Brazil’s economy is falling behind due to its rampant corruption. The most recent scandal –in which meat companies are accused of bribing health inspectors to pass contaminated batches– has damaged the reputation of two of the biggest meat companies, JBS and BRF, and put on the spotlight the regulations all across the industry. After the investigation opened to the public on March 17, at least 35 countries imposed bans and restrictions on Brazilian meat. And despite the fact that most of these restrictions have been lifted –13 markets are still closed– the industry will take a financial and political toll.
The Brazilian corporate sector is already under suspicion after two of the biggest corruption cases in Latin America: Petrobras and Odebrecht. To add the food industry into that brings serious doubts on the ability of the State to regulate private companies. One could argue that these scandals show an effort from the government to become stricter on its regulations and, even if it takes time, build a safer private sector. However, in the mean time, how does this affect the industry in the short and medium-term?
For meat companies, even if the remaining bans get lifted, it means that revenue will decrease. It already has and analysts don’t expect for it to have a quick recover. This kind of scandals, closely related to the direct consumers, are hard to forget and even more with today’s use of social media. Blairo Maggi, Brazil’s Minister of Agriculture recognized the dangers of letting the scandal linger and worked hard to get China, Chile and Egypt to lift their restrictions –partially and entirely–.
Aside from the obvious effect on sales, corruption accusations also seems to be slowing down the process for Brazilian meat companies to expand in the U.S. Not only did some of the “tainted meat” was sold to Wal-Mart stores, but also a U.S. law firm is representing foreign investors in a lawsuit against JBS. And Brazilian media assure that this won’t be the only legal action taken against the meat companies. Right now, Brazilian corporate sector seems flaky and highly unreliable for the U.S.
What should the Brazilian corporations do? Even if it sounds naïve, they should do the right thing: clean their structures to prevent further wrongdoings. And, reasonably, that’s what BRF it’s doing. The meat company revealed that they would restructure its management with a new head of Brazilian market as well as a new supply vice-president.
Some analysts believe that, despite the short-term effects, the private sector will, in fact, improve after these scandals. Is it an over-optimistic perspective? We’ll see by the end of the year.