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What are the implications from the JBS corruption crisis for Australia?

by Jon Condon, 07 June 2017
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WHAT do the dramatic events surrounding corruption within the ranks at JBS in Brazil, and particularly the latest JBS asset sales in Argentina and elsewhere, mean for the Australian beef industry?

While the ramifications have to this point only been focused on Brazil, farm groups in Argentina are already seeking an investigation into the purchase by JBS of five plants in the country some years ago, some of which have since been closed. The farmer group alleges that the purchases may have involved influence with Argentina’s former Kirchner government.

UK farmer groups are also using the corruption issue as an argument why the EU should remove agriculture from the current five-country South American (Mercosur)/EU FTA negotiations, and put further constraints on Brazilian beef in to the EU.

Cattle Council of Australia president Howard Smith.

Cattle Council of Australia president Howard Smith told Beef Central this morning that CCA was monitoring the developments within JBS/J&F in Brazil closely.

“We’re obviously concerned. The last thing we want here in Australia is disruption in the processing sector, particularly as JBS is easily the largest processor in the country. We want to maintain as much competition in the processing sector for cattle as we can, and we know that processors at the moment are running on pretty tight, or indeed negative margins,” Mr Smith said.

“We don’t need something like this to disrupt the industry in any way.”

Mr Smith said it was impossible to tell, despite what had happened in asset sales in Argentina and elsewhere overnight, whether there was any particular cause for concern in Australia.

“You just never know with these things, whether there will be any ripple effect. There’s a lot of supposition going on, but it’s not good.”

“But when companies are pressured to sell assets, sometimes decisions are made which might not be in the best interests of the broader industry. We are certainly watching developments closely.”

“It’s been suggested that JBS is ‘too big to let fail’, but who would know,” Mr Smith said.

What other assets could JBS owners consider for sale?

In addition to its red and white meat processing and lotfeeding operations in North and South America, Australia and Europe, JBS also operates in sectors related to its core business such as leather (it is the single largest leather producer in the world), biodiesel, collagen, soaps, glycerin and embedded wraps, as well as its waste management, metal packaging and transportation businesses.

Any, or all of these could come under consideration for assets sales, in addition to processing assets.

Update:

On June 8, JBS SA told Reuters that no core assets in the United States or any other part of the world were candidates for sale, a day after announcing a deal to sell Argentine operations to a smaller rival. The agreement with buyer Minerva SA, announced on Wednesday, was the first by JBS since its founders admitted to paying bribes to Brazilian politicians in exchange for favors in a scandal that threatens to topple President Michel Temer.

 

 



Reader's Comments


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  • John Gunthorpe June 8, 2017

    JBS are good custodians of their Australian assets and serve the industry well in their leadership role within the Australian red meat processing industry. Unfortunately corruption is not uncommon in our industry and the revelations in South America while surprising at the value of the total payments are not unexpected.

    While I was working at AMH, senior managers of the Excel Corporation (part of Cargill) told me that Excel sold all their meat processing assets in South America because they could not carry on business there without making corrupt payments. The Cargill board decided to sell up rather than have their company exposed to these business practices.

    Elders IXL were exposed to pressures to sell meat processing assets in the 1980s when the Federal Court placed a divesture order on the Bowen and Mackay abattoirs. During the sale process AMH had to report back to the court each month on the progress of negotiations. After aborting one “friendly” sale, we eventually sold to Nippon Meat Packers (now NH Foods) who at the time were our largest customer in Japan. Elders made a good profit from this sale but Nippon Meat Packers have since expanded their operations in Australia and are key contributors to the red meat processing industry in Australia.

    At this time we should give our support to the JBS Australia management team and do what we can to restrict any damage being caused to them by the South American situation. My understanding is that the Australian operations report to Andre Nogueira, CEO of JBS USA. Prior to his current role Andre ran the Australian operations. His US businesses are trading profitably and have been for a few years. Australia also provided good results for a few years but now face a downturn as cattle prices hold firm. I am sure that the relationship that exists between JBS Australia and JBS USA will cushion some of the negative sentiments that flow from such a massive internal disruption.

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