Will JBS Survive a Political Corruption Scandal?

 

This article was published on the Emerge 85 blog on Aug. 28, 2017:

By Rasheed Abou-Alsamh

If you live in the Americas or Europe, you’ve probably eaten beef or chicken processed by Brazilian meat giant JBS. At its peak, just a few years ago, JBS was slaughtering 90,000 head of cattle a day. Now, battered by a recession and its role in a corruption scandal, its future is set to be smaller.

However, as the world’s largest producer of animal protein, JBS is expected to survive its involvement in one of Brazil’s biggest political scandals not just because of its size, but also because it draws 80% of its income from abroad. In 2016, the company pulled in revenue of $53.5bn. In comparison, its closest rival, Arkansas-based Tyson Foods, made $41.3bn in 2015.

The majority owners of JBS, brothers Joesley and Wesley Batista, are accused of bribing politicians in exchange for rulings and favours that would benefit the business. They are also accused of paying members of congress R$30m ($9.5m) to ensure Eduardo Cunha – who has since been jailed – was elected speaker of the House of Representatives in 2015. The Batistas called the payments “campaign contributions”, claims denied by Cunha who says the money was given directly to each congressman.

Secret contributions to political parties started small, in 2002, amounting to about R$200,000 ($63,514). By 2014, they had ballooned to about R$366m ($116.2m), divided among 24 parties.

The brothers have been under investigation since 2016, with at least five separate cases opened against them during that time. On May 18, 2017, they agreed to tell investigators everything about the scheme – in return for total immunity from prosecution and a R$225m ($71.4m) fine to be paid back over ten years.

Rapid growth and expansion overseas

JBS began life in 1953 as Casa de Carnes Mineira, a small butcher’s shop in Anápolis run by José Batista Sobrinho, father to Joesley and Wesley. That same decade, the planning and building of Brazil’s new federal capital Brasilia gave Sobrinho the chance to expand his business. Envisioned by President Juscelino Kubitschek, Brasilia was born to develop the country’s interior and disperse some of the Brazilian population concentrated along the coastline. But such development takes time, and for several years Brasilia was nothing more than a collection of construction sites – construction sites that, in 1957, Sobrinho began supplying beef to. But it was not until 1970 that the butcher decided to buy his first slaughterhouse and change the company name to Friboi.

By 1980, Friboi had bought another meat processing plant in the Federal District, tripling the number of cattle slaughtered daily to 300. In 1985, Friboi decided to expand out of the meat business, building a plant to produce soaps. But it didn’t take Sobrinho long to once again hear the call of the cattle, and a small meat-processing plant was purchased in Luziânia in 1988. Eight years later, a fourth plant was purchased in Goiânia that would allow Friboi to meet stringent European meat standards and export its goods further afield.

But it wasn’t until 2005, with the purchase of Argentine meat processor Swift Armour, that Friboi’s international expansion began. Two years later it launched an initial public offering and was listed on the São Paulo Stock Exchange. It also changed its name to JBS, in honour of its founder, and bought Swift units in the US and Australia. This also marked the addition of pork and chicken to its range of products.

In 2009, JBS bought major US poultry-processing company Pilgrim’s Pride, significantly boosting its US payroll to 70,000. In 2015, Primo Smallgoods in Australia and Moy Park in Ireland came under its remit. The Moy Park acquisition helped JBS grow its manufacturing and distribution of prepared foods in Europe, and in 2016 the company’s income rose to R$170bn ($5.4bn), up from R$4bn ($1.3bn) in 2006.

To read the rest of my article please visit the Emerge85 website: http://emerge85.io/articles/will-jbs-survive-political-corruption-scandal/

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