What's going on here?
Shares of Brazilian meat companies are having a torrid few days after allegations of corruption and contaminated meat on Friday have created huge problems for one of Brazil’s biggest export industries.
What does this mean?
You may not know it, but Brazil is one of the world’s biggest exporters of meat. On Friday, Brazilian police alleged that politicians and public health officials received bribes to turn a blind eye to exports of contaminated meat. Shares of JBS and BRF, two Brazilian companies that are among the world’s biggest producers of processed meat and poultry, sold off sharply on Friday in response (both companies have strongly denied any wrongdoing). On Monday, stocks of those companies and others in the industry went down further as China and South Korea placed new restrictions on Brazilian meat imports. Other countries may also take action – obviously that wouldn’t be good for Brazil’s meat industry!
Why should I care?
For the markets: Food producers are constantly at risk of scandal.
While every industry is, of course, at risk of corruption, the food industry is particularly vulnerable to people’s perceptions of quality because it matters so much to our health. Tyson Foods in the US has recently struggled due to a bird flu outbreak, and the “horse meat” scandal isn’t too far back in the memories of British consumers. All these incidents knocked stock prices hard.
The bigger picture: This appears unlikely to derail the Brazilian recovery.
Brazil has had a rough few years as economic activity contracted significantly from 2014-2016, following a huge corruption scandal and related political upheaval (including the impeachment of its president). Its economy, while still struggling, appears to be turning a corner. While this scandal is certainly unwelcome and will likely hurt growth, it’s probably not enough to imperil Brazil’s overall recovery.