Raising National Security, Critical Infrastructure, and Key Resource Concerns
MassPoint Business Update • April 18, 2016
**March 2017 Update. On March 14, 2017, Senators Grassley and Stabenow introduced the Food Security is National Security Act of 2017 that would add the Secretaries of Agriculture and Health and Human Services as a member of the Committee on Foreign Investment in the United States (CFIUS) and expand the scope of CFIUS reviews of certain foreign investment in the United States to include food saftey and impacts on America’s agricultural systems. For background, see the embedded timeline of prior calls to heighten and broaden CFIUS reviews of foreign investment in U.S. agriculture or view it here.**
*May 16, 2016 Update. Reuters reports that the USDA will join the #CFIUS review of the proposed ChemChina-Syngenta deal.*
The 2013 sale of American pork producer and processer Smithfield Foods to China’s Shuanghui International aroused concern among some U.S. lawmakers. The $4.7 billion deal ($7.1 billion including debt), was and remains the largest acquisition of a U.S. business by a Chinese entity. This year, some U.S. lawmakers are again raising concerns about a Chinese firm’s acquisition of an agricultural company: the proposed $43 billion acquisition by state-owned China National Chemical Corporation (ChemChina) of Syngetna AG , the Swiss agrochemicals company that does substantial business in the United States. If completed, the Syngenta deal would “transform ChemChina into the world’s biggest supplier of pesticides and agrochemicals.”
Recent Scrutiny of Foreign Investment in U.S. Agriculture
With Chinese buyers, record-setting deals, and industry-leading acquisition targets in the mix, the Smithfield and Syngenta transactions provide the ingredients needed to stir media interest and controversy about foreign investment in and affecting the United States. Beyond deal optics, a more interesting, strategically-oriented, and potentially consequential policy and public discourse about foreign investment in U.S. agriculture is emerging in the United States, at least in some quarters.
Some U.S. lawmakers called for the Committee on Foreign Investment in the United States (CFIUS) to conduct national security reviews of the Smithfield and Syngenta deals on the grounds that U.S. agriculture has direct national security value. This is significant because national security reviews of foreign investment in the United States are typically reserved for transactions that involve sectors, like defense, that are viewed as inherently national security-sensitive or present incidental national security issues (as when property of a U.S. business acquired by a foreign party is located near a military facility). Relatedly, recent news coverage of foreign ownership of U.S. farmland by Middle East-based companies has focused on the key resource implications of foreign farmland ownership—particularly water use. This news coverage, like lawmakers’ concerns about foreign investment in U.S. agriculture, exemplifies an evolving, strategic view of foreign investment in U.S. agriculture that has and will likely further influence public and policy thinking in the United States.
Agriculture Investment Requires Multidimensional Approaches
Sovereign-affiliated investors will face issues (and greater legal, political, and public scrutiny) distinct from those faced by private actors. Moreover, political and public perceptions of investments will be colored by investors’ home countries and prior investment activities. Investors should assess relevant variables and formulate strategies.
The FAO-OECD Guidance for Responsible Investment in Agricultural Supply Chains proposes a risk-based due diligence approach for adoption by enterprises engaged in the agricultural supply chain. The risk-based approach is discussed, along with considerations for sovereign and private investors, food-agri companies, and finance providers (e.g., commercial banks).
Given global concern about food, resource scarcity, and the environmental, social, and governance dimensions of food, agriculture, and water, entities with interests in such assets and resources should take steps to anticipate potentially adverse events and minimize reputational, commercial, and legal risks.
 Smithfield was before the transaction the world’s largest pork producer and processor. See, e.g., David Kesmodel, Bringing Home Pork’s Bacon, Wall St. Journal, January 8, 2013. Shuanghui International Holdings Ltd reportedly acquired Smithfield through a Cayman Islands company. See, e.g., David Barboza, Chinese Bid for U.S. Pork Had Links to Wall Street, N.Y. Times, June 2, 2013 (reporting that nearly half of Shuanghui’s shares were controlled by a “group of savvy investors and global deal makers who hold a substantial stake in the Chinese company: Goldman Sachs, CDH Investments, Singapore’s sovereign wealth fund and New Horizon Capital.”). Shuanghui reportedly was, at the relevant time, the majority owner of “the actual Chinese meat processor” Henan Shuanghui Investment and Development. Simon Rabinovitch, Is China’s US pork play just a PE ploy?, Financial Times, June 5, 2013 (discussing one commentator’s analysis of the deal as a leveraged buyout).
 See, e.g., Charles Wilbanks, Smithfield: The Controversy Simmers, CBS News, July 20, 2013 (“Critics [of the deal] range from members of Congress and environmentalists to food safety advocates and hedge fund managers who think they could make more money under other scenarios.”).
 See, e.g., Nathan Halverson, How China Purchased a Prime Cut of America’s Pork Industry, Reveal (The Center for Investigative Reporting), January 24, 2015 [hereinafter “Halverson”] (“The takeover, valued at $7.1 billion, remains the largest-ever Chinese acquisition of an American company.”) and Michael J. De La Merced, U.S. Security Panel Clears a Chinese Takeover of Smithfield Foods, N.Y. Times, September 6, 2013 (“Smithfield Foods won national security clearance on Friday for its proposed $4.7 billion sale to a Chinese meat processor, overcoming one of the biggest obstacles to a takeover.”). This premium raised suspicion as to Shuanghui’s (and China’s) non-commercial motives, as discussed below.
 “Syngenta . . . generates about one-quarter of its sales in North America, where it is a top pesticide seller and supplies an estimated 10% of U.S. soybean seeds and 6% for corn.” Jacob Bunge, Lawmakers Raise Concerns About ChemChina’s Purchase of Syngenta, Wall Street Journal, March 23, 2016. ChemChina Offers Over $43 Billion for Syngenta, Bloomberg News, February 3, 2016.
 It is well known that Chinese outbound investment has been on the rise in the last several years, including investment in the United States, and has been met with resistance by some government and other constituencies in the United States and elsewhere.
 CFIUS is a multi-agency committee that is chaired by the Secretary of the Treasury. CFIUS “has only one purpose: to review the potential national security effects of transactions in which a foreign company obtains control of a U.S. company. CFIUS does not consider broader economic or policy concerns when reviewing foreign investments.” United States Dept. of the Treasury, CFIUS at a Glance, February 19, 2013.