It has been a rough few months for the world's largest meat company. Known for its rapid expansion across the globe, Brazil-based meatpacking giant JBS has been embroiled in scandal for much of 2017.
The company is so large it is difficult to avoid for those who eat meat. As of 2014, JBS’s U.S. subsidiary held a 22 percent market-share in U.S. beef processing and an 18 percent market-share in poultry processing.
While most of the company’s troubles have been isolated to their home country of Brazil, a recent multi-billion dollar fine has JBS officials selling assets around the world, signaling a change for a company that just two years ago boasted its “aggressive growth strategy.” The company’s U.S. subsidiary, Colorado-based JBS USA, is selling its cattle feedlot business.
In March, JBS CEO Wesley Batista jumped on a routine conference call with investors. After listing the company’s first quarter financial figures, he addressed the elephant in the room.
“Moving to our beef business in South America, primarily Brazil,” Batista tells the investors. “You all know that, you know, we, uh, we had a problem in March.”
That problem came in the form of a sting conducted by Brazilian law enforcement in an operation called “Carne Fraca,” which translates to Weak Flesh. Federal agents raided some of Brazil’s largest meatpackers, including JBS. They accused processors big and small of bribing government meat inspectors to ignore food safety problems. The company denied any wrongdoing. The investigation is ongoing.
Countries around the world -- including the U.S. -- responded by temporarily closing off imports of Brazilian beef. American inspectors began testing every shipment of Brazilian beef into the U.S. and rejected 11 percent of products shipped. That prompted U.S. Department of Agriculture Secretary Sonny Perdue in June to halt all imports of fresh beef from Brazil. JBS saw the impact right away in Brazil, Batista told investors.
“We reduced volume, costs went up and we incurred a lot of expenses due to this problem,” Batista said on the investor call.
That was just the beginning of JBS’s year of controversy. Another corruption probe in Brazil alleges the company received suspect loans from the National Bank for Economic and Social Development -- Brazil’s federal bank, which enabled JBS to expand rapidly worldwide over the last decade. Authorities say the bank played favorites with JBS, giving the company favorable loan terms starting in June 2007 to acquire other meat companies around the world. That same year, JBS purchased beef and pork processor Swift Foods, entering the U.S. market for the first time.
“They were expanding because they had unlimited access to funds,” says Tatiana Bautzer, a business reporter for Reuters based in São Paulo.
The company’s troubles did not stop there. Secretly recorded tapes surfaced in May of Brazil’s president, Michel Temer, allegedly discussing bribing a former legislator. The tapes were recorded by JBS chairman Joesley Batista and came to light when he and his brother, Wesley Batista, signed a leniency agreement with federal prosecutors and agreed to have JBS’s holding company pay a $3.2 billion fine. The brothers were staring down possible bribery charges as a part of Brazil’s multi-year corruption investigation known as Operation Car Wash.
In the wake of the scandals, Joesley Batista stepped down as the company’s chairman, while Wesley stayed on as CEO. A corporate restructuring and potential public offering in the U.S. was put on pause. The company also began selling some of its assets: a large Brazilian dairy company, a poultry processor in Europe and all of its cattle feedlots in the U.S. operated under Five Rivers Cattle Feeding. Five Rivers has enough feedlots to hold nearly 1 million head of cattle, and has about 750 employees spread across Colorado, Kansas, Oklahoma, Texas, Arizona and Idaho.
Bautzer says the sale is not surprising, given the fine the company has to pay and the halt to its free flow of funds.
“I think they will try to preserve JBS as much as they can at the current size,” Bautzer says. “It remains to be seen whether the company will seriously downsize. I think it will depend on how they’re able to finance themselves with the banks, whether the banks will continue to finance them short-term and long-term.”
JBS’s American subsidiary operates poultry, pork and beef processing plants across the country. None of its U.S. processing plants have been offered for sale, but a report by Brazilian newspaper O Estado de S. Paulo notes that its competitor Cargill is interested in buying JBS’s American poultry brand, Pilgrim’s Pride.
Any changes JBS makes to how it does business will ripple through the global food system. Many American ranchers sell their cattle to feedlots or slaughterhouses owned and operated JBS USA. At least one U.S. rancher group -- the Ranchers-Cattlemen Action Legal Fund, or, R-CALF -- has called for an investigation of JBS USA.
“Here we have a company whose business model includes bribery and other corrupt practices,” says Bill Bullard, R-CALF’s CEO and a former Montana rancher. “We believe that it’s highly possible that this company is deploying this same corrupt business model here in the United States of America.”
There is no evidence of that and the company says its decisions are strategic. JBS USA spokesman Cameron Bruett says the company chose to sell its cattle feeding business “to focus more on processing and food production,” and that the move mirrors what other similarly sized players in meatpacking have done.
“These strategic divestitures allow for a more profitable company, and allow us to one day take our company public,” Bruett says.
Ranching and meat industry publications are covering every twist and turn in the JBS saga. While some ranchers are closely monitoring the status of their industry’s biggest player, others are content to wait and see.
“Concentration doesn’t concern me,” says Tracy Brunner, a rancher in Ramona, Kansas, and the outgoing president of the National Cattlemen’s Beef Association. “Because I know that the beef industry is built on opportunity.”
It is always concerning for U.S. ranchers to see a meatpacker in turmoil, Brunner says. But as long as the company is not talking about shutting down slaughter plants, he says he remains unfazed.
“The five major meatpackers of 100 years ago are not the five major meatpackers of today,” Brunner says, “and likely will not be 50 years from now.”