June 8, 2007

 

Upsides, drawbacks on Brazil's purchase on global beef conglomerates

 

 

As Brazil bought Australia Meat Holdings, Australia's largest beef processing company and the third-largest US meat company, Swift & Company, the transaction may well mean a major shift of power around the Pacific Rim beef-producing and consuming countries.

 

It also confirms Brazil as the world's largest beef producer, exporter and now processor.

 

The transaction also paves way to Brazil to lucrative beef markets such as US, Japan, South Korea and Taiwan, the big four destinations of world major beef exporters Australia and New Zealand.

 

Buyer J&F Participacoes is the controlling shareholder of JBS, the largest beef processor in Latin America, and one of the largest exporters of beef in the world. It operates 23 plants in Brazil and six in Argentina. 

 

JBS generated sales of $US1.8 million and slaughtered more than 3.4 million head of cattle in 2006.

 

On the other hand, Swift has practically earned $US10 billion of annual sales, with headquarters in Greeley, Colorado, and nine plants in eight states, processing beef, pork and lamb. It has foreign sales offices in China, Japan, South Korea, Taiwan and Mexico and has four plants and four cattle feedlots in Australia.

 

Australian turnover is around $US2 billion, twice the size of the next largest beef processor.

 

Because of mad cow disease, beef packing generated low margins, thus, pushing Australia's business two-thirds of Swift's earnings before tax in 2005 and offset US losses in 2006.

 

Swift has only reported one profitable financial quarter since November 2004.

 

The acquisition will give JBS access to the US market, which is the biggest world market for beef, and to Japan, where Brazilian beef is banned.

 

New Zealander Steve Kay, owner and editor of the US Cattle Buyers Weekly, hailed the Swift sale as good news for the US industry as sale to other rumoured bidders such as Cargill, Smithfield or National Beef Packers would have reduced competition for farmers.

 

Miguel Gorelick, chief executive of Quickfood Argentina said the deal would help globalise meat sector, which had lagged behind other food industries. It could also help Brazil and Argentine beef enter the US market, he said.

 

But a US meat industry spokesman Swift's ownership by an international corporation was not unusual.

 

Promoters of US country-of-origin legislation are disturbed, saying the Brazilian move does nothing for consumers who want to know where their food is produced, or for farmers who want a fair price for livestock.

 

Another US critic, Montana-based Eric Nelson, is worried about free-for-all competition with Brazil, which has more than 200 million cattle. Under market conditions, he said Brazil could drive US domestic beef prices down which would likely result in a mass exodus of US cattle producers. 

 

He said the deal gave the world's largest beef producer access to the world's largest beef market.

 

Brazil became the biggest exporter in 2004 but it has very restricted access to the US and Asian markets, because of regular outbreaks of foot-and-mouth disease.

 

JBS chief executive Joesely Mendoca Batista said the combined enterprise would be the world's largest processor of beef and pork and a major step for the company's establishment of its global presence.