Heineken celebrations watered down by legal dispute

. Feb 14, 2020
Heineken Brazil Photo: PJiiiJane/Shutterstock

Only days after Dutch brewing company Heineken announced that Brazil was its biggest global market, the firm could be forced to close one of its most important factories in the country’s Northeast region. A decades-long dispute over the right to use the land where the company’s Alagoinhas factory is situated—where Heineken produces water, soft drinks, and beer—could lead to a shutdown in production or a hefty compensation settlement.

</p> <p>To the south of the inland city of Alagoinhas, in the state of Bahia, Heineken operates its biggest factory in Brazil&#8217;s Northeast. Originally opened by Schincariol in 1997—which was purchased by Brasil Kirin in 2012, before being incorporated by Heineken in 2017—the site has received a series of hefty investments in recent years. </p> <h2>Getting there first</h2> <p>However, a court dispute has hung over the factory since its inauguration, thanks to a claim over the territory from businessman Maurício Brito Marcelino da Silva dating back in 1996. One year before Schincariol opened the facility, Mr. Silva had made an official request to the National Mining Production Department—now the <a href="https://brazilian.report/?s=mining">National Mining Agency</a>—for permission to prospect phosphate in the 2,000-hectare area.</p> <p>Mr. Silva&#8217;s request was approved, but the drinks company went ahead and built the factory, using groundwater on the territory. This, by the letter of the law, is illegal, as the company would have to obtain the express authorization of Mr. Silva before exploiting any resources underneath the soil.</p> <p>At the time, the justification for building the factory that now belongs to Heineken was that it was in the interest of the local population, due to a promise of creating 5,000 jobs. The project was boosted by the late Antônio Carlos Magalhães, who served as governor of Bahia state on <a href="https://brazilian.report/guide-to-brazil/2018/06/08/brazil-political-dynasties/">three separate occasions</a>.</p> <p>However, despite the claims of public interest, regulations for prospecting minerals works on a purely first-come-first-served basis.</p> <p>Maurício Brito Marcelino da Silva filed suit against Schincariol—and consequently, Heineken—in 1997, but only in 2017 did the Superior Court of Justice finally rule in his favor, ordering the National Mining Agency (ANM) to suspend Heineken&#8217;s permission to use the land&#8217;s groundwater, thus halting production at the factory.</p> <p>The government agency, however, has yet to do anything with this court order and the Alagoinhas factory has remained operational ever since. At the end of 2019, the court gave the ANM 60 days to act, which it didn&#8217;t. Now, a new order was issued on Thursday, giving the agency three working days to order the closure of the Heineken factory or face a daily fine of BRL 10,000 for every ANM board member.</p> <p>It is believed that a settlement between Maurício Brito Marcelino da Silva and Heineken to keep the Alagoinhas factory open could add up to something in the range of BRL 200 million to BRL 500 million.</p> <h2>Heineken toasting promising results</h2> <p>On Wednesday, despite the dispute over the future of its Alagoinhas factory, Heineken&#8217;s Brazilian branch was in good spirits. A statement released by the company showed that its sales volume had increased 4.1 percent worldwide in Q4 2019. For Heineken beer, the company&#8217;s flagship brand, sales went up 12 percent in the last three months of last year.</p> <p>Much of this success was boosted by sales in the Americas and particularly Brazil, which Heineken stated is now its biggest market in the world. Despite trailing far behind undisputed frontrunner Ambev—which controls an estimated <a href="https://brazilian.report/society/2018/11/30/brazilian-beer-companies-drinking/">60 to 70 percent of Brazilian beer sales</a>—Heineken has made significant strides in recent years, being able to get top brands Heineken, Amstel, and Eisenbahn into refrigerators all over the country.</p> <p>While sales cannot compare to Ambev&#8217;s leading brands <a href="https://brazilian.report/business/2020/01/22/beer-giant-ambev-lawsuit-dispute-116-year-old-shares-brazil/">Skol and Brahma</a>, a bigger search for &#8220;premium&#8221; beers has more often than not pushed consumers Heineken&#8217;s way.

 
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