Thursday / November 15.
HomeFT SelectMeat causes stink in Brazil corporate sector

Meat causes stink in Brazil corporate sector

When Flavio Evers Cassou, an employee of the world’s biggest meatpacker, JBS, dropped off a large cooler of meat at a friend’s home last year in southern Brazil, he could not have foreseen the crisis of confidence it would cause in the industry and the country’s wider corporate sector.

The friend in question happened to be Maria do Rocio Nascimento, the chief inspector of products of animal origin in Paraná. And the meat, delivered together with some cash, was allegedly a bribe for signing off on health certificates for JBS products, according to a court order detailing the deal. 

Unbeknown to the pair, federal police officers were secretly filming the drop-off and wiretapping conversations between them and scores of other suspects. Last week, police arrested Mr Cassou, Ms Nascimento and 36 others for allegedly helping lead a scheme in which corrupt health officials blindly issued certificates for exports of meat to Europe and China without inspecting cargos. 

The court documents list 21 companies involved in the scheme, including units of JBS’s processed meat company, Seara, and BRF, the world’s biggest poultry exporter. 

In addition, it is alleged that the officials turned a blind eye while lesser known producers converted putrefied meat into mortadella or illegally ground pig heads into sausages. China, Hong Kong, Japan, the EU, Canada, Egypt and Chile have announced full or partial suspensions of imports of Brazilian meat as a result.

The widening scandal is just the latest in a series of damaging revelations to shake the Brazilian corporate sector, already struggling with the worst recession to hit Latin America`s biggest economy.

In 2015, state-owned oil group Petrobras was nearly driven into technical bankruptcy by an ongoing investigation into a bribery and kickback scheme involving politicians, former directors and contractors. 

Then it was the turn of the country’s giant construction sector. Odebrecht, Latin America’s biggest developer, signed a plea bargain last year in which it admitted to setting up an international system of bribery payments to win public contracts in 12 countries. 

So the revelation of corruption in the food industry, one of the country’s most successful export sectors, is yet another sign that the country needs to do more to improve governance, analysts say. 

“The cases show very clearly the promiscuous relations between the private sector, public sector employees and the state,” says Arnaldo Francisco Cardoso, professor of foreign commerce at Mackenzie Presbyterian University in São Paulo. 

© AFP

With exports to 160 countries, Brazil’s meat industry accounts for $12.6bn of its exports, or about 0.7 per cent of gross domestic product. China comprises about one-third of these exports with other parts of Asia, Chile, the Middle East and Russia also important markets. 

The controversy over the meat scandal is expected to hit BRF hardest because most of its production is in Brazil. Following a decade-long overseas acquisition spree, JBS generates 73 per cent of its revenue from subsidiaries in the US, Australia, Europe and Canada, lessening its exposure to the scandal. 

JBS and BRF, the largest companies allegedly involved, have vehemently denied the more extravagant allegations, such as that they sold rotten meat or products infected with salmonella bacteria. 

JBS has said that none of its executives were arrested and investigators did not raid its headquarters but targeted three regional plants. Both companies said they were against corruption and supported the investigation.

Politicians and political lobbyists have complained that the reputation of the sector is being tarnished by the alleged wrongdoing of a very small group.

“We have about 4,850 meatpacking plants in Brazil,” Michel Temer, the Brazilian president, told an investor conference this week. “Only three have been suspended, and another 18 or 19 are being investigated.” 

The Association of Brazilian Animal Protein, an industry lobby group, argues that the global meat industry is so competitive that the country’s competitors would have seized on any problems. Yet out of 853,000 shipments last year, it says, only 184 were found to have complications and many of these were unrelated to sanitary issues. 

Even the police have come out defending the industry, saying the probe did not mean that corruption was systematic in the food industry. The public relations campaign has helped to stabilise JBS and BRF’s shares, which initially fell almost 8 per cent. 

“The high sanitary standards and history of animal and product safety of Brazilian exports should mitigate the risks of further temporary or permanent adverse measures [from trading partners],” Moody’s Investors Service said. 

But Moody’s added that it was also difficult to say how long it would take to repair sales.

The reputational damage to the industry will linger. Brazilian social media was rife with jokes parodying the scandal, with pictures of toilet rolls being prepared for a barbecue in reference to a police comment that cardboard had made its way into processed meat — a point later disputed by agriculture ministry officials. 

“This issue needs to be resolved fast,” says Sérgio de Zen, a researcher into the cattle industry at Brazil’s centre of advanced studies in applied economics, Cepea. “China, for example, is a huge importer of Brazilian beef. We cannot replace such a market overnight.” 

In one conversation secretly taped by police, two owners at a smaller meatpacker allegedly discuss illegally putting 2,000 kilogrammes of pigs’ heads into sausage mix. 

“It’s prohibited to use meat from the head in sausage,” acknowledged one. “Yes, but it would be only 2,000 kilos to complete the cargo,” said the other, according to the court order. 

The same company, Peccin, was also alleged to have covered up the smell of rotten meat by adding excess amounts of acid, the court order alleges. Peccin has denied wrongdoing.

While none of the larger producers are accused of such practices, the wider question of why Brazil’s national champions are so often being dragged into corruption scandals remains.

Some analysts believe it is part of a structural change, with the country’s independent prosecutors and federal police becoming more active. This is seen to be taking its toll on private sector companies — and particularly the listed groups, according to Eurasia Group, a political risk consultancy.

But it added: “In the medium term, the Brazilian private sector will emerge stronger because of it.”

Mr Cassou, the employee of JBS’ Seara, captured the mood in a post on his Facebook page before his arrest. He noted that “ethics is what you do when the whole world is watching. What you do when no one is looking is what is called character”. By his own measure, he and at least part of the industry have a lot of character building to do. 

Via FT