Analysis JBS
Does meat giant just calculate cartel fines?
The dominant position of large meat concerns is not only a topic of discussion in the Netherlands. This topic is also topical in the United States. Where in our country the Netherlands Authority for Consumers & Markets announced that it was investigating a cartel in the Dutch food processing sector, the United States has already gone a step further.
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And this is not the first time for the originally Brazilian listed company, which occupies important positions in almost all major meat markets (beef, pork and poultry meat). It has been under fire for years because of price agreements in both purchasing and sales. It does not always actually result in a conviction. JBS also regularly buys off charges by simply withdrawing the money.
The company has had the wind in its sails in recent years and seems to be able to pay the lump sum payments totaling hundreds of millions of dollars without too much difficulty. The company also managed to significantly increase its financial results when presenting its most recent quarterly figures (those for the third quarter): quarterly profit rose to $1,38 billion, 145% higher than in the same period a year earlier. A result that is in stark contrast to the lump sum payments and fines. JBS has now had to deal with lawsuits in all major markets.
Poultry meat
In the fall of 2020, subsidiary Pilgrims Pride, America's second-largest poultry meat producer, entered into a deal in which it pleaded guilty to prohibited price fixing. This arrangement with the US Department of Justice cost the company $110 million. Pilgrims Pride admitted that in the period from 2012 to 2017 it made agreements with parties that led to excessively high sales prices. Various leaders within the company also had to step down, a number of whom were also personally prosecuted.
Pork
Over the past year, JBS reached several settlements in cases involving price fixing in the sale of pork. JBS was sued and sued from several sides: restaurants and retailers, meat wholesalers and consumers filed suit. JBS reached a settlement with all three groups. The final bill was $57 million.
Beef
With the most recent settlement, JBS buys off another prosecution for violation of competition law. In the pending indictment, the company was accused by parties in the chain of deliberately keeping purchasing prices for cattle low. Although JBS is not the only slaughterhouse suspected in this case, it is the first party to reach a settlement. The company is buying out further investigation and prosecution for $52,5 million.
After the beef case, JBS now has the dubious distinction of saying it has faced antitrust lawsuits in all of the three major meat markets. It therefore no longer appears to be an incident. A culture is emerging within the company in which making prohibited price agreements and the associated costs is fairly common: although the company already admitted guilt in the 'poultry case' in 2020, prohibited agreements in other sectors continued as usual.
Investors no longer seem to be frightened by negative news surrounding these types of cartel cases, and a cost item in terms of settlements seems to be factored into the price. The company currently benefits from the worldwide high prices for beef and chicken, and in previous years from the high prices for pork. The financial results have improved significantly in recent years, a trend that was once again confirmed with the strong profit growth of 145%. The share price is stable around 35 Brazilian Reals, even after the most recent multi-million settlement. A historically high price, as the share often fluctuated around 2018 Brazilian Reals until the end of 10.