Brazil bounces back after investigation

31 Mar, 2017 02:00 AM

BRAZIL's beef industry has bounced back quickly on the regulatory front following news of a corruption investigation involving meatpackers.

Big importers have already lifted their bans.

As the picture has become clearer that no beef plants were suspended and only a fraction of meat businesses were involved, China, Egypt and Chile re-opened their doors to Brazilian beef.

Overcoming regulatory hurdles are one thing, but what the commercial and reputational consequences for Brazil will be are yet to unravel.

Leading South American economist Adolfo Fontes, Rabobank's senior research analyst based in São Paulo, is in Australia this week to speak at the Northern Territory Cattlemen's Association conference in Darwin.

He said of Brazil's 4800 plants working with animal protein products, 21 were under investigation, only three had their licence suspended and none of those suspended were in the beef sector.

"That is why the big importers lifted their bans quickly," he said.

Mr Fontes said it was an investigation into corruption, not food safety, but media reports had caused concern amongst consumers and there was "a lot of noise globally".

"In the short term, we expect exports to decline - there will be an impact," he said.

"Maybe small companies may not absorb this but we have big players in Brazil and mostly they will be able to handle the situation well.

"In the medium-term we expect things will return to normal."

Mr Fontes said 80pc of Brazil's enormous beef production stays in the local market.

"In the week this event happened consumers were concerned but it only took days and things came back to normal as the size of the problem became clear," he said.

"This year, we expect a three per cent increase in beef production.

"A big part of that is that we need to find consumers in the international market."

It was expected that in the second half of the year, Brazilian consumers would eat more meat as the local economy recovers.

Commonwealth Bank analysts reported in Brazil, JBS SA was suspending beef production in 33 of its 36 units for three days this week and next week would operate all units with a 35pc reduction in capacity.

The measures are aimed at adjusting production in the wake of the corruption investigation revelations.

"The impact of any damage done to Brazil's reputation will emerge slowly," said CBA's Tobin Gorey.

"There have been reports circulating that some of China's largest retailers have pulled Brazilian beef from their shelves."

On the homefront, market watchers seem to think the event could be good for Australian exports as global customers look to fill any supply gaps.

But some point out any food scare which saps consumer confidence in beef integrity is never a good thing for the import/export industry.

Exporters report relatively soft demand in other key markets, combined with the higher price of Australian beef courtesy of a cattle supply shortage and the strong Australian dollar, continues to keep a lid on selling margins.

Shan Goodwin

Shan Goodwin

is the national beef writer for Fairfax Agricultural Media.


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