Is the Brazilian poultry industry too big to fail? Different large groups are buying up Brazilian poultry companies, be it in US dollars or Euros. These are not limited to poultry production but also pork and red meat companies all over the world. If adding this all together and only for this on-going year, it amounts to billions of US dollars. Here is a good question with not a very clear answer - who is financing these take-overs and in which currency?
Brazil definitely needs exports to not only pay for these acquisitions but also for the very much needed modernisation and automation of poultry production facilities. The new techniques and automation needed to cope with mounting production costs are probably paid in US dollars or Euros. The cost of production is rising much too fast due to many reasons. We see substantial increases in the salaries of workers, higher taxes on labour and profits, the mounting cost of the social welfare system. The on-going strikes in the transport system and in the exporting port are becoming a big problem to ship products for export in time. Last but not least, the industry has to contend with frequent breaks in the electricity supply and water shortages. And not to forget the cost of the raw materials are increasing - creating a negative impact on the overall live cost of the broilers.
Some 20 years ago and out of the blue, Brazil arrived on the export market. This was mainly thanks to the first big devaluation of the country’s currency, the real. In 1995 you needed 0,961 Brazilian real to buy 1 US dollar, where today you need 3,898 real to buy 1 US dollar, so just this year alone they lost 32.50%. How far can they go with the currency?
They may have been saved by the bell! The country has increased its poultry exports, profiting from avian influenza in the US, and from political issues between Russia and Europe. But again the question arises, “is the Brazilian poultry industry too big to fail?” And if so, who will take-over? Europe? This is not likely. What about China, Russia, Ukraine? Argentina would/could have the capacity and the possibilities of producing at low cost – even at a lower cost than Brazil, but the world importers of poultry have no confidence and trust in the capability of Argentina to ship in time. This is mainly due to the bad reputation of social unrest and frequent strikes preventing transport or shipment.