Cattle farm in the United States: JBS-Friboi earns fourtimes more abroad than in Brazil
For decades the Monfort family has been the pride and joy of Greeley, a small city with approximately 100,000 inhabitants in northern Colorado. They were the area's Matarazzos, lending their name to a school, hospital, museum and soccer field. In the 1930s, in the middle of the Great Depression, businessman Warren Monfort bought 18 head of cattle and began to shape that which would become the city's largest employer. Three decades later, the family decided to set up a meat processing plant. At the time, the city became famous for the far from pleasant aroma given off by the pastures (this problem was solved later).
The Monfort factory would become main branch of Swift, the largest beef processing company in the United States. Until 2007, Monfort's status as kings of Greeley was unshaken - until the Batista's arrived in town, the Brazilians who own JBS-Friboi. "I'd never heard of the Batistas until the day JBS bought out Swift," Richard Monfort, Warren's grandson and owner of the state's baseball team, the Colorado Rockies, told EXAME. "They are extremely aggressive. Just look at the number of companies they have bought after Swift. It's impressive."
JBS' recent history is truly an eye-popper. The most obvious reason is the incredible speed at which the company has grown over the past five years. In 2004, JBS earned 1.2 billion dollars. From then to now, the company has almost doubled in size every year, on average. JBS also represents a milestone in the history of the Brazilian economy. Never has a local company penetrated the international market as deeply as JBS. The adventure began four years ago when Friboi bought Swift's operations in Argentina. In 2007, company gave an even more daring leap by purchasing Swift of the USA and becoming the largest beef processor in the world. Many analysts felt the Batistas had taken too big a step and would take years digesting the outdated Swift. That wasn't the case. In 2008, Friboi bought three more companies - in the United States and in Australia. Finally, the recent acquisitions of Pilgrim's Pride, the second largest chicken processing plant in the United States and its Brazilian rival Bertin - announced on September 16 - transformed JBS-Friboi into the largest company in the sector in the world, even bigger than the American giant Tyson Foods. Now, more than 70% of the 51.7 billion reais the company earns are generated at its American branch. Actually, JBS is an American company with its headquarters in Brazil.
Behind that story lies the ambition of three brothers who quit studies before finishing high school and became billionaires. Friboi was founded in 1953, when the businessman José Batista Sobrinho opened his Casa de Carne Mineira butcher shop in Anápolis, Goiás. Today, the founder still works at JBS-Friboi's headquarters (the group was renamed using his initials), but control of the company is now in his sons' hands. And in the hands of the Batista brothers, their father's meat packer became the second largest private group in Brazil in earnings, just behind Vale and in front of Votorantim, Gerdau and, well, all the rest. Joesley, 36, is the president of JBS and he runs operations in Brazil, Argentina and Italy. Those who know Friboi up close almost always answer the same way when describing Joesley's attributions: "He's the man with the money." When Friboi issued its first debt securities, in 2006, Joesley was the only brother who spoke a little English. He ended up being chosen to participate in meetings with foreign investors. In the end, he assumed the functions of financier and was responsible for Friboi's initial public offering in 2007. Despite being the youngest of the three, Joesley likes the role of company leader. In his office, he showcases the books that have influenced him the most (he recently distributed a book that had a major effect on him to those closest to him: The Speed of Trust - The One thing that Changes Everything, by Stephen Covey). Wesley Batista, 37, is considered to have the greatest vocation to run the operation. He is the specialist in getting every penny out of a steer that enter the meat-packing plant - from the tenderloin to the hair used for paintbrushes. The oldest, José Batista Junior, 47, left the presidency of the group years ago and today he keeps himself busy shaping an relationship network and catapulting his political career. Nicknamed "Junior Friboi" in Goiás, he is articulating his candidacy for governor of the state in 2010.
Leadership of JBS' global adventure was up to Wesley. Since the decadent Swift was in need of an operational shock, he was picked to solve the problem. It wasn't easy. In the words of a friend, he was sent to Greeley in 2007 not even knowing how to say "My name is Wesley". As soon as he finished the acquisition, he moved with his family to Fort Collins, Colorado (which caused some jealousy in neighboring Greeley since that's where the company's headquarters is located). At the first event organized to introduce JBS to local producers, Wesley used a translator. When he tried to speak English, the ranchers were left without a clue. "We could only understand when he said some obvious word, like 'cow"', says the president of the Colorado Livestock Association, Bill Hammerich. Despite the initial difficulties, Wesley's arrival caused a strong impression on local business owners. For years, Swift had constantly changed owners, and they kept reducing production and buying fewer cattle. For local cattle-raisers, the biggest fear was that this new controller would follow the same path. Wesley's arrival reduced that fear. After all, he wasn't a simple expatriate executive - he was the owner of the company who left his life in Brazil behind to move to a strange place and barely able to speak the language. "That was proof they were committed to growth," says rancher Steve Gabel, a JBS supplier. The last time he spoke to the same group, now in 2009, Wesley only used the interpreter to settle two or three doubts - and this time the audience understood everything he said.
JBS' arrival in Greeley represented the battle between opposing management styles. The cowboys from Anápolis use total simplicity in management. While the rest of the world is caught up in sophisticated systems like Six Sigma, ERP and other abbreviations, the Batista's decided to adopt the Frog - or "From Goiás" style, as Joesley likes to call it. Simplicity begins with the wardrobe worn at the office. It is commonplace for newly hired executives to have to buy jeans, since wearing a suit around there is the same as wearing a cowboy hat and muddy boots to a gala dinner. Strategy consultants cannot get through the door. Headhunters, much less. When it comes time to hire executives, Joesley puts into practice the "good brain" technique he learned all on his own. Those with a "good brain" (translating, those who learn quickly and aren't afraid of doing new things) are hired. Those with "bad brains" are dismissed, even if they have more experience or sophisticated technical knowledge. The hierarchy at JBS is divided into two groups - the Batistas and the rest. The brothers have absolute control of the business, and skip hierarchy to give direct orders to those who will carry them out. A good example of this almost extremely simple means of negotiation was seen in the purchase of Swift. In the middle of heated discussions, when everything seemed doomed to failure, Joesley left the room and said: "Look, this is our proposal. We're going back to our room, put on some shorts and go to the pool to drink a beer. When you make up your minds, let us know." The phone rang soon thereafter.
When this group arrived in Greeley just over two years ago, the shock was inevitable. You could say the Frog culture is the antithesis of the American management model, which is full of hierarchy, rules and models. Wesley set out to change all that immediately. According to a study about JBS performed by Harvard University, five administrative levels were eliminated and 100 people lost their jobs. Thus, the distance between Wesley and the shop floor fell from nine to four levels. While projects took months for approval at the old Swift, run by executives trained at Harvard, today the rule is to introduce the ideas directly to Wesley, who approves them or not on the spot. According to Brazilian employees who work at Greeley, the previous president never set foot on the shop floor. Wesley, who learned to slaughter cattle before taking out his driver's license, visits the production line on a regular basis. In Greeley, it is common to hear stories about the day Wesley entered the factory, grabbed a knife and started to teach employees how to carve out the meat properly.
After the initial changes, Wesley was able to concentrate on his goal when he arrived in Colorado - finally make Swift profitable. For such, he focused on another pillar of the Frog management model, aggressiveness. If steers are available, JBS' factories normally run at full capacity, regardless if the market is heated or not. When the Brazilians arrived, the Swift factory in Greeley only operated one shift, which was explained by the weak demand in the American market. JBS decided to run a second shift despite the warnings that that was insane. Wesley was thus able to achieve one of his main objectives - the increase in scale reduced production costs. The Brazilians also cut expenses where possible. For example, colored printers were returned. While Swift spent millions of dollars on accident insurance with ships that transported its products, the new owners decided to save (after all, no ship had ever sunk). Insurance expenses fell from 15 million to 5.7 million dollars. With measures like that, Wesley Batista was able to make Swift profitable again. "In a business with extremely tight margins, like meat, every penny makes a difference," says Fabiano Tito Rosa, director of Scot Consulting, specialized in agribusiness.
Swift's turnaround changed how the Americans saw JBS. The company became the "creditors' darling" and companies in financial difficulty began to look up the Batistas to propose a buy-out. The purchase of Swift also showed JBS it is possible to operate with other products besides beef, its specialty up until then (the American company also processes pork). This experience was essential for its move on Pilgrim's Pride. According to executives close to JBS, the company had been planning its entry in the chicken market for years, but the movement was driven by its success in turning around Swift and the worsening of crisis at Pilgrim's, which filed for Chapter 11 last December. With the purchase of Pilgrim's, a company assessed at 2.8 billion dollars, JBS was able to meet two objectives. The first was to diversify its revenues, which are less exposed to oscillations in the beef market. The second is the chance to continue growing in the United States without upsetting local cattle ranchers, frightened by what they consider excess concentration of the market in the hands of foreigners. Last year, the Brazilian company informed it was buying rivals National Beef (fourth largest in the country) and Smithfield (fifth largest). The news caused commotion nationwide. American senators opposed it. Those against claimed JBS would become too big with the purchases, which would harm small American cattle ranchers. 
Wesley went to the Senate where he gave testimony and declared his love for the United States. But the reaction, which caught the Batistas by surprise, made JBS give up on purchasing National Beef. It became clear that new purchases in the beef sector were not feasible. In the case of Pilgrim's, since JBS had never slaughtered a single chicken, the Batistas were sure they wouldn't lose the business. Nevertheless, some of JBS' old enemies have already started making noise. The national association of cattle ranchers sent the government a letter asking it to veto Pilgrim's purchase.
No characteristic surprises the Americans more than JBS' inexhaustible energy for acquisitions. How, in a business with such low margins, and at a time when all the companies in the sector are suffering, are the Brazilians able to raise so much money for acquisitions? As we know, the answer is in the pocket of the BNDES, the state-owned bank. Growing through acquisitions is almost always risky strategy. One miscalculation can put the buyer's very survival at risk - just look at what happened to Pilgrim's, which got too far into debt to acquire Gold Kist and ended up going bankrupt. But JBS has never run that risk. BNDES was present in every one of the large acquisitions, contributing capital to make the business feasible without sacrificing the company's financial health. Now, in the purchase of indebted Pilgrim's, JBS announced that the sale of almost 30% of the American subsidiary to an unidentified "private investor" will make the acquisition possible. EXAME has discovered that this "private investor" is in reality very public: BNDES will conduct the 2.5 billion dollar investment in the American JBS. "No doubt, BNDES's help is the most important factor for JBS to have done what it has over recent years," says Soummo Mukherjee, analyst for Moody's risk classification agency in Brazil. (When asked by EXAME, BNDES preferred to not give an interview.)
Obtained by BNDES' help, international growth has brought JBS obvious advantages. Today, the company is practically immune to health barriers. While Brazil cannot export meat to countries like Japan and Korea, the United States can. The Batistas thus use the American subsidiary to reach those markets. The Batistas' global onslaught is also the sign of a phenomenon with the potential to change the look of the richest economies in the world. Sectors considered outdated, like steel, agriculture and railways have become vulnerable to attack by companies from emerging countries. In a recent interview to Portal EXAME, business owner Marcel Telles, one of the controllers of InBev brewery, affirmed these sectors, decayed by years of paralysis, represent the biggest growth opportunities for Brazilian companies.
Despite the attractions, internationalization creates completely new problems for Brazilian business owners. In JBS' case, these problems range from a tornado that devastated a part of company headquarters in Greeley, to an undesired controversy that involved African immigrants. In order to get cheap labor for its factories, JBS accessed a network that provides services for Somali refugees. Hundreds of them were hired, which created unusual racial tension in cities like Greeley and Grand Island, in Nebraska. In order to make matters worse, last year JBS also had problems with the Somalis. During the Ramadan period, which is sacred for Muslims, the Somalis insisted on leaving the production line to pray. Nearly 100 were fired, which led to a scandal and accusations of religious discrimination. In 2009, company and employees reached a deal. But a small, hysterical group of local residents reacted to the agreement and protested in front of the factory. They claim Greeley is giving in to Sharia, Islamic Law, and JBS was creating special rules for Muslim workers.
From this day forwards, the Batistas will face challenges much more complex than a xenophobic revolt in Colorado. The company emerging from the acquisitions of Pilgrim's Pride and Bertin is much different from the old Friboi. There will be 125,000 employees in 141 factories. And the company will also sell milk, chicken and industrialized products. Now, the main challenge is to get a return from this incredible series of acquisitions. International expansion has made JBS a giant, but a much less profitable giant than its national rivals. JBS' margin today is 3.8%. Meanwhile, rival Marfrig, which bought out Seara in September for 900 million dollars, has twice the margin - 7.6%. Next year, JBS expects to raise around 2 billion dollars with an initial public offering for its American subsidiary. The idea is to use part of the money to move strongly in distribution, purchasing a fleet of trucks and construction of distribution centers. That is its hope in order to increase American subsidiary margins.
This series of changes will take the Batistas away from their comfort zone. It will be increasingly more difficult to have absolute control of the business and maintain the simple structure in which they take such pride. The purchase of Pilgrim's indicates the Batistas have already understood that. Company president, Don Jackson, will keep his positions. The new phase will especially demand a personal transformation in the brothers. With JBS going public in the United States, the spotlights will get even brighter on its controllers - only natural when dealing with an initial public offering of a subsidiary that earns nearly 36 billion reais. And the cattle kings don't seem to do well with spotlights. As the reader can notice, the Batistas did not give an interview for this story. According to the JBS controllers, they would only talk to EXAME if the magazine agreed to not publish photos of the family even though there are dozens available - remember that Junior posed in a cowboy hat for the magazine's cover five years ago. "I help those who help me," said Joesley. Since EXAME esteems the habit of editing its own stories, there was no agreement. The IPO in the United States should make it clear to the brothers that it is impossible to control the largest meat company on the planet and pretend they are just the owners of Casa de Carne Mineira, the old butcher shop.