Beef Behemoth’s First Closure Raises Specter of More Disruptions

(Bloomberg) --

Just as the U.S. is starting to crawl out of its meat crisis, the rapid spread of coronavirus is increasingly threatening production from Brazil, the world’s top beef and chicken exporter.

JBS SA, the biggest global meat company, was ordered to shutter operations at a beef plant in the state of Rondonia after a judicial ruling. It’s the first closure for beef in the country due to the outbreak, ushering in what could be a new chapter of the crisis for Brazil’s meat industry.

The nation’s initial outbreaks and meat-plant shutdowns took place in the nation’s south, a poultry and pork production hub. Now, as the virus spreads quickly into the countryside, the industry’s capacity to keep beef production flowing is at stake.

Meanwhile, chicken-exporting giant BRF SA is stepping up hiring as its chief executive officer warns of absenteeism and possible closure orders by local authorities as the virus spreads.

Increasing problems for Brazil could have major global ripple effects on meat supplies, especially as output is still constrained in the U.S. even as facilities start to reopen. The two nations account for more than half of the world’s meat trade. Persistent production disruptions could mean that more supplies go into domestic markets, leaving less for export. Outbreaks are also hampering output at European slaughterhouses, where more than 1,000 workers have contracted the disease.

To be sure, so far only a handful of plants have closed in Brazil and the country has avoided the types of major disruptions that were seen in the U.S., where output was cut about 40% from normal levels during the worst parts of the crisis. The South American powerhouse is also introducing a new set of safety standards to protect supplies and workers. And producers including JBS, BRF and Marfrig Global Foods SA are enacting increased safety measures.

Only two plants are currently ordered to be shut: one JBS chicken plant in Santa Catarina state and the beef plant in Rondonia.

But there are some concerns that things could get worse as Brazil becomes the new global virus hotspot, with cases spiking to the second-highest in the world and the pandemic reaching small towns in the countryside. Reports of infections at meat plants have started to tick up, including in northern states.

On Monday, Marfrig Global Foods SA said 25 workers at a plant in Mato Grosso state tested positive and at least one died. The company was ordered a labor judge in the state to increase distancing between employees, a move that will limit operational capacity. In Tocantins state, 55 workers from a Minerva SA’s Araguaina plant were removed from operations after testing positive, the company said last week. The beef exporter decided to test all the 730 workers at the unit amid a fast expansion of the virus in the city, according to a statement.

JBS has been ordered to test all its employees at its shuttered beef facility in Sao Miguel do Guapore, Rondonia, according to a filing shared by the state’s labor prosecutor’s office. The closure came after the company saw halts at two of its chicken plants in the nation’s south. Only one remains closed.

In a response to a request for comment, JBS said its workers’ health is a priority and that it’s adopting strict protocols to prevent Covid-19 contamination. The company didn’t comment on the situation of Sao Miguel do Guapore plant specifically.

The plant in Sao Miguel do Guapore employs about 950 workers and had 29 confirmed coronavirus cases as of May 25. That represents 60% of the cases in the city of 25,000 residents, according to the labor prosecutor Helena Romera, who requested the plant closure.

“We have seen fast growth in coronavirus reports in the municipality in recent days, and we realized that a great part of them were JBS workers,” she said in a telephone interview. “Given the gravity of the situation, we decided to request the closure.”

Virus outbreaks in U.S. slaughterhouses forced a wave of closures last month that led to a glut of animals and a more than doubling of domestic wholesale pork and beef prices. Plants started to reopen this month, following an executive order from President Donald Trump.

Operations have continued to be limited by worker absenteeism as virus cases keep increasing. U.S. cattle slaughter rates are still down about 13% from a year ago, and for hogs it’s 15%. And while the price rally has eased, wholesale beef is still up about 84% since the start of the year, with pork about 33% higher.

BRF is stepping up hiring in Brazil to guard against labor issues. The company now plans to hire 5,000 versus 2,000 previously, CEO Lorival Luz said Wednesday in a webinar sponsored by Valor Economico newspaper. Chicken prices in the country may rise amid falling production in the coming months, he said.

Luz also warned that local authorities may keep mandating plant closures. All BRF plants are currently operating, while the Lajeado unit was closed for a week earlier this month by a judge’s ruling.

The intervention of state and local authorities in Brazil would partly mirror the U.S. While there no hard rulings prompting American plants to shut, the closures started to ramp up after governors intervened with public pressure to halt operations amid outbreaks. That has since stopped following Trump’s executive order to keep the facilities running.

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