The Brazilians have moved like a sudden wind onto the U.S. and world meat production scene with major new stakes in ownership, and the red meat and poultry businesses won’t ever be the same.
Brazilian meat and poultry companies, backed by governmental support and rising consumer markets at home, are exerting their presence in world markets, with acquisitions and aggressive export programs. Their moves are resetting the market focus from a national to an international one for the industry’s top tier firms.
Moves by Brazilian meat producer JBS S.A. are emblematic of what’s occurring. The rise of JBS as a global meat powerhouse in four short years has been nothing short of phenomenal, and the company put an exclamation on that feat with deals in September to acquire a majority stake in poultry producer Pilgrim’s Pride in the U.S. and merge with Bertin, the third-largest beef producer in Brazil.
Not only has JBS surpassed Tyson Foods as the world’s leading red meat company, it is now the second-largest poultry meat producer on Tyson’s home turf, the U.S. market.
JBS slipped onto the global stage in 2005 with the acquisition of Swift Argentina. JBS solidified its status as an international meat company with its 2007 purchase of Swift & Co. Now, JBS’ merger with Bertin makes the company the world’s largest meat producer.
IPO in 2010 planned
“We have already passed Tyson, and we’re just starting,” JBS CEO Joesley Batista said at a news conference in Sao Paulo. The company has the capacity to continue investing, he added.
An initial public offering in 2010 is planned for JBS USA, which is expected to raise $2.5 billion. Batista said no more acquisitions are planned for 2009. “In 2010, however, I expect to make new announcements,” he said.
Diversification into poultry
The takeover of Pilgrim’s puts JBS into poultry, a diversification being applauded by analysts, who say poultry has more potential than beef to grow. An analyst also described JBS’ new U.S. operation as a clone of Tyson Foods, and one which should help the company better survive market downturns.
Might JBS move further into poultry? South American industry consultant Fabio Nunes said a JBS move into poultry in Brazil is a real possibility, though acquisition targets there are dwindling. He notes that among the top 10 Brazilian poultry operations only Doux has a sizable market share, holding between 6% and 7% of annual slaughter capacity. Doux, however, recently stated that it is not for sale.
Nunes speculates that a more logical next step into poultry for JBS would be outside Brazil’s borders – perhaps Argentina or Chile.
More cross-border mergers ahead?
What does all this mean for the world’s meat and poultry businesses? Poultry industry consultant Paul Aho said, “It obviously represents increased consolidation and globalization in the international meat industry and may well signal increased numbers of cross-border mergers and increased mergers between meats. It is not just economies of scale for production but also economies of scale for global marketing.
“There could be a rush to get into the meat business at a global level. The price of poker is going up and if you want to be in the game this may be the last chance to do it cheaply,” he said.
Meantime, there is no lack of confidence at JBS. Speaking at a BMO Capital Markets conference earlier this year, Batista said, “Strategically, one of the biggest advantages of JBS is that we’ve been able to be ahead of the market for a long time.”