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March 28, 2017

Tainted Meat Scandal in Brazil has many Angles

The Brazilian meat sector continues to reel from the Carne Fraca meat scandal that broke on March 17th when the Brazilian Federal Police announced an investigation into inspectors accepting bribes in exchange for certifying tainted meat. Since the revelation, 25 markets have placed some type of restrictions on Brazilian meat imports. There are many angles to this developing story and I am going to try to detail some of the most obvious.

The Brazilian Minister of Agriculture has stated that they are trying very hard to restrict the ban on Brazilian meat imports to the 21 meat processing facilities and 35 inspectors implicated in the Carne Fraca investigation. He warned that the investigation needed to be direct, clear, transparent, quick and efficient. If not, he said it might be 3-5 years before the Brazilian meat sector recovers. In my opinion, this is way too pessimistic and he probably said it in an effort to pressure the Federal Police to speed up the investigation.

The Brazilian Economic Minister said that the meat scandal will impact the Brazilian Economy, but it is too early to determine the extent of the damage. According to the Brazilian Animal Protein Association (ABPA), exporters of pork and poultry lost US$ 40 million during the first week after the Carne Fraca investigation was announced. This represents 22% of the expected weekly total meat exports of US$ 185 million.

ABPA estimates that the 25 markets where some form of restrictions were placed on Brazilian meat imports represent 20% of Brazil's poultry exports and 33% of the pork exports.

The Brazilian government has been intensely lobbying China and Hong Kong to lift their bans because China is the second biggest importer of Brazilian poultry and the third largest importer of Brazilian pork. Hong Kong is the second largest importer of Brazilian pork and sixth for poultry.

China, Egypt, Chile Lift Most Restrictions on Brazilian Meat - News reports over the weekend indicated that China, Egypt, and Chile were set to lift most restrictions on Brazilian meat as soon as today, Monday, March 27. Collectively, these three countries accounted for 20.7% of Brazil's meat exports in 2016. As far as China is concerned, a few restrictions will remain in place including restrictions on beef processed at JBS facility in Lapa, Parana. The other remaining restrictions will be for meat that had been certified by inspectors that are now under investigation by the Brazilian Federal Police.

The Brazilian government led an intense lobbying effort to convince China that Brazilian meat is safe because China is Brazil's most important customer for meat products importing approximately US$ 2 billion of meat products in 2016. Brazil has 65 facilities authorized to export meat to China and today, 57 of those facilities are still authorized. With China reopening their market, Brazilian officials are hoping that Hong Kong will soon follow suit.

Since the restrictions were put in place on March 17, there has been approximately 58,000 tons of meat products destined for China that were put in limbo including poultry, pork, and beef. As of last Friday, there were 25 markets that had placed some form of restrictions on Brazilian meat imports.

China to accept Australian beef - In what may be a related development, China announced last Friday that they had removed the last restriction for Australian beef to enter the country. China will now accept beef from 11 Australian beef processors. This move came only one week after China suspended the importation of Brazilian beef.

China is already Australia's largest trading partner and the two countries are expanding their trading relationship at a time when Australia's relations with the United States are more strained. China and Australia are joining together on projects involving mining, steel production, and port development.

Hong Kong removes Brazilian meat from market - Hong Kong decided last Friday to remove from the market any meat that had been processed from the 21 Brazilian facilities now under investigation. Hong Kong had already suspended any meat imports from Brazil, but they said the restriction could be adjusted as more information became available concerning the investigation,

In a preemptive move, McDonald's and KFC restaurants in Hong Kong announced late last week that they would remove any Brazilian meat products from their menu as a precaution until further notice. China and Hong Kong are the two most important customers for Brazilian meat exports and the government is trying very hard to get the bans lifted.

Turkey processing moved to other facilities - BRF Foods in Brazil announced that they will not process turkeys at their Perdigao facility in Mineiros, Goias, but instead send the turkeys to another facility in Uberlandia, Minas Gerais. The turkeys will be trucked the 600 kilometers starting Monday, but the company needs permission from the Minister of Agriculture before the transfer can begin.

JBS announced 35% reduction in meat processing - JBS announced late last week that they will reduce or temporarily suspend beef processing at 33 of the 36 facilities in Brazil. Nationwide, their processing capacity will be reduced by 35%. In the state of Mato Grosso, 10 of 11 facilities will be closed for at least three days in an effort to adjust their inventory in light of the meat scandal. Mato Grosso has the largest beef heard in Brazil at approximately 30 million head.

Meat stranded at Brazilian ports - The President of the Brazilian Meat Exporters Association (Abiec) estimates that there is US$ 96 million of beef products waiting at the Port of Santos to be exported. This includes beef destined for China, Hong Kong, Egypt, Mexico, and Chile. There is also uncertainty about meat shipments that were in route to their destination when the bans on Brazilian meat were announced last week.

Representatives of Abiec and the Brazilian Animal Protein Association (ABPA) have met with government officials from Chile and other countries and their hope is that some of the bans might be lifted this week. They would like other countries to follow the lead of Egypt that is only banning meat from the processing facilities implicated in the investigation. They also want the companies implicated in the investigation to say that they will dismiss and prosecute any employees found guilty of bribing inspectors. Thus far, the companies have only announced a reduction in the amount of meat they intend to process in an effort to stabilize their inventories.