If Trump And Meat Executives Are So Worried About Shortages, Why Are They Shipping America’s Pork To China?

Last week, while documenting rising tensions between Washington and Beijing, I noted that China is making some effort to demonstrate that coronavirus recrimination notwithstanding, the “phase one” trade deal between Donald Trump and Xi Jinping isn’t totally dead.

China recently bought a half-dozen cargoes of soybeans, for example. They also bought lots of corn and ordered some 40,200 metric tons of American meat, the largest such order in seven months, according to the USDA.

One potential issue with China’s purchases of US meat is that, currently, the headlines stateside are full of scary-sounding predictions about shortages of beef and pork. Some of those headlines include quotes from executives at large meat companies, including Smithfield Foods CEO Ken Sullivan who, early last month, framed the situation as life or death.

“We have a stark choice as a nation: we are either going to produce food or not, even in the face of COVID-19”, he wrote, in a response to calls for the company to temporarily shutter a key pork processing plant in Sioux Falls after an outbreak.

As I dryly pointed out at the time, Smithfield is owned by a Chinese conglomerate. The Virginia-based pork producer was acquired by WH Group six years ago.

Fast forward a few weeks and the industry is grappling with a halting effort to ramp up production at idled or slowed plants after Donald Trump signed an executive order.

But America’s meat problems are far from “solved“. In addition to possible legal liability tied to sickened workers, the Justice department is pursuing an antitrust investigation, and the USDA is looking into fat margins for beef brought about by concurrent spikes in consumer prices and deflation for farmers.

Another potential public relations issue stems from the fact that some of the companies at the heart of this discussion have been busy shipping tons of meat to China, even as US supply is imperiled.

China has long struggled with surging pork prices thanks to swine fever, and that’s translated to higher food inflation, which in turn pushes up headline CPI.

If monetary policy officials in Beijing aren’t willing to look through that, it ostensibly constrains the country’s capacity to cushion the economic blow from the virus. The situation has abated a bit, but as you can see in the visual, it’s still acute.

Cutting rates chances currency depreciation, which adds insult to injury for Chinese consumers already paying higher prices.

Chinese imports of US pork were curtailed by retaliatory tariffs during the trade war, but have since surged as economic relations between the world’s two largest economies thawed.

The optics around that aren’t great.

With meatpackers sounding shrill warnings about the US food supply chain while tacitly suggesting that keeping the lines moving is necessary despite the risk to workers’ health, the fact that around a third of US pork was sent overseas so far in 2020 arguably makes hypocrites of company executives. According to the US Meat Export Federation, a third of all exported pork went to China.

On the other hand, farmers desperately need to retain access to what is arguably their most important export market, and the Trump administration is pushing China to make it clear that Beijing is committed to the trade deal.

But that deal entails China buying tens of billions in additional farm goods from America above and beyond what they purchased in 2017.

Now, Americans need some of those farm goods, especially pork and beef.

Perhaps not surprisingly, Smithfield (which, again, is Chinese owned) was the largest US exporter of pork to China in March.

Smithfield “shipped at least 13,680 tonnes by sea” that month, Reuters notes, adding that “the company is now retooling its namesake pork plant in Smithfield, Virginia, to supply fresh pork, bacon and ham to more US consumers [in] an about-face after the company reconfigured the plant last year to process hog carcasses for the Chinese market”.

And it’s not just livestock. In the same linked article, Reuters goes on to point out that “total export sales for US chicken supplier Pilgrim’s Pride, which is mostly owned by Brazilian-owned JBS USA, jumped 24% in the first quarter, with China accounting for about 20% of sales”.

Clearly, one cannot blame Trump for this given the impossibility of predicting an imminent pandemic and the subsequent squeeze on the US meat supply chain. Yes, the administration was aware of COVID-19 in January, but the trade agreement had been in the works for almost two years at that point, and the potential for the disease to wreak global havoc wasn’t yet fully appreciated.

Still, this raises uncomfortable questions going forward, not the least of which is how to balance the implementation of the trade deal (one of Trump’s signature economic achievements, if you ask the White House), with prospective shortages and double-digit meat inflation in the US.

Finally, the above also means that when you hear the good folks in the C-suite at giant meatpacking companies wax hysterical about the US supply chain, you might fairly suggest that if they are, in fact, as concerned as they claim to be, one solution would be to stop shipping product to China, where the virus that’s sickened thousands of their workers originated.