Brazilian meatpacker JBS has signed a Memorandum of Understanding (MoU) with Chinese company WH Group to boost its sales of fresh meat in China, where consumption is rising at a rapid pace. This deal could bring in 3 billion Brazilian real (USD 717 million) per year for the two companies, and first shipments should begin during the first quarter of 2020. WH Group has 60,000 retail outlets in China, allowing JBS to reach millions of new consumers. China is already a large market for JBS. The Chinese market accounted for approximately 28 percent of the company’s exports in the 3Q19. JBS Brazil saw an annual increase of 73 percent in USD terms in beef exports in 3Q19, with volumes rising 44 percent year-on-year.
JBS’ rising market share in China comes at a time that Brazilian beef exports continue to rise. Although approximately 80 percent of Brazil’s beef production is consumed domestically, the country is the number one exporter globally. Higher consumption in both Brazil and China, along with other growth markets, pose greater deforestation risks in the Amazon as cattle ranching remains a major factor behind deforestation despite companies announcing zero-deforestation commitments. The deal also includes exports of pork and poultry. Poultry and pork are key livestock feed sectors that consume most soy in Brazil, and soy is a key driver of deforestation in the Cerrado. JBS subsidiary Seara is the second-largest feed producer in Brazil. Brazilian exports of pork to China have also increased sharply in recent years, approximately 49,000 tonnes in 2017 to 248,000 tonnes in 2019.
Last year, Brazil exported 1.8 million metric tons of beef, up 11 percent from the previous year. In 2020, Brazil is forecast to send more than 2 million metric tons to foreign customers, with Asia and Russia the top markets. Currently, almost 40 Brazilian beef suppliers are authorized to sell to China. The African swine fever, which has spread through parts of Asia, has undercut China’s pork industry by causing the death of millions of hogs, paving the way for more imports of beef to satisfy the country’s protein demand. JBS’ CEO noted this week that the company does not see the spread of the deadly coronavirus affecting its business in China.
Besides increasing its presence in China, JBS recently opened a new beef plant in Mato Grosso to feed Brazilian consumers. As JBS’ operations grow, so do its reputation risks due to links to deforestation. JBS was tied to fires that spread throughout the Amazon during the summer of 2019. Chain Reaction Research (CRR) reported more than 145,000 fire alerts in September took place in the company’s potential buying zone. The company’s slaughterhouses in Colider (MT), Agua Boa (MT), and Araguaína (TO) saw the most alerts. Other Brazilian meatpackers such as Marfrig, Minerva, and BRF SA have also come under scrutiny for ties to fires, deforestation, and allegations of corruption.
The MoU with WH Group can be seen in the context of growing commodity trade between Brazil and China. For instance, Minerva last year created a joint venture with Chinese companies. Amid this growth, imports of Brazilian soy and beef expose Chinese companies to reputation risks. Given that WH Group is a key meat processor in China and a publicly traded company, it is one of the top Chinese firms with exposure to deforestation risks. As the company grows, it aims to expand its beef market share, further amplifying deforestation risks as it deepens its partnership with JBS. This opens its investors to risks from exposure to beef possibly connected to deforestation.
WH Group does not have a zero-deforestation commitment, and Global Canopy gave the company a score of one (out of five) in its 2018 assessment. Its top five shareholders include Virgin Island-based Heroic Zone Investment, UK-based Mondrian Investment Partners, JPMorgan Chase, Chang Un Holdings and CEO Wan Lon. Vanguard, BlackRock, State Street, and Norges Bank are also shareholders. Norges Bank (the Norwegian Government Pension Fund) wants to avoid deforestation risks in its investments and therefore may engage. Pension funds that use services of BlackRock or State Street could also ask for more active engagement as both start to market themselves as more aware of ESG issues including climate change.
[…] million metric tons of beef, an 11 percent increase compared to 2018. Forecasts suggest that volumes will rise above 2 million metric tons in 2020, with Asia and Russia the top […]