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Brazil’s meat scandal expands while international market reaction is mixed

brazilfederalpolice_406x250The investigation by Federal Police in Brazil has led to the suspension of three more processing plants this week over the alleged corruption in meat industry. That raises the number of closed meat processing plants to six out of 21 being targeted by Federal Police and health authorities. The other 15 plants are not allowed to export, although they may still produce for the domestic market.

One firm, JBS SA, the world’s largest protein producer, opted to temporarily suspend production at 33 of its 36 Brazilian production facilities last week. There are nearly 5,000 meat processing facilities in Brazil.

Federal Police have targeted the 21 meat processing facilities in an investigation known as “Operation Weak Flesh,” which became public on March 17 with numerous judicial actions including arrests.

Media in Brazil this week have focused on the role of Daniel Gouveia Teixeira, a government health inspector who found evidence of marrow, bone, and other slaughterhouse excess  being used as by-products for human human consumption.

The whistleblower reported it, but quickly found himself removed from his job as a plant inspector. The 39-year old is being credited by Federal Police with triggering the larger investigation into alleged bribes by meat industry employees  to meat inspectors for looking the other way.

Federal Police in Brazil have accused more than 100 with taking bribes in exchange for clearing rancid meat for export with all the necessary paperwork. Two of Brazil’s largest meat exporting companies, JBS SA and BRF SA, remain among the targets of the investigations, reports say.

Brazil’s meat business generates more than $130 billion annually.

The New York City-based Rosen Law Firm has filed a class action shareholders lawsuit against JBS over the investigation.

It claims to represent foreign JBS investors who were damaged by the company’s involvement in the scandal. It claims “JBS executives bribed regulators and politicians to subvert food inspections of its plants and overlook unsanitary practices such as processing rotten meat and running plants with trace of salmonella.”

It claims that caused  JBS stock  to “suffer significantly.”

Further it says notices about JBS operations and “false and misleading” statements mislead stockholders. Rosen charges JBS executives bribed meat inspectors and politicians “to subvert food inspections of its plants and overlook unsanitary prices such as processing rotten mean and running plants with traces of salmonella…”

Shares immediately after the March 17 raids by Brazilian Federal police did fall by about 9.2 percent.

Brazil’s center-right government has since worked to prevent other nations from banning its meat entirely, It has tried to frame the crisis as one involving bribery in the 21 plants, not disfunction in Brazil’s larger meat processing industry.

In the United States, Secretary of Agriculture-designate Sonny Perdue dismissed the need for an embargo of Brazilian beef. USDA’s Food Safety and Inspection Service (FSIS) has promised to test for pathogens in any Brazilian meat that does enter the U.S.   No shipments to the U.S. were from any of the targeted facilities.

A handful of American politicians , specifically Sen. Heidi Heinkamp, D-ND, and Sen. Jon Tester, D-MT, have called for a U.S. ban on Brazilian meat. That’s not likely, however.  China, Chili, Hong Kong, South Korea, Egypt and Barbados already have immediate and temporary bands imposed on the heels of the Brazilian meat scandal.

Hong Kong, which imports $1.1 billion of Brazilian beef from Brazil, quickly followed China by blocking imports for only a couple of days.

Brazil followed up the raids with tests at the 21 plants, that were conducted by ministry task force. Blairo Maggi, Brazil’s ministry of Agriculture said none of the findings indicate any  threat to human health.

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