Agriculture Minister Blairo Maggi said a police investigation, which alleges that meat processors paid bribes for inspectors to turn a blind eye to unsanitary or irregular activity, was exaggerated and wrongly challenged the quality of one of the country’s most important exports.

But it has battered demand for Brazilian meats since Friday nonetheless.

JBS and BRF SA, the world’s largest poultry exporter, are among dozens of firms targeted in the meatpacking industry investigation by Brazil’s Federal Police. Both companies have denied any wrongdoing.

Egypt became the latest country to halt imports of Brazilian meat on Thursday.

The move followed partial or complete bans by China, Mexico, Canada, the European Union, Saudi Arabia, Japan, Switzerland, Hong Kong and Chile over the past week.

Australia is expected to seize on China’s suspension of meat imports from Brazil, the world’s biggest beef and poultry exporter, to clinch a deal soon on beef exports.

JBS shares fell one per cent in Sao Paulo on Thursday, accumulating a 10 per cent drop over the past week.

The meatpacker, whose Canadian assets include one of the biggest beef plants in the country at Brooks, Alta., said its Brazilian plants would resume production next week at about two thirds of capacity, adding that the company is focused on maintaining employment of its 125,000 workers in Brazil.

— Reporting for Reuters by Tatiana Bautzer and Brad Haynes; additional reporting by Anthony Boadle in Brasilia.

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The probe, known as “Operation Weak Flesh,” found evidence of meatpackers bribing inspectors and politicians to overlook unsanitary practices such as processing rotten meat and shipping exports with traces of salmonella, police said.

Police investigator Mauricio Moscardi Grillo said there was evidence of some companies manipulating certificates for meat exports to European markets, raising the risk of foreign restrictions on Brazil’s powerhouse protein industry.

“We’ve never seen a scandal like this in the sector… It’s horrifying,” said Alex Silva, a livestock analyst with Scot Consultoria. “This stains the entire system that Brazil has spent years building.”

Brazil exported $6.9 billion of poultry and $5.5 billion of beef last year, according to industry groups, as producers ramped up shipments to China and started sending raw beef to the U.S. (all figures US$).

Shares of JBS and BRF plunged 11 per cent and seven per cent respectively in Sao Paulo. JBS, the world’s biggest meat producer, booked net revenue of 170 billion reais (US$55 billion) last year from sales in 150 countries. BRF, the largest poultry exporter, booked net revenue of 39 billion reais in 2016.

Police said they arrested three BRF employees and two from JBS in Friday’s raids, as well as 20 public officials.

JBS said in a securities filing that three of its plants and one of its employees were targeted in the probe, but its senior executives and headquarters were not targeted. The company said it followed rigorous quality standards and sanitary regulations.

BRF also said it followed industry regulations and was co-operating with authorities in the investigation.

Court documents cited recordings of BRF director Andre Luiz Baldissera allegedly discussing on March 13 how health officials could help defend the company after inspectors in Italy found traces of salmonella in four containers shipped from a plant in Goias state in central Brazil.

The ruling by federal judge Marcos Silva also included transcripts of BRF government relations executive Roney Nogueira allegedly discussing bribery of health inspectors, including one called on to help avoid the closure of the same Goias plant.

The judge also ordered that BRF vice-president Jose Roberto Pernomian Rodrigues be brought in for questioning.

Baldissera, Nogueira and Rodrigues could not be reached for comment.

Plants closed

Brazil’s agriculture ministry temporarily closed three plants cited in the investigation, one run by BRF and two run by smaller rival Grupo Peccin, and began removing their meat products from supermarkets.

Eumar Novacki, the ministry’s executive secretary, said there was some concern that other countries would begin blocking shipments of Brazilian meat. Agriculture Minister Blairo Maggi will meet on Monday with foreign ambassadors to allay concerns.

Sergio De Zen, a livestock expert at the University of Sao Paulo, said other countries may be eager to block Brazilian exports in the fiercely competitive protein market.

“But the impact will not be as big as it would be if another country had discovered this problem,” he said. “It is Brazil itself that is revealing this.”

The food industry investigation is the latest in a string of corruption probes in Brazil, as a tougher judiciary takes on cozy relations between the government and powerful businesses, backed by public outrage during a deep economic slump.

After investigations into political kickbacks on public works and oil and gas contracts, Friday’s probe struck at the heart of the booming agricultural sector, one of the few bright spots in Brazil’s economy and a major source of exports.

Police said there was evidence that meatpackers falsified documentation for exports to Europe, China and the Middle East.

Judge Silva wrote in his ruling that employees of some meatpackers, including BRF, arranged bribes and favours for inspectors ranging from political donations and favourable bank loans to small bribes including hams and other meat products.

In some cases, those inspectors would then allow employees of the meatpackers to enter government offices, access computers and issue their own export certificates, investigators said.

— Reporting for Reuters by Brad Haynes; additional reporting for Reuters by Sergio Spagnuolo in Curitiba, Pedro Fonseca in Rio de Janeiro and Guillermo Parra-Bernal, Brad Brooks and Alberto Alerigi in Sao Paulo.

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JBS shares rose two per cent in Sao Paulo despite lower-than-expected earnings reported late on Monday, as investors cheered the strong performance of its U.S. beef business and the outlook for stronger global demand this year.

“We expect… a gradual improvement each quarter in international prices, which clearly helps to recover margins, along with lower input costs,” Batista told analysts on a call.

Earnings before interest, taxes, depreciation and amortization slipped to 6.6 per cent of revenue in 2016, from 8.2 per cent in 2015, as a spike in Brazilian grain prices and a tight U.S. cattle market eroded profitability.

By the fourth quarter, however, the so-called EBITDA margin recovered to 7.5 per cent, just 0.1 percentage point below a year ago. The margin in the JBS USA beef business swung to 7.3 per cent from negative 0.5 per cent a year earlier.

Bradesco BBI analyst Gabriel Lima told clients in a note on Monday that exports to Asia helped boost the U.S.-based beef division, whose strong performance should lift the group’s EBITDA by 30 per cent this year.

Excluding the cost of writing off a discontinued brand in South America, Lima said fourth-quarter EBITDA would have risen about 10 per cent, in line with his expectations.

Batista said U.S. beef exports have remained healthy in the first three months of 2017, up about 25 per cent from a year ago.

He said the $230 million acquisition of ham and bacon producer Plumrose USA, announced along with earnings on Monday, should generate annual cost savings between $25 million and $30 million (all figures US$).

Batista said JBS had no major acquisitions on its radar, that but there could be more opportunities like the Plumrose deal.

The plan to list its global business units separately in a U.S. IPO of subsidiary JBS Foods International remains on schedule, Batista added.

— Reporting for Reuters by Paula Laier and Brad Haynes.

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