State limits on foreign ownership of farmland and concerns over US pork exports to Japan have emerged as possible challenges to a Chinese company's planned $4.7 billion takeover of industrial hog farmer Smithfield Foods Inc.

In what would be the biggest takeover of a US company by a Chinese buyer, the proposed deal announced two weeks ago already faces regulatory scrutiny over the potential impact on America's food safety and security. The intended buyer, Shuanghui International Holdings Ltd, has also drawn criticism for what some US lawmakers say is a poor food-safety record.

Reuters on Sunday noted that eight rural states in the US Midwest - each home to at least one Smithfield slaughterhouse or meat factory - have laws barring foreign ownership of agricultural land. The states are Iowa, Nebraska, Minnesota, Missouri, North Dakota, Oklahoma, South Dakota and Wisconsin.

If Shuanghui's purchase is cleared by federal regulators, any hog farms, crop fields, manure lagoons or other acreage used for production that Smithfield now owns in the eight states could trigger legal action that may affect operations at Smithfield and its subsidiaries in the long term. The laws, however, aren't likely to threaten Shuanghui's ability to close the deal as planned in the second half of this year, Reuters reported.

The laws are intended to prevent foreign entities from owning or controlling US land used for livestock or crop production. Their invocation by opponents of the Shuanghui-Smithfield deal could require legal maneuvering by the companies, but the laws themselves aren't likely to stop the deal.

The focus of any official challenge to Shuanghui's purchase would be the Committee on Foreign Investment in the United States, or CFIUS, an interagency panel led by the Treasury Department that assesses the national-security risks of large or sensitive acquisitions by foreign entities.

Executives of Shuanghui and Smithfield have said they voluntarily submitted the deal for CFIUS review as an act of transparency and good faith. Several industry and trade experts have predicted the committee won't block the sale, but members of Congress have urged a careful review.

"This is the largest sale of a company in the United States to a Chinese state-owned enterprise," Senator Debbie Stabenow, chairman of the Senate Agriculture Committee, said in an interview with C-SPAN that was taped on Friday.

The Michigan Democrat said that although she has "a lot of questions and a lot of concerns" about the deal, she declined to oppose it outright.

Stabenow, who had expressed reservations about the deal for food-safety reasons, said Chinese ownership of a crucial node in global pork production could cause problems for trade between the US and Japan.

"Pork producers are dependent upon exports, and so I totally understand that. My concern is our biggest export market in the US is Japan, right next-door to China," she said. "So what happens when you have a Chinese company now owning [Smithfield]? Do we know that they will always be exporting from America, or are they going to be exporting from China and our pork producers lose their largest market, which is Japan?"

China is the world's biggest consumer of pork and last year was the third-largest buyer of US pork, after Japan and Mexico. Smithfield, which controls 26 percent of US pork-processing capacity and 15 percent of production, and Shuanghui stressed that their deal is meant at boost US pork exports to China.

Stabenow, describing food safety as part of national security, said she would push to have the CFIUS review include representation by the US Department of Agriculture and the Food and Drug Administration. She said she hoped an American bidder would emerge with an offer for Smithfield that would beat Shuanghui's during the 30-day window in which rival bids can be considered. The senator also said her committee might convene hearings to get more information about the deal.

"From a food-safety standpoint, Shuanghui has a very spotty track record," Stabenow said, referring to the 2011 discovery by Chinese health inspectors of clenbuterol - a food additive banned in China and the US - in pork products from a Shuanghui subsidiary.

Representative Rosa DeLauro, a Democrat from Connecticut, said the deal raises "real food-safety concerns that should alarm consumers" and "may only make it more difficult to protect the food supply".

Representative Randy Forbes, a Republican who represents the US company's hometown of Smithfield, Virginia, in Congress, said the proposed takeover "warrants robust analysis and review to ensure the safety and security of America's citizens as well as the preservation of national economic interests, food safety and environmental standards".

While pointing out that China has had problems with food safety, US Agriculture Secretary Tom Vilsack said he was concerned about the safety of the US food supply generally but declined to comment on any particular transaction.

josephboris@chinadailyusa.com

(China Daily USA 06/11/2013 page2)