Trade repercussions roll on from Brazil’s overblown meat ‘scandal’

Jon Condon, 21/03/2017

SOUTH Korea, the United States, the EU and Chile have joined China overnight in suspending or tightening inspections of imported Brazilian meat, following dramatic weekend media reports about a meat inspection ‘scandal’ in Brazil.

A two-year investigation has led to accusations that a small number of Brazil’s federal meat inspectors were taking bribes to allow sales of ‘tainted’ meat products.

As disclosed first on Beef Central yesterday, China – which accounted for nearly one-third of the Brazilian industry’s A$18 billion in meat exports last year – has suspended imports of all meat products from Brazil as a precautionary measure.

Hamburg Sud shipping tradeChile has joined China overnight in imposing a temporary ban on Brazilian meat imports, mostly beef and chicken.

The US Department of Agriculture has advised that it has started testing all shipments of raw beef and ready-to-eat products from Brazil for pathogens, as fallout from investigations widen.

South Korea’s agriculture ministry said in a statement that it would tighten inspections of imported Brazilian chicken meat and temporarily ban sales of products from chicken giant, Brazil Foods (BRF). Korea is not yet open to Brazilian beef, but more than 80 percent of Korea’s 107,000t of chicken meat imports last year came from Brazil, almost half of which was supplied by BRF.

Similarly, Singapore yesterday enforced 100pc inspections of each container of imported Brazilian meat.

Calls have also come from within the European Union for similar country-wide bans to be applied. Irish farm organisations yesterday called for an immediate ban on all Brazilian beef imports in light of the investigation. The EU has suspended imports from four Brazilian meat processing facilities currently under scrutiny as a precautionary measure on Monday – two chicken, one beef and one horse meat.

While much of the recent investigation in Brazil focuses on pork and chicken meat, the country’s beef’s reputation has also been impacted by the dramatic reports.

The catalyst for the market closures and tightened inspection regimes among export customers has been a series of media reports since Friday which have claimed a meat industry ‘scandal’ is unfolding in Brazil, with reports of ‘tainted’ and ‘rotten’ meat being sold after meat inspectors received bribes to turn a blind eye. Click here to view yesterday’s report.

Weekend media reports suggested that authorities in Brazil had suspended 30 government inspectors in response to unsourced allegations that “some of the country’s biggest meat processors had been selling rotten beef and poultry for years.”

Much of the detail behind the earlier media reports has now come into question. The claims appear to relate to low-level discovery of frozen meat being used by a small Brazilian value-adding company where use-by dates had expired. While just one small company was cited for doing so, some press reports have implicated larger national processors in the same practise. Both JBS and BRF issued strongly worded statements denying any wrongdoing.

Crisis of confidence for Brazil

While earlier media reports about export of ‘rotten’ meat appear grossly exaggerated, Brazil is nevertheless now facing a crisis of confidence among domestic and export customers about the integrity of its meat products.

The head of the Brazilian beef producers association ABPA, Francisco Turra, said the episode had put the entire Brazilian meat industry in jeopardy and ‘destroyed’ a hard-won reputation for quality products.

The Brazilian share market reacted strongly to the dramatic food safety claims, with stocks in BRF and JBS falling as much as 10 percent early on Monday, after earlier heavy losses on Friday afternoon.

The episode could be enough to temporarily compromise Brazilian protein’s acceptance worldwide, Brazilian financial analyst Victor Saragiotto told Credit Suisse Securities clients on Monday.

Brazilian president Michel Temer issued a statement yesterday seeking to put the significance of the investigation into greater context.

He said it was important to underline that of 11,000 employees, only 33 inspectors were being investigated, and of the 4837 processing establishments subject to federal inspection, only 21 were being scrutinised for possible irregularities. Of those 21, only six exported meat in the last 60 days.

The President emphasised that the purpose of the investigation was not some endemic problem in Brazil’s approach to food safety – the performance of which was well-recognised internationally – but concerned a few ‘deviations from acceptable conduct’ among individuals.

Brazil’s minister for agriculture, Blairo Maggi said at China’s request, Brazil was providing full explanations about the investigation launched by Brazil’s Federal police on Friday.

“The Brazilian government reiterates its confidence in the quality of the national product, which has conquered the consumer and obtained approval from the most demanding markets from the point of view of agricultural inspection and safety,” he said (Google translation from Portuguese).

“In 2016 alone, 853,000 consignments of animal products from Brazil were shipped abroad and only 184 were considered by the importers to be out of compliance, and mostly because of non-sanitary issues such as labelling and certification.”

“The investigation by the Federal Police and the prompt reaction of authorities in the Ministry of Agriculture are the best proof that our protection and inspection system is alert and fully functioning, and serves as a guarantee to the consumer of the quality of agricultural products from our country,” Mr Maggi said.

Implications for Australia, US

Australian exporter meat trading desks contacted this morning said they were yet to see any evidence of a spike in demand for beef from Chinese customers. But several predicted that phones would begin to ring before the end of the week if Brazil was unable to convince China to lift its current temporary ban.

China’s We Chat (equivalent to Twitter) was alive this week with speculation about the trade restriction, one Australian meat trader reported.

In the US, Len Steiner’s Daily Livestock Report said while China does not yet allow direct beef imports from the US, the recent market closure for Brazilian beef could indirectly benefit the US export beef industry.

“Almost a third of all Chinese beef imports in 2016 came from Australia and New Zealand, two countries with which the US competes vigorously in the Japanese and South Korean markets,” DLR wrote yesterday.

“As Chinese buyers start to compete more aggressively for Australian beef, this will make life more difficult for Japanese and Korean buyers, and potentially shift more of that demand towards US products. Already we have seen this happening and the announcement could further exacerbate the situation,” Mr Steiner said.

“It could be that the Chinese decision is short-lived, and as Chinese officials learn more about the situation, they may opt to resume trade out of Brazil again. But if the scandal in Brazil deepens and reveals wider cracks in the country’s food inspection regime, China may opt for a longer-lasting policy.”

“We don’t yet know how this will play out, but it is one of those issues that bears watching.”

As for the impact within the US, DLR pointed out that the supply of fresh/frozen Brazilian beef entering the US remained minimal at this point. Most Brazilian beef arriving in the US was cooked product, with imports so far this year at just 800 tonnes, 0.5pc of all beef imports year-to date.



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