JBS, the meatpacker, is one of Brazil’s big success stories. Through an aggressive campaign of acquisitions, the Brazilian company has become the world’s largest beef processor and among the largest poultry and pork processors.
The company, originally called Friboi, began modestly in 1953 with slaughterhouse capacity of just 5 heads per day. It only began to expand about 30 years later through acquisitions and investments to increase production. By 2002, its slaughter capacity was around 5,800 animals per day.
The company changed its name to JBS, the founder’s initials, when it began to expand internationally in 2005. Its first move was to acquire Swift Armour, Argentina’s largest beef producer and exporter. More acquisitions followed, and slaughter capacity had quadrupled by 2006.
In 2007 the company made history as the first beef company in the world to launch an initial public offering (IPO), issuing shares on the Bovespa stock exchange. Also in 2007, it entered the US market by acquiring Swift Foods Company and then purchased 50% of Inalca, one of Europe’s largest beef-producing companies. Today it operates in all of the world’s major meat-producing markets.
It took more than an IPO to finance the company’s appetite for overseas competitors, however. In 2009 the Banco Nacional de Desenvolvimento Econômico e Social (BNDES, the state development bank) provided JBS with a heavily subsidised short-term loan for the acquisition of Pilgrim’s Pride, the largest chicken producer in the US.
Expansion has not been without challenges. Cattle supply in Argentina has dwindled following a severe drought last year and government measures that limited beef exports and capped local prices. JBS recently announced that it has suspended production at several of its beef processing plants and may sell out because of a lack of animals. In the US, the company faces allegations of religious discrimination at a plant in Colorado. Its partnership in Inalca is reportedly under stress. In addition, JBS may face a fine if it is unable to meet the deadline for repayment of the BNDES loan as a result of weak financial market conditions, which have delayed the launch of Pilgrim’s Pride on the New York Stock Exchange.
Such challenges are typical of a rapidly growing company. To support its aggressive strategy, JBS has relied on its extensive knowledge of the beef sector. But perhaps what sets the company apart is its use of Brazil’s strengthening currency as an opportunity to expand abroad, buying competitors and gaining access to every major market, notes Marcus Vinicius Pratini de Moraes, a JBS board member.
The agricultural market is becoming more globalised, but trade barriers still block access to markets in the US and Europe. JBS’s strategy was perfect for overcoming those obstacles and gaining access to the final consumer. Going forward, the company plans to add value to its products, developing ready-to-eat, cured and other products. These are strategies that can help other Brazilian companies to gain prominence in the global market.
JBS leverages strong real to grow internationally
Latin America
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The Hinrich Foundation Sustainable Trade Index 2018
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.
The Global Illicit Trade Environment Index 2018
To measure how nations are addressing the issue of illicit trade, the Transnational Alliance to Combat Illicit Trade (TRACIT) has commissioned The Economist Intelligence Unit to produce the Global Illicit Trade Environment Index, which evaluates 84 economies around the world on their structural capability to protect against illicit trade. The global index expands upon an Asia-specific version originally created by The Economist Intelligence Unit in 2016 to score 17 economies in Asia.
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Breaking Barriers: Agricultural trade between GCC and Latin America
The GCC-LAC agricultural trading relationship has thus far been dominated by the GCC’s reliance on food imports, specifically meat, sugar, and cereals. Over the past two years, however, there has been a notable decline in the share of sugar imported from LAC, and 2017 saw the biggest importers in the GCC—Saudi Arabia and the UAE—impose a ban on Brazilian meat.
Market players on both sides of the aisle are keen to grow the relationship further, but there are hurdles to overcome. In this report, we explore in greater depth the challenges that agricultural exporters and importers in LAC and the GCC face. We consider both tariff and non-tariff barriers and assess key facets of the trading relationship including transport links, customs and certification, market information, and trade finance.
Key findings of the report:
GCC will need to continue to build partnerships to ensure a secure supply of food. Concerns over food security have meant that the GCC countries are exploring ways to produce more food locally. However, given the region’s climate and geology, food imports will remain an important component of the food supply. Strengthening partnerships with key partners such as those in LAC, from which it sourced 9% of its total agricultural imports in 2016, will be vital to food security in the region.
There is a wider range of products that the LAC countries can offer the GCC beyond meat, sugar and cereals. Providing more direct air links and driving efficiencies in shipping can reduce the time and cost of transporting food products. This will, in turn, create opportunities for LAC exporters to supply agricultural goods with a shorter shelf life or those that are currently too expensive to transport. Exporters cite examples such as berries and avocados.
The GCC can engage small and medium-sized producers that dominate the LAC agricultural sector by offering better trade financing options and connectivity. More direct air and sea links can reduce the cost of transporting food products, making it viable for smaller players to participate in agricultural trade. The existing trade financing options make it prohibitive for small and medium-sized players too. Exporters in LAC suggest that local governments and private companies in the GCC can offer distribution services with immediate payments to smaller suppliers at a discount.
Blockchain technology is poised to address key challenges market players face in agricultural trade. Through a combination of smart contracts and data captured through devices, blockchain technology can help to reduce paperwork, processing times and human error in import and export processes. It can improve transparency, as stakeholders can receive information on the state of goods and status of shipments in real time. Finally, it can help with food safety and quality management—monitoring humidity and temperature, for instance, along the supply chain can help to pinpoint batches that may be contaminated, minimising the need for a blanket ban on a product.