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Brazil beef scandal leaves fewer options for global buyers

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Brazil beef scandal leaves fewer options for global buyers

By Tom Polansek and Theopolis Waters | CHICAGO, March 20

CHICAGO, March 20 Global beef buyers will likely
need to cobble together supplies from several nations if a
scandal persists in Brazil’s meat sector because supply
constraints and politics are already limiting trade flows,
market analysts said on Monday.

China suspended imports of all meat products from Brazil,
the world’s top beef exporter, as a precautionary measure after
inspectors there were accused of taking bribes to allow sales of
tainted food. South Korea, the EU and Chile also curtailed meat
imports from Brazil.

Brazilian police on Friday named BRF SA and JBS
SA, along with dozens of smaller rivals, in a
two-year probe into how meat packers allegedly paid off the
inspectors and politicians to overlook improper practices.

China, which the U.S. Department of Agriculture calls the
world’s fastest growing market for beef, accounted for nearly
one-third of the Brazilian meat packing industry’s $13.9 billion
in exports last year.

Australia, Argentina and Canada could fill in the gap during
the ban, said Mike Zuzolo, president of U.S. brokerage Global
Commodity Analytics. However, each shipper faces its own
challenges in the market.

Much of the beef exported from Brazil is grass-fed, putting
it in direct competition with New Zealand and Australia.
Australia, the world’s second biggest exporter, is an
unattractive replacement, though, because prices are high due to
drought, said Derrell Peel, an agricultural economist at
Oklahoma State University.

“They’re under a production squeeze right now,” he said.

And in Argentina, producers are still rebuilding their beef
industry after trade controls imposed under its former
left-leaning government hurt exports, traders said.

About 31 percent of China’s beef imports came from Brazil in
the first half of last year, according to the U.S. Department of
Agriculture. Australia had about 19 percent of China’s import
market, while Argentina held about 8 percent.

China, whose beef cattle industry is still dominated by
small backyard farms, has not bought beef from the United States
since a scare over mad cow disease in 2003. Its new ban on
Brazil’s meat could accelerate talks to reopen trade, Peel said.

Cargill Ltd, one of the world’s largest
commodity trading houses, said it was too early to know how
Brazil’s scandal may impact U.S. beef exports. Tyson Foods Inc declined to comment.

Brazil’s scandal could provide an overall beef price lift if
it limits the pool of globally traded beef and forces buyers to
lean more heavily on other suppliers, said Ron Davidson,
spokesman for Canadian Meat Council, whose members include
Cargill and JBS. However, beef exported from Canada, the world’s sixth-biggest
shipper, is largely fed with grain, not grass.

“The Canadian product might look more competitive if the
opportunity to import from Brazil is lessened,” Davidson said. (Additional reporting by Rod Nickel in Winnipeg; Editing by
Leslie Adler)