JBS USA scrutinized following meat scandal
July 5, 2017
Some might call "B.S." on the business dealings of meatpacking giant JBS while others say the company has modeled the American dream.
A Brazilian bribery scandal has dominated cattle news for the last few months with JBS S.A. front and center. The beef industry worldwide is on the edge of its seat as the company of Brazilian origin appears to be switching focus off-of South America – attempting to sell plants in Paraguay, Uruguay and Argentina, reportedly to pay $3.1 billion in fines resulting from the bribery case. The Brazilian Supreme Court has blocked the sale of those business segments, saying it could interfere with ongoing investigations.
Former Speaker of the U.S. House of Representatives and Ohio congressman John Boehner, who was named as one of five board members for JBS USA – sister company to the now infamous JBS S.A. – in January, has now reportedly been chosen as one of four members of JBS International Council, which the company is creating as part of a plea agreement following bribery charges.
According to Brazilian newspaper Plus 55, JBS's new international council is a part of the company's strategy to leave its Brazilian roots.
“Essentially, producers and consumers alike should consider the two companies separate entities since they function separately. Similarly, the rules governing the meat industry in Brazil are vastly different from the rules and regulations JBS USA is required to follow. Thus, producers in the United States should not be concerned about marketing cattle to JBS USA or to JBS Five Rivers (cattle feeding operation) as prompt payment will continue to occur. Similarly, consumers should have little concern purchasing meat products fabricated by JBS USA as they fall under USDA rules and regulations.” Andrew P. Griffith, University of Tennessee
Boehner, who also sits on the board for tobacco giant Reynolds American where he reportedly nets $400,000 a year, has historically enjoyed financial support from corporate lobbyists, including JBS USA.
Lucas van Praag, with Teneo Strategy, a global crises management company, told TSLN that it is important to remember that JBS and J&F Investimentos are not one and the same, and it is J&F that is in the hot seat.
"JBS is not a party to the investigation and has no obligation from the courts to do anything," van Praag said. "J&F is an indirect investor of JBS."
Van Praag added that as far as he knew, the International Council was not in the works yet, but hiring global executives would be a smart decision. "J&F however, is required to put together a governance program," he added.
But some producers still want more answers.
Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF USA) asked President Trump in early June for an investigation into the business dealings of JBS USA. Citing news reports that JBS admitted bribing nearly 2,000 politicians, R-CALF USA wrote that JBS's business model included unlawful practices to influence policy makers and it was as likely as not that JBS deployed that same corrupt business model in the United States.
The Brazilian audit court appears to be on that same page. Meatingplace.com reported that the judge ruled that information provided by JBS' Joesley Batista during his plea-bargain testimony in April could be used in an investigation into the investment made by national development bank BNDES in JBS in 2007. Those investments, according to reports, fueled the company's purchase of Swift & Co.
BNDES invested $310 million to buy shares of JBS and help finance the acquisition of Swift. The audit concluded after an investigation that BNDES' total investment was above what was necessary to acquire the stocks, and was approved faster than usual without thorough analysis of economic viability, MeatingPlace reported.
In a statement, J&F said "the audit court decision violates terms of the plea deal with prosecutors." The company said it will appeal the decision, since "evidence turned by people collaborating with Justice cannot be used against them."
But politics and court hearings aside, JBS U.S. is still considered by many to be a valuable asset to the cattle industry.
One analyst says the two companies should be considered separate, as they are separate entities and they both play by different rules.
"Essentially, producers and consumers alike should consider the two companies separate entities since they function separately. Similarly, the rules governing the meat industry in Brazil are vastly different from the rules and regulations JBS USA is required to follow. Thus, producers in the United States should not be concerned about marketing cattle to JBS USA or to JBS Five Rivers (cattle feeding operation) as prompt payment will continue to occur. Similarly, consumers should have little concern purchasing meat products fabricated by JBS USA as they fall under USDA rules and regulations," Dr. Andrew P. Griffith, University of Tennessee, shared in his June 12 market analysis.
The rags-to-riches story of JBS (named for founder Jose Batista Sobrinho), which began making headlines in 2007 with its purchase of Swift, has been laid out on the table.
While its rise to fame did not actually happen overnight, the company has had some big growth spurts. Sobrinho's went from slaughtering five head of cattle per day in his 1953 self-run butcher shop to 5,300 by the year 2000. After the year 2000, JBS grew exponentially on the global front. By 2005, JBS had expanded with 21 plants in Brazil, five in Argentina, and had increased slaughter capacity to 19,900 head.
But the story didn't stop there, and the company's latest claim to fame involving corruption and bribes has JBS stock plummeting over the last four months. According to news reports, JBS' Wesley Batista has been in New York trying to reassure investors that the company is marching on, without his younger brother Joesley, who has been the focus of most of the scandal.
July 5 – Brazil's audit court decides to include terms of a plea deal by JBS SA shareholder Joesley Batista in proceedings that may request reimbursement of possible losses to the Brazilian treasury from financing the acquisition of U.S. meatpacker Swift & Co in 2007.
July 1 – The investment arm of Brazil's state development bank BNDES has given JBS SA until July 10 to convene a shareholder meeting to remove the controlling Batista family member, family patriarch José Batista Sobrinho, from the meatpacker's management and board, according to news reports.
June 30 – JBS creates an executive committee to advise board of directors following the meat scandal. The committee will advise on management of the company and major corporate deals, according to JBS.
A Brazilian Supreme Court justice upholds a decision that ordered JBS SA to halt the sale of $300 million worth of South American assets to Minerva SA, according to a court document.
June 26 – The President of Brazil, Michel Temer, is charged with taking multi-million dollar bribes in relation to the meat scandal.
June 21 – A Brazilian judge blocks JBS SA's planned sale of a South American unit to Minerva SA, while the attorney general's office asks for the company's assets to be frozen. JBS plans to appeal.
June 20 – USDA suspends all fresh beef imports from Brazil, based on safety concerns, which includes an 11 percent rejection rate of imports, considerably higher than the 1 percent rejection rate from other countries. According to the USDA, this suspension will last until the Brazilian Ministry for Agriculture takes corrective action – which US authorities deem to be "satisfactory." The action came after Brazil suspended shipments of beef from five of its Brazilian plants. Brazil notified USDA of the suspensions.
JBS SA reveals plans to sell assets worth $1.8 billion, including a 19.2 percent stake in Brazil-based dairy company Vigor Alimentos SA, along with its Northern Ireland unit Moy Park Ltd and Five Rivers Cattle Feeding in the U.S.
June 9 – Brazil's federal police raid the offices of JBS SA to investigate the alleged use of insider information in financial market dealings. Police said there were indications that JBS and controlling shareholder FB Participações SA gained an unfair advantage in trading stocks, currency futures and forwards in April and May.
June 8 – JBS SA announces plans to sell plants in Pul Argentina, Frigomerc of Paraguay and Pulsa of Uruguay. JBS said in a securities filing that it sold the three meat processing plants for $300 million to Minerva in Sao Paulo state.
June 6 – Brazil continues its review of allegations that the Rousseff/Temer election was financed with illegal campaign donations.
May 26 – JBS SA announces that brothers Joesley and Wesley Batista, who own the company, have resigned from senior posts.
May 24 – Brazil was rocked by some of the most violent protests in years. Tens of thousands of demonstrators, mobilized by Brazil's main trade unions, demanded Temer's ouster and an end to his reform program. Protesters set fire to the ministry of agriculture and ransacked other government buildings, prompting the president to deploy the armed forces.
May 20 – In a press conference, President Temer asks the Supreme Court to suspend the investigation against him, saying that the recorded evidence had been doctored.
May 19 – The courts released documents relating to the Batista plea bargain testimony and investigation of Temer.
May 18 – The Brazilian market plunges, triggering circuit breakers in both currency and stock market trading. The Supreme Court published its approval of a request by the prosecutor-general to investigate the president for obstruction of justice and corruption.
Wesley and Joesley Batista, along with other JBS' sign a plea bargain deal with Brazilian authorities in exchange for reduced sentences.
May 17 – The meat scandal escalates, after newspaper O Globo publishes a report that Joesley Batista, former chairman of the meat-processing giant JBS, had secretly recorded Temer endorsing the payment of hush money to Eduardo Cunha, the jailed former lower house speaker who was instrumental in the impeachment of Dilma Rousseff.
May 16 – While not directly related to the scandal, following a 13-year hiatus, U.S. fresh beef exports resume to Brazil. (In 2016, the United States exported $6.3 billion in beef and beef products globally. The United States had banned fresh beef from Brazil since 1999 until Aug. 1, 2016, when the USDA announced that its Food Safety and Inspection Service had approved a rule to allow Brazil to ship 64,800 tonnes of fresh beef per year to the U.S. duty free. The first Brazilian beef was shipped to the US in October of 2016. A tonne is 1,000 kilograms or about 2,200 pounds.)
April 16 – Federal Police in Brazil indict 63 people for their role in the corruption scheme. One employee at a JBS processing plant in Brazil is included in the investigation.
March 25 – While bans began almost immediately, most were lifted within a week. China announced on March 25, the total reopening of the market for Brazilian meats. The U.S. begins inspecting all meat imported from Brazil.
March 19 – China, Mexico, Chile, Japan, the European Union and Hong Kong take varying measures to avoid or ban Brazilian meat imports. Brazil's government shuts down three plants and suspends the export licenses for 21 meat packing plants.
March 17 – The two-year investigation of operation Carne Fraca — "The Flesh is Weak" — named for a Biblical reference aimed at the health officials who allegedly succumbed to temptation by accepting bribes, is released. Officials said they had evidence of at least 40 incidents. The BBC reported that federal police carried out raids in 194 locations, deploying more than 1,000 officers. Investigators alleged that managers bribed health inspectors and politicians for product certification, overlooking expired meats.
Jan 30 – Just prior to the Brazilian meat scandal, JBS International, a subsidiary of Brazilian meatpacker JBS SA, announced some powerful new board of directors. Former House Speaker John Boehner was one of five new appointees. The others: former ConAgra executive Greg Heckman; Charles Macaluso, director of management consultancy with Dorchester Capital Advisors; Steven Mills, formerly with Archer Daniels Midland; and Dimitri Panayotopoulos, vice chairman of the board at Procter & Gamble.