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Last Updated: Monday, 26 January 2004, 17:51 GMT
Parmalat crisis hits Brazil's dairy industry

By Steve Kingstone
BBC correspondent in Sao Paulo

Moacir dos Santos, farm manager
Farm manager Moacir dos Santos worries about late pay

Thousands of miles from Europe, the fallout from Italy's biggest corporate scandal is having its effect on the farmers of Brazil. Dairy farmers and milk co-operatives are suffering as the Italian food giant Parmalat fails to pay its bills in time.

Two hours drive west of Rio de Janeiro is Happy Memory Farm, a modest, family affair with nine workers and 45 dairy cows.

Every day it produces 650 litres of milk.

"We're nervous," admits Moacir dos Santos, who manages the place.

"It's not clear what will happen to Parmalat, and everyone is thinking about their own job and future."

He has good reason to be worried.

Like other farms in the area, Happy Memory sells most of its milk to Parmalat's Brazilian business.

Since the financial scandal broke in Italy, the company has been late in its payments.

"We provide them with high-quality milk at a very good price," says Mr Santos.

"If they don't pay up at the end of the month, it's annoying and worrying at the same time."

Chain reaction

A short distance down the road is Coopersul, the area's milk co-operative.

Cows at Happy Memory Farm
Parmalat is the second biggest buyer of milk after Nestle
It acts as a middle-man, buying fresh milk from a hundred local farmers before selling it on to companies such as Parmalat.

The milk is pasteurised and bottled by a team of 36 workers.

"We process 30,000 litres a day, half of which goes to Parmalat," says Almiro Rossi, Coopersul's president.

"If they don't pay, it causes chaos."

Parmalat waited until 16 January to pay for milk delivered in November, Mr Rossi says.

"It was terrible," he recalls.

"They didn't pay me, which meant I couldn't pay the farmers, and I almost had to lay off workers here at the co-operative."

Major player

Having set up in Brazil in the 1970s, Parmalat is the country's second biggest buyer of milk after Nestle.

Its range of dairy products remains popular with Brazilian shoppers, thanks to a pioneering marketing strategy.

"Parmalat was the first big company to sponsor a football team,"says Adalberto Viviani, a marketing consultant.

"Previously, the idea that you could sell milk through sports branding was considered foolish, but Parmalat soon became one of Brazil's best known brands and other companies followed its example."

Mr Viviani believes there is still a "wide gap" between Parmalat's financial troubles and the company's healthy reputation among Brazilian consumers.

"All other things being equal, the Parmalat name will survive here," he says.

Asset stripping

But behind the successful image, Parmalat was experiencing financial problems even before the current crisis.

Parmalat crates at the Coopersul milk co-operative
Parmalat is one of Brazil's best known brands
The company has lost money every year since 1998, thanks to series of costly acquisitions.

Under new direction it began streamlining its operations in 2000.

The fear now is that revenue generated in Brazil will be siphoned off to Italy, to cover the hole in Parmalat's European finances.

Following legal action by the company's Brazilian creditors, a team of auditors has been appointed to ensure that assets are not sold off.

No security

With events in Italy still unfolding, these are nervous times for the company's 6,000 Brazilian workers as well.

Worker at the Coopersul milk co-operative
The future may be bleak for many workers
Last week, the food industry's main trade union said production at Parmalat had fallen by half since the crisis broke.

Two of the company's Brazilian plants are reported to have run out of packaging material.

In the long-term this chain of events raises questions about whether Brazil's farmers and co-operatives are too dependent on large corporations like Parmalat.

But the more pressing issue is survival.

"We're suspicious and insecure," says Katia, the cook at Happy Memory Farm.

"Everyone here depends on Parmalat for a living.

"If the company collapses it will be a disaster for all of us."

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