Brazils JBS SA, the world’s biggest meat producer, unveiled a plan to increase deliveries to Asia as the company acquired Primo Group, the largest ham-and-bacon producer in Australia and New Zealand.
The deal will also allow JBS to produce higher-priced processed foods and market them on the Asian markets, where Primo already delivers. The move is aimed at using Australias reputation for high quality products to push into Chinas food market, which was torn by a series of food scandals.
Earlier this week China and Australia signed a free-trade pact which reduces or removes some of the imports fees on agricultural products, including those on processed meat.
Buying Primo, which currently exports to China very minimal quantities of pork meat, will give JBS the chance to increase import volumes into the country as demand is rising. China is the biggest pork consumer in the world with more than 50 million metric tons eaten every year, which equals to two thirds of meat consumption in the country.
Last year Shuanghui International Holdings paid $4.7 billion for Smithfield Foods in the biggest Chinese takeover of a U.S. company. The move was prompted by the increased demand of high-quality pork product among China’s rising middle class.
The conditions in which domestic hog farms operate and the practices of adding additives to pork production had led Chinese consumers to bet on imported products with a higher standards.
“Quality concerns are a fairly strong line that comes out of China” said Angus Gidley-Baird, an animal-proteins analyst at Rabobank. “There’s been a couple of scares over there with their pork.”
Primo, 70% owned by the Asian Affinity Equity Partners and 30% owned by the founding Lederer family, was sold to JBS for A$1.45 billion.
“There is a vast opportunity for the export of Australian pork-related small goods, an opportunity that has thus far gone largely untapped” said Brent Eastwood, head of JBS’s Australian operations.
JBS SA gained 2.36% on Tuesday and closed at BRL 11.58. On Friday the stock climbed 2.57% to close at BRL 11.58, marking a one-year increase of 41.56%. The company is valued at BRL 34.09 billion. According to the Financial Times, the 13 analysts offering 12-month price targets for JBS SA have a median target of BRL 12.25, with a high estimate of BRL 16.33 and a low estimate of BRL 8.40. The median estimate represents a 5.79% increase from the last price of BRL 11.58.
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