By Rogerio Jelmayer and Luciana Magalhaes
SÃO PAULO -- Brazilian authorities are investigating some of the
world's biggest meatpacking companies for allegedly bribing
food-sanitation inspectors to approve sales to domestic and foreign
buyers of meats that might otherwise have failed to pass
muster.
Among the dozens of firms targeted are JBS SA and BRF SA, which
both have substantial operations outside Brazil. JBS, the world's
leading meatpacking company, owns Swift Foods and a majority share
of Pilgrim's, both familiar U.S. brands. BRF is one of the world's
biggest chicken exporters.
"[The firms under investigation] didn't care about the quality
of the meat or food" they sold, said a Federal Police official,
Mauricio Moscardi Grillo. "They didn't care at all about what they
were selling to consumers."
Shares of JBS plunged 10.6% on Friday, and shares of BRF were
down 7.6%. Brazil's benchmark Ibovespa stocks index was down 2.4%
on the day.
The investigation could threaten a planned initial public offer
by JBS for its international operations, and could cause problems
for a possible sale by BRF of a stake in one of its units as well,
said Shin Lai, an investment strategist at São Paulo-based research
firm Upside Investor. JBS announced in December a reorganization
plan that includes an IPO in the U.S. of shares in its
international businesses.
An inspector-veterinarian employed by JBS at one of its plants
was allegedly involved in the scheme, documents provided by
judicial authorities show. Police said an executive linked to JBS
was also under investigation.
JBS, with units on five continents, said it and its units
"rigidly follow" all regulations regarding health inspection of its
products and supports all efforts aimed at punishing
violations.
BRF said that it meets all regulations and that its products
pose no risk to consumers in Brazil or abroad. The company added it
was cooperating with authorities on the probe.
An Agriculture Ministry official said the ministry was still
investigating how much of the affected meat and meat derivatives
were exported, noting most of it was probably sold in the Brazilian
market.
The official, Eumar Novacki, said participants in the scheme
falsified sanitation certifications for beef and chicken as well as
for hot dogs, bologna, animal feed and pet food.
"The crime against the Brazilian people is grave," said Mr.
Novacki, adding the Brazilian government was also concerned about
the impact on the country's image abroad.
"We're big players in the world market, and consumers can seek
products from our competitors," he said. "We're worried and we're
taking steps" to maintain confidence in Brazilian products.
When reporters at an often combative press conference asked
repeatedly how consumers could avoid tainted food, Mr. Novacki said
the government didn't have yet enough information to say.
Brazil is second only to the U.S. in beef and poultry
production, according to U.S. Department of Agriculture data, and
is the world's largest exporter of chicken meat, shipping more than
4 million metric tons overseas in 2016.
Brazil's meat sector relies heavily on exports, shipping 30% of
its poultry meat and about one-fifth of its beef abroad, especially
to China. Any questions raised over the safety and quality of
Brazilian meat exports could give an edge to U.S.-produced meat in
markets where the two countries compete, such as Hong Kong, the
Middle East and Chile.
Relatively little meat produced in Brazil is imported by the
U.S. About 37,000 metric tons of fresh beef were imported from
Brazil in 2016, when the U.S. consumed about 11.7 million metric
tons, according to the USDA. While Brazil's meat exports to the
U.S. have more than tripled over the prior five years, they remain
below the levels of most of the preceding decade. The U.S.
typically imports no chicken and negligible amounts of pork from
Brazil.
A USDA spokeswoman said the agency was in contact with Brazilian
authorities and was monitoring the situation. Federal officials
have safeguards in place to protect the U.S. food supply through
inspections of all imports, she said. "We can ensure the American
food supply is safe," she said.
The European Commission, the EU's executive arm, is aware of the
investigation in Brazil and has requested clarifications from
Brazilian authorities, an EU representative said Friday. The
Brazilian delegation to the bloc has been providing information to
the EU, the official added.
"As you can imagine, events are currently unfolding and more
news will probably emerge in the coming hours [and] days," the EU
representative said.
Brazil's investigation targeting meat producers coincided with
the three-year anniversary of the sprawling anticorruption
investigation known as Operation Car Wash, which has uncovered a
massive scheme involving some of the biggest companies in Brazil
and several high-profile politicians.
Friday's operation was one of the biggest on record in Brazil,
authorities said. Police said 1,100 officers acting in six
Brazilian states and the Federal District were part of the
operation, executing 38 arrest warrants and court orders to collect
evidence and seize assets.
The police spokesman, Mr. Grillo, said Friday that some of the
bribes went to political parties, but that police still don't know
exactly how much. He didn't provide any names of politicians or
parties.
Friday's investigation isn't the first legal controversy
involving JBS. Earlier this year, the police launched an
investigation into suspected irregular loans made by state-owned
lender Caixa Econômica Federal, saying JBS possibly benefited from
the scheme, according to court documents released then. JBS has
denied any wrongdoing in the case.
J&F Investimentos, the family holding company that controls
JBS, also allegedly benefited from the scheme. J&F is already
under other investigation for allegedly inflating the value of a
company it controls to defraud the pension funds of two big
state-controlled companies. JBS Chairman Joesley Batista is among
dozens of people being investigated. JBS and J&F have denied
any wrongdoing by the company or Mr. Batista.
Many investors say they are growing wary of the company.
"Investors don't have any confidence" in JBS, said Mr. Lai of
Upside Investor. "Where's their credibility? The odds of them
holding a successful IPO have fallen drastically."
--Jeffrey T. Lewis in São Paulo, Jacob Bunge and Heather Haddon
in Chicago and Emre Peker in Brussels contributed to this
article.
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and
Luciana Magalhaes at Luciana.Magalhaes@wsj.com
(END) Dow Jones Newswires
March 18, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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