When Jair Bolsonaro boasted to the UN general assembly last month that his country’s agribusiness sector was responsible for “feeding the world”, the Brazilian president was nodding to companies like JBS.

The world’s largest meatpacker, which started out as a tiny slaughterhouse in the 1950s, processes more than 75,000 cattle, 115,000 pigs and millions of chickens every day — much of which is exported to satisfy growing demand for protein across Asia and the Middle East.

While coronavirus has shattered Brazil’s economy, São Paulo-headquartered JBS has emerged as one of the winners of the crisis. A sharp increase in demand for processed meats to consume at home, rising protein prices and a weakened local currency supporting exports all propelled it to a record second quarter and allowed it to leapfrog oil group Petrobras to become Brazil’s largest company by revenue.

But the group, which has faced accusations from both activists and investors that it is fuelling deforestation in the Amazon rainforest and other fragile biomes by allowing cattle raised on deforested lands to enter its supply chain, has also come under greater scrutiny amid a growing focus on the role of big business in climate change.

While JBS was mostly silent as some of its agribusiness peers such as Marfrig and other Brazilian companies, including banks, called on the government to rein in deforestation this summer, it has now unveiled a set of changes as it seeks to shed its image as an environmental villain.

“The target is zero deforestation. We need to control the suppliers. But the other part is to catalyse sustainable development in the Amazon,” Gilberto Tomazoni, chief executive of JBS, told the Financial Times. “We need to improve the system, and because of that we have this programme to support the farmers, to teach and to give legal and technical support.”

Under the new plan, JBS said it would use blockchain technology to track the certification for each head of cattle, so animals from illegally deforested lands could not be laundered in the legitimate cattle ranches that supply it. All of its direct suppliers will be obliged to use the digital ledger by 2025 to prove the origins of their herds, with the platform audited by third parties, the company said.

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It has also pledged to inject $100m by 2030 to support rainforest communities, where poverty often drives illegal ranching and deforestation, and said it would match further third-party contributions.

JBS has long denied buying cattle from farms involved in deforestation, but the initiative is a recognition that there is a problem with indirect suppliers to those ranches.

Mr Tomazoni said the changes reflected a new emphasis on sustainability. “We need to be sustainable in the long term and we need to be relevant to society,” he said.

Line chart of JBS share price (Brazilian real) showing The meat industry’s cash cow

Executives have admitted privately that the group needed to respond to mounting pressure from shareholders as the stakes are high. JBS currently risks a boycott from European retailers, including Tesco, which recently called on the British government to ensure food sold in the UK is deforestation-free.

Having risen sharply in 2019 the company’s share price has since been battered by a broader sell-off in Brazilian equities and a stream of negative news in relation to its environmental impact. It has fallen 30 per cent in the past year.

In June more than two dozen financial institutions managing more than $3.7tn in total assets demanded that the Brazilian government rein in surging deforestation saying environmental destruction threatened investment. Brazil’s meatpacking industry was highlighted as an area of particular concern.

The following month Nordea Asset Management, which oversees €223bn, decided to exclude JBS shares from its funds citing environmental concerns.

“We know that investors are afraid of the company. Despite recent efforts to improve the perception of its sustainability policies, there is still huge scepticism from abroad,” said Bruno Arruda, a portfolio manager at Gauss Capital, a Brazilian asset manager that has a stake in JBS.

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“Such concerns which were well founded in the past . . . but I can say the price of the stock now does not reflect the improvement that JBS has shown.”

Jeanett Bergan, head of responsible investments at KLP — Norway’s largest pension fund — was less forgiving, saying it was “no surprise that JBS stocks have underperformed as the list of scandals it has faced has been long, from corruption and deforestation to workers’ rights abuses”.

With net profit soaring almost 55 per cent to R$3.4bn in the three months to June, the company is now hoping to draw a line under a tumultuous decade.

For years it battled a corruption investigation after investigators discovered a high-level bribery scheme between top company executives and scores of prominent politicians, while in a separate case food safety officials found that rotten meat had been sold from its slaughterhouses.

“We are confident we are doing well on governance,” said Mr Tomazoni, pointing to a mandatory compliance training for 150,000 employees and an upgrade in its 2018 governance ranking by Transparency International.

Although JBS’s cattle tracking initiative was hailed as a positive step, some have argued that the group’s timeframe is too lenient.

‘’While blockchain solutions need time to develop, 2025 is a long way away — and there are other measures that can be effective before that. For instance: stricter controls so that cattle are not bought from owners of approved farms if they also own farms on disputed land,” said Eric Pedersen, head of responsible investments at Nordea AM.

Mr Tomazoni agreed the rollout was “too long” and said he wanted to accomplish it sooner, but added that the Amazon’s sprawling supply chains posed a challenge. “When you have a system where you don’t control everybody, we need to be conservative,” he said.

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Marcio Nappo, director of sustainability at JBS, added that as it takes two-and-a-half years to raise cattle fully, the programme would have to be rolled out over several years: “Our main purpose is to help the Brazilian livestock industry make a soft transition. You have to transform the entire sector.”

However, Toby Gardner, a senior research fellow at the Stockholm Environment Institute and director of the Trase initiative, a supply chain tracking tool, argued that the impact of the programme would be limited by its focus on the Amazon rainforest, whereas deforestation was also rampant in the Cerrado savannah and the Pantanal, a vast wetland near Paraguay that in the past month was devastated by fires initially set by ranchers to clear land.

He said JBS should focus on rooting out problematic ranching clusters elsewhere in Brazil. “The vast majority of deforestation is concentrated in a few places. Out of 2,800 beef exporting municipalities, 3 per cent are responsible for over half of the deforestation risk that buyers are exposed to. The problem is highly concentrated,” he said.

Bar chart of Meat consumption (Kg per capita), 2019 showing Top ten meat consumers

Mr Tomazoni responded that the Amazon project was just the first step and that the company was “looking for other initiatives”.

Beyond this a bigger question looms for the Brazilian butcher: does meat have a future? Mr Tomazoni believes the growing global population will fuel demand for protein, but that plant-based meat alternatives will “fill the gap”.

He said the company was already rolling out plant-based proteins in the US via subsidiary Planterra Foods and in Brazil, through its Seara Incrível brand, which has a 50 per cent market share.

“By 2050 the global population will be 10bn people. It means we will need 70 per cent more protein. Our focus is to feed the world in a sustainable way.”

Additional reporting by Carolina Pulice

Via Financial Times