Cattle ranchers pounce as meatpacker JBS’s woes mount
Luiz Meister stares at his Aberdeen Angus cattle, soon to be slaughtered, and sees one thing: fattening losses.
Like many of Brazil’s ranchers, he blames the world’s largest meatpacker JBS, which has plunged the country into a corruption furore that is dragging down the government. More immediately important to Mr Meister, the scandal has been dragging down cattle prices.
“They are bandits,” he says.
Mr Meister may get his wish for JBS to get a comeuppance. Ranchers and medium-sized meat processors are sharpening their knives to attack JBS’s market dominance, now that it is being forced to sell assets to deleverage and pay hefty corruption fines.
“Their assets are going to be sold, and they are good assets. There’s a lot of interest,” says a creditor.
The company was already reeling from the “Weak Flesh” scandal in March, in which meatpackers were accused of paying inspectors to ignore meat safety procedures, prompting the EU and China to suspend imports temporarily.
Yet the biggest blow came after revelations in May that Joesley Batista, JBS’s former chairman, secretly taped Brazil’s President Michel Temer allegedly discussing bribes. In late June, the US suspended imports of Brazilian beef, citing “recurring concerns about the safety of the products”. As the scandals have unfolded, cattle prices have fallen more than 6 per cent, and Ricardo Jacomassi of TCP Latam, a São Paulo-based boutique investment bank, forecasts they could be down 22 per cent by year-end.
The consideration is for several businessmen to get together to form co-operatives to make acquisitions of closed slaughterhouses and to return those to the market
With 30m head of cattle, Mato Grosso is the largest cattle producing state in Brazil, the world’s second-biggest beef producer after the US. Mr Meister, also a veteran of the local meatpacking industry, explains at his ranch outside the state capital Cuiabá how JBS moved to dominate the market in Mato Grosso.
Between 2008 and 2012 during the leftist governments of Luiz Inácio Lula da Silva and Dilma Rousseff, and thanks to backing from BNDES, Brazil’s state development bank, JBS grew from having just 13 per cent of the state’s abattoirs to 51 per cent. That reduced the choice of places where ranchers could sell their cattle.
JBS rented abattoirs from smaller players but did not use them in order to squeeze the competition, claim local producers and regional lawmakers. “The truth is that JBS dominates the state’s slaughtering capacity,” explains Ondanir Bortolini, a state lawmaker who produced a report on Mato Grosso’s abattoir market.
That strategy helped JBS become a “national champion” enabling it, for example, to buy US- based Swift & Company, one of the world’s top beef brands, for $1.4bn, and then $2.8bn for
Pilgrim’s Pride, a US chicken producer. JBS listed and became the world’s largest meatpacker with operations from the UK to Canada to Australia.
Now, with its shares tumbling and a debt burden that was R$58.6bn ($18.4bn) in the first quarter, according to JPMorgan, it is retrenching. This month, a federal court allowed it to sell its beef units in Argentina, Paraguay and Uruguay to competitor Minerva for $300m. JBS also said it was selling a beef cattle feed yard in Canada for $40m.
In June it put its US-based unit Five Rivers Cattle Feeding up for sale, along with stakes in Brazilian dairy company Vigor, and the Northern Ireland poultry business Moy Park, in order to raise R$6bn. J&F, its parent company, has to pay a R$10.3bn fine and agreed to sell its stake in Alpargatas, maker of Havaianas flip-flops, for R$3.5bn.
For ranchers, JBS’s woes present an opportunity, and in Mato Grosso they have hired advisers to consider purchasing assets currently controlled by JBS. Luciano Vacari, director of the state’s association of cattle producers, Acrimat, says that JBS has 16 abattoirs in the state but only 11 of those are open. “We want to make a formal proposal for the closed ones.”
The state lawmaker Mr Bortolini says there are local producers powerful enough to challenge JBS. Some of them have 150,000 or 200,000 head of cattle. “The consideration is for several businessmen to get together to form co-operatives to make acquisitions of closed slaughterhouses and to return those to the market. That is what people here want.”
Luiz Antônio Freitas, president of Sindifrigo, the abattoirs association of Mato Grosso, says three closed units are already slated to reopen this year.
One of them, located in Várzea Grande outside of Cuiabá, was previously rented by JBS and shut down in 2010; a former employee said that it led to 500 people losing their jobs at the time. Now its former operator has taken it back. In an administrative office dusty invoice books from 2009 lie untouched, but construction workers are installing new equipment.
As Mr Meister drives into Cuiabá, a billboard reads: “Mato Grosso has quality beef for the world”. He complains that “JBS has done a disservice to this claim” in recent years, but he is optimistic. Now it is time for the fortunes of local ranchers to make a comeback.