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This is a transcript of episode four of the Down to Agribusiness podcast. Visit the show page here.


Sector scandal and controversy: A Brazilian meat sector scandal and new rules for the organic food and beverage sector in the EU

Adam Sharpe
Hello, and welcome to the latest addition of the Down to Agribusiness podcast. I’m Adam Sharp. In this episode, we’ll be looking at the ongoing scandal in Brazil, that has engulfed the country’s meat industry and resulted in unprecedented volumes of exports being turned away at foreign ports. Later in the podcast, our attention will turn to the new rules agreed in Brussels last week that will govern the European Union’s organic food and drink sector from 2020 onwards.

The Brazilian meat and livestock sector was thrown into chaos in March this year, after police announced they were investigating some leading companies in a major food safety scandal. The story really began two years prior, when a whistle-blower in the Brazilian Agriculture Ministry claimed that corrupt officials were taking bribes to sign off adulterated meat as safe. Subsequent wiretapping appeared to show high ranking politicians and officials intervening to ensure certain meat plants would avoid meaningful inspections.

Since then, a number of arrests have been made, and the industry and politicians have been scrambling to contain the fallout, and ensure consumer confidence and international trade are not negatively affected. The majority of beef, poultry, and pig meat produced, is consumed locally, but brazil is also a big exporter. It has a market share of some 40% of total world poultry exports, 16% for beef, and 10% for hog or pork meat.

I’m joined by Max Green, meat and livestock editor for Agra Europe, and the soon to be launched IEG Vu meat and livestock channel, to discuss how Brazil is coping with this crisis. Max, how many Brazilian meat companies have been caught up in the scandal so far?

Max Green
Well, when the scandal first broke in March, it involved around twenty Brazilian meat plants who were under investigation by the police. These included a handful of plants owned by Brazil’s two largest meat packers, JBS and BIF. The government did have some success to start with, convincing overseas buyers to limit restrictions just to these plants, but developments since then have seen problems mount up for the Brazilian meat industry.

Adam
What has the government been doing to clean up the industry, since news of the police investigation broke?

Max
Well, the Brazilian Agriculture Minister has been travelling around the world. He’s been working incredibly hard trying to lay concerns raised by the issue. This proved successful to start with, as major markets like Hong Kong resume imports within a few weeks. Two developments have made things far more complicated in the last month or so, however. The first is that importers like the EU and the US have stepped up checks at ports, and these have turned up a series of issues, which ultimately has lead the US to ban all imports of fresh Brazilian beef.

The second complication is that Brazil’s largest meat company, JBS, has been dragged into an even more serious corruption scandal involving the Brazilian president and dozens of other politicians. As a result of the problems found in meat consignments, as I say, the US has banned imports of fresh beef, but the EU is also ejecting about three consignments of Brazilian meat every day, and EU officials haven’t ruled out taking further action.

Adam
So, has there already been a negative impact on trade?

Max
Well, there’s been some impact on meat exports from Brazil, but it hasn’t been disastrous as of yet. The US ban only relates to fresh beef, and most of the beef they import from Brazil is processed, so the impacts of that are limited. Things could get worse, however, if other countries follow suit. China and Hong Kong would probably be reluctant to ban imports from Brazil, unless they really had to, because they rely on it to provide affordable supplies of meat to their consumers.

With regard to JBS, the company is in a difficult position now. It emerged as the world’s largest meat company over a ten-year period, buying up businesses all over the world, and now, it’s looking to sell many of these off again to pay the huge fines which have been imposed by the Brazilian authorities for their role in the corruption scandal. On wider level, I’d say the country’s reputation is being dragged through the mud by the whole issue of JBS and the Brazilian president repeatedly criticising each other and accusing each other of worse and worse misdemeanours in the Brazilian press. Who knows where that’s going to end up?

Adam
So, what are the Brazilians doing to reassure their trading partners that the meat they’re producing is in fact safe to consume?

Max
Well, they’re looking to strengthen control at slaughterhouses. They’re taking on more inspector, and they’re trying to make the system less open to corruption. When it comes to the US ban, Brazilian officials say many of the problems found in Brazilian meat were linked to vaccines used against foot and mouth disease, and the Brazilian authorities are now looking to cut back on vaccinations. Eventually, phase it out altogether, because they say FMD, foot and mouth disease, is no longer a problem in the country, so it’s not needed. That would resolve that issue, although it will take some time for that to happen.

Adam
Is this scandal going to have an impact on Brazil’s standing as an agriculture producer, going forward?

Max
Well, we need to remember that Brazil, until the recent scandal, has been making huge strides in combatting issues like foot and mouth disease, which used to be endemic in the country. It’s no longer a problem, as I say. It’s been modernising its industry and clamping down on deforestation by catch branches (ph 05.59). I’d say the recent corruption scandals have clearly dealt a big blow to all this progress, but they wouldn’t actually destroy the country’s ability to export and to be one of the leading two or three in the world, in all three main meats. That’s partly because so many companies rely on supplies of Brazilian meat for their consumers. Some markets are more demanding than others, however, and these developments have definitely strengthened the hand of those who oppose allowing more Brazilian meat into the EU and US in particular.

Adam
Finally, do you see this scandal affecting the proposed EU Mercosur trade deal and other such international agreements, for example?

Max
Well, farming groups in countries like Ireland, say the issue shows the need to exclude beef from a deal with South America’s Mercosur trade bloc, or even to suspend talks altogether, but to me, this seems a bit disingenuous. Talks with Mercosur are not just with Brazil, they’re with three other South American countries as well, who have nothing to do with the corruption scandal. There may be a case for saying the EU should temporarily restrict the imports of Brazilian beef on food safety grounds, but it would seem to me to be a step too far, to use Brazil’s current problems as a reason to alter or halt free trade talks with a whole group of countries.

In any case, the EU has made quite clear, it would set limits on the amount of South American meat that can be imported under a free trade deal by using tariff-rate quotas. Exactly how much, is yet to be discussed, but the EU’s offer will be based on a range of factors, including potential impacts on European producers. Normally, if serious health problems are identified with the country’s products, trading partners would treat this as a sanitary, or fight a sanitary issue, and deal with it accordingly.

They may suspend imports until the problems are resolved, but it would still be possible to do this even if we did have a free trade agreement with Mercosur, so the issue shouldn’t really have a bearing on talks at all, in my view.

Adam
Thank you for your insight in what’s been an interesting situation in Brazil. Thank you, Max.

Max
Thank you.

Adam
Every year in the European Union, approximately half a million hectares of farmland is converted into organic food and drink production. Since 2007, the area designated to organic has more than doubled. Despite, this rapid expansion, the regulation surrounding this increasing important sector has not been updated since 2007. However, last week, nearly three years after the European commission proposed an update, The Commission, EU Council, and European Parliament, finally reached an agreement on new rules on Wednesday 28th June. The overhaul will see changes to the way organic production and the labelling of organic products is regulated in the block, and these revisions are expected to come into force on 1st July 2020.

To discuss these changes, I’m joined by Timothy Maler, Brussels correspondent for Agra Europe who has been following this ongoing saga. Tim, back in 2014, what did The Commission hope to achieve in updating the organic regulation governing the EU sector?

Timothy Maler
Yes, because of the expansion of the sector over the past ten years or so, as you just mentioned, and the importance is placed on organic agriculture by former EU agriculture commissioner, Dacian Ciolos. The Commission basically decided that the legislative framework needed reworking to keep up with the times. It wanted to ensure consumer confidence in the sector, and that it remains strong, and it wanted to bring it in line with the needs of so many producers entering the market, as well as ensuring a level playing field among all of them.

Also, with respect to foreign producers, exporting organic products to the EU. It also aimed to make it easier and less burdensome for producers to switch to organic production.

Adam
So, it’s taken a full three years to finally reach an agreement on this, and during that time, the EU organic sector has expanded further. What have been the main points of contention in finally reaching an agreement?

Timothy
Yes, so as you mentioned, it’s been a real saga getting to this finish line, as both member states and the EU institutions have had trouble coming to a consensus. In all, there were eighteen trialogue talks over the last few years, and countless work done in MVP meetings and in council meetings. Before the deal was agreed, it was rightly thought that it was on its last legs, then if an agreement wasn’t secured under the royalty’s presence, the talks may finally die, as the incoming Estonian presidency didn’t seem keen to devote its agricultural agenda to the file. Given the difficulties that both member states and MEPs had had in coming to a consensus to that point. However, ultimately, finally an agreement was reached, after EU agricultural commissioner, Phil Hogan, came forward with the suggestion of putting a decision on the most contentious elements. Often, until a few years down the line, at which point The Commission would put forward detailed reports on these issues.

These issues were so-called decertification thresholds for non-authorised substances in organic products, such as fertilisers and pesticides, and on the issue of using demarcated beds in organically certified greenhouses in northern member states. On pesticide certification, the new regulation proposes harmonising EU precautionary measures that must be applied to ensure that no contamination takes place. In the case of suspected contamination, the final product wouldn’t be allowed to bear the organic label until investigated further. If it was deemed that the contamination was deliberate, or if a farmer failed to apply the newly introduced measures, he or she would lose his organic certification.

However, what member states weren’t able to agree to, was a so-called EU wide decertification threshold, if pesticides were found on the products. Meaning that ultimately, flexibility was given to national governments to continue to be allowed to apply their own rules on decertification.

Once The Commission produces its report four years down the line, as mandated under the regulation, it could in theory, put forward new legislation and harmonise the EU rules for decertification, but only if it deems it appropriate to do so. Also, the EU institutions agreed on so-called demarcated beds, to phase out derogations on the production method in greenhouses, as it determined that contact with soil was a prerequisite for having organic certification. However, only if it deems it appropirate to do so.

Also, the EU institutions agreed on so-called demarcated beds to phase out derogations on the production method in greenhouses, as it determined that contact with soil was a perquisite for having organic certification. Under the terms of the final deal, farmers using the production method in greenhouses, up until the day the agreement was reached, in Denmark, Sweden, and Finland, will be able to continue the practice for a period of ten years, given the climate in those countries and the importance of the production method for these member states.

After a few years upon entry into force of the new regulation, as with the decertification threshold, The Commission will also assess the compatibility of the practice with the principles of organic farming in a report. It may or may not table legislative purpose along the matter.

Adam

So, what are some of the other main features of these newly agreed rules, and what will change compared to the 2007 regulation?

Timothy
Yes, well, first of all, the new rules expand the scope of both the regulation of products. For example, new products such as salt, cork, or beeswax, will be able to be organically certified, and it also introduces new production rules. For example, for deer, rabbits, and poultry. In order to make it less bureaucratic and burdensome for producers as well, the new rules also move to risk-based controls. In other words, if a producer has been found to be complying with the legislation for a period of three years, they only need to be checked once every two years in order to maintain certification. This will make it less burdensome for producers. Otherwise, there will be annual onsite checks for all of the other producers.

Also, another important change with respect to maintaining consumer confidence in the sector is changing the current, what are called, 'equivalence rules', where non-EU countries need to comply with similar, but not exactly the same rules as EU organic producers, in order to import organic products into the bloc. The existing system will be phased out after a period of five years.

After that period, organic imports will need to comply with exactly the same rules as EU producers, under what’s being called the compliance system, which strives to produce the competitiveness of EU producers on the internal market, via the foreign organic producers. They, in the past, have often had an advantage because of the fact that they’ve had to comply with less stringent rules than organic producers in the EU.

Under the plans, The Commission can decide for a renewable period of two years, to allow imports of specific products from non-EU countries, even if not fully compliant with EU rules. For example, because of specific climactic conditions, or if The Commission deems it necessary in order to help that market, or for example, under trade deals agree by the EU.

Adam
I understand that The Commission is hopeful the new rules will provide a boost to organic production in the EU, is that correct?

Timothy
Yes, that’s true. The agreement also includes a number of new measures that were designed to encourage continued growth in the sector. For example, it contains provisions for better data gathering on the availability of organic seeds and animals, which Brussels hopes will increase their supply to meet the needs of organic farmers. Current derogations allowing the use of conventional seeds and animals in organic production, would mean they’ll expire in 2035, but this end date could be either pushed back or moved forward, depending on the availability of organic seeds and animals brought on by the new rules.

Also, the final deal allows so-called mixed farms to have organic certification, so those are farms producing both organic and conventional products, provided that the two farming activities are clearly and effectively separated. By doing this, the hope is that it will convince conventional producers to switch over part of their production in order to join a growing and lucrative organic market. Also, it’s hoped that new provisions for group certifications for small organic farmers will make it easier and less burdensome for farmers to become certified.

Adam
So, are all member states happy with the proposed new rules, and what does the organic industry think about them?

Timothy
No, actually, a total of seven member states voted against the eventual council compromise text that used in negotiations with the provident. These were the Czech Republic, Austria, Finland, Slovakia, Denmark, Cyprus, and Lithuania. Also, Hungary, Poland, and Belgium, abstained from voting. One of the elements of the deal that irked some member states was the fact that no EU wide decertification threshold was agreed. Some felt as though countries implementing stricter rules on contamination would be disadvantaged because of this, as they wouldn’t be able to guarantee that all produces across the EU would be respecting as stringent rules for contamination, as in other member states. In recent interview with Agra Europe, for example, before the vote, which can be viewed on our website, the Czech deputy agriculture minister insisted that because member states wouldn’t agree on EU wide decertification rules, the new plans wouldn’t help the sector. They couldn’t guarantee that standards would be the same through the block. Also, the organic industry seemed less than thrilled as well, with the final outcome of the agreement.

After it was reached, organic industry lobby, IFOAM EU, said that while some progress was made during the final push, they regretted that the process was rushed to be finalised, and discussions on what are called important political points, were postponed. Throughout the talks, it had said that no deal was better than a bad deal, and wasn’t entirely satisfied as to how much the industry was consulted throughout the process. Now that the deal is done, IFOAM EU said that it would evaluate the technical consistency of the text, the way it could be implemented, and the impact it would have on organic operators and control procedures, before coming up with its final assessment.

Adam
Thank you, Tim. To find out more about Agra Europe and IEG Vu, visit the agribusinessintelligence.com website. A list of resources is available on the episode four podcast page. If you have any questions or comments about this podcast, you can also tweet using the #DowntoAgribusiness hashtag.


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