Overseas Investments by
U.S. Meat Corporations

International commerce is increasingly the result of more commercial activities than just exporting or importing. Most of the top-ranked U.S.-based meat corporations are also investing overseas in processing or production. Market access, lower production costs, growth opportunities, and regulation drive international location decisions. Evidence from the broader food processing industry hints that growth in U.S. meat exports may not decline as U.S. meat industries expand their overseas operations to access worldwide markets.

U.S. food and meat processing corporations also stand to benefit from a more predictable investment climate. Normalized trading relations with the U.S. are required for China to join the World Trade Organization. With China in the WTO, the rate of investment in China by U.S. food manufacturers will almost certainly balloon along with exports.

Commerce with China and other countries is increasingly the result of more commercial activities than just exporting or importing. Joint ventures, wholly owned Chinese companies, licensing agreements, and exports are but some of the alternatives for accessing Chinese and other markets.

Poultry giant Perdue Farms, Inc., for example, is boosting its investment in China with a joint venture for a processing plant and hatchery near Shanghai. Pork giant Smithfield Foods repeatedly tried to produce pork in North Carolina for export to Europe. Trade restrictions arose continually, and Smithfield opted to buy companies that process and sell pork in France and Poland. Smithfield has gone from owning no foreign subsidiary companies in 1993, to owning and controlling companies in Canada, France, Mexico, Brazil, and Poland in 2000.

Table 1 highlights overseas processing and sales operations of major U.S. meat corporations. Canada and Mexico are the most frequent host countries. Other locations include Australia, the European Union, Brazil, and China.


Table 1: Overseas meat processing or production operations owned wholly or jointly by U.S.-based agribusiness corporations

Source: Internet web sites of the corporations included in the table.

Larger and well-capitalized firms are more apt to expand internationally. Three of the top five U.S. processing corporations in the pork, poultry, and beef industries had expanded overseas as of July 2000. Overseas investments by U.S. processors were more widespread in the pork and beef sectors, and less so in poultry.

Tables 2, 3, and 4 highlight, by industry, which top-ranked U.S. corporations have invested in overseas processing and/or production, and what markets may currently be targeted by those corporations. Target markets can change at any time, however, in response to fluctuating prices, new technology, exchange rate movements, government actions, or company strategy.

Corporations with overseas operations in some cases use those operations to access distant markets. The Canadian affiliate of Smithfield Foods, for example, sends meat to Japan and the Pacific Rim in addition to Canada and the U.S. The joint venture between Tyson Foods and Trasgo in Mexico is well placed to ultimately serve Pacific Rim as well as U.S. markets, pending compliance with sanitary regulations.

Table 2: Overseas pork processing or production operations of the largest U.S.-based pork corporations

Market access, lower production costs, and growth opportunities are powerful drivers of international location decisions. In addition, U.S. and foreign environmental regulations have probably influenced international location choices by U.S. agribusiness.

Similarly, the European swine industry is moving from Western to Eastern Europe, and even to North and South America, to get away from crowding and regulation.⁶ Many of the larger European producers, especially those going to South America, are forming joint ventures with local companies; the locals provide labor and feed, while the Europeans provide money and know-how.

One recent Canadian study^1,2 of production and processing costs identified the Canadian Eastern and Western Prairie Provinces, followed by the U.S. West and East Corn Belt, as the world’s lowest cost production areas for pork. The Canadian provinces offer plentiful feed and good infrastructure.

The Canadian provinces also offer ready access to the U.S. and Asian markets, lower population densities with less potential to generate environmental controversy, and supportive agricultural policies (in some cases). In Winnipeg, a planned expansion by Smithfield Foods subsidiary J.M. Schneider was backed by a $7 million government assistance package, although the package was contingent upon both hog availability and environmental permits.

In Mexico, labor costs and environmental compliance have thus far been less costly than in the U.S. Mexico is well situated to receive grain shipments from the U.S., and to ship pork to both U.S. and Asian markets. State-of-the-art production facilities, however, would require continual feed grain shipments from the U.S. Corn Belt.

In Brazil, feed grain, land, and inexpensive labor are all readily available, although high costs of capital have impeded corporate expansion. Argentina, a country also frequently mentioned as a candidate for multinational expansion by U.S. pork interests, shares similar advantages and disadvantages. Argentina produces substantial grain surpluses that could feed new livestock. High interest and inflation rates, on the other hand, have presented obstacles for Argentine producers.

The English language link between the U.S., Australia, and Canada facilitates commerce between those countries. Also important are the measures that countries adopt to facilitate investment, economic performance in the countries, and participation in regional trade agreements such as the evolving Free Trade Agreement of the Americas.

Overall, the logistics of buying or creating an overseas affiliate are becoming easier in both developed and developing countries. In developed countries, stable economies and—in some cases—cultural familiarity pave the way, although developed markets may be more saturated. In the developing world, countries are often competing against one another to welcome investments from multinational corporations. Increasingly mobile financial capital tends to diminish the importance of national borders and the national identity of corporations.

Will U.S. meat exports decline if industry continues to use overseas operations to access markets? The experience in the broader processed foods sector would seem to indicate that, while U.S. meat processors may find it beneficial to replace some exports with production abroad, such behavior will not dominate corporate strategies.

The USDA Economic Research Service analyzed this question in 1996 at the level of individual corporations. ERS data failed to show an overall decline in exports coincident with an increase in foreign affiliate sales.⁵ In the aggregate, export propensity actually grew for corporations with both high and low levels of investment in foreign operations.

More research, however, is needed. Questions remain as to how increased capital mobility and trade liberalization will ultimately affect meat exports. Also, intensified U.S. regulation of livestock production and processing holds the potential to slow the rate of growth in the U.S. industries, which could induce greater overseas investment by U.S. corporations.

1. Brewer, C., et al. "Pork Production Costs: A Comparison of Major Pork Exporting Countries," Iowa State University, Staff Paper No. 302, 30 June 1998.
2. Drabenstott, M. "This Little Piggy Went to Market: Will the New Pork Industry Call the Heartland Home?" Federal Reserve Bank of Kansas City, 1998.
3. Drabenstott, M., et al. "Meat Geography Causing Changing Landscape in Rural America," Feedstuffs, 13 March 2000.
4. Freese, B., et al. "Livestock-hungry World: South America and Mexico," Successful Farming, Vol. 96, No. 4, 1998.
5. Henderson, D.R., et al, eds. Globalization of the Processed Foods Market, USDA Economic Research Service, Agricultural Economic Report No. 742, 1996.
6. Lundeen, T. European Pork Industry Relocating, Adapting. Feedstuffs, 22 May 2000.
7. Marbery, S. Hog Industry Insider, Feedstuffs, 21 Feb. 2000.
8. North Carolina Dept. of Natural Resources world wide web site, 2000.
9. Personal communications with Dr. Eric Bush, USDA-Animal and Plant Health Inspection Service; Dr. Millie Haley, USDA-Economic Research Service; Mr. Steve Kay, Cattle Buyers Weekly; Dr. Andrew Rhorer, USDA-Animal and Plant Health Inspection Service; Spring 2000.
10. Wall Street Journal, Congress’s Vote Primes U.S. Firms to Boost Investment in China, 25 May 2000.
11. World Trade Atlas, U.S. Edition, Global Trade Information Services, 1999.
12. World Wide Web sites of all corporations listed in Tables 1-4 of this report, 2000.

The Center for Emerging Issues periodically develops Changing Times information sheets to highlight important developments in animal agriculture.

http://www.aphis.usda.gov/vs/ceah/cei/
Animal and Plant Health Inspection Service
U.S. Department of Agriculture