Shares in Brazilian meatpackers tumbled anew after China, a
key importer, joined countries placing restrictions on the South American
country's $12bn meat exports, in the wake of a corruption scandal involving
food safety inspectors.
Shares in sector leader JBS touched R$9.64 in early deals in
Sao Paulo, a drop of 10.0% on the day, and taking to 20% their losses since Brazilian
police on Friday raided the company, and a number of rivals, in a probe into
alleged bribery of officials charged with investigating meat processing facilities.
Shares in rival Marfrig dropped 5.9% to R$5.72, taking their
two-session losses to 7.9%, while stock in BRF dropped 11.8% to a four-year low
of R$32.72, taking their two-session slump to 18.2%.
Minerva shares touched an eight-month low of R$48.77, down 13.1%
on the day, and by 14.9% since news of the scandal broke.
The falls came as a series of countries introduced curbs on
Brazilian meat imports after police, in a two-year probe called "Operation Weak
Flesh", raided meat processing plants to investigate claims that officials had
taken bribes to overlook the processing of rotten meat, even with salmonella
traces, besides clearing shipments with false documentation.
Brazilian beef exports, by country, 2016 and (year-on-year change)
Hong Kong: 181,709 tonnes, (+9.5%)
Egypt: 168,441 tonnes, (-7.1%)
Mainland China: 164,774 tonnes, (+69%)
Russia: 130,623 tonnes, (-23%)
EU: 106,348 tonnes, (-2.6%)
Iran: 96,170 tonnes, (-1.7%)
Total (includes others): 1.183m tonnes, (-0.3%)
China - which relied on Brazil for 30% of its 580,000 tonnes
of beef imports last year - has temporarily banned the trade, Brazilian
officials said, with rumours of curbs on chicken meat imports remaining unconfirmed.
South Korea – which looked to Brazil for 80% of its 107,400
tonnes of chicken imports last year – said it would bar sales of chicken
products from BRF, the top provider, while tightening restrictions on purchases
from the South American country.
The European Commission said it would monitor meat imports
from Brazil, adding that it "will ensure that any of the establishments
implicated in the fraud are suspended from exporting to the EU".
Other countries placing curbs on Brazilian meat exports
include Chile, which has placed a ban on beef shipments.
The scandal has been seen as a major setback to Brazil, which
has spent decades building up its meat industry into a world leader, with JBS
overtaking US-based Tyson Foods to top rank among global meatpackers.
Brazilian broiler exports, by country, 2016 and (year-on-year change)
Saudi Arabia: 746,286 tonnes, (-5.4%)
Mainland China: 483,769 tonnes, (+58%)
Japan: 397,062 tonnes, (-5.6%)
UAE: 301,952 tonnes, (-0.6%)
Hong Kong: 248,565 tonnes, (+4.9%)
South Africa: 221,866 tonnes, (-2.4%)
EU: 219,098 tonnes, (-4.3%)
Total (includes others): 4.126m tonnes, (+2.0%)
Over the weekend, Brazil's president, Michel Temer, met with
industry leaders and representatives of foreign countries in an effort to stem
the fallout, saying that the government "reiterates its confidence in the
quality of a national product that has won over consumers and obtained the
approval of the most rigorous markets".
JBS and BRF took out advertisements in Brazilian newspapers
over the weekend to defend their practices, and condemn the alleged corruption,
which Mr Temer said was seeing "only" 33 inspectors investigated, out of a
total of 11,000.
'Stuff of PR
However, at Commonwealth Bank of Australia, Tobin Gorey said
that the "reports of rotten and chemically adulterated meat being sold in
domestic and export markets is the stuff of PR nightmares.
"The scandal could cause large and lasting reputational
damage to the world's largest beef and poultry exporter," which had only last
year regained access in beef to the US market, after 17 years of negotiations.
Brazil's "$12bn meat export industry is clearly now plunged
into a period of uncertainty".
Indeed, one major question mark over how long import
restrictions introduced by the likes of China last, with analysts at Bradesco
BBI, in a note saying that BRF could lose 15% of its ebitda to the scandal,
flagging the potential for curbs of up to six months.
"We expect the restriction will be limited to inventory
liquidation from local traders and other local suppliers, which takes usually
3-6 months," the bank said.
US-based Steiner Consulting that it "could be that the
Chinese decision is short lived and as Chinese officials learn more about the
may opt to resume trade again.
"However, if the scandal in Brazil deeps and reveals wider
cracks in its food inspection
regime, China may opt for a longer lasting policy."
Uruguay, Australia to
pick up trade?
Countries likely to gain from the curbs include Uruguay, the
second-ranked exporter to China last year, with a 27% share, and Australia, which
was responsible for 19% of shipments.
In chicken, China relied on Brazil for 86% of imports last
year, with Argentina responsible for 9% and Chile and Poland other major
origins, although, as stated above, rumours of China suspending purchases of
the meat from Brazil remain unconfirmed.