The Rise of Big Meat: Brazil's Extractive Industry Executive Summary
Brazil is the world’s leading exporter of soybeans, the second largest exporter of maize and the world’s largest beef trader. It has overtaken the United States in becoming the biggest exporter of poultry in the world, close to 39 percent of total global exports. With China drastically increasing its pork imports in the last two years, Brazil has also stepped in to meet this demand. The massive expansion in production has made Brazil increasingly dependent on these commodities to maintain a trade surplus and has had dramatic impacts on Brazilians linked to the supply chain and on Brazil’s prized environment.
In the early 2000s, U.S. and European transnational corporations (TNCs) dominated Brazil’s meat and feed grain industry. In the last ten years, however, the Brazilian government’s support of certain companies has successfully led to the rise of not only national, but also global giants in the global meat complex. As these corporations have consolidated their global power, Brazilian production and exports of meat and feed grains have grown commensurately.
Skewed heavily in favor of corporations owned by wealthy families, Brazil’s socio-economic structure already yields widespread inequality. Support from the Brazilian National Development Bank, Banco Nacional de Desenvolvimento Econômico e Social (BNDES), to create “national champions” in the mid-2000s has further empowered a handful of corporations. They now play a central role in the national economy.
JBS and BRF: The rise of national champions
From 2007 to 2013, BNDES implemented the so-called "national champions” policy. The idea was to select certain companies and transform them into large TNCs that bring home significant revenues. The beneficiaries included some of the largest Brazilian meat packing corporations, as well as oil and mining corporations, and absorbed two-thirds of the allocated BNDES resources. These “champions” included JBS-Friboi (known globally as JBS), Marfrig and Brasil Foods (BRF). They received large volumes of resources, not only through subsidized loans, but also through the purchasing of debentures and company shares through BNDES’ investment arm BNDES Participações (BNDESpar).
The strategy has paid off. JBS is now the world’s largest producer and exporter of meat, selling to over 150 countries.1 Its key strategy has been mergers and acquisitions across key producing and consuming countries. In 2009, BNDES financed the merger of Sadia and Perdigão—two Brazilian giants of the meat processing and frozen foods sector—to form BRF. BRF’s largest shareholders are pension funds of two large state enterprises. The company is now the largest international exporter of chicken.2 Unlike JBS, BRF's key strategy entails acquisition of small companies in emerging economies that have significant potential for increasing meat consumption. For instance, its recent acquisitions in the Middle East and Turkey have allowed it to become a major processor of halal meat for Islamic markets.
The success of the national champions policy is clearly visible today: JBS has left all other meat processors behind, making USD$20 billion more in food sale profits in 2016 than the second largest meat TNC in the world—the U.S. giant, Tyson Foods. BRF leapt from ninth place globally in 2011 to the fourth most profitable meat TNC in 2012, more than doubling its food sales.
Brazil’s trade policy already contributes to a path of dependency on exporting land-based, natural resource intensive commodities, while importing much more expensive value-added products with high technology content. BNDES’ use of public resources to exacerbate this trend makes little sense to many Brazilian civil society organizations (CSOs). While the national champions policy has delivered massive profits to chief executives and shareholders of major corporations, many feel that taxpayers have gained little from large sums of public money diverted to these large conglomerates. Instead, their dramatic increase in economic and political might has enabled them to operate above the law. For instance, last year, JBS chairman Joseley Batista was charged with corruption by Brazil’s independent public prosecutor in connection to JBS’ holding company, J&F Investimentos SA. In February of this year, federal prosecutors mandated that Batista’s assets be frozen in connection to fraud related to J&F’s involvement with state owned pension funds. Things continued to get worse in the course of the year (see Tainted meat and reputations).
Tainted meat and reputations
JBS had plans to move its headquarters to Ireland in 2016 before BNDES quashed them. The move would have helped JBS avoid taxes in addition to consolidating its presence in the European food market. It then announced plans to launch USD$1 billion of shares in New York and move the management of its international operations to the Netherlands, while retaining its beef operations in Brazil. In March 2017, all four Brazilian beef majors—JBS, BRF, Marfrig and Minerva—were embroiled in a major food safety scandal that reverberated around the globe. “Operation Weak Flesh”—as the Brazilian probe was called—revealed that these global players had bribed health officials into approving the sale and exports of contaminated meat.3 It was reported food safety inspectors were bribed to allow exports of tainted meat products—including practices such as adding chemicals to meat to conceal rotting odor, adding pigs’ heads to sausages, and adding cardboard to processed poultry as filler.4
Several regions, including China and the EU, temporarily banned products entering their markets and company shares took a dive. Even as JBS was struggling to move past this scandal, in May 2017, JBS’s controlling shareholders Josely and Wesley Batista reportedly admitted to Brazilian special prosecutors that they paid bribes to nearly 1,900 politicians (including the current and past Brazilian presidents) to acquire companies worth up to 20 billion USD in assets. They reached a record breaking leniency deal agreeing to pay 3.2 billion USD in fines.5 In the ensuing months, JBS sold its assets in Paraguay, Uruguay and Argentina to pay for the fines, while Brazilian producers saw the biggest decline in cattle prices in 20 years.6
In September of this year, the two Batista brothers were arrested because they were found to have engaged in insider trading in the run up to the leniency deal. JBS has since named Jose Batista, the 84-year-old founder and father of the two implicated in the crimes, as the new CEO.
Slave labor and injustice in the meat supply chains
The prevalence of slave labor in Brazil’s agriculture sector has been well documented. The NGO Repórter Brasil, founded by journalists and social educators in 2001, has consistently publicized human rights violations related to the meat industry. They have sought to explicitly demonstrate the link between the exploitative supply chain to very well-known North American and European supermarkets (Walmart, Tesco, Rewe, Lidl, Aldi), fast food chains (McDonald’s, Burger King and others) and processed meats consumed by Americans and Europeans.7
The group reported that from 2003 to 2010, more than 10,300 workers were released from slavery by cattle owners supplying to major meat processors.8 The cattle ranching sector was responsible for nearly 60 percent of all slave labor cases recorded during that seven-year period.
According to the Global Slavery Index that tracks modern slavery across the globe, 161,100 Brazilians were trapped in modern slavery in 2016.9
Companies such as JBS sign the National Pact for the Eradication of Slave Labor, which supposedly bind them to avoiding such suppliers. However, monitoring whether these companies live up to these promises and exposing them has become more difficult since December 2014: the Brazilian Supreme Court ordered the Ministry of Labor to stop producing the “dirty list” of violators of Brazil’s anti-slavery laws. Using Brazilian Access to Information laws, Repórter Brasil has been publishing a Transparency Register since 2015, highlighting the name of employers caught by federal inspectors for using practices analogous to slavery. The list compiles the names of all persons and companies held liable for this crime in the previous two years. In its last update, 26 percent of the employers listed were cattle owners.10 In addition to such conditions on farms, the beef industry also subjects workers to poor working conditions in slaughterhouses and meatpacking plants. In 2014, for example, JBS was fined for forcing employees to work up to 20 hours a day and serving maggot-infested meat to them.11 Thus far, major retailers of meat have been successful in keeping these stories from European and American consumers.
Menace of contract farming, modern slavery and inhumane work
Contract farming is dominant in both chicken and pork production in Brazil. In pork, the presence of independent producers is greater; however, both the pork and poultry sectors are characterized by increasing concentration in Brazil. Only three companies—BRF, JBS and Aurora—control 50 percent of all of Brazil’s slaughtered pork, while only two companies—BRF and JBS—control 52 percent of Brazilian poultry slaughter and two-thirds of Brazilian poultry exports. The states of Parana, Santa Catarina and Rio Grande do Sul accounted for 62 percent of the broiler chicken production in 201512 and nearly 60 percent of pork production in 2016.13
There are more than 130,000 family farmers that produce chicken in Brazil.14 Most of these small producers (integrated into a supply chain of a major meat processing corporation through a contract) are concentrated in the south of the country. In this model, the farmer bears all the risk and investment costs, buying all inputs from the “integrator” and selling the animals back to the company once they are ready for slaughter. Ventilation technologies (which typically require higher financial investment) seem to be a key factor in keeping a large number of broilers alive in the Brazilian climate. Many small producers simply lack the financial resources to invest in these and maintain them. The high costs ensure that much larger facilities with more than 25,000 birds (in states such as Minas Gerais, Mato Grosso and Goias) have larger profit margins compared to producers with less than 5,000 birds who earn barely a fraction of their costs.
In 2010, the Public Prosecutors’ Office (PPO) on Labor Affairs of the state of Santa Catarina found that 73 percent of producers who worked on contract with BRF’s Sadia meat processing unit actually “paid to work;”15 in fact, “They fund the operations of Sadia S.A. with their own impoverishment, loss of health, and indebtedness with financial institutions.”16 The PPO sited several irregularities including failure of farmers to meet their full costs of production; pressure on farmers to invest more in their infrastructure, despite low prices that made that infeasible; abusive clauses in their contracts; exhausting workdays without a weekly day of rest with pay; failure to comply with health and safety norms; and other issues.
In addition to the exploitation of family farmers, slave labor is also endemic in the poultry industry. A minimum of 15 million chickens are daily transported in boxes containing seven to ten chickens. Workers tasked with catching these chickens and transporting them from farms to slaughterhouses suffer egregious working conditions. A team of about ten workers catches more than 50 thousand chickens a day—often working 12 to 17 hours traveling from location to location. In both JBS and BRF supply chains, Repórter Brasil found slave-like conditions including withheld wages and/or horrendous living conditions. For example, one middleman housed workers in a disused mine “whose conditions ‘cannot be described in words,’” according to one labor inspection report. Many of these workers did not have contracts and the legality of the middlemen contracted by JBS or BRF has also been called into question.17
Finally, working conditions in meat processing plants resembles problems in the U.S. and elsewhere. Repórter Brasil documented worker abuse in slaughterhouses owned by the top three Brazilian meat processors (JBS, BRF and Marfrig) in 2011. According to the group, 750,000 direct jobs were linked to the meat industry that year.
"In Brazil, health damages resulting from slaughtering and processing of meat are distinct from the average of other industries. High levels of trauma, tendonitis, burnings and even mental disorders are found there. To face such problems, it is urgent to redesign tasks, introduce breaks, and in some cases to slow down he pace of production lines. Those measures, however, face resistance from the industry’s business."
Seventy-six percent of all processed and salted poultry from Brazilian slaughterhouses heads to Europe—nearly half of which goes to the Netherlands, followed by Germany and the U.K.19 The German organization Christllich Initiative Romero (CIR) started a campaign in 2016 on chicken nuggets targeting major German supermarkets, such as Rewe, Edeka, Lidl, Netto and Aldi. They highlight the slave-like conditions of poultry “catchers” in JBS’ and BRF’s supply chain.
Public health costs of production
In August 2016, Scientist Magazine reported the appearance of Colistin-resistant bacteria that led to a foot amputation of a 60-year-old Brazilian man. Colistin is a last-resort antibiotic for human illnesses, but bacterial resistance is being discovered in Asia, Europe and North America. Its presence is heavily linked to the prolific use of antibiotics in industrial meat production (for poultry, pork and beef).
Brazil increased its use of antibiotics by 68 percent from 2000-2010—coinciding with the large increase in meat production. The country does not ban the use of antibiotics as growth promoters (similar to the U.S.) and was the third largest consumer of antibiotics in livestock in 2010—China and the U.S. being the two largest. Alarmingly, Brazil is expected to double its use by 2030. This poses a serious risk of antibiotic resistance in the Brazilian population.
Land, land and more land
The massive expansion of hectares planted for soy and corn have dramatically changed the Brazilian landscape. Soy is expected to cover 33.9 million hectares and corn, 16.7 million hectares in Brazil in 2017.20
Together, that is the equivalent of nearly 506,000 square kilometers (~196, 912 square miles), an area slightly larger than Spain.
"Soy and corn are expected to cover nearly 506,000 square kilometers this year, an area slightly larger than Spain."
Produced with large-scale monocultures, proprietary seeds, and chemicals, these feed grains have caused widespread deforestation and land degradation. And yet, production of both soy and corn is expected to grow this year with an increase of planted area for soy by 1.6 percent and another 3.2 percent for corn.21 In 2015, though Brazil’s agricultural exports declined in value (due to low soy and maize prices), they were exported in record volumes. This not only made up for low prices but also increased the share of agriculture in Brazil’s trade balance to a record 46 percent.
According to Brazil’s Ministry of Agriculture (MAPA) estimates in 2015, soybean production will continue to expand more than all other Brazilian crops. MAPA predicts that by 2025, soybeans will cover a territory of 41.2 million hectares—an increase of more than 30 percent in just ten years.
The area used to plant soybeans will increase by expanding into regions where land is still supposedly “available,” by occupying existing pastureland and by replacing other crops with soy on existing agricultural land. Notably, the areas cited for highest expansion are the eastern sub-region of the Cerrado, known as “Mapitoba” for the four states of Maranhão, Piauí, Tocantins and Bahia.
Deforesting the Amazon, degrading the land
Brazil’s National Institute for Space Research (INPE) estimated that 7,898 square kilometers (more than 3,000 square miles) were deforested from August 2015 to July 2016.22 This represents a 29 percent increase in deforestation from the previous year (2015-2014). Yet in 2015, deforestation had already risen by 24 percent from the year before (2013-2014). This marks a dramatic departure from the significant decreases in deforestation rates that were witnessed in years prior. The global rise of Brazil’s meat and feed grain industry has resulted in a massive transformation of the entire Brazilian landscape—from severe intensification and expansion of feed grain production in the Southeast and the Cerrado, to the displacement of cattle grazing into and then spreading out of the Amazon Rainforest. Two initiatives to curtail this damage are analyzed here: zero-deforestation agreements with meat companies and the Soy Moratorium with grain traders.
Zero-deforestation agreements and the scope for conservation
A first-of-its-kind, peer-reviewed study tracked purchasing behavior of JBS slaughterhouses before and after signing zero-deforestation agreements in the state of Para. Through these agreements, companies would be required to enlist with the Rural Environmental Register, which tracks properties through satellite technologies. The researchers found that while enlisting into the Register increased significantly and the rate of deforestation decreased dramatically from registered suppliers, the overall scope of these agreements for conservation was limited.23 Problems with implementation and leakage through illegal and non-compliant suppliers resulted in continued deforestation. Cattle would be transferred from non-compliant to registered suppliers for slaughter or be directly supplied to slaughterhouses that did not fully monitor the supply chain.24 A 2015 case study by Repórter Brasil also corroborates such practices.It found that JBS continued to source from a supplier that not only practiced slavery, but who was also cited by the Ministry of Forests and the Environment for environmental crimes, including deforestation.25 To continue both of these illegal practices, this supplier simply transferred the property to relatives not on any of these government’s “dirty” lists.