Brazil’s JBS, the world's biggest beef producer is on the verge of exiting Argentina due to a difficult business environment and because it is not prepared to tolerate further losses in the country.
JBS Argentine subsidiary, Swift, has closed five of its six slaughterhouses in Argentina, the last one as recently as February. The remaining slaughterhouse, in Rosario, is the company's largest in Argentina. Swift also has a meat-processing plant.
We've been leaving Argentina over time, if you look at the size of our operation there compared with what it is today, JBS Chief Executive Wesley Batista said in a conference call to discuss fourth-quarter earnings. Argentina now represents less than 1% of JBS total revenue, he said.
In the fourth quarter of 2011, the JBS Mercosul division, which includes Brazil and Argentina, saw its earnings before interest, taxes, depreciation and amortization fall 10% from a year earlier to 408 million Brazilian Reais (223 million dollars). Sales in the region slid 2.7% to 3.8 billion Reais.
Batista said JBS closed meat and leather factories across Mercosul, which includes Brazil, Argentina, Uruguay and Paraguay, during the second half of 2011 in a bid to gain efficiency in the future.
But JBS said Argentina was particularly challenging because of government restrictions on exports and large salary increases associated with high inflation. Even shutting down has costs, given severance payments required to workers at closed plants.
It's not easy to close plants in Argentina but we've gone from six to one there, Batista said. If anyone in Argentina wants to help the system become easier to operate in, that would be very welcome.
Argentina's broader beef sector suffered last year from a 9% drop in the number of animals slaughtered nationwide, as ranchers rebuilt cattle herds decimated by a 2009 drought. The country's beef exports plunged.
JBS is therefore sitting tight with one slaughterhouse in hopes that it can still break even in Argentina and eventually become profitable again in a year or two or three, Batista said. The firm believes it's possible to avoid further losses.
It's a country that obviously has a lot of potential in agriculture and livestock, and it has a name in the beef business in the whole world, he said. ”But there's one thing: We're not going to let ourselves lose money there any longer”.