The Brazilian Milk Fraud Scandal Involving the Italian Food Conglomerate Parmalat.

Running Head: THE BRAZILIAN MILK FRAUD SCANDAL

The Brazilian Milk Fraud Scandal Involving the Italian Food Conglomerate Parmalat.
A Brief Case Study on a Transnational Corporation In Your Home Country
Gabriel Ferreira
International Public Relations – PUR6608 class
University of Florida

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The Brazilian Dairy Market background. Over the last decade, the Brazilian dairy market has been one of the most fast growing dairy markets in the world. In the early 90s, the
Brazilian agro-industrial milk sector suffered three very important changes: it starting being an open economic market for international competitors; at the time inflation was decreasing; and so milk prices drop significantly. All of these changes would not have been possible without the implementation of the Real Plan in 1994 (the new Brazilian coin plan until today) that strengthened investments in the country, especially in the milk-producing sector. These investments also lead to an increase in population number and to changes in alimentary habits
(Nahmias, 2008). By becoming such a lucrative sector, the milk and dairy product sector in
Brazil became the target for food adulteration processes. Its high-value role in feeding specific groups inside the population, such as children’s, women and elders, and regarding the expensive undergoing steps to achieve a final product that could be sold in the market, was some of the key aspects that attracted Brazilian dairy farms to adulterate its raw milk productions on the first place (De La Fuente & Juarez, 2005).

Parmalat’s Major Setback. In 2003, the world leading Italian food conglomerate
Parmalat, was devastated by money deviation denunciations (approximately $20 billion), what was known as the biggest financial scandal of Europe, and asked for forced agreement (Sverige,
2004). The damage done to Parmalat 's image was huge, causing instability and making it lose market share worldwide. Parmalat also entered in judicial recovery, where its plan of recovery was approved giving new breath to the company to continue its operations. Taking advantage of the fragile moment Parmalat was passing through, LEAP Investments Ltd bought its Brazilian subsidiary for $60 million (Grain Report, 2011). After a tumultuous year, Parmalat ended up

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declaring bankruptcy and a new company named Parmalat S.p.A. was founded in October 1st of
2005. After passing through an ample reorganization, extending its lines of products, recouping the leadership in the milk segment and entering new markets, the company was profitable once again. Meanwhile, Brazil was placed as the 6th largest worldwide dairy products market in 2003
(today it ranks 2nd place). Later on in 2011, the French company of dairy and food products,
Lactalis, assumed the shareholding control of the Parmalat S.p.A. (Parmalat Annual Report,
2011).

The Milk Fraud Scandal Backdrop. In 2007, the Brazilian milk and dairy production market was at its apex. With the advent of huge distribution points known as supermarkets coming to Brazil with all its strength, creating a competitive scenario amongst small, medium and large businesses, long lasting dairy products were needed to ensure long life shelf and provide consumer comfort and convenience (Nahmias, 2008). This is when Parmalat’s world famous ultra-high temperature milk (UHT) sold in milk cartons came into place. According to
Taly Nahmias, analyst and researcher for the American Market Research private company, Frost
& Sullivan, in that same year three very important facts were perceived in the Brazilian milk production market: (1) the prices of most dairy products were absurdly increasing (a 67 percent increase on a year-to-year comparison); (2) the industry was suffering from an informality issue
(only one third of the milk produced in Brazil was submitted to inspection by national consumer’s health program authorities) and (3) the Brazilian milk production industry suffered a unexpected downfall from its international buyers and resellers because of milk adulteration.
This downfall is recalled in Brazil as the “milk fraud scandal” (Nahmias, 2008).

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Just when the Italian world leading multinational company in the production of ultrahigh-temperature (UHT) milk was starting to sustain its profits and had built a solid brand image concept by its Brazilian consumers, the milk fraud scandal hit the news. Two dairy cooperatives in Minas Gerais (MG, Southeast region of Brazil), Casmil (located in the city of Passos, MG) and Coopervale (located in the city o Uberaba, MG) have been buying milk from local dairy farms and were adulterating it with two main intents in mind (People’s Daily Online, 2007): (1) to increase product volume (every 100 thousand liters would become 110 after adding bleaching and disinfectant chemical agents, such as hydrogen peroxide (caustic soda) and oxygenated water) (Nahmias, 2008); (2) and to increase the profit from raw milk (milk that is neither submitted to previous treatment nor submitted to inspections). The “milk fraud scandal” and how it reached the Supermarkets and the end consumers, was a result of the sense of informality towards the milk market in Brazil, proving not only how companies like Parmalat Brasil were unprepared to evaluate the quality of the acquired raw milk, as well as the inefficiency of the inspections system established by the agro-industrial government. Although Parmalat Brasil was not directly responsible for selling and producing adulterated milk, it became a victim of its own negligence by not properly evaluating its purchased raw milk, hence suffering consequences of this scandal. Almost immediately after the media spread the word on the milk fraud scandal,
Anvisa (the Brazilian Sanitarium Vigilance organization) was ordered by the Brazilian Ministry of Agriculture to take of the market every single milk cartons and milk plastic bottles from the involved brands. Parmalat Brasil, Centenário, Calu, were known companies amongst the ones who suffered the impact of their product never reaching the consumers table during Anvisa’s action. THE BRAZILIAN MILK FRAUD SCANDAL

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Consequences for Parmalat Brasil and Parmalat S.p.A. As a measure of action by the
Brazilian Sanitarium Vigilance organization (Anvisa), an operation called “Ouro Branco” (White
Gold) was implemented in conjunction with the Brazilian Federal Police Department (DPF) in order to detain all responsible personnel for the milk adulteration process and its supervision, as well as to seize and analyze all produced batches of fraudulent milk from the respective milk cooperatives involved in the scandal (Coopervale and Casmil) (Pontes, 2009). Through this action, the DPF and Anvisa also had the authority to pull of market all milk lots from Parmalat
Brasil, Centenário and Calu, the three companies that were main buyers of milk from those cooperatives. On one single supermarket, the DPF seized 26 thousand liters of milk batches sold by these three companies (October 26, 2007). The total sum of liters of milk seized in operation
“Ouro Branco” was never revealed, but there are speculations suggesting more than 1 ton/liters of “possible” adulterated milk were seized by Anvisa to further analysis. All milk batches considered contaminated were to be disposed of immediately on local landfills and water treatment stations.
At that time, Parmalat Brasil was producing an average of 40 million liters of UHT milk in Brazil, with raw milk sold by the two indicted cooperatives as well as raw milk from other two dairy farms in the country: one located in Santa Helena (Central region of Brazil) and Carazinho
(South region of Brazil). Of those 40 million liters produced per month by Parmalat Brasil, only
200 liters were found contaminated with chemical agents (October 26, 2007). The financial consequences of this crisis for Parmalat Brasil were harsh and overpassed with great costs. For many months ahead Parmalat Brasil had to work hard using national media outlets that were covering this case, in an attempt to restore the brand’s credibility and regain costumers, consumers and national public opinion they had lost in a small amount of time (Nahmias, 2008).

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Nevertheless, there were no legal or judicial indictments applied against neither to Parmalat
Brasil nor to Parmalat S.p.A. by Anvisa or any other official Brazilian institution for that matter
(Pontes, 2009). Needless to say that even though Parmalat was not corroborating in any matter on the milk fraud scandal, the brand’s image in Brazil had been compromised, and the transnational company would have to pay a high price on the following months to reposition its brand on the Brazilian milk and dairy’s market as well as in the population’s share of mind.

Parmalat Brasil’s Response to the Brazilian Milk Fraud Scandal. Once the allegations were made, Parmalat Brasil ruled to report what had happened and how the consumer should proceed on the issue. For that message to reach the public, the transnational corporation released its official release in several national media outlets and even in supermarkets, warning which lots of milk were adulterated. In its official website, Parmalat Brasil posted all the documents released to the press as an official statement and notes to the public sphere and press as well as commercials, advertisements, plus providing a part on the website for the consumer to communicate directly with the company in case of any questions.
Here, it is worth remembering the difference between an official note and a statement.
According to Kopplin and Ferraretto (pg.63, 2001), an official note is "distributed in critical situations when requiring a strong and defined positioning of the respective company". This could be sent to newspapers and/or published as a paid article. The statement, on the other hand,
“contains valid information to inform a journalist and not a vehicle itself.”
Drawing back to the subject, and as explained in the beginning of this brief case, this was not the first time that Parmalat went through a crisis. The company had recovered from its financial nightmare back in 2003 and there on it managed to regain and maintain a good image in

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the food and dairy world business. Four years later, the transnational company now faces a scandal with its Brazilian subsidiary, but by analyzing the notes and official statements released by Parmalat Brasil, it seems like the company was more cautious to act, having learned from its recent setback. Parmalat Brasil started by answering specific subjects, showing that it was responding everything it was requested from them, without escaping any questioning from the press, government or the public opinion.
There were three official documents released by Parmalat Brasil public relations department (Parmalat Brasil S.A., 2007). The first document was a note on the quality of milk, in which the company identifies and secures each adulterated batch of milk to ensure to the public sphere the inexistence of faulty products still on the market. The second was an official statement on the accused cooperatives, in which Parmalat Brasil explains its involvement with each of them, stating they usually bought raw milk from many dairy farms and cooperatives and not only from the accused fraud cooperatives. In this second document Parmalat Brasil was also reporting the daily amount of raw milk purchased and explained the quality control process that it demanded in each process of manufacturing dairy products, including UHT milk. In the third document, Parmalat publishes a press release in which the company answers questions and shows actions that were about to be taken to control the problem. The company informs that led more than 50 milk samples from all over Brazil for analysis, and also made clear that it was a routine procedure required by the institution norms, and claims to have stop working with the indicted cooperatives being investigated by the Brazilian Federal Police Department. All of these actions were reaffirming the institution commitment to provide quality products for dealers, employees and consumers. Also at the end of the third document (the press release), Parmalat
Brasil features a 0800 telephone number and an e-mail targeting consumers that may still have

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questions. Moreover, a similarity between the three documents is found, when every single one ends with the statement that the company "guarantees" the quality of its milk; expresses its gratitude to customers through final greetings like "we appreciate your trust" and finally, they are signed by Parmalat Brasil National Sales Manager (Parmalat Brasil S.A., 2007). All of these actions taken by Parmalat Brasil only added to a positive brand image restoration process.

In Conclusion. After a case like this, it is sure to say that clearly the company that is best prepared to communicate with its stakeholders, costumers and consumers is with advantage over the crisis. As a general rule, transparency in a crisis situation can transform the problem into an opportunity to show a company’s concern with the community (Cassian, Smaniotto, 2002). By closely analyzing Parmalat’s successful response to a possible community well being crossnational conflict, its easy to acknowledge that it acted according to a pre-established strategy, being prepared at anytime for a (surprise) crisis, and most importantly during a crisis; Parmalat strictly followed what they had previous planned for a moment of crisis. By doing so, it contained a possible cross-border shift and prevented the involvement of its home country and activist communities. There were also a low number of involved parties, and the right to act upon this situation was handed to the emergent economical and judicial Brazilian systems, thus preventing a cross-national conflict between the host and home country of the organization
(Molleda, 2005).
In these times of turmoil, a company hardly comes out as a villain if it demonstrates seriousness, consistency and responsibility, even if the case presents itself as negative. This proves that acting correctly will always be the best way to resolve any positive or negative situation. It is also important to note that despite major financial losses by Parmalat Brasil, its

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good relationship with the media and its correct use of internal and external communication prevented an incalculable heavy loss, more valuable than money itself: credibility.

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References
Cassiano, Â., Smaniotto, S. (pg. 155, 2002) Vinte anos de boas notícias. (Translation: Twenty
Years of Good News). São Paulo: Sá, 2002.
De La Fuente, M. A., & Juarez, M. (2005). Authenticity assessment of dairy products. Critical
Reviews in Food Science and Nutrition, 45(7), 563–585.
Globo G1 (October 23, 2007) Article from the g1.globo.com website. Fiscais do MP retiram leite do comércio de Uberaba-MG. (translation: MP Inspectors remove milk from the Uberaba,
MG dairy from the market) Retrieved from http://g1.globo.com/Noticias/Brasil/0,,MUL155731-5598,00FISCAIS+DO+MP+RETIRAM+LEITE+DO+COMERCIO+DE+UBERABAMG.html
Globo G1 (October 26, 2007) Article from the g1.globo.com website. Anvisa inicia retirada de leites do Mercado. (Translation: Anvisa initiates removal of Milks from Market)
Retrieved from - http://g1.globo.com/Noticias/Brasil/0,,MUL159627-5598,00ANVISA+INICIA+RETIRADA+DE+LEITES+DO+MERCADO.html
Grain Report (2011) The Great Milk Robbery - How corporations are stealing livelihoods and a vital source of nutrition from the poor. Retrieved from - http://tinyurl.com/mptemn5
Koplin, E., Ferrareto, L. (pg. 63, 2001) Assessoria de Imprensa – teoria e imprensa. (Translation:
Press Assessorship - Press and Theory) 4° ed. Porto Alegre: Sagra Luzzatto, 2001.
Molleda, J.C., Ph.D. (2013). “International Public Relations Module 5: Transnational Crisis or
Cross-National Conflict Shifting & Global Coordination. Retrieved from https://elearning2.courses.ufl.edu/access/content/group/UFL-PUR6608-33320-

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12014/documents/Module-5-Coordination-Control.pdf
Nahmias, T. (January 11, 2008) Article from Frost & Sullivan Market Insight - The Milk
Industry in Brazil: Insecurity in a Shaken Market. Retrieved from http://www.frost.com/prod/servlet/market-insight-print.pag?docid=117832008
Parmalat Brasil S.A. (October 23, 2007) Parmalat’s Official Statement for the milk fraud scandal
- “Parmalart Comunicado Oficial” - Retrieved from: http://www.intercom.org.br/papers/nacionais/2008/resumos/R3-0797-1.pdf People’s Daily Online (October 20, 2007) source: Xinhua. “Report: Adulterated milk from
Brazilian dairies endanger people 's health”. Retrieved from http://english.people.com.cn/90001/90782/90880/6293261.pdf Pontes, R. (September 9, 2009) article presented on Intercom: Brazilian society of Studies
Interdisciplinary of the Communication. Translation: Planning the organizational communication: as to be prevented, to manage and to strengthen with a crisis”. Retrieved from - http://www.intercom.org.br/papers/nacionais/2008/resumos/R3-0797-1.pdf
Sverige, C. (January 6th, 2004) Article from the World Socialist Web Site. “The Parmalat scandal: Europe’s ten-billion euro black hole. Retrieved from http://www.wsws.org/en/articles/2004/01/parm-j06.html

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References: Cassiano, Â., Smaniotto, S. (pg. 155, 2002) Vinte anos de boas notícias. (Translation: Twenty Years of Good News) De La Fuente, M. A., & Juarez, M. (2005). Authenticity assessment of dairy products. Critical Reviews in Food Science and Nutrition, 45(7), 563–585. Globo G1 (October 23, 2007) Article from the g1.globo.com website. Fiscais do MP retiram leite do comércio de Uberaba-MG MG dairy from the market) Retrieved from http://g1.globo.com/Noticias/Brasil/0,,MUL155731-5598,00FISCAIS+DO+MP+RETIRAM+LEITE+DO+COMERCIO+DE+UBERABAMG.html Globo G1 (October 26, 2007) Article from the g1.globo.com website Grain Report (2011) The Great Milk Robbery - How corporations are stealing livelihoods and a vital source of nutrition from the poor Koplin, E., Ferrareto, L. (pg. 63, 2001) Assessoria de Imprensa – teoria e imprensa. (Translation: Press Assessorship - Press and Theory) 4° ed Molleda, J.C., Ph.D. (2013). “International Public Relations Module 5: Transnational Crisis or Cross-National Conflict Shifting & Global Coordination People’s Daily Online (October 20, 2007) source: Xinhua. “Report: Adulterated milk from Brazilian dairies endanger people 's health”