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      Companies

      Trade war hits top Chinese pork processor WH Group

      Chairman hints at consolidation as profit at US operation dips 33%

      Three-month-old pigs run through an obstacle course in China in an event marking the Lunar New Year.   ? Reuters

      HONG KONG -- The trade war is taking a bite out of China's WH Group, the world's No. 1 pork producer has revealed. The company, which acquired U.S. counterpart Smithfield Foods in 2013, blamed the friction between Washington and Beijing for a disappointing performance last year, particularly at its American operations.

      "The impact of trade war is not on our China operation. Our U.S. operation is continuously being affected," Guo Lijun, executive vice president and chief financial officer of WH Group, told reporters at its annual earnings briefing on Friday.

      That is because Smithfield is the largest pork exporter in the U.S., and China has been the biggest buyer. After President Donald Trump kicked off the trade war last April, Beijing reciprocated by imposing punitive tariffs on American imports, including pork, whose tariff was hiked to 62% from 12%.

      According to Guo, overall pork exports by the U.S. unit last year were down by 5.3%, while export to China fell by 45% by value. The Chinese company said the damage it had suffered from the trade war so far -- in the form of punitive tariffs paid and lost revenue -- was 80 million yuan ($11.9 million).

      The impact could be seen in the latest results. The group's net profit declined 17% to $943 million compared to the year before on revenue growth of 1% to $22.6 billion. Its U.S. segment took a sharper slide, with profit declining 33% to $615 million. Its China segment, however, saw profit rise 75% to $922 million, which the company attributed to positive factors such as the introduction of new products and channel development for its packaged meat business.

      To cope with the trade war, Smithfield has been seeking other customers for its pork besides China. Glenn Nunziata, CFO at Smithfield, told reporters on Friday that "we will continue to find alternative markets for the products that we used to ship to China." But as the numbers show, it is not been able to fully offset the impact. The U.S. subsidiary is also being hit by Mexico's retaliatory tariff on American pork.

      "We need this to be resolved quickly, we need tariffs to be eliminated," said Nunziata. "I can't overstate the importance of resolution of trade war with China."

      That feeling is widely shared among WH Group's management, including Chairman and CEO Wan Long, "We have done a lot of work in America," he said, lamenting the poor performance last year. He hinted that a consolidation of facilities may be on the horizon this year. "In Texas, Chicago and in other places in the Midwest where it is relatively scattered, we could concentrate the ones that we could concentrate this year," he said.

      But his biggest wish, he said, is an end to the trade war. "After it's resolved, WH Group could increase U.S. exports to China," Wan said. He said the timing for such a move is just right, "as Chinese pork prices are rising this year, and that will be a good opportunity for the Americans to export."

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