JBS are the initials of a Brazilian man in a hurry. JBS, the company, sprang from obscurity to become the world’s largest meat company in just the last five years. This year it signed an agreement to purchase a controlling interest in the world’s largest chicken company, Pilgrim’s Pride. GFS are the initials of an American man in a hurry. The two men led remarkably similar lives a century apart.
Jose Batista Sobrinho is the founder of the company JBS (and still a board member). He started in 1953 in the Brazilian state of Goias slaughtering just five head of cattle a day. For the first 50 years, the company expanded only within Brazil, reaching a capacity of 6,000 head of cattle a day by 2002.
Starting in 2005, JBS began an aggressive international expansion. The first major acquisition was Swift of Argentina, the largest beef producer in that country. By 2006, slaughter capacity was up to 22,000 a day. In 2007, the company had an initial public offering (IPO) of stock and purchased Swift in the U.S. as well as Inalca in Italy. In 2008, after purchasing Smithfield Beef in the U.S., Tasman of Australia and others, JBS became the world’s largest beef producer with a slaughter capacity of over 60,000 head a day.
So far this year, JBS has offered to purchase the world’s largest chicken company, Pilgrim’s Pride, and took control of Bertin, the second largest beef producer in Brazil. Altogether, JBS is now the largest meat company in the world with sales of $30 billion up from less than $2 billion four short years ago.
Chart: JBS sales in billions of U.S. dollars
Parallels with Swift
The remarkable rise of the JBS empire was accomplished to a great degree by purchasing the remnants of an earlier empire, that of Gustavus Franklin Swift. Swift was another man in a hurry, the ambitious ninth child of a family of 22, from Cape Cod, Mass.
His first business venture started with $20 borrowed from his father and a single heifer, but he soon outgrew Cape Cod and moved to Chicago to become a cattle dealer and butcher. Swift grew his company into one of the nation’s main meatpacking companies. In 1900, Swift started to expand beyond the U.S. as one of the pioneering multinationals. Swift expanded into Argentina in 1907, coincidently one hundred years before multinational expansion took Batista in the other direction from South America to North America. As Mark Twain said, “History doesn’t repeat itself exactly, but it rhymes.”
Three questions about JBS
Three of the obvious questions that come up about JBS are its funding, why chicken now, and what will it do in the future?
Funding: In addition to the hundreds of millions of dollars obtained from its IPO in 2007, JBS has managed to borrow billions by the sale of bonds worldwide and loans from both state-owned and private Brazilian banks. Some of those banks are willing to hold JBS stock. In addition, JBS took on the debt of acquired companies as, for example, the $1.2 billion in debt it acquired with Swift USA. The company is still closely held with 44% of the stock owned by the Batista family as of the date of the 2008 annual report.
Why chicken now? The company appeared to be in a headlong rush to become the world’s largest beef producer with no interest in chicken until just recently. What happened? It was probably a combination of the availability of Pilgrim’s Pride and the sudden realization by JBS that the future of meat production in the world has more to do with chicken than beef. Comparing the two meats in feed conversion, days to weight and water needed (including all the water used to grow the grain) to produce one pound of each yields the following results:
- Beef: 4 to 5 pounds of grain (feedlot), one year, 2,000 gallons of water
- Chicken: 2 pounds of grain, 42 days, 360 gallons of water
Although JBS executives put on a brave front about the future of beef consumption, they must be starting to become aware that beef consumption will grow slowly in the future due to the heavy cost of grain and water resources to produce beef. The JBS 2008 annual report projects world beef production in 2050 at 135 million metric tons (MMT), double the current production of 66 MMT. Most other observers are putting the number at only 100 MMT or possibly even less. At best beef production will rise 50% in the next 40 years.
The meat more likely to double in the next 40 years is chicken, not beef, given chicken’s better feed conversion and lower cost of production. World poultry production is now 100 MMT and is likely to reach 200 MMT in 2050. At some point in the last year, JBS woke up to this reality and decided to get on the chicken bandwagon while there was still a chance to get on inexpensively. The opportunity was an unexpected gift that dropped into their lap – the bankruptcy of the largest chicken company in the world, Pilgrim’s Pride.
The future of JBS
JBS is likely to continue expanding geographically across the globe and investing in proteins. Look for JBS to discover Eastern Europe, Asia and Africa as well as aquaculture. Gustavus Swift broke the trail one hundred years ago, but Jose Batista is barreling through in an 18-wheeler.
