Economy & Trade, Headlines, Labour, Latin America & the Caribbean

BRAZIL: Local Arm of Dairy Giant Unlikely to Survive

Mario Osava

RIO DE JANEIRO, Feb 19 2004 (IPS) - It is unlikely that the Brazilian arm of Italian dairy giant Parmalat, the second-largest buyer of milk in Latin America’s biggest country, will survive.

The collapse of Parmalat Brasil, which has eight processing units and seven distribution centres, and directly employs more than 6,000 workers, looks inevitable despite efforts to salvage the company, said the president of the Brazilian Association of Milk Producers, Jorge Rubez.

The main problem, he told IPS, ”was not bad administration or the brand-name’s lack of credibility, but major fraud, theft,” and the huge accounting scandal that broke out in December in the Italian parent company, which he said is destroying the company’s image.

There is evidence that the company’s Brazilian operations were also involved in shady accounting activities. Like its parent company in Italy, Parmalat Brasil has filed for bankruptcy protection.

Producers, who have had a hard time collecting on what Parmalat owes them, have stopped bringing in their milk – and a dairy products company obviously cannot operate without milk, said Rubez.

A Brazilian judge ordered the former president of Parmalat Brasil to resign on Feb. 11, and named new court-appointed administrators.

That, along with the fraud probe in Italy, where a number of former managers and others involved with Italy’s biggest food group have been arrested, has created a national and international legal tangle that stands in the way of coming up with a solution with the urgency needed to save the company in Brazil, said Rubez.

In the unlikely case that someone willing to buy Parmalat Brasil, whose debt far surpasses its net worth, did show up, ”who would they buy it from?” he wondered.

Hopes that Parmalat’s Brazil units, whose 600 million dollar annual turnover accounted for 10 percent of the corporation’s global revenue, could escape the financial scandal that erupted in Italy have gone up in smoke in the past two weeks.

Parmalat’s Brazilian operations turned out to have a total debt of 2.4 billion dollars, and the Central Bank has found evidence of illegal transfers by the company of hundreds of millions of dollars out of Brazil from 1996 to 1999.

Last week, a federal judge in Sao Paulo ordered the company’s president Ricardo Goncalves and a number of managers to step down, and named Keyler Carvalho Rocha as court-appointed president.

A group of lawmakers have now requested the creation of a bicameral parliamentary committee of inquiry (CPI) to launch a probe into Parmalat’s activities in Brazil.

Unlike a special lower house commission already investigating the company, a CPI would give legislators the authority to review the phone, bank, and tax records of those implicated in the scandal.

Parmalat Brasil is also the focus of probes by the federal police and the Central Bank.

The main victims of the scandal are Parmalat Brasil’s more than 6,000 employees and the small-scale producers who normally sell their milk to the company, who ”number over 30,000,” the vice-president of the National Confederation of Farm Workers (CONTAG), Alberto Ercilio Broch, said in an interview with IPS.

The scandal, ”one of the worst of the century on both a national and international level,” has also created serious problems for the rest of Brazil’s small dairy farmers, because producers who normally sell their milk to Parmalat have had to find other buyers, causing a glut on the market which has led to a plunge in prices, said Broch.

CONTAG, which is taking part in the search for solutions, is demanding that the small producers and Parmalat Brasil’s workers be the first to be paid what they are owed by the company. The association of farm workers is also opposed to the idea of selling the company to another transnational corporation.

If Parmalat’s Brazilian units were acquired by the Switzerland-based Nestlé, for example, which is already the leading buyer of milk in Brazil, that would give rise to a dangerous monopolisation of the industry, warned Broch.

CONTAG is taking advantage of the scandal to push for a broader debate on Brazil’s dairy industry policy. It is calling for a strengthening of cooperatives and local companies to counter the process of concentration that has been seen since the 1990s, when Parmalat ”incorporated a number of cooperatives and small companies, and destabilised the market,” said Broch.

He argued that the prices paid to milk producers in Brazil should also be raised, because they are among the lowest of any major milk-producing country.

The alternatives advocated by CONTAG, which focus on local initiatives to overcome the crisis, including the transfer of processing plants to cooperatives of milk producers in some cases, are in line with the idea of dividing up Parmalat Brasil, which Agriculture Minister Roberto Rodrigues has admitted is a possibility.

In practice, that has already been occurring.

The Batavia dairy company in the southern state of Paraná, in which Parmalat owned 51 percent of shares, but which has its own brand-name, is now administered by two dairy cooperatives, which were minority shareholders. The new arrangement was based on a court ruling.

Parmalat’s unit in Carazinho, in the extreme southern part of this country of nearly 180 million, is also likely to be put under control of the farmers who supply it with milk, if it is not bought out by a competitor.

In Itaperuna, a municipality in the state of Rio de Janeiro, another legal decision put the local Parmalat plant in the hands of an administrative commission, whose five members represent associations of workers and farmers, cooperatives and local authorities.

The situation ”should tend to become normal in 40 to 60 days,” as small dairy farmers who are owed two months of back payments are paid, the president of the Itaperuna town council, José Geraldo Pardal, told IPS. The town councillor himself, a small dairy farmer who produces 150 to 200 litres of milk a day, is one of those awaiting payment.

The administrative commission has already paid the local company’s 400 employees, and has paid for the milk supplies from the first half of February, said Pardal.

The local Parmalat plant, however, is currently operating at only 40 percent of capacity, he pointed out. Prior to the crisis, it processed 500,000 litres of milk a day.

In the case of Itaperuna, the Parmalat brand-name is still being used.

But the shrinking number of Parmalat products on supermarket shelves and the local solutions that are being found to overcome the crisis and keep small farmers from going under are leading to the disappearance of a brand-name that up to last year sold 15 percent of long-life milk in Brazil, and was the biggest seller of processed liquid milk.