Shuanghui hopes $7bn deal will allay produce fears In 2011, a Chinese court sentenced five people to lengthy prison terms for their roles in feeding clenbuterol hydrochloride, a dangerous additive, to pigs destined for consumers. One of the companies implicated in the scandal was Shuanghui International, China's largest chilled meat processor. That pork scandal was the latest food safety scare for China, which continues to grapple with quality control of everything from fried chicken wings to infant formula as it works to feed its expanding middle class. On Wednesday, Shuanghui took a big step towards addressing those concerns by agreeing to pay $7.1bn including net debt for Smithfield Foods, the largest US pork producer. The deal, which will see Shuanghui pay $34 a share for Smithfield, gives the Chinese company the helpful imprimatur of a foreign name, which can help dispel some of the distrust consumers feel towards local produce. Food safety issues in China caught the world's attention in 2008, when it was revealed that melamine had been added to baby formula and other products by 22 companies. That scare has led Chinese consumers to distrust domestic producers and resort to importing infant formula. In recent weeks other scandals have made headlines, with fox and rat meat being passed off as lamb and hydrogen peroxide being used to illegally process chicken claws. Earlier in the year, more than 16,000 dead pigs were found floating in the Huangpu river near Shanghai. The deal, which would be the largest Chinese takeover of a US company, is likely to face scrutiny in Washington. But people familiar with the deal, and with regulators, expected it to be approved. The acquisition echoes Brazilian meatpacker JBS's successful 2009 purchase of Pilgrim's Pride, a US poultry processor, said Gary Karp of Technomic, a food industry consultancy. It appeared to be a pretty straightforward situation. I don't think there were any critical issues that came up just because of ownership outside of the US. Larry Pope, chief executive of Smithfield, said the companies first discussed working together four years ago. A meeting at the end of last year brought them closer, with Shuanghui buying more pork from Smithfield. But he said that it was agitation by one of Smithfield's largest shareholders, New York-based Continental Grain, advocating that the company be split up that sped up the timing of the transaction. "Shuanghui is very much opposed . . . they like the vertical integration," Mr Pope said. They were concerned [about] some action taking place that would prevent a deal. He said he expected Smithfield's revenues from exports, currently about 20 per cent, to "explode" as Shuanghui imports US pork into China and southeast Asia. The Smithfield transaction is the latest evidence of how China's growing demand for higher-value foods is reshaping agribusiness. Archer Daniels Midland, the US-based trader and processor, this year agreed to take over Australia's GrainCorp for $3.1bn in an effort to improve sales to Asia. Marubeni of Japan also bought US-based grain trader Gavilon in a bet on China's commodity imports. China owns half the world's hogs, is already the world's biggest importer of soyabeans and its appetite for internationally grown corn is forecast to rise. The crops are the main components of livestock feed. Chinese pork sales in 2012 totalled nearly 52m tonnes, and are forecast to grow to over 58m tonnes by 2017, according to Euromonitor. China and Russia recently banned imports of pork grown with ractopamine, a growth supplement. Smithfield says it leads the industry in producing ractopamine-free pork after converting plants to meet demand. It is just that type of experience in food safety that Mr Pope says Shuanghui was looking for in Smithfield. Because the deal is "all about exports," he says regulators are likely to approve the transaction despite the scrutiny it is likely to face from both Washington and the public because it involves China. "It's not about importing Chinese product," he says. They want to access what they see is a safe supply in the US - it poses no risk to our customers at all.