Concerns over meat and poultry supply grow following arrests in Brazil

Mar 24th 2017

Following the arrests of 33 federal inspectors on allegations of bribery, the Brazilian meat and poultry industry is under the spotlight as a suspected range of illegal practices are alleged to have gone unchallenged – but what are the implications for UK meat and poultry buyers?

On the 19th March, Brazilian police carried out a series of raids, resulting in the arrest of 33 federal inspectors, suspected to have been receiving bribes for overlooking dubious and/or illegal practices alleged to have been taking place in meat processing businesses. 

Those practices alleged to have taken place, either by the officials or the meat processors include:

  • Re-packing products that had passed their expiry date
  • Falsifying sanitary permits
  • Allowing products tainted with salmonella to be sold
  • Adding cardboard to poultry products to reduce costs
  • Using acid to mask the smell of tainted meat
  • Using less desirable cuts such as pig heads

It is important to note that the alleged scale is small (of 2,300 inspectors, only 33 have been arrested and only 21 of 5,000 meat processing plants are said to have been involved).  As is often the case however, the incident throws doubt on the industry sector as a whole and this was reflected in two of the biggest businesses losing a sixth of their value on the stock market, despite denying any wrongdoing. 

Following the announcements, China, Chile and Hong Kong suspended imports of any meat from Brazil, whilst the EU, and a number of other importers including South Africa and Egypt have banned imports from any of the plants implicated.  Brazilian government figures showed that from a daily average of $63 million of meat exports, sales were down to just $74,000 the day following the news breaking – not good news for a country experiencing the longest recession in its history, dealing with a series of other corruption scandals and a political crisis.

The UK actually imports just 3% of its beef from Brazil and whilst very little raw poultry, circa 12.5% of our cooked/processed poultry is imported for the country, so the direct exposure for UK buyers is likely to be limited – and to date there are no notable reports of any impact on large operators.  The Food Standards Agency has said there is no evidence that rotten meat has entered the UK.  What will be of greater concern to most will be the knock-on effects of these bans where non-Brazilian supply will be in short demand (meaning higher prices) and there will be low demand for Brazilian supply (leading to lower prices – if you are prepared to take the risk). 

Adding to the supply and demand problems (for poultry at least) will be the ongoing avian flu outbreaks in the US, which has led to at least one large importer placing some restrictions on imports.  Combined, Brazil and the US account for two-thirds of the global chicken trade.

The huge supply gap could force importers to lift some of their restrictions on Brazil, as other products may simply not be available – a move already taken by South Korea, having confirmed that the allegations are not levied at the companies that specifically export there.

So are there any learnings, or ways in which UK operators can protect themselves against these kind of issues? 

Well, in the light of the horsemeat scandal, supply chain transparency has become an important consideration for (in particular) branded operators, where even the implication of a potential issue can damage sales or share price.  Many of the largest operators now manage supply chain maps that encompass every tier of supplier and require their immediate suppliers to manage and notify of any change upstream.  This means that they are able to react quickly and communicate clearly when a story like this breaks – important for reducing the impact of any negative reaction.

What this also highlights is the importance of physical audits of the supply chain – particularly in high risk areas, such as low cost country sourcing (LCC), sourcing of temperature sensitive products, or sourcing of those products that are either high volume, or carry a unique characteristic or marque that make the operators offering unique or valuable.

Assuming that the operator is not directly affected by the issue, the final consideration is the impact on price volatility and supply scarcity, an area where hedging strategies and agreeing fixed pricing up through the supply chain can be a preventative measure – particularly where flexing of sales prices to account for volatility in input price is not possible.

In closing, we might consider that this case highlights the fallibility of the human condition and that even by employing the best processes, using the most accurate documentation and applying the highest levels of diligence, it can all be undone on the whim of one or more individuals that are either negligent, under some form of coercion, or operating according to a different moral code to that which we could consider appropriate.  A sober thought indeed.