As the NYT pointed out in a column highlighting some of the details (and regulatory scrutiny) surrounding the recently announced acquisition of Smithfield Foods by Shuanghui International, a partially state owned/influenced Chinese firm, closure of this deal in particular is not a given. But something we can take away from the proposed transaction regardless is not just Western capacity in the agricultural and food supply chain, but also the value of enhanced supply chain visibility and risk standards in driving deals and valuations in these areas.
Most of the attention on this transaction is undoubtedly focused on a Chinese firm sucking up Western capacity for its own internal requirements. But the more important (and lasting) implication for the industry is that companies making the right set of investments in procurement, supply chain, and infrastructure safety and risk management programs – while maintaining attractive growth rates and margins – will likely to be valued at a premium in the world market.
Up until now, nearly all companies have made investments in supply chain risk management because they’ve either been driven by elements that we could best describe as "foundational" on Maslow’s hierarchy of supply chain needs (e.g., ensure continuity of supply or avoiding regulatory fines) rather than using methods that can be quantified in terms of market valuation or top line benefit. Going forward, this could change for companies that:
- Tie overall procurement and supply chain management programs to business-driven metrics beyond cost, including safety, fulfillment and related KPIs
- Build multi-tier visibility (on the lot-level) across a range of commodity-specific traceability areas
- Prove the ability to apply practices in Western markets in emerging markets – and cultivate local in- and out-bound supply chain partners that follow Western practices (or adapt as much as possible) in risk mitigation and safety areas
- Understand and build capacity at key levels of the supply chain (and reduce risks, such as commodity risk, in the case of feed for livestock, even in cases where hedging is to indirectly defray pass-through risk by consumption/use at tier one or lower levels)
Even though the NYT notes that in this particular transaction, “it is the issue of food supply protection that most experts believe will probably get the bulk of the attention of the committee,” companies should look at this deal beyond US protectionist activities and rather how they will be able to drive increased returns for shareholders by engaging in procurement and supply chain activities that can drive up their valuations on the global stage.