May 24, 2018

Meat Processors in Brazil Suspend Operations due to Truck Strike

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The strike by independent truck drivers in Brazil that started on Monday is already having an impact on Brazilian agriculture, especially the livestock sector. The truck drivers are blocking highways in over 20 states with some of the most blockages occurring in the states of Parana and Minas Gerais.

According to the vice president of the Brazilian Animal Protein Association (ABPA), which represents 140 agricultural industries in Brazil, 78 meat processing facilities have already suspended or reduced operations and the number could reach 112 facilities by Thursday. The 78 facilities employ 85,000 workers and represent 60% of the meat processing capacity in Brazil.

Most of the facilities impacted thus far have been poultry processors, but pork processing facilities are also being impacted. The problem is getting live animals into the facilities and transporting the processed products away from the facilities.

The impact on the poultry processors has been very quick because even before the strike, many of the processor's refrigerated warehouses were nearly filled to capacity due to the recent suspension of poultry exports to the European Union. Even if they could continue processing chickens, they would not have enough storage capacity for the finished products.

The strike has also interrupted the delivery of meat products for export. ABPA estimates that 50,000 tons of meat exports failed to be loaded on vessels over the last three days due to the road blockages. Brazil is the world's largest poultry exporter and the European Union is a major importer of Brazilian poultry.

The director of ABPA estimates that it could take up to 40 days after the strike ends for meat processors to return to normal operations. The biggest problem going forward might be that smaller markets could run out of meat products.

On the animal production side of the equation, the strike is also causing problems, but for the opposite reasons. Feed manufactures have been maintaining very low inventories of corn due to the recent price increases for corn. They were planning to buy the expensive corn only as needed until the corn price hopefully started to decline with the onset of the safrinha corn harvest in June. If the current strike continues, feed manufactures could run out of corn. There have also been problems getting the animal feed delivered to livestock producers.

The Aurora Central Food Cooperative, which is the third largest meat processor in Brazil, announced that they would suspend operations at all of their processing facilities on Thursday due to the strike. The Agricultural and Livestock Cooperatives of Parana (Ocepar) along with other companies have announced that they would suspend operations at their meat processing facilities until the strike is ended. The president of the Brazilian Association of Slaughterhouses (Abrafrigo) indicated that all the meat processors in Brazil as well as dairy producers are being impacted by the strike.

Grain deliveries to Brazilian ports have also been impacted, but port officials have indicated that it has not impacted the loading of vessels, at least not yet. Brazil is the world's largest exporter of soybeans and this is the peak of the soybean export season.

The Brazilian government has responded to the protests by temporarily suspending one of the taxes imposed on diesel fuel. The Brazilian president and the Brazilian Congress have agreed to suspend the Cide Tax, but the truck driver union (Abcam) said that more action is needed because the Cide Tax only represents 5 cents per liter or only 1% of the taxes on diesel fuel. Diesel prices have increased nearly 50% over the past year and the driver's union contend that diesel prices must be reduced to last year's levels before they would end the strike.

Union representatives and government officials met yesterday to try to resolve their issues, but no resolution was announced. Both sides agreed to meet again on Thursday. The Brazilian president, Michel Temer, requested a two or three day truce when he met with union representatives on Wednesday, but the union indicated that the strike would continue on Thursday.

The organizers of the protest said that 300,000 truckers participated in the protest on Tuesday, which was an increase from the 200,000 that participated on Monday. Abeam claims to represent 600,000 independent truckers out of the total estimated one million truck drivers in Brazil.

Other industries are being impacted as well such as auto manufactures, supermarkets, and some gas stations in Rio, Sao Paulo and other large Brazilian cities that have already run out of fuel. Long lines of motorists have already formed at gas stations in the hope of filling their tanks before more stations run out of gas.