Foreign Ownership in the U.S. Agricultural Sector
Apr 06, 2016
On March 22, 2016, several U.S. Senators wrote to Treasury Secretary Jack Lew, requesting a full review of the national security implications of the acquisition of the giant seed company Syngenta by the China National Chemical Corporation, also known as ChemChina. They also asked that the U.S. Dept of Agriculture and the Food and Drug Administration be included in that evaluation. Such a review would take place under the auspices of the Committee on Foreign Investment in the United States (CFIUS), which looks at the impact on U.S. national security of proposed acquisitions of companies with large U.S. roles by foreign-based companies.
Originally established under an executive order by President Ford in 1975, the CFIUS process received statutory authority through an amendment to section 721 of the Defense Production Act, which was adopted in 1988. The Committee itself was explicitly authorized in the Foreign Investment and National Security Act of 2007. By law, the Committee is chaired by the Secretary of the Treasury, and also includes the Attorney General, the Secretaries of Homeland Security, Commerce, Defense, State, and Energy Departments, as well as the U.S. Trade Representative and the director of the Office of Science and Technology Policy as voting members. The Secretary of Labor and the Director of National Intelligence are ex officio members of the Committee. Other federal agencies or departments provide additional information or consult in the CFIUS process as needed.
Although Syngenta is a Swiss-based corporation, it owns several U.S.-based seed and chemical companies that it has acquired over the last few decades and now accounts for 10 percent and 6 percent of U.S. sales of corn and soybean seeds respectively. Syngenta is also the top purveyor of pesticides in both the U.S. and global markets.
This acquisition is not the first venture of Chinese companies into the U.S. agribusiness sector. In 2013, China’s Shuanghui Group acquired Smithfield Foods, then the largest pork processing company in the United States. This transaction also received a review through the CFIUS process, and was approved.
Foreign acquisition of U.S. farmland has long been a public policy concern in this country, and eight states (mainly in the Midwest and Great Plains) still have laws which prohibit or limit such ownership. As of December 2013, the last time USDA issued a regular report on this matter, 26.2 million acres of privately held farmland was owned by foreign interests, or less than 2 percent of all farmland. Of that total, 51 percent was private forest land, and less than 20 percent was cropland.
There is also some foreign presence beyond the farmgate in the U.S. agribusiness sector. As of 2015, there were seven foreign-owned companies among the 25 largest food and beverage companies in the United States--in addition to Smithfield Foods owned by Shuanghui, Brazilian-owned JBS has the meat packing capacity formerly owned by Swift and Company as well as the poultry integrator Pilgrim’s Pride, Nestle is a Swiss-owned food processing company, Anheuser-Busch InBev is Belgian-owned beverage company, Saputo Inc. is a Canadian-owned dairy company, and Bimbo Bakeries is a Mexican owned baked goods company. Those companies accounted for $102 billion in U.S. food sales in 2014, or about 2 percent of total U.S. food sales in that year. Of the companies listed, three of them (Shuanghui, InBev, and JBS) gained a U.S. foothold through relatively recent merger and acquisition transactions, while for the other companies their entry into the U.S. market occurred more gradually.
There is also foreign ownership in other segments of the U.S. agribusiness sector. For example, on April 1, 2016, the Zurich Insurance Group completed its acquisition of RCIS, the largest U.S. crop insurance company, from Wells Fargo. The second largest company, Rain and Hail, was purchased by another Swiss-based insurance company, ACE Limited, in 2010. In that same year, QBE, an Australian company, bought NAU Country, then the No. 3 crop insurance company. Those three companies accounted for more than half of the total book of business under the federal crop insurance program in 2013. Agrium, a major player in the U.S. crop inputs and services market, is based in Canada, and among major grain trading companies, Bunge and Born (Argentina) and Louis Dreyfus (France) are both foreign-based.
Between 1988 and 2014, there were 2,624 notifications of foreign purchases of U.S. entities through the federal CFIUS process. About 12 percent of those transactions were investigated, and in only 15 cases did the President intervene to block the sale, although 131 other sales were withdrawn due to public concerns. To the extent that the CFIUS process has discouraged or even blocked foreign acquisitions of U.S. companies or assets, the objections have largely stemmed from sensitivities about physical proximity to U.S. security installations or control over goods or services that contribute to military readiness. Transactions involving Chinese companies have involved more CFIUS notifications (68) over the last few years than for any other single country, likely due at least in part to the complicated strategic and economic relationship between the United States and China and the level of involvement by the government of China in many key companies.
Many in U.S. agriculture have reservations about the ChemChina purchase of Syngenta, due to concerns that the non-transparent process that the government of China uses to approve imports of products of agricultural biotechnology might be tilted to unfairly favor Syngenta applications. The ownership of the company by the Chinese government raises additional questions which did not arise in the Smithfield acquisition, since the Shuanghui Group is privately owned. However, given past CFIUS decisions and the narrow criteria they have used to define ‘national security interests’, it seems unlikely that this transaction will be blocked through such means.