JBS and Brasil Foods, the 2 biggest Brazilian companies in the pig sector, have not been performing overly well in recent years. What has been going wrong here?
Despite huge natural advantages, last year, JBS earned ‘only’ US$ 156 million and Brasil Foods even lost US$ 229.9 million. Still, up until only a few years ago, the same companies had billions of profit every year.
One of the reasons things haven’t been going well is that both JBS and Brasil Foods are suffering from legal problems, in a case called operation ‘Carne Fraca’ (‘Weak Flesh’), which started over a year ago. As a result, both companies suffered significant losses at Bovespa, Brazil’s most important stock exchange. But there is more.
Brasil Foods: management mistakes
In the case of Brasil Foods, serious mistakes have been made on management level – and a heave internal power dispute has been taking place.
Snapshot of a large pig farm in Brazil. The largest pork producers in Brazil are in the midst of turmoil. Photo: Vincent ter Beek
Brasil Foods came into existence after the merger of Brazilian meat giants Sadia and Perdigão. The merger was announced in 2009 and concluded in 2013. The new powerful company – Brasil Foods (BRF), however, did not develop its own potential and has been seeing decreasing revenues year after year.
In 2010, Brasil Foods had revenues of US$ 10.5 billion and, in corrected numbers, achieved US$ 9.9 billion in 2017. In the same timeframe, however, debts grew from US$ 3.2 billion to more than US$ 6 billion.
No export certifications for BRF
In addition, Brasil Foods also is in the middle of other legal troubles. Recently, the Brazilian ministry of agriculture preventively stopped to emit export certifications for some of BRF’s poultry factories selling to the EU in March 2018. The Brazilian federal police accused the company of using false certificates in some of its factories.
In addition, what has been considered as a ‘mistake’, is that BRF chose to decentralise the pricing process. This led to a loss of efficiency, mainly in poultry production. It really affected Brasil Foods and other large international players woke up to the question whether there parts of Brasil Foods would become for sale.
One of them is hailing from the other side of the globe: WH Group, from China. This may have a drastic impact on the international markets. After all, Brasil Foods slaughters over 6 million heads of pigs annually and takes care of a large part of Brazil’s poultry exports. Amounts that could feed a significant share of the hungry Chinese market.
JBS: also a predator on the global market
One other predator is the other Brazilian meat giant: JBS, the worldwide number 1 in animal protein and 2nd in terms of swine production in world (24 million heads annually). A take-over in this direction may be more difficult seeing that both companies already cover more than a half of the internal market.
JBS still managed to profits due to the fact that half of its operations is in the USA.
Nevertheless, also this company is in bad weather. Joesley Batista, owner of JBS, was in jail mid-April 2018 while his brother, Wesley, got free on February. Both have been accused of finance market manipulation. Joesley Batista’s judicial problems are said to go all the way up to Brazil’s president, Michel Temer.