“Analysis by the Environmental Working Group found that 160,000 people living in the region may be harmed by pig waste … pigs are treated with antibiotics, vaccines and insecticides, all of which eventually pass into the lagoons, which have been found to contain toxic chemicals, nitrates, parasites, viruses and more than a hundred strands of antibiotic-resistant microbes, including salmonella, streptococci and giardia. People die with distressing regularity in the waste.”
Your mind will likely jump to images of pig farms in Henan or Sichuan province, yet the exert was taken straight out of a Rolling Stone article on the hog industry in North Carolina; America’s pork-producing heartland where the country’s largest pork producer Smithfield is located. In 2013, Smithfield was acquired by the Chinese conglomerate now known as WH Group for $7.1 billion. Due to lower pig-feed prices, larger farms and loose business and environmental regulation, it is 50% cheaper to produce pork in the US than China, prompting China to outsource some of its environmental and human costs abroad. The Smithfield acquisition has been so successful, WH Group has subsequently made similar purchases in Poland and Romania.
Whilst we could fill thousands of newsletters with similar examples from toxic Chinese farms, the North Carolina exert is representative of a broad trend that is happening in China as it becomes wealthier, moves up the value chain and sees its citizens demand more.
China’s outsourcing spans far beyond food production. As China’s labour costs continue to soar and environmental regulation gets tougher, many manufacturers are looking towards South and Southeast Asia – and probably Central Asia and Eastern Europe as infrastructure improves with Belt and Road initiatives. While China celebrates its reduction in coal consumption and improving environment, it is offloading surplus coal to an outdated dirty coal plant on the coast of Kenya that it recently financed, poised to become the country’s largest polluter. China recently built a $250 million fast fashion factory in Ethiopia in addition to other significant manufacturing investments and agricultural production like in many other countries in Africa.
The trend certainly isn’t a new phenomenon. Similar outsourcing happened with the British empire, and more recently with American multinationals who ironically outsourced much of their dirty industry to China. In short, it is another indicator of how the world is pivoting.
From a purely commercial perspective, the allure of selling cheap commodities to service Chinese consumers’ ever-growing appetite while polluting lagoons, rivers, land and people may appeal in the short term, there are some factors indicating that it may not be sustainable in the medium-long term. There are the obvious hideous effects of the pollution, but also the fact that through technology and increasing infrastructure investments in poorer countries across Asia, Africa, Eastern Europe and Latin America, the market is likely to see a rise of large scale competitors bringing down the overall price of commodities.
From a branding perspective, Chinese consumers are trading up across almost every category from smartphones to dairy. Well marketed brands from developed nations are able to charge a premium based on the exemplar reputation their country has, playing well to this premiumisation trend. But this comparative advantage shouldn’t be taken for granted. Stories such as Smithfield’s pork producers will be seen by Chinese consumers and chip away at the value of Brand USA as a whole, if proposed tariffs weren’t enough already. Although Chinese place less significance on the environmental impacts of food production than their Western peers, this is changing. With origin being such an important decision driver for many Chinese purchases, it would pay to think strategically. Go to Page 2 to see this week’s China news and highlights.