Washington Insider-- Tuesday

Brazilian Meat Scandal

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

European Commission Again to Decide On biotech Crop Approvals

The European Commission will again be put in the position of approving cultivation licenses for three biotech corn varieties after member state on the Standing Committee on Plants, Animals, Food and Feed (PAFF Committee) failed to get a qualified majority, leaving the decision to the European Commission.

The three crops involved are the reauthorization for the biotech corn MON810 and the cultivation licenses for Syngenta's Bt11 and Dow/Dupont's 1507.

"Once again, the Commission will have no choice but to take the responsibility for the EU decision in relation to these requests for authorization," Commission health and food safety spokesperson Enrico Brivio told Agra Europe. He highlighted the option for member states to opt-out of cultivation licenses, insisting that "in practice, this means that the three GMOs, if and once authorized at EU level, will not in any case be cultivated on the territories benefitting from the opt out."


Brussels Clears Dow-DuPont Deal

Dow Chemical and DuPont have clinched regulatory approval for their $140 billion merger from the European Commission on condition they divest several businesses to address antitrust concerns.

Those divestments include DuPont's global pesticide division and associated research and development, as well as Dow's acid copolymers and ionomers unit. "The companies continue to work constructively with regulators in the remaining relevant jurisdictions to obtain clearance for the merger, which they are confident will be achieved," according to a press release.

For Dow-DuPont, approval is still needed from Chinese and U.S. regulators if the companies are to close the transaction before July, as expected. The merger will combine Dow and DuPont and then spin out three new, more sector-specific companies: one focused on materials, the second on chemicals and specialty products and a third company concentrating on seeds and crop protection.

A third big agricultural deal, Bayer's $66 billion purchase of Monsanto, will start its European approval process before the summer. The timings of the announcements by Brussels were complicated by the UK's decision to formally trigger Article 50 to leave the European Union on Wednesday.

ChemChina's $43 billion purchase of Swiss-listed seed company Syngenta has raised concerns in Brussels about competition in the crop protection chemicals markets. But those worries were ease via an investigation by antitrust authorities and the Financial Times noted that approval is expected after Syngenta offered to sell business assets in Europe and the U.S. Antitrust reviews are ongoing in China, the U.S., India and Mexico. However, the companies expect to close the deal by the end of June.

Washington Insider: Brazilian Meat Scandal

Earlier this month, Brazil's ag sector was rocked by a major scandal. Informa Economics says that Brazil's federal police charged that 21 meatpacking plants had committed violations that included bribing health inspectors for certificates and shipping contaminated products.

The investigation, named Weak Flesh, quickly cost Brazil access to some of its most important export markets, including China, Egypt and the European Union. However, by early this week, importers had begun to partially reopen consumer markets to Brazilian meat exports, although not to products from the plants directly affected.

Brazilian Agriculture Minister Blairo Maggi said China had lifted "preventive measures" put in place to keep Brazilian meat from reaching consumers. "This is a categorical testament to the robustness and quality of the Brazilian sanitary system," he told the press.

Informa emphasized that China's reopening did not apply to the 21 plants under investigation, nor to any meat inspected by the officials accused of corruption. Fifty-seven Brazilian meat-processing plants will be able to send their goods to China as they did earlier, in accordance with a government order.

Brazilian officials hope other nations will follow in China's footsteps. A delegation from the European Union, Brazil's number-two market for meat exports, is visiting the South American country in the coming days to meet with health and food-safety officials.

The current scandal emphasizes the importance of Brazil's role in the global meat trade—it accounts for about 20 percent of global beef exports and almost 40 percent of chicken exports. Twenty-five countries had put some kind of restriction on Brazilian meat after the scandal broke and Trade Ministry data indicate a devastating drop from earlier levels.

China, including Hong Kong, is the biggest market for Brazilian packers, buying about a third of the $5.5 billion of beef shipped from Latin America's largest economy last year, according to the meat exporters' group Abiec. Hong Kong's restrictions on Brazilian meat remain in place.

Chile and Egypt also modified their Brazilian meat ban, and others have been following suit. However, the scandals have added yet another incident to a government already facing deep stresses. The Associated Press reported that President Michel Temer called the meat scandal an embarrassment as its details were widely reported, especially among countries that depend heavily on Brazilian products, including especially the European Union and China. And, it is a major blow to the struggling economy of a country that is among the world's largest exporters of meat, the AP said.

Temer had sought to play down the scandal, calling it a "fuss" and noting that only few of the more than 4,000 meatpacking plants in Brazil had been forced to close. But he acknowledged the case has caused "an economic embarrassment for the country."

Brazil's trade associations for beef, pork and poultry producers were more direct, and warned that the scandal could have a big effect on employment since the sector's exports represent 15 percent of total exports. Beyond that, cattle-raising is an integral part of Brazil's culture, barbecues are a weekly rite and country music from the grasslands is popular throughout Brazil.

Gilberto Braga, a finance professor at Ibmec University in Rio de Janeiro, said the scandal might also feed an image of Brazil as a country where corruption is rampant. Separate from the meat scandal, police and prosecutors are currently investigating massive corruption at the state oil company that has implicated dozens of executives and politicians, AP said.

"First there is an impact on the image and credibility, which affects not only the protein producing sector, and that refers to beef, chicken, but is also a blow to the country's image, as an organized and serious country," said Braga. "It is a country that has in the last few years lived through matters of corruption involving authorities and state companies, and now the inspection is being suspected (of corruption)."

The scandal is expected to have only modest impacts in the United States. It was mentioned in Thursday's Senate Ag committee confirmation hearing for Governor Perdue who said he opposed a US ban on Brazilian meats and noted that USDA has instituted testing of all Brazilian shipments of raw beef and ready-to-eat products for pathogens and had increased the examination of those imports.

The fact that key importers believe they can work with Brazil to safely allow some imports is seen as an indication of progress for global trade from the days when important importers instituted wholesale bans of U.S. beef following very limited disease outbreaks.

Clearly, the Brazilian scandals are a financial disaster for Brazil, and for the important global meat trade—one that will have lingering impacts for some time to come and which should be watched carefully by U.S. producers as it evolves, Washington Insider believes.

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