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March 21, 2017

Brazil's Largest Food Companies Accused of Selling Tainted Meat

Over the last several years, the agricultural sector in Brazil has been one of the bright spots in an overall dismal economic picture. Just when it looked like things might be improving, last Thursday and Friday were a very bad days for Brazil's livestock sector and Brazil's agricultural sector in general.

After a two-year investigation into 70 food companies including Brazil's largest food companies JBS and BRF, the Brazilian Federal Police raided the company's offices over accusations that the companies paid bribes to federal meat inspectors to allow rotten and disease-contaminated meats to be sold domestically and internationally.

The operation called "Carne Fraca" (it translates as "Weak Meat") is the largest investigation ever undertaken by the Brazilian Federal Police involving more than 1,100 investigators over almost two years. In a sweeping move last Friday, company offices were raided, several dozen company officials were arrested and several dozen federal inspectors were removed from their posts by the Minister of Agriculture.

Among the accusations are the paying of cash bribes to inspectors in order to sell expired or adulterated processed food, falsifying sanitary permits involving rotten meat, allowing rotten foods to be served in public schools, exporting salmonella-contaminated meat to Europe, mislabeling processed meat products that contained mostly soybean protein substituted for much of the meat, and adulterating expired meats with a type of acid that has been linked to cancer.

The investigation was initiated after reports of Italians being sickened by what was suspected to be salmonella-contaminated beef imported from Brazil. Probably the most outrageous aspect of this huge and developing scandal is that some of these adulterated products were then sold to schools in the state of Parana.

After the news broke last Thursday and Friday, it has dominated the national news in Brazil. The major national news programs in Brazil devoted up to one-third of their nightly air time last Thursday and Friday to the story including playing taped phone conversations between federal inspectors and company executives discussing how to sell adulterated products. They also showed company employees delivering bribes to inspector's homes. The news programs also had company executives trying to assure the consuming public that their products were safe.

According to news reports, some of the alleged bribes were funneled to the political party of President Michel Temer (the Brazilian Democratic Movement Party of PMDB as it is known) and the Workers Party (PT) of former presidents Dilma and Lula.

This is terrible "optics" for the entire agricultural sector in Brazil. JBS is one of the world's largest meat producers and BRF is a major Brazilian meat exporter with customers in more than 150 countries. Countries such as Mexico was already looking toward Brazil as an alternative to meat exports from the U.S. In recent years, Russia has been expanding their imports of meat from Brazil due to sanctions imposed by Europe and the United States. Last Friday, the Brazilian Minister of Agriculture stated the obvious by saying that "This is a tremendous blow for us, the image of Brazil abroad and the loss of confidence of our consumers."

In an attempt to ward off the inevitable negative repercussions, President Michel Temer convened emergency meetings Sunday afternoon with the Ministers of Agriculture and Commerce, industry representatives, and ambassadors of the main countries that import Brazilian meat products. He wants to assure the consuming public that the government is taking immediate steps to assure that Brazilian meat products are safe.

The President stated that in 2016 the government sampled 853,000 meat-based food products and found only 184 that did not meet the standards and most of those were due to mislabeling of the product. In fact, President Temer invited the ambassadors to have dinner with him at a Brazilian steakhouse Sunday evening - smart move.

As of this writing (Monday afternoon), the backlash has already started. Countries that have announced a temporary suspension of meat imports from Brazil include China, Chile, South Korea, and the European Union. Officials expect the list of countries barring Brazilian meat exports to grow longer. Commentators in Brazil are urging the President to immediately form a committee of experts that can disperse accurate information and speak with one voice concerning the accusations and investigations.

Brazil started to export meat to the European Union in the early 2000s and a year ago the USDA authorized Brazil to export fresh beef to the U.S. After successful efforts to improve sanitization in meat processing facilities, Brazilian meat exports went from 2 billion dollars in 2000 to approximately 14 billion dollars in 2016. The focus of everyone in Brazil now is to try to contain the damage as quickly as possible and to assure the public that meat and food products are safe.

This is coming on the heels of enormous graft scandals involving the national oil company Petrobras and the huge construction company Odebrecht that involved dozens and dozens of politicians including the past two presidents of Brazil as well as numerous company officials. The "Lava Jato" (Car Wash) scandal involves billions of dollars being paid as bribes and kickbacks to politicians and executives in exchange for contracts and overcharging.