Brazil Risks Middle East Trade With Potential Israel Embassy Move

Egypt’s abrupt cancellation of a planned trade visit causes alarm in the world’s biggest exporter of halal meats

Workers process meat on a production line at the Minerva SA meat processing plant in Barretos, Brazil, on Tuesday, Aug. 20, 2012.
Bloomberg

A proposal by Brazil’s next president to relocate its embassy in Israel, following the U.S., may set off a diplomatic storm in the Muslim world, threatening a key market for the world’s largest meat companies.

Brazil is by far the world’s largest exporter of halal meat. President-elect Jair Bolsonaro’s plans to move Brazil’s embassy from Tel Aviv to Jerusalem has upset Egypt and could stir trouble with other Islamic nations.

“The reaction will be given not only as an individual country but on behalf of the whole Muslim world,” a Turkish diplomatic source told Reuters on condition of anonymity. “We are expecting Brazil to act with reason and not confront the Muslim world.”

Brazil exports $16 billion annually to the Middle East and Turkey, with just 3% going to Israel, according to government statistics.

Over a quarter of Brazil’s exports to the region are meat. Brazil’s JBS SA and BRF SA, the world’s top beef producer and poultry exporter, respectively, have bet big on the growing demand for halal meat.

Brazil exports over $5 billion of halal meat a year, more than twice its nearest rivals, Australia and India, according to Salaam Gateway, a partnership between the Dubai Islamic Economy Development Centre and Thomson Reuters.

Bolsonaro’s embassy proposal is part of his overhaul of Brazilian foreign policy, cozying up to major powers such as the United States and undoing what he calls leftist predecessors’ alliances based on “ideological bias.”

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Prime Minister Benjamin Netanyahu praised Bolsonaro for the plan to move the embassy, calling him a “friend.”

But after Egypt abruptly canceled a visit from Brazilian diplomats and business leaders this week, Bolsonaro said his decision was not final. The Egyptian embassy blamed a scheduling conflict.

That sounded alarm bells in Brazil’s meat industry. BRF Chairman Pedro Parente said on a Thursday earnings call that the embassy issue was “cause for concern.”

“We have a very important trade with Arab and halal markets,” he told journalists. “We are confident that when a discussion of the matter involves the relevant areas — the farm, trade and foreign ministries — they will certainly reach the best solution.”

BRF’s halal business contributed a quarter of its operating revenue and nearly half its operating profit in the third quarter.

Halal chicken represented nearly half of Brazil’s overall chicken exports of $7.1 billion last year, according to Brazil meatpacking group ABPA.

“There is a $2-billion trade between Egypt and Brazil, mainly in the food agricultural sector, and within that sector mainly in beef and poultry,” Egypt’s Ambassador to Brazil Alaa Roushdy told Reuters.

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He declined to comment on a hypothetical move of the embassy or if it could have any impact on trade.

BRF has processing plants in Turkey and the United Arab Emirates to meet growing demand for halal meat. The company aims to double its output of processed products in the Gulf by 2023, its head of halal operations said at an October event.

JBS sent more than an eighth of its exports to the Middle East and Africa in 2017, second only to the Greater China region.

Representatives for JBS declined to comment on fallout from a potential embassy move.

The Arab-Brazil Chamber of Commerce expects Brazil’s total exports to a group of 22 Arab countries to reach $20 billion by 2022, up from $13.5 billion in 2017.

Rubens Hannun, the chamber’s president, said Brazil also stands to benefit from infrastructure investment from Arab sovereign funds. UAE’s Mubadala Development Co, for example, poured some $2 billion into Brazilian commodities empire EBX this decade.

“We do not want any noise in this relationship,” Hannun said. “We are afraid that would open a door for the competition.”