Brasil Foods

1. introduction : write an introduction about the company’s history, a summary of the case and an opening on the paper2. What are the strengths and weaknesses of Brasil Foods? (Tip: First consider the benefits and drawbacks for Brasil Foods resulting from the merger of Perdigão and Sadia.)

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REV: APRIL 10, 2013
Brasil Foods
As he entered his São Paulo, Brazil, office on the morning of July 14, 2011, Brasil Foods CEO José
Antonio do Prado Fay (pronounced “Fie”) took a deep breath, letting the events of the previous day
sink in. After two years in regulatory limbo, Brazil’s antitrust authority had finally approved the
combination of Sadia and Perdigão, two of Brazil’s largest food producers and best-known food
brands, paving the way for Brasil Foods (BRF)—the name of the combined firm—to begin operating
as one entity. With 110,000 employees and net sales of R$22.7a billion in 2010, BRF sold some 3,000
products, including poultry, pork, beef, processed meats, dairy, margarine, pastas, frozen dishes and
vegetables, and other processed products. The company controlled 9% of the global protein trade and
had a 60% to 80% market share in several processed food categories in Brazil.1
Fay was about to present to his employees an ambitious goal for the hours-old company: to
double BRF’s sales in five years, to R$50 billion, through domestic and international expansion.
Domestically, BRF would focus on maintaining its retail share (within the bounds of the antitrust
ruling) and gaining share in the fast-growing foodservice sector. Internationally, the company would
seek to transform from an exporter into a multinational modeled after Nestlé, to be achieved by
building units or acquiring companies with strong brands in emerging markets.
Fay believed BRF had unmatched operational know-how—the ability to manage the complex,
interdependent stream of ingredients needed to create its diverse portfolio of products—along with a
deep understanding of consumers and brands. However, he recognized that BRF was very much a
Brazilian firm, with expertise specific to the domestic market. To build BRF into a multinational, Fay
needed a global team that understood local conditions in foreign markets. He also needed to decide
where to expand first. Latin America, the Middle East, Africa, and Asia were all attractive, but each
entailed trade-offs. Another concern was the integration of Sadia and Perdigão employees. The two
firms had a tense history as industry rivals; their combination was analogous to a merger—virtually
unimaginable—of U.S. rivals Coca-Cola and Pepsi. Dealing with potentially divisive allegiances
could be difficult.
At a time when firms in mature markets were struggling to find ways to grow, BRF management’s
chief concern was failing to capitalize on the vast opportunities it faced. The sense that victory was
theirs to lose created an intense, if exhilarating, type of pressure. “We have the basis to grow. We
know what to do. The question is how to do it,” said Fay. “If we don’t double sales in five years,” he
added, “then we must’ve done something very, very wrong.”
a R$ is the symbol for the Brazilian currency, the real. On July 1, 2011, R$1 = US$0.635 or €0.438.
Professor David E. Bell and Research Associate Natalie Kindred, Global Research Group, prepared this case. HBS cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
Copyright © 2011, 2012, 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA02163, or go to This publication may
not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Ines Dinia in MAN4631.901S18 Global Perspectives at University of South Florida, 2018.
Brasil Foods
Booming Brazil
Brazil’s economy expanded 7.5% in 2010, its fastest pace in 24 years.2 A rapidly growing middle
class fueled domestic demand, harnessing its purchasing power—real personal disposable income
increased an average of 5.8% from 2007 to 20103—to buy cars, flat-screen televisions, washing
machines, vacations, and meals at restaurants.4 Investment was strong, reflected in a 22% rise in
capital spending in 2010.5 In what the New York Times called a “gold rush mind-set,” foreign workers
of all income levels were flocking to Brazil; its foreign work permits spiked 144% from 2006 to 2010.6
In Brazil’s top cities, signs of growing wealth abounded: prices for office space in exclusive
neighborhoods exceeded those in New York City,7 and demand for helicopter transport, a way to
bypass traffic gridlock, had made São Paulo the helicopter capital of the world.8
Brazil still had significant problems. Experts worried about the economy overheating, citing
inflation above 6%. The strong currency threatened to undermine manufacturing and export
competitiveness and curtail tourism; $6 Big Macs and $35 martinis took a toll on vacation budgets.9
(Exhibit 1 shows a currency chart.) Poor infrastructure, corruption, regulatory red tape, and other
factors raised the cost of doing business. Despite low unemployment and the migration of millions
out of poverty, stark income inequality persisted, fueling social tension and crime. Yet, societal ills
notwithstanding, there was a sense in Brazil that the country’s long-anticipated ascendance to
worldwide prominence was, in 2011, finally being realized.
Agricultural Transformation
Brazil’s economic story was closely linked to its agriculture sector. A net food importer as late as
the 1980s, Brazil had embraced agronomic science and innovation—through its national agricultural
research institution, Embrapa (Empresa Brasileira de Pesquisa Agropecuária)—to find ways to leverage
its huge land base and water supply for food production.10 The results were profound. In roughly
three decades, Brazil transformed its vast savannah (cerrado), naturally nutrient-poor and unfit for
farming, into the source of 70% of its farm output.11 Exports were diversified beyond traditional
tropical products (e.g., coffee, orange juice) to soybeans, sugar, and meat.12 Embrapa reengineered an
African grass to create a new variety with yields far exceeding those of native cerrado grass, enabling
the creation of vast pastureland to support large beef herds.13 Meanwhile, increased grain output was
used to expand poultry production. Multiplying these measures’ economic impact were Brazil’s
privatization and deregulation reforms, which laid the structural groundwork for an extended period
of high investment and growth (see Exhibit 2 for Brazil’s direct investment and real GDP growth).14
From 1996 to 2006 alone, the total value of Brazil’s crops increased 365%.15 By 2010, Brazil had
become a world-leading food exporter (alongside Argentina, Australia, Canada, the European Union,
and the U.S.) and the first major exporter in a tropical region.16 The country was first or second in
poultry, sugar cane, ethanol, and soybean exports, and it housed the world’s second-largest cattle
Brazil still had significant room to expand food production: it had the world’s largest renewable
water supply and was only using 50 million hectares (ha) of its 300–400 million ha of potentially
arable land.18 There was no shortage of customers either: by one estimate, meat output alone would
have to double from 2010 to 2050 to satisfy worldwide demand.19 As global population growth raised
the specter of severe food shortages in the coming decades, Brazil would play a central role—both as
a food supplier to the world, and as an example of innovation’s potential to improve food
production. “The world is facing a slow-motion food crisis now,” said The Economist in 2010. “It
should learn from Brazil.”20
This document is authorized for use only by Ines Dinia in MAN4631.901S18 Global Perspectives at University of South Florida, 2018.
Brasil Foods
Brasil Foods History
Perdigão (“partridge” in Portuguese) originated in 1934 as a grocery store founded by Italian
immigrants in the remote southern state of Santa Catarina, Brazil. By the 1960s, it had become a
vertically integrated producer of pork and chicken, raising its own livestock and operating animal
feed, slaughtering, and processing facilities, as well as a distribution subsidiary. In the 1970s and
1980s, it diversified into soy, canned vegetables, beef, and other meat products (e.g., salami).21
Perdigão was one of the first Brazilian food companies to use automated processing equipment for
poultry. It was also an early poultry exporter—first to Saudi Arabia and later to Japan and Europe.
Financial troubles in the early 1990s led Perdigão’s founders’ families to sell their controlling stake
to a pool of pension funds. Under new professional management, Perdigão restructured, divested
noncore operations, modernized its facilities, and moved into higher-margin, value-added products
(e.g., frozen and ready-made meals). It also began producing dairy, beef, and margarine products.
By 2008, Perdigão had 59,000 employees and gross sales of R$13.2 billion (62% domestic and 38%
exports). Listed on BOVESPA, Brazil’s stock exchange, the company had a market value of US$3.9
Sadia (“healthy” in Portuguese), also founded in Santa Catarina, originated in the 1940s as a
processor and seller of grain and pork products. In the following decades, it expanded its commercial
operations and entered the poultry market. It also grew its presence in Brazil’s beef market and began
producing branded processed and frozen meats. By the 1980s, Sadia was exporting frozen chicken to
the Middle East and pork and beef to the U.S. and Europe. It was also focused on Asia, where rising
income and increased protein consumption mirrored market trends in Brazil.22 By 1990, Sadia had
grown to comprise more than 20 companies and had a portfolio of value-added offerings, including
frozen and ready-to-eat meals and other processed foods.23
In 2008, Sadia’s revenues totaled R$12.2 billion (58% domestic and 42% exports). Listed on
BOVESPA, Sadia had a market value of US$2.4 billion. With about 47,750 employees, the company
was known for its expertise in branding and marketing.
Partnership and Rivalry
Despite being fierce competitors, in April 2001, Sadia and Perdigão formed a joint venture, called
Brazilian Food Trading, for exporting to Africa, the Caribbean, and Russia.24 Although the
partnership generated decent returns, it ended in 2002, with Perdigão buying Sadia’s stake. One
publication reported that the disintegration had stemmed from a dispute over how to navigate the
Russian market.25 Another simply attributed the breakup to “incompatible philosophies.”26 Tensions
were further stoked four years later, when Sadia launched and failed in a hostile takeover bid for
Perdigão.27 “This uncertainty created an emotional roller coaster,” noted one employee. He added:
“I’ve never seen companies that hated each other as much as Perdigão and Sadia.”
The Merger and Antitrust Hurdles
Sadia’s urgent need for a buyer in 2009 resulted from wrong-way currency hedges made by
members of its financial team. The bets backfired when the real slumped more than 30% amid the
This document is authorized for use only by Ines Dinia in MAN4631.901S18 Global Perspectives at University of South Florida, 2018.
Brasil Foods
global financial turmoil of 2008.28 In the second half of the year, Sadia recorded more than R$3 billion
in derivatives-related expenses, leading to the first annual loss in its 65-year history. Although the
business was healthy operationally, its financial problems forced it to seek a buyer.
“We certainly never planned that we would buy Sadia,” said Fay, then CEO of Perdigão. At the
time, Perdigão had been considering other acquisitions, but “Sadia was much preferred,” Fay said.
“First, it didn’t need a turnaround. It is rare to be able to buy a company like Sadia that doesn’t have
a management or operational problem. Second, it was a branded company.” Merger talks were
announced in March 2009 and finalized in June. The deal—a share swap that gave Perdigão and
Sadia shareholders 68% and 32%, respectively, of the new entity (BRF)—was enabled by large credit
lines extended by the Brazilian state development bank.29
However, BRF hit a roadblock when the Administrative Council for Economic Defense (CADE),
Brazil’s antitrust agency, opposed the deal based on fears it would stifle domestic competition and
drive food inflation. In many grocery stores, Sadia and Perdigão products dominated the meat, dairy,
and refrigerated food aisles. Thus, CADE’s position seemed largely intuitive—yet it was the
government itself that had brokered the merger.
This circumstance was not unusual: by statute, CADE could not preemptively stop deals; it could
only unravel them after the fact, and its efforts often fell short.30 A 2007 study found that since the
1990s, when Brazil began liberalizing its economy, the market share of the top-four firms in most
sectors had actually increased.31 One explanation was government policies that effectively promoted
industrial concentration. The creation of domestic conglomerates in strategic sectors (e.g., food,
commodities) had been a policy goal of President Lula da Silva, who served from 2002 until he was
succeeded by Dilma Rousseff in 2011.32 To serve this goal, the government had coordinated several
mergersb designed to give domestic firms the scale needed to compete internationally.33
Given the government’s initial support, CADE’s resistance caught BRF’s management off guard.
While BRF’s export businesses, which posed no threat to the domestic market, were able to integrate,
most of Perdigão’s and Sadia’s domestic businesses could not. Thus, for two long years, much of BRF
operated in merger purgatory. “We’ve had a plan in place with a line down the middle: things to do
before antitrust approval and things to do after,” said Fay. Operating as a together-but-separate
company could be both disruptive and awkward. At the São Paulo high-rise buildings that served as
BRF’s headquarters, Sadia and Perdigão employees worked on separate floors but passed each other
in halls and elevators, knowing that their fate—teammates or rivals?—was still an open question.
The ruling
As late as June 2011, a negative ruling from CADE seemed likely. Early that
month, one CADE official announced he would vote against the merger, arguing, “Seldom do you
see in our antitrust reviews such a deal that embeds such a huge probability of bringing about
negative consequences to consumers.”34 His action caused a sell-off of BRF shares, prompting the
remaining CADE officials to suspend casting their votes in order to assess the potential market
impact of a negative ruling. Widely covered in Brazilian media, the drawn-out CADE saga focused
the public’s attention on the debate between domestic antitrust concerns and the desire to create socalled national champions—firms large enough to effectively compete on a global scale. Another BRF
argument was that efficiencies from the merger would lead to lower domestic prices, not higher.
b The roots of this practice dated to the 1990s, when the government mobilized state-owned pension funds and public banks to
fund the privatization of state-run enterprises. Consequently, state entities were key stockholders in many large firms,
including BRF. “Too little, too late,” The Economist, July 9, 2011, via Factiva, accessed July 2011.
This document is authorized for use only by Ines Dinia in MAN4631.901S18 Global Perspectives at University of South Florida, 2018.
Brasil Foods
Finally, on July 13, CADE approved the merger. The ruling required BRF to divest or suspend
assets accounting for about 13% of its revenues.35 It had to sell several factories, slaughterhouses,
poultry farms, and distribution centers, and 12 (relatively minor) food brands, in addition to
suspending sales of certain Perdigão-brand products for three to five years.36 Most or all of the
divested assets would be sold to a single buyer, thereby creating an effective competitor. After the
ruling, BRF shares on BOVESPA rose 9.8%.37 “The reason for this,” explained Augusto Ribeiro,
planning and control director, “is that we were able to keep both the Perdigão and Sadia brands. We
might have lost a good portion of our production capacity, but it is the strength of these brands that
drives our value.” The conclusion of the CADE ordeal left the BRF executive team elated, but
exhausted. Noted one executive on the day after the announcement: “Physically, I am dead. You
cannot imagine the stress of the last two months here. You cannot imagine.”
The Combined Company: Brasil Foods
The combination of Perdigão and Sadia created Brazil’s second-largest employer and third-largest
exporter, trailing only the top oil and mining firms. With 2010 net sales of R$22.7 billion and EBITDA
of R$2.6 billion, BRF was the world’s largest poultry exporter and second-largest meat exporter. (See
Exhibit 3 for BRF’s logo, Exhibits 4 and 5 for financials, and Exhibit 6 for a stock chart.) In Brazil,
where BRF’s distribution network reached 98% of the population, the company had a 57% share of
frozen processed foods and 55% share of chilled processed foods, making it the unequivocal leader in
both categories.38
Production and Supply Chain
In 2010, BRF slaughtered 1.6 billion chickens and turkeys and 10.5 million pigs
and beef cattle. It acquired its primary production inputs (grains, hogs, poultry, beef cattle, and milk)
from an integrated network of 20,000 producers located within 100 kilometers (km) of its industrial
plants. These producers—smallholders and midsized farmers—were required to enter an exclusive
agreement with BRF and to adhere to stringent safety and quality standards. In turn, the company
supplied them with animal feed and technical know-how, along with a guaranteed sales outlet.
Located across 60 industrial sites, BRF operated 42 units for slaughtering and processing pork,
beef, and poultry; 14 units focused on dairy products; 1 unit for soybean products; 2 for margarine
production; and 1 for production of pizzas, pastas, desserts, and other processed products (see
Exhibit 7 for a map of locations). The distribution of farms and slaughtering units throughout Brazil
helped hedge against the risk of trade bans due to safety problems with products from a particular
region. BRF also operated three industrial plants outside Brazil: a dairy plant in Argentina and
Plusfood (BRF’s international division, acquired by Perdigão in 2007) plants in the U.K. and The
Netherlands. In 2010, the company invested roughly R$1.1 billion to expand and modernize its
productive capacity.
Supply chain
Using a fleet of 9,000 trucks, BRF delivered feed for 6.5 million chickens and
40,000 hogs per day to its producers, and transported animals to the slaughterhouses, raw material to
processing plants, and final products to customers. “We are the only Brazilian company with a
nationwide distribution network for chilled and frozen products, working from more than 70
distribution centers,” explained Luiz Henrique Lissoni, VP for supply chain. BRF made 500,000
monthly deliveries to some 150,000 food retailers. It rarely used wholesale distributors, instead
selling directly to retailers or to their distribution centers. The three nationwide food retailers
(Companhia Brasileira De Distribuição (CBD), Carrefour, and Walmart) and about 30 regional
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