2 Rotten Meat And Deforestation Scandals Impact JBS's And BRF's USD 2.5 Billion IPOs And Brazilian Economy

Apr. 03, 2017 7:18 AM ETJBS S.A. (JBSAY), JBSAF, BRFS24 Comments
Gabriel Thoumi, CFA profile picture
Gabriel Thoumi, CFA


  • Financial Impacts Material for JBS and BRF.
  • Class Action Lawsuit.
  • Cattle Ranching #1 Cause of Deforestation in Amazon.

Two Rotten Meat and Deforestation Scandals Threaten JBS and BRF's IPOs

As reported by Chain Reaction Research, JBS SA (OTCQX:JBSAY) (OTC:JBSAF), the world's biggest meatpacking company, halted beef production at all but three of its 36 plants in Brazil last week as federal police released results from their two-year investigation of pork, poultry and beef meatpackers. They found that health inspectors and politicians took bribes to allow domestic and international sales of rotten meats. Countries around the world responded by ceasing imports of Brazilian meats.

JBS announced on March 29 that it would furlough workers at 10 of its 36 beef plants in Brazil because of reduced sales after some countries suspended imports.

JBS also is caught in a second scandal as Ibama, Brazil's environmental protection agency, raided JBS meatpackers in Redenção and Santana do Araguaia, in the state of Pará last week. Ibama's raid identified 59,000 cattle sourced from land deforested illegally. This illegal deforested land equals the size of Manhattan - roughly 200 square miles. JBS sourced 90 percent of the animals from this illegally deforested land. In 2014, Brazil's National Institute for Space Research reported that cattle ranching caused 65 percent of deforestation in the Amazon. In 2012, Tesco canceled its contract with JBS after JBS sold deforestation-linked beef to Tesco.

Financial Impacts: JBS and BRF Allegedly Sold Rotten Meat

A two-year effort, "Operation Weak Flesh" showed that JBS and BRF (NYSE:NYSE:BRFS) sold rotten poultry, beef and pork to domestic and export markets. Companies added chemicals and acids into meat products to improve taste, smell and look, and mixed safe meat with expired meat.

JBS's Initial Public Offering on the NYSE as JBS Foods International was expected in May or June at a value of USD one billion. JBS sells its meat products under the brands Swift, Friboi, Seara, Pilgrim's Pride, Gold

This article was written by

Gabriel Thoumi, CFA profile picture
Gabriel Thoumi, CFA, FRM, is Director Capital Markets, Climate Advisers. He has 13+ years' experience as a mainstream investment research manager and analyst.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: This article was written for Chain Reaction Research.

Additional disclosure: Can you please add the tickers for JBS and BRF? Thank you.

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