logos are not the enemy of humanity. They are the most effective (notice, not perfect) safety regulation we have. China's Shuanghui International is investing in Smithfield precisely because it wants the trusted image of America's biggest pork producer.
The U.S. advertising giant JWT put reality with unusual frankness in a report last year: "Eating is no simple feat in China, thanks to near constant food safety scandals."
But the issue goes deeper than health costs and risks posed by counterfeit or substandard products turned out by no-name makers who expect to suffer no loss of sales if they poison their customers. Brand power is a power constantly reorganizing the production process itself. Look at Wal-Mart, in response to April's Bangladesh factory collapse, taking a whip to its suppliers. Or Nike leading the charge against sweatshops in the '90s.
One big unfinished business of the Chinese miracle is the long-delayed transition from peasant agriculture to modern, efficient agribusiness. The root cause of China's 2008 baby-food crisis, in which six infants died and 300,000 suffered kidney damage, was rural peddlers selling unmarked bags of "protein enhancer" to small dairy producers, whom even China's best brands have no choice but to patronize to keep their factories running.
Shuanghui itself has suffered repeated embarrassments caused by tainted pork from its small suppliers, including a major snafu involving the illegal additive clenbuterol in 2010.
Guess what? The entire world has a stake in this transition beyond just wishing the Chinese good eating and good health. Small-farmer duck and pig production in China is the incubator of virtually every global flu pandemic, the cause of tens of thousands of deaths annually.
Smithfield's appeal to Shuanghui is partly its hands-on control of quality at every stage of pork production. Yet fantastically foolish things are being said in the U.S. in the wake of its takeover bid—as if the Chinese buyer is spending $7.1 billion in order to dump tainted pork on Americans.
A perfect airhead for the advocacy group Food & Water Watch told the New York Times that, because Smithfield is being sold for a lot of money, "there will be more pressure to be profitable, and probably more shortcuts." Uh huh. Public companies like Smithfield are for sale everyday in the stock market, and are always under pressure to be profitable. But this is why they strive to protect the value of their brands, without which their profits would quickly disappear.
If you want to see what a modern economy looks like when brands aren't respected and valued, China's unhygienic, scandal-ridden food system is your proof of concept.