Learning from Brazil’s ‘Weak Meat’ scandal

Monica Ganley, founder and principal of Quarterra, offers her thoughts on the fallout from the recent Brazilian meat scandal, 'Carne Fraca,' and how investors can learn from it.

Monica Ganley is the founder and principal of Quarterra, a boutique strategy consultancy and advisory firm focused on helping clients understand and access opportunities in Latin America’s food and agriculture sectors. Below, Ganley offers her thoughts on the fallout from the recent Brazilian meat scandal, ‘Carne Fraca,’ and how investors can learn from it. 

On March 17, 2017, Brazilian police stormed slaughterhouses around the country in the culmination of a two-year investigation that revealed widespread corruption and food safety offences throughout the Brazilian meat industry. Dubbed ‘Carne Fraca,’ or ‘Weak Meat,’ the operation revealed that company representatives bribed government officials to provide falsified certifications on beef and poultry products.


When the dust settled, 21 plants were implicated and 60 people were indicted in a scandal that is estimated to have cost the industry billions of dollars. While the scandal has been devastating for the Brazilian meat sector, it has created an important learning opportunity for investors in the global food and agriculture industries.

The scandal has served as a sobering reminder of both the fragility of food safety systems as well as the unfortunate fact that corruption is alive and well in many parts of the world. For investors who are drawn to the opportunity offered by relatively less developed geographies, such as Latin America, it is imperative to recognize that investments in these regions carry a unique risk profile that must be thoroughly understood and managed. The human capital, systems, and procedures of each investment must be tailored to fit the region’s idiosyncrasies and protect against events such as those that have rocked the Brazilian meat industry over the past weeks.

What is remarkable, though not surprising, about the fallout from the Brazilian meat scandal is the incredible amount of damage that just a few bad actors were able to wreak on such a large industry. Though only a small fraction of Brazil’s meat processing facilities was implicated in the scandal, the entire industry, whose exports are valued at over $13 billion per year, is paying the price in the form of decimated consumer confidence and reduced market access.

In the days following the sting operation, critical markets such as China, Hong Kong, and Chile closed their doors to Brazilian meat products, and exports of Brazilian beef and poultry fell to nearly zero. While some of these markets have since been re-opened, the damage has been done and recovering the lost export value will be a long and arduous process. This is unsettling for investors who must accept that even if they play by the rules, the value of their investments may be compromised by those who do not.

The Brazilian meat business is an attractive one featuring global cost competitiveness and a strong outlook for growth as the global population expands, becomes richer, and demands additional animal proteins. Meat processing is just one step of a deep value chain including adjacent stages like input production (such as cattle or poultry feed) and logistics, which have attracted meaningful investment from both domestic and international private equity in the past. These investments can still offer strong fundamentals and returns, but investors must be cognizant of the associated risks.

Investors should view this scandal as a wakeup call and a reminder to review the tactics and strategies they have in place to protect investments. Most importantly, risk analysis and mitigation must be prioritized. When considering new opportunities in Latin America, time and effort must be applied toward understanding the investment’s risk profile, identifying gaps, and determining whether or not these can be addressed to a sufficient degree.

Knowledgeable local guidance such as geography and industry specific consultants and advisors can prove critical to ensuring that this exercise is properly executed. Existing investments should also be regularly reviewed to ensure that the risk profile of the investment is fully understood and aligned with an investor’s appetite and intention. Had the companies implicated in this situation taken these steps, they may have been able to identify the bad actors and eliminate them before the scandal blew up.

This scandal has also reminded us of the need to have a crisis management plan in place that is well communicated throughout the organization. Particularly in the food and agriculture industries, which are so close to consumers, it can be easy for these scandals to spiral quickly out of control. To contain the negative fallout from an event such as this, it is critical that your organization is prepared to react quickly and transparently in the event of an emergency by providing information and a plan of action to employees, shareholders, and the media. Even if an investor is not personally involved with the plan’s development, they must insist that the managers of their portfolio companies heed this important task.

Although the scandal has upended the Brazilian meat industry, in its wake, new opportunities have been created for the savvy and creative investor. For example, particularly in geographies with weak institutions and rampant corruption, the private sector could play an important role in creating certification programs that would help restore consumer confidence and enable companies to set themselves apart from the competition. Furthermore, given the failure of current food safety systems, new technologies that can address these weaknesses are likely to find themselves with an important market to serve. Opportunities abound and the investor ready to embrace them will surely be well-rewarded.

Many are drawn to investments in food and agriculture due to their relative stability. However, as the Brazilian meat scandal has reminded us, these industries have their own risks, especially in geographies like Latin America. By taking the proper steps, investors can insulate their investments and continue to enjoy the returns offered by these unique and dynamic sectors.