LATIN AMERICA: Embattled Parmalat Still Supplying Milk, Jobs

By Humberto Márquez Reprint | | Print |

Humberto Márquez*

CARACAS, Jan 12 2004 (IPS) - Dairy farmers and workers, consumers, retailers and governments in Latin America are watching as crisis simmers for the transnational company Parmalat, which went bankrupt in its home country of Italy. But milk continues to flow from its subsidiaries in the region.

“Nothing will happen as far as the production and supply of dairy products in Brazil. If the crisis continues and Parmalat has to interrupt or reduce its operations, other companies will take its place,” Jorge Ruibez, head of the Brazilian Milk Producers Association, told IPS.

Parmalat-Brazil has nine factories, purchases a billion litres of milk annually from some 10,000 dairy farms, employs 6,000 people and racks up sales of 600 million dollars a year. It is the second largest company in this sector of the Brazilian market, after the Swiss transnational Nestlé.

The problems afflicting the Italian firm “do not at all affect – so far – its system of production in Argentina,” said a spokesman in Buenos Aires, where Parmalat invoices 65 million dollars a year with 150 products. But it is just the eighth company in the Argentine dairy business, processing 250 million litres of milk a year, five or six times less than the two leaders.

The Argentine suppliers would have no problem in finding buyers “because 40 percent of the industry is idle,” according to sources from the Ministry of Economy, though Carlos Nassif, of the Confederaciones Rurales, expressed concern in an IPS interview that the producers “would have to adapt to the requirements of new companies.”

In Venezuela, the people affected by the Parmalat crisis quickly went on the offensive: Agustín Campos, president of the Confederation of Ranchers and Farmers, told IPS that since not all of the Parmalat factories operate at full capacity, “We could intervene and take part in reactivating them,” with help from the state.

Labour leader Marcela Máspero, of the Venezuelan Union of Workers, also is toying with the idea of “worker-business co-management if the state intervenes,” and Rodrigo Agudo, of the Chamber of Dairy Industries, has called for more integral attention to the sector, including improvements in financing and in the pricing system.

Wilmar Castro, minister of production and commerce, is studying the balance sheets of the company, which “is in full production,” he said. “If it is necessary for the state to step in, we will do so.”

Parmalat-Venezuela, with seven factories producing dozens of products and with an employee roster of 2,500, bills 250 million dollars a year.

In Chile, Parmalat has maintained a relatively modest presence. It operates two factories and has four distribution centres. It processes 80 million litres of milk a year – just seven percent of Chile’s output.

In Uruguay, where the dairy sector is an important part of gross domestic product and of exports, Parmalat, with one factory, is the second largest dairy firm, after the long-standing local cooperative Conaprole.

Parmalat covers a fifth of the domestic market and more than half of Uruguay’s dairy exports, with total sales of 36 million dollars last year.

The Uruguayan subsidiary “could operate without any problems, as long as the international creditors respect the deadlines,” and although all shares are in the hands of the home office in Italy, said local manager Mariano Gutman.

He spoke with IPS as he awaited news of the trip made by local executives who, like their counterparts throughout the region, headed to Italy to meet with the new Parmalat heads in the northern city of Parma.

In the 1990s, Parmalat launched an international offensive to conquer Latin America, setting up offices and factories in Argentina, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Nicaragua, Paraguay, Uruguay and Venezuela.

The transnational operates 139 plants worldwide, and employs 36,000 people, 16,000 in Latin America.

Half of the company’s revenues have been generated by operations in the Americas, where its affiliates in 2002 produced 380 million dollars.

Parmalat became popular in Latin America with hundreds of products for mass consumption, ranging from milk to biscuits, from yoghurt to fruit juice.

Its marketing strategy includes sponsoring football clubs, a bid to repeat its performance with the Parma club in Italy. In the region it backs the Palmeiras football club in Brazil, Boca Juniors in Argentina, Peñarol in Uruguay and Italchacao in Venezuela.

This is why the whole region has been closely following the scandal that erupted in mid-December, when the transnational – despite its annual revenues of 9.5 billion dollars – was unable to cover the maturity of a 186-million-dollar bond.

Those who have served the company debate the distribution of blame.

“It is unacceptable to say that Parmalat’s investments in Latin America led to the company’s bankruptcy. As always, they are trying to pin the dirt on us,” says Francisco Maltes, a unionist from the central Colombian department of Cundinamarca, where the Parmalat plant operates.

Parmalat was declared bankrupt in Italy, and its founder, Calisto Tanzi, is behind bars, as are another dozen top executives. The gap in the company’s finances, hidden during the past 15 years through accounting fraud, is estimated at 12.7 billion dollars.. Banks and auditors who worked with the firm are in the eye of the hurricane.

It is unlikely that the regional pieces of the Parmalat puzzle remained untouched by corruption, an official from the Venezuelan-American Chamber told IPS, speaking on condition of anonymity.

“The operations of nearly all the affiliates has been autonomous, except for the initial capital contributions (from headquarters) and the remittance of dividends to the shareholders” in Italy.

That has been demonstrated by Rafael Arcuri, president of Parmalat Ecuador, and Fabián Albuja, of that country’s business oversight board, after a visit from Tanzi created suspicions that the Ecuadorian office had been used to illegally divert 800 million dollars of the company’s money.

“Parmalat Ecuador’s assets total 21 million dollars and its share capital is 800,000. The entry of 800 million dollars would have been felt,” said Arcuri. And Albuja backed him up, saying, “There has been no additional investment of any kind” in the firm.

Meanwhile, investigators in Europe and North America are focusing on Bonlat, a Parmalat subsidiary in the Caribbean tax haven of the Cayman Islands, where Tanzi allegedly diverted 600 million dollars through irregular channels.

The president of Bonlat is the same as Parmalat Venezuela, Giovanni Bonici, who went into hiding, but turned himself in to the authorities Friday upon his return to Italy. He claimed only limited knowledge of Bonlat operations, arguing that until recently he was focused on Parmalat Venezuela.

Fausto Tonna, the former financial director for the Parmalat headquarters, told the Italian investigators that one of the reasons for the years of accounting fraud was “the need to cover up the weak points in the South American companies.”

“The public’s doubts about the work of these transnational firms are legitimate,” the executive from the Venezuelan-American Chamber said. “Not only about the company that orchestrated the fraud, but also about the banks that helped sell its shares,” such as the Bank of America, J.P. Morgan and Citigroup.

“Also worth mentioning are the auditing firms, the bloodhounds on the front line that are already the target” of lawsuits for failing to see or failing to point out the scam, including Deloitte & Touche Tohmatsu and Grant Thornton, said the source.

A mutual fund of carpenters from the Arctic U.S. state of Alaska had invested in Parmalat shares. When their value plummeted, the group filed a billion-dollar claim in New York courts against several accounting and finance companies.

It seems that history repeats itself. In December 2001, the U.S. energy giant Enron went bankrupt with 30 billion dollars of debt, and while 29 of its top executives raked in a billion dollars selling off their shares before the collapse, the firm’s 20,000 employees were left without jobs and in ruins, as their own shares plummeted in value from 90 dollars to just 42 cents.

In the pages of the Caracas daily El Universal, Venezuelan political cartoonist Rayma Suprani captured the feelings of many: a young couple is gazing at their baby in a crib, which has a mobile of cows hanging over it. The father says, “If we get him to nurse on corruption, maybe one day he’ll be president of a transnational…”

(* With reporting by Viviana Alonso in Argentina, María Isabel García in Colombia, Gustavo González in Chile, Kintto Lucas in Ecuador, Darío Montero in Uruguay and Mario Osava in Brazil.)