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Brazil scrambles to contain fallout from meatpacking scandal

Mar 20, 2017

Brazilian officials rush to reassure key export markets after several countries suspend imports

Kevin Gray

Keywords: meat packing JBS BRF Brazil

Brazilian officials are scrambling to limit the fallout from allegations the country’s biggest beef and poultry producers may have bribed food inspectors to approve the sale and export of tainted meat.

More than a dozen companies in Brazil, including JBS, the world’s leading meatpacking company, and BRF, the world’s largest poultry exporter, are being targeted in the probe.

News of the investigation, first announced on Friday, led China and South Korea to halt some imports of Brazilian meat. The EU said it will shut off market access to any company that is implicated in the investigation. Chile has imposed a temporary ban on Brazilian meat imports.

Brazil’s agriculture ministry said in a statement on Monday that it will hold a videoconference with Chinese authorities to update them on the situation. China is one of the biggest export markets for the Brazilian meat industry, a sector that has thrived despite a deep economic recession at home.

The investigation comes as JBS is planning an  IPO  in the US market of its international operations, JBS Foods International, and its Brazilian poultry unit Seara Alimentos, JBS CEO Wesley Batista has said.

President Michel Temer on Sunday invited foreign ambassadors out to dinner at a Brazilian steakhouse, hoping to tamper concerns after he and Agriculture Minister Blairo Maggi held meetings to assure them that Brazilian meat is safe.

Brazil's major meatpackers have denied any wrongdoing in the two-year probe called "Weak Flesh." Police say the are investigating whether more than a dozen companies paid bribes to government officials to obtain safety inspection certificates for their products, some of which were believed to have been tainted.

News of the investigation comes as Temer is struggling to reignite Brazil’s economy. Neil Shearing, the chief emerging markets economist at Capital Economics, said the investigation could "plausibly derail" an economic recovery.

"This has the potential to deliver a sizable hit to GDP," Shearing said in a research note. "Brazil exported around $12.6bn of meat last year – around 7% of total exports and equivalent to about 0.7% of GDP."

Shearing added that the probe was unlikely to have any effect on first-quarter GDP figures since the import suspensions happened in the late March. But if the bans are extended for a full year, they could potentially shave off 0.2% off GDP, he said. "It goes without saying this is the last thing that Brazil’s economy needed," he said.

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