Global

Details

  • Industry: Retail, Food, Drink & Consumer Goods
  • Type: Business and industry issue
  • Date: 6/20/2012

First person: The future of JBS and the meat industry 

First person

Wesley Batista, CEO of Brazil’s globally acquisitive food group, JBS, is angry about currency wars – but soaring consumer demand for meat helps him sleep soundly.

Emerging fast

Food is generally more buoyant than other sectors in times of global recession. But our ongoing appetite for meat has surprised even the most optimistic commentators. Per capita consumption rose from 41.3kg to 41.9kg between 2009 and 2010, says the Worldwatch Institute. Much of this was driven by the growing middle classes of the BRIC countries, but even in the world’s most developed economies, the switch was to cheaper cuts rather than vegetarian alternatives.


By 2050, global demand for meat is expected to have risen 80% from 2010. China will account for a disproportionate share of this increase – consumption in rural areas averages 50kg per person per annum, less than half the rate in the country’s urban centres.


The regions best placed to grow their meat production are in Southeast Asia and Latin America. And Brazil’s JBS, the country’s most successful food multinational, and by some measures the world’s largest meat processor, with 10% of global slaughtering capacity, is ready to feed the world.


JBS can trace its origins back to 1953, when José Batista Sobrinho opened a small slaughterhouse in Anápolis, in the state of Goiás. The initial operation could process five head of cattle per day. Today, JBS has 140 production units worldwide, more than 120,000 employees and generated US$33.6bn revenue in 2011 from its 90,000 head of cattle-per-day capacity. Serial acquisitions were the bedrock of the company’s growth – even before Brazilian businesses were significantly active on global M&A markets – and following its 2007 IPO, it picked up the largest player in beef, Colorado-headquartered Swift & Co, for US$1.4bn. A controlling stake in Pilgrim’s Pride, one of the world’s largest chicken producers, soon followed.


JBS works in the US, Australia, Mexico, Paraguay, Uruguay and Argentina, in addition to its home nation, and derives 75% of its income from foreign operations (it also exports to Mexico, China and the US, as well as Europe and Africa). Integrating its acquisitions has been far from plain sailing. Pilgrim’s (as it is now known) accounted for the company’s 2011 losses of US$41.5m, though JBS expects it to be profitable in 2012. It was associated last year with an audacious bid for the meat assets of Sara Lee, a move whose failure spooked the stock markets.


ConsumerCurrents asked Wesley Batista, the founder’s son and President and CEO since his brother Joesley became Chairman in 2011, to map out the future for the company, meat and the Brazilian economy.

What is your current M&A strategy?

Well, we made a lot of acquisitions in the last five years. We went to the US and bought companies there; a beef company, a pork company and one of the largest chicken companies in the world. We also made acquisitions in Australia and a lot of other countries. So in 2011 we spent the year only looking inside our business – we didn’t make, or look at, any acquisitions. We were very focused on finalizing the integration of the businesses we had bought and we are still focused on this process – to identify the remaining opportunities we have to capture value.


But in 2012 we are looking for new opportunities to buy companies. If we buy, it will be at home because we believe the Brazilian beef industry is starting a new growth cycle and we are looking at any opportunity we can find to expand our business here. That doesn’t mean we will buy something tomorrow or even next month, but that’s the type of target we think will be strategically beneficial to JBS.

Can you rule out deals outside Brazil?

It’s hard to say that we will not look at any opportunities outside Brazil but our focus is to expand in Brazil. The probability that we will be looking at targets in the US, Mexico or Australia is very small. And this is not because we don’t have a good view of those economies. It’s more related to the fact that we now believe there is more value to expand the beef business in Brazil.


JBS has grown through acquisitions, which is a notoriously difficult strategy to get right. What has been the key to identifying targets?


The first thing we ask is if it fits with our strategy to expand our business in the protein and food sector. Second, is it the right country to operate in? And third, is it the right asset? This is a broad set of criteria but a target has to fit them.


If you offer us a good asset in a country that we are not comfortable operating in, or a country in which we are not optimistic about the economy, we won’t be interested. Nor will we be interested if the company is in a good market but the asset isn’t right.

Cross-border integration can be hard. How JBS gets that right?

Integration is about having the right people in the right positions. If you don’t have the right team, you can have everything else in place but you will fail.

Why are you spining off Vigor, your dairy unit?

We believe the market doesn’t value Vigor at the right level while it is inside JBS. The market sees us as a meat company and the kind of multiples that JBS trades at don’t equate with Vigor, which is a consumer brand business and should trade at a much higher multiple. The decision to separate Vigor was taken because we believe that we can create value for our shareholders if it trades as a separate company.

How have your Brazilian businesses benefited from country’s middle class?

It has had a very clear impact on demand for our products. To give you an idea: Brazil is exporting one million tonnes less beef now than it did five years ago, and this is because more beef is being consumed in the domestic market. This is a clear sign of how the middle class is growing in Brazil and changing its demand for protein. And the same trends are visible in other protein and in diary. The link between GDP growth and the demand for protein is clear, so I can see this trend continuing.


“Emerging economies are suffering because of central bank policy in the US and Europe”


Wesley Batista, President and CEO, JBS


Is the Brazilian government’s management of the currency helping JBS?

We welcome the way the Brazilian government is doing everything it can to try to make Brazil more competitive. The real’s exchange rate is a huge component of this equation – Brazilian industry is more competitive when the real is at a more realistic, long-term exchange rate with the dollar. So we think the government is doing the right thing. Over time, Brazil has been losing competitiveness because the real is much stronger, which is adding cost to Brazilian exporters every year.


But this appreciation is because the mature economies are flooding the markets with cheap money – namely Europe and the US. This is artificial depreciation of their currencies – it’s not related to the fundamentals of the Brazilian economy. The emerging economies are suffering because of the policies of the central banks of the developed countries. That’s why we are pleased the Brazilian government has made this a key priority.

Is demand from your key export market of Asia stable?

Globally, Asia accounts for one third of our exports. China is growing in terms of protein demand and we are selling more and more to that market every year. But it’s not just China; the whole of Asia is growing. Indonesia is growing a lot and importing a lot more protein every year – and a lot of other Asian countries are too.

Are you concerned about signs of the Chinese economy slowing?

No. If China reduces growth to 7% it is still growth of 7%. Even if it’s 6% it is still a large number and still a huge opportunity for protein sales.

What about the challenges for Brazil?

A lot of people say infrastructure is our biggest challenge. I think this is an issue but not the biggest. The biggest is education – it is something that money cannot buy. Infrastructure can be fixed in a relatively short period of time if you invest enough money. But for me, education is the bigger issue because even with the right investment it will take decades to fix.

What innovations do you foresee in the meat industry?

It starts in the farm – they are adding technology and using genetics to improve efficiency. There are also innovations in how we manage and process our products which are adding productivity. Innovation is continuous and present in all areas of our business and it is very important to us.

Does regulation threaten the innovation taking place in farming?

I think regulation is one of the challenges we face as an industry. But it’s a question beyond regulation: how do we keep growing in a sustainable way? The world will continue to demand more protein and so we will need to produce more protein. But on the other hand we need to do this in a sustainable way – environmentally as well as economically.


The environmental aspects are definitely a challenge. For example, China is the oldest, biggest pork producer – and its challenge is how to continue to produce hogs in a sustainable way. The Chinese face water scarcity and environmental problems as they seek to expand.

Capacity issues in Brazil, where meat production eats-up the rainforest...

A lot of people talk about deforestation, but Brazil has lots of room to expand. For example, we can double beef production using the same amount of land that we currently do by being more productive. By adding technology to land that is already open, we have a great opportunity to grow our business. And the demand is definitely there.

Which is why you want to buy Brazilian companies?

Exactly. When you look around the world, Brazil is the only country that can continue to grow beef production in a big and sustainable way.

 

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