In mid March it was reported by Reuters there is a scandal in the meat industry in Brazil. The scandal involves meat packers paying bribes to politicians and meat inspectors to overlook practices involving processing rotten meat and shipping exports with traces of salmonella. The President of Brazil Michel Temer said the probe involved only 21 of the 4,800 meat-processing units. The issue for Brazil is agribusiness and the export of meat is a multi billion dollar business with most of the meat going to China and South Korea.

When the average consumer buys meat, they expect the meat was inspected when the beef and poultry was alive; when the animals went to stockyards to be killed; at the meat packaging plant to ensure it is fresh; at the distributor and finally at the supermarket, where it is available at a competitive price. That is a number of inspections and the supply chain has been managed to exceed expectations for the average consumer. When a scandal happens, the worst companies and the best companies are put in the same category because the average consumer rarely asks did the meat come from a specific meat packer? they ask what country is involved?  The immediate reaction is the supply chain will be slowed or stopped and the world’s largest poultry producer BRF SA stock price went down. Other companies including JBS also had declines in their stock price. The government of Brazil is in crisis mode to protect the exports and to ensure the other competition does not move in. The other competition would be US, Canadian, Australian, Argentina and other producers of poultry and beef.

Linking to dividend paying stocks, in every industry there is competition waiting for the other side to shoot themselves in the foot. Brazil’s meat industry shot themselves in the foot for trying to ship less than 100% confident meat and to fix the problem means the meat industry will be under the microscope for the next year. After a week of negotiations, the shipments were allowed to continue to China, however Brazil and the meat packaging industry lost something to the competition.

There are more questions than answers, till the next time – to raising questions.