BRF part of wider troubles for Brazilian poultry industry

Top Brazilian poultry producer BRF may be facing serious difficulties but problems extend to the wider Brazilian chicken industry. The market outlook could worsen.

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RAWKU5, Freeimages.com
RAWKU5, Freeimages.com

2018 has not started well for the Brazilian poultry industry, despite expectations, with difficulties apparently growing both on its home market and overseas.

A number of Brazilian poultry producers are thought to be facing financial difficulties, restrictions are being put in place in overseas markets, and the home market is in danger of oversupply.

Late February saw BRF, the country’s second-largest poultry producer, release worse than expected financial results, followed by calls for its board to be replaced.

Losses at the company ballooned to BRL1.1 billion (US$337.4 million), from BRL367 million the year before. For the fourth quarter of 2017 alone, losses stood at BRL784 million, far greater than the BRL442 million recorded for the fourth quarter of 2016.

The company’s director vice-president of global operations of, Helio Rubens Mendes dos Santos Junior resigned within days of the results’ release, his departure coming on the back of a number of changes in key personnel over the last year.

An extraordinary general meeting will be held on March 5, at the request of two major shareholders, but the board has argued these shareholders’ are also partly responsible for the company’s poor performance.

Vulnerable position

The worse than expected results has BRF’s share prices reach its lowest level for five years. Between the end of January and the end of February its share price fell from BRL36.29 to BRL28.67. Commentators have said that this may now be the correct valuation for the heavily-indebted company.

What the future holds for the BRF is unclear but it would appear to be increasingly vulnerable rationalization or take over and, at the very least, would appear to be in need of a significant culture change.

Saudi Arabia and exports

But BRF and Brazil’s woes do not end there. Since the Operation Weak Flesh scandal broke last year, the industry has been gradually rebuilding its position in export markets, but this may have run into a new stumbling block.

On March 1, Saudi Arabia, which along with China -- one of Brazil’s top export markets, announced that it would no longer import meat from birds that had been stunned.

Leading Brazilian poultry producer, JBS, which has its own problems, is thought to have a significant containers ready for shipment that cannot now leave, and BRF is likely to be in a similar position.

The country’s industry association, ABPA, it thought to be negotiating to overturn the ban, but given that Saudi Arabia is keen to strengthen its own industry, how willing it will be to listen remains to be seen.

If the ban goes ahead, Brazilian product destined for that market will have to be sold elsewhere, and if diverted to the home market, could depress prices, causing further difficulties for local producers who are in a far from strong position.

Of further concern for the Brazilian industry is that the country is now confronting anti-dumping accusations from China, and BRF and JBS are among those companies singled out by China.

January’s shipments down

ABPA figures for January reveal that chicken meat exports for January this year at 330,900 were 8.8 percent lower than in January 2017.

Amongst markets to have recorded a significant decline has been the European Union, where concerns over Salmonella, which has proved particularly difficult for the Brazilian industry to bring under control in some parts of the country, have weakened Brazil’s ability to respond to demand.

 

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