Authorities in Brazil said on March 17 they’re investigating evidence that employees of JBS and at least 20 other companies bribed government officials to approve the sale of tainted meat. Federal police raided slaughterhouses and alleged some operators stuffed sausages with cardboard, used acid to mask the smell of spoiled steaks, or knowingly shipped salmonella-tainted cold cuts. In a statement, JBS says it “is not accused of selling tainted or rotten meat,” nor have any actions been taken against JBS executives or managers.
Although the accusations involved only a small part of JBS’s operations in Brazil, they add to a series of allegations over the past 14 months that have been piling up against the company’s controlling shareholders, the billionaire Batista family and its holding company, J&F Investimentos. Federal police raided the parent company’s São Paulo headquarters twice last year in other corruption probes, and the federal budget court is investigating injections of capital into JBS by a state development bank.
J&F has repeatedly denied any wrongdoing, and longtime investors to a large extent have stood firm behind them. However, the barrage of accusations is the biggest blow to JBS’s reputation and could undo years of hard-won growth. The latest crisis “could actually be quite serious,” because it not only raises doubts about the safety of the company’s key product but involves claims of bribery, says David Tawil, a co-founder of Maglan Capital in New York. What troubles investors most is that the scandal could further delay plans for an initial public offering in New York of JBS’s non-Brazilian assets and its Brazilian processed-food unit. JBS had been expected to carry out the sale by midyear, but “if there’s any truth to these allegations, then the IPO won’t even be a possibility,” Tawil says.
Beyond imperiling the company’s stock offering, the tainted meat scandal complicates Brazil’s efforts to emerge from a two-year recession that’s the worst on record. The fallout was swift when an investigation was announced. China, the European Union, and Singapore were among major importers that rushed to set limits on supplies from Brazil, the world’s top exporter of beef and chicken. A temporary ban in Asia could be particularly painful: China and Hong Kong consume about a third of the Latin American nation’s $5.5 billion in annual beef exports.