Mongabay Series: Amazon Cattle Investigations
It’s largely accepted that clearing land for cattle accounts for 70% of Amazon deforestation, with the rate of rainforest cutting accelerating drastically since President Jair Bolsonaro took office at the start of 2019. Between August 2020 and July 2021, 13,235 square kilometers (5,110 square miles) were lost, the highest level since 2006. That devastation is likely to increase in 2022, undermining the Amazon’s vital carbon storage capacity.
Far less recognized outside financial circles is the key role international capital, particularly from the United States, plays in driving Amazonian destruction through its investments in Brazil’s beef sector.
In fact, foreign capital — in the form of shareholdings, loans and bond purchases — today outweighs Brazilian capital in JBS, Marfrig and Minerva, the country’s Big Three meatpackers. That assertion is based on evidence unearthed by Mongabay’s survey of Brazilian and U.S. stock exchanges, academic studies, company reports and court cases. These foreign investments have turned Brazil into the world’s second-largest beef producer and leading exporter.
While press reports often portray Brazil as taking over the world’s beef sector, it is the Big Three that have been taken over by international investors.
This means that many ordinary working people outside Brazil are unwittingly helping fuel Amazon deforestation through their indirect investments in these companies. Minerva, the smallest of the Big Three, lists Los Angeles firefighters, California and Ohio public employees, U.S. rail workers, and Illinois teachers among its shareholders. It is likely these workers have no idea their respective pension funds are invested in a company complicit in deforestation.
Countless more U.S. and EU citizens save for retirement through international asset management companies that administer holdings in the Big Three. That includes leading financial players such as BlackRock, Vanguard, Fidelity, State Street, Aviva, Legal and General, Columbia, Thomas White, Boston Private Wealth, and Pharus. BlackRock alone has $408 million in shares in the Big Three.
Sovereign funds from China and the Middle East also play a major role in fueling Amazon tree loss. Minerva is now more Saudi-owned than Brazilian. The Saudi Agricultural and Livestock Investment Company (SALIC) currently holds 33.83% of Minerva share capital, while Brazil’s Vilela de Queiroz family, who founded Minerva in 1992, holds just 17.6%.
Minerva specializes in exporting live cattle to the Middle East, mostly sourced from the severely deforested Amazonian state of Pará. These exports carry nearly five times more deforestation risk per ton than beef exports from the rest of Brazil.
Analysis by Gabriel da Silva Medina at the University of Taubaté in São Paulo state puts Brazilian participation in Minerva even lower, at a mere 7.6%. His 2021 study identifies 15.5% of Brazilian capital in Marfrig, Brazil’s second-largest meatpacker, and 38.3% in JBS, the market leader, which has grown in recent years to be the world’s largest meat company.
In 2020, Global Trade Review (GTR) totted up foreign monies in the Big Three, identifying $156.6 billion in total: $58bn from the United States, $47.3 billion from China, $34.7 billion from the EU, and $16.6 billion from the U.K.
Global Witness showed that 250 financial institutions, 41% of them headquartered in the United States and EU, including J.P. Morgan, Deutsche Bank, Santander, BNP Paribas, ING, HSBC, Barclays and Lloyds, either facilitated or directly provided $9 billion to the Big Three between 2017 and 2019.
The Big Three own Brazil’s major frigorificos, the feedlots and cold plants that buy cattle from ranchers, then slaughter, debone and butcher them and pack the beef for transport in refrigerated trucks to distribution centers in distant cities, and for export.
Since the early 2000s, the fastest growth in both frigoríficos and cattle herds has been in Brazil’s “Legal Amazonia,” the immense Amazon Basin rainforest region incorporating parts of nine states.
Ranching’s Amazon invasion is fueled by a stepwise process that can bring the main actors huge profits at each stage. In the first phase — the clearing of the forest — rival land grabbers and criminal elements fight for control of forested sites that, in reality, they have no right to, as most of the land lies inside protected areas or Indigenous reserves. Confident of an eventual government amnesty, land grabbers move into areas that have just become accessible, or will shortly become accessible, due to the Bolsonaro administration’s massive, aggressive road-building program.
Land grabbers in turn sell the cleared land to ranchers at a huge profit. In the topsy-turvy world of the Amazon Wild West, a hectare of barren, cleared land is worth 100 or even 200 times more than a hectare of standing forest, despite the extreme value of rainforest for its biodiversity and vital role in sequestering carbon to help slow climate change.
A hard-hitting Greenpeace report in 2009 denouncing the horrific environmental cost of Brazilian ranching’s expansion, and the global public outcry that followed, forced the Big Three to take action. All signed agreements not to acquire cattle from suppliers linked to deforestation and human rights violations.
However, alleging practical difficulties beyond their control, the Big Three haven’t fully complied. As several studies have shown, they are still buying cattle from ranches associated with illegal deforestation and slave labor.
Here’s how it’s done: Cattle are typically bought and sold multiple times during their lifetimes, with the livestock moved from recently cleared areas to established ranches nearer the frigoríficos. Poor tracking allows for “greenwashing” of the beef, as cattle born and raised on newly deforested land eventually go to slaughter from lands that lost their trees long ago.
When confronted with evidence of cattle laundering — police reports, satellite photographs or transport permits — the Big Three’s head offices frequently issue flat denials.
Enforcing zero-deforestation commitments needs political will, oversight and enforcement. But that’s not forthcoming from Brazil’s current administration, already responsible for very high levels of deforestation, and currently trying to pass laws that would increase forest loss.
Bolsonaro was thrust into office partly by the country’s ruralistas, rural wealthy elites and land grabbers controlling Amazon ranching and agribusiness.
In March 2022, Brazil’s Congress started debating Bolsonaro bills to reduce the size of Legal Amazonia so farmers from the leading cattle-rearing state of Mato Grosso can be exempted from current requirements to leave large portions of their ranches forested. There are also moves afoot to ease restrictions on Amazonian land grabbers and to permit commercial mining on Indigenous lands.
“The situation is desperate,” John Wilkinson, a specialist in global agribusiness at the Federal University of Rio de Janeiro, told Mongabay. “You go to an agricultural frontier and cannot imagine it was once forest. It’s a savage business and leaves a level of disgust. Finance capital speeds up the changes.”
Some isolated measures to counter the destruction have taken place. For instance, in February 2022, a $200 million loan to Marfrig from the Inter-American Development Bank fell apart because investigations by the bank showed that the company was still buying animals raised on deforested land. But nothing suggests that the destruction has been halted.
In the early days, Brazil’s three meat companies were firmly controlled by their ambitious founders, each an example of a rags-to-riches transformation. A rural butcher who slaughtered five steers per day, a provincial cattle trucker, and a 16-year-old butcher’s son selling offal created these transnational corporations that between them in 2021 made some $94 billion, with JBS clearly dominant, accounting for $64 billion of that total.
JBS was called Friboi until 2005, when it was renamed after the initials of its founder, butcher José Batista Sobrinho. In 1995, Batista Sobrinho and his oldest son, Juvensor, transferred command to the two younger sons, Wesley and Joesley Batista, born 10 months apart in 1982.
As they girded for expansion in the early 21st century, the Big Three employed executives — including Iain Andersen Mars, James Cruden, Andrew Murchie, Bassem Sami Akl Akl and Raul Ferraz Mendes — who previously worked for the U.K.’s Vestey Holdings. Privately owned by a secretive family dynasty, Vestey was the JBS of the 20th century, running vast ranches and processing plants in Australia, Brazil, Argentina, Uruguay and Venezuela, along with shipping lines and chains of U.K. butcher shops.
But in the 1990s, Vestey started dismantling its ranch-to-shop operations, opting for stand-alone companies. By 2005, Vestey had got rid of its ships, shops and Australian ranches, and sold its two important Brazilian frigoríficos to JBS. The U.K.-based firm retained its Brazilian ranches, renamed CFM Agropecuária, and populated by 60,000-80,000 head of cattle, grazing on 1,330 km2 (514 mi2).
Two-thirds of the pedigree stud bulls at CFM’s annual auctions customarily go to ranches located in Brazil’s Pantanal, one of the most biodiverse wetland biomes on Earth. Its unique wildlife and marshes are being rapidly destroyed by ranchers, who have set fire to vast areas to expand their operations.
In 1996, JBS set up its export division under the control of Jerry O’Callaghan from Ireland, who became company chairman in 2017. He brought over European butchers to teach foreign cuts to Brazilians and began exporting fresh beef the following year. According to John Wilkinson, Vestey helped JBS open doors to the British market. Today, Vestey buys JBS meat for its U.K. food companies and has a contract with the U.K. Defense Ministry to supply British troops with meals-ready-to-eat.
The Big Three’s hugely successful move onto the world market, starting in the first decade of this century, was kicked off by employing executives with international know-how, then exploded under the mentorship of international investment bankers.
Young professionals, employed by the investment arms of global banks, worked strategically. They groomed the Brazilian companies for public listings, located international acquisitions, and set up tax haven companies in secrecy jurisdictions where local laws enable companies to avoid taxes and hide shareholders’ identities.
Today, each of the Big Three owns companies in the Cayman Islands, a well-known tax shelter. JBS also has subsidiaries in the British Virgin Islands, the Netherlands, Luxembourg, Bermuda and Delaware, Texas; Minerva has companies in Luxembourg and Singapore; and Marfrig in Jersey and Luxembourg. The list of holdings may well be longer.
A single investment banker, informally known as “the JBS banker,” propelled the meat company through its years of momentous growth. JP Morgan’s Patricia de Moraes, a mergers-and-acquisition specialist and daughter of a former Brazilian agriculture minister, took JBS under her wing in 2002. Her first success was to persuade Joesley Batista, who jointly ran the company with his brother, to start hedging against fluctuations in cattle prices and exchange rates. The result: JBS became the first Brazilian meatpacker to create a permanent trading table for futures, the legal agreements to buy or sell a particular commodity at a predetermined price in the future.
In 2005, Moraes negotiated JBS’s first foreign acquisition, the long-established Swift meat company in Argentina, in which JP Morgan held a minority share. The company was in difficulties but its annual revenue was five times that of JBS. In her JBS biography, Brazilian journalist Raquel Landim says that between 2006 and 2014, JBS expanded its annual revenue almost thirtyfold — from 4 billion reais to 120.5 billion reais ($1.8 billion to $51.3 billion).
“We snapped up wobbly frigoríficos, cured them and put them to work,” Joesley Batista explained in 2015. “Our timing was good,” he added.
“It was certainly a different way of growing a business,” commented a Brazilian analyst. JBS “did not expand and then make acquisitions. They went shopping in order to expand.”
JBS and Marfrig both benefited from buyout money flowing from Brazil’s National Economic and Social Development Bank (BNDES), which implemented industrial policy during the administrations of Luiz Inácio Lula da Silva (2003-2011) and Dilma Rousseff (2011-2016) to create “National Champions.”
According to that plan, a handful of Brazilian companies were to be converted into some of the world’s largest transnationals, able to compete globally. By 2015, the BNDES investment arm, BNDESPAR, held 25% of JBS share capital.
BNDES’s soft loans and investment policy generated enormous controversy in Brazil, with the federal development bank initially accused of favoritism and later of corruption. In 2016, with Lula and Rousseff’s ruling party out of power, JBS became the subject of a police investigation. The Batistas made plans to move JBS’s headquarters to Ireland, only to be vetoed by BNDES.
The following year, brothers Joesley and Wesley opted for a plea bargain, confessing to paying $148 million in kickbacks to obtain BNDES monies and state pension funds, as well as providing often apparently illegal “campaign donations” to 1,829 politicians across all parties. Both brothers spent six months in jail and the JBS holding company was penalized with a record $3.2 billion fine (not quite as severe as first appears, given that the fine was spread over 25 years with a low interest rate).
While BNDES’s support was fundamental at the outset, it has since been dwarfed by what the Big Three have raised abroad themselves with the aid of investment bankers.
Back in 2006, JP Morgan’s Moraes led Joesley Batista and a team of JBS executives on their first world tour to promote their first issue of debt bonds. That venture exceeded expectations: looking for $100 million, they received offers for $300 million. In 2007, Moraes set up another world tour, this time plugging JBS’s launch on the São Paulo stock exchange (Bovespa). Wesley and Joesley crisscrossed the U.S. in a private plane, pitching to investment funds.
JBS, followed by Marfrig and Minerva, made their initial public offerings (IPOs) on Bovespa in the same year, 2007. More than 70% of Bovespa offerings that year went to overseas investors. On the day of their IPO, the Batista family gathered at JP Morgan’s New York offices to watch trading hit the largest volume in Bovespa history.
Shortly afterward, JBS launched itself aggressively into the U.S. market with its July 2007 acquisition of the Swift meat company’s U.S. and Australian operations, at a cost of $1.5 billion and again supported by Brazilian development bank money from BNDES.
Wesley Batista relocated to the United States, renaming Swift as JBS USA. The former Vestey manager, Iain Anderson Mars, took charge of JBS Australia. Today, Mars is president of Minerva Australia.
JBS moved into U.S. chicken processing in 2009, buying 64% of Pilgrims Pride, then in bankruptcy proceedings but still a giant with 235,000 employees nationwide. Since then, barely a year has passed without JBS buying another international company. In Brazil, it built a cellulose plant and is currently rumored to be casting around for mining opportunities.
Marfrig was a late arrival to the U.S. beef production scene, buying 51% of the fourth-ranked National Beef Packing Co. in 2018.
Due to its power to influence prices and overall market conditions, academics classify the Brazilian frigorífico sector as an “oligopsony”: a concentrated marketplace dominated by few buyers. The handful of companies running Brazil’s frigoríficos can fix cattle prices affecting thousands of ranchers, while officials look the other way.
The U.S. meatpacking sector, also highly concentrated, is currently under fire from the Biden administration. “Capitalism without competition isn’t capitalism. It’s exploitation,” the president said on Jan. 3, 2022, as he announced the Biden-Harris Action Plan, a raft of measures to counteract corporate concentration in the meat industry.
A mixture of carrot and big stick, the action plan promises incentives worth $1 billion for independent meat-processing plants and new legislation to curb the power of the four largest companies that control 80-85% of the U.S. beef market, the world’s largest. Two of the four — JBS USA and the Marfrig-controlled National Beef Packing Co. — are nominally Brazilian and closely linked to its gigantic cattle industry.
If passed by Congress, two reforms within the action plan promise to hit the Brazilians hardest: a ban on U.S. packers labeling products processed from non-U.S. beef as “U.S. made,” and a requirement for greater transparency.
The U.S. Securities and Exchange Commission (SEC) has already fined JBS for several regulatory infringements, including, in February 2022, a massive $52.5 million fine for holding back beef stocks to inflate prices. Currently, JBS along with Bertin, a smaller Brazilian meat company, are under investigation by both the SEC and CVM (the SEC’s Brazilian equivalent), due to their 2009 transactions in Blessed Holdings LLC., a tax haven in Delaware, Texas, set up by a JPMorgan lawyer.
JBS had announced the 2009 deal as a merger. Soon afterward, Joesley Batista bought his first luxury yacht, naming it “Blessed.” In truth, JBS was buying Bertin out of their Brazilian joint enterprise, BF Produtos Alimentícios, through a complex share swap concealed within Blessed. In October 2021, the case moved up a notch when CVM’s Superintendency for Sanctions (SPS), rejected Bertin’s offer to settle out of court, citing “the gravity of the case” and the possibility that JBS minority shareholders had been defrauded.
JBS is also being seriously targeted by environmentalists. In April this year, Minnesota-based NGO the Institute for Agriculture and Trade Policy calculated that between 2016 and 2021, JBS’s worldwide annual greenhouse gas emissions rose by 51%, to 421.6 million metric tons — more than Italy’s annual climate footprint.
It was an infusion of funding from the global financial sector that is helping fuel these emissions. In a joint 2021 report, Greenpeace and WWF wrote that U.K. banks and asset managers were responsible for financing 805 million metric tons of C02 release in 2019. “The finance sector is driving the high carbon economy, yet there is currently no requirement for it to reduce its emissions in line with government targets,” the report said.
Subjecting banking activities to climate guidelines is a recent demand, but one fast gaining momentum. This March, 34 Brazilian NGOs appealed for financial institutions to be included in zero-deforestation parameters.
The same month, U.K. NGO Make My Money Matter launched a campaign urging investors to switch to sustainable pension funds on the grounds that one-fifth of the 2.7 trillion pounds ($3.39 trillion) equity currently held in U.K. pension funds is linked to world deforestation.
Similar campaigns are emerging in the United States.
Although foreign funding may have helped the Big Three expand in the early 21st century, it is this international investment which now provides activists with leverage and a new gateway for putting pressure on the beef packers to stem their rampant deforestation.
Banner image: A rancher herds cattle in Mato Grosso, Brazil. Image by Bernard DUPONT via Flickr (CC BY-SA 2.0).
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