China bolstering Brazil's BRF turnaround effort

Brazil’s BRF SA expects to soon receive as many as four new export permits to sell chicken and pork to China.
calendar icon 23 July 2019
clock icon 3 minute read

Brazil’s BRF SA expects to soon receive as many as four new export permits to sell chicken and pork to China, which could help the Brazilian food processor reverse three consecutive annual losses, reported Reuters.

BRF lost a combined 5.9 billion reais ($1.58 billion) through 2018.

A Chinese delegation is visiting several Brazilian meat plants this week and next, BRF Chief Executive Officer Lorival Luz told Reuters in an interview on Thursday.

Luz declined to speculate about the timing for a Chinese decision on issuing the new permits, but he said authorisations seemed to be close.

If BRF’s Lucas do Rio Verde Plant gets permission to sell to China, Luz said the firm could raise chicken and pork exports to that destination by an estimated 30 percent.

BRF began an effort last year to pull off a turnaround in its business, which involved asset sales to lower debt, a reduction of raw material inventories and a 5 percent cut of its workforce in Brazil to adjust capacity to demand.

Luz said the turnaround remains on track, and should help BRF generate cash going forward without the need to sell more assets.

He also said a follow-on share offering to raise capital is not an option for the moment, even after BRF only raised 80 percent of the expected amount from the asset sales.

This year BRF, which called off talks to merge with beef-packer Marfrig Global Foods a week ago, will leave its old problems behind.

“This will be the year of the turnaround,” Luz said.

One driver is African swine fever in China, which has pushed up the prices for BRF’s pork exports to Asia by up to 30 percent as of the end of the second quarter. Volumes are likely to rise once the new export permits are issued, he said.

China is evaluating the possibility of authorising new Brazilian pork, poultry and beef plants as it deals with a deadly pig disease that has temporarily disrupted supplies and increased meat imports.

Aside from boosting exports to China, BRF is also keen to find a partner to locally produce meat in Saudi Arabia, as the Gulf’s halal market is a priority.

Luz visited the Gulf region in the first half and hopes to return in the second, as no decision has been made on its local business partner.

$1 = 3.7294 reais

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