The Globalization of the Food Industry/Brazilian Firms Acquire Major U.S.-Based Food Producers, Business and Industry Trends Analysis

Global food production since the 1990s has experienced profound changes as thousands of previously low-yield or untenable acres, particularly in Brazil, Ukraine and Russia, are now producing larger harvests.  In Brazil, for example, farmers and ranchers have learned to affordably and simply treat tropical soil with lime and phosphorus, thereby increasing yield by as much as four to five times.  Brazil has evolved into a major global exporter of beef, coffee, orange juice, sugar and soybeans.  (Its neighbor Argentina has enjoyed great success in food exports, including beef and its highly regarded wines.)

Meanwhile, processed and packaged food industries have become much more globalized, thanks to rising exports from factories in China, Thailand and elsewhere, as well as cross-border investments in food production by multinational firms.  This trend led to serious problems with some foods exported by Chinese factories.  For example, tainted pet food led to the deaths of some pets.  The Chinese government has put a renewed focus on food safety and quality.  In 2008, the government convicted food company executives involved in very serious tainted milk scandals and sentenced a few with death penalties.  Yum! Brands, Inc., an American firm that owns thousands of fast food restaurants around the world including KFC, announced plans to stop using more than 1,000 slaughterhouses in China after a scare relating to contaminated chicken in early 2013.  More scandal followed in 2014 involving spoiled meat supplied to McDonald’s and Yum! Brands, prompting new government regulation of food manufacturers and retailers. 

A major challenge for Chinese food manufacturers continues to be consumers’ perception of the safety of their products, as they further penetrate overseas markets.  Meanwhile, Chinese consumers pay premium prices for many types of imported foods, when they can afford it, particularly infant formula, which they consider (rightly or wrongly) to be much safer than formula made in China.  A major supermarket in the affluent Pudong district of Shanghai, China has a massive Chinese-brand foods section, and next to it a foreign-brands section that is nearly as large.

Chinese food manufacturer and retailer Bright Food (Group) Co. has been acquiring food companies in countries including Australia and the U.K. in order to market its products overseas.  Other Chinese food companies have also been working to acquire overseas firms.

The biggest recent news in cross-border investment in food companies involves Brazil.  3G Capital Partners LP, an aggressive, Brazil-based private equity company, has been buying up major North American food companies, including H.J. Heinz Co., with the assistance of funding from investment giant Berkshire Hathaway.  It also acquired Burger King Worldwide and Tim Hortons, Inc., the well-known Canada-based doughnut chain.  More recently, in mid-2015, its H. J. Heinz unit completed the acquisition of Kraft Foods Group, maker of cheeses and packaged foods.  The new entity, called Kraft Heinz Company, now owns some of the world’s best known food brands.  In February 2017, Heinz briefly considered making an offer to purchase global food and consumer goods giant Unilever.  Meanwhile parent company 3G announced that it will acquire Popeye’s, a U.S. fried chicken chain.

Meanwhile, a leading Brazilian meat packing company, JBS S.A., went on a long term buying spree in the U.S. which includes meat company Swift & Company and Smithfield, a major U.S. beef processor.  The latter purchase included Five Rivers, a feedlot operation, making JBS the world’s largest cattle feeder.  Then it acquired U.S. chicken company Pilgrim’s Pride.  During recent years, JBS has also been acquiring large businesses in Australia, Argentina and Canada, as well as additional operations in Brazil.  In 2015, the firm acquired the North American business of Cargill pork for $1.45 billion.  It now ranks among the world’s largest packaged foods companies.

Demand for agricultural products in China soared as the country’s quickly growing middle class purchased ever-larger quantities of pork, poultry and beef.  Larger quantities of feed are necessary to fatten the animals to satisfy this demand, placing new pressure on diminishing farmland in China, which is also facing water challenges due to high demand.  Chinese farmers are also experiencing a reversal of a trend in place since the 1980s in which collective communal farming was broken up into tiny plots of land awarded to individual farmers.  Today, small Chinese farms are being aggregated into major corporate initiatives such as Longda Foodstuff Group Co., Ltd., which owns large amounts of farmland and processes massive amounts of food annually.  The consolidation offers China opportunities in the areas of efficiency, scale and the ability to set and enforce food safety standards.