BRF SA (BRFS) Risk Factors

Our manufacturing facilities and products are subject to governmental inspections and extensive regulation in the food safety area, including governmental food processing controls in all countries in which we operate. We incur significant costs in connection with our efforts to comply with applicable food safety and processing rules. Changes in government regulations relating to food safety, including as a result of the COVID-19 pandemic, or animal welfare could require us to make additional investments or incur additional costs to meet the necessary specifications for our products. Our products are often inspected outside of Brazil by foreign food safety officials, and any failure to pass those inspections could result in us being required to return all or part of a shipment to Brazil, recall certain products, dispose of all or part of a shipment or incur costs because of delays in delivering products to our customers. We have adopted various international animal welfare standards to address our customers' expectations. Any tightening of food safety or animal welfare regulations could result in increased costs and could have a material adverse effect on our business, results of operations, financial condition and prospects.

We and some members of our management are defendants in civil, administrative, regulatory, environmental, labor and tax proceedings and we are also subject to consent agreements (Termo de Ajustamento de Conduta, or TAC). Unfavorable decisions in such administrative and legal proceedings may reduce our liquidity and have a material adverse impact on our business, results of operations, financial condition and prospects. In addition, our management and employees may be subject to judicial, arbitral and/or administrative investigations, inquiries, proceedings and claims. With regard to tax contingencies, we are currently defendants in a number of cases, which include, for example, disputes regarding the offset of tax credits and the use of tax incentives in several states that have not yet reached a final ruling in the Brazilian courts. In addition, we may face risks arising from potential impairment of input state value-added tax, or VAT, that we accumulate on exports. As of December 31, 2022, we have R$1,415,537 thousand in provisions for contingencies, of which R$358,304 thousand are for civil and other contingencies (including administrative, regulatory and environmental), R$399,675 thousand are for tax contingencies and R$526,710 thousand are for labor contingencies and R$130,848 thousand are for a contingent liabilities recognized at fair value as of the acquisition date, arising from the business combinations with Sadia, Hercosul and Mogiana. Proceedings classified as possible losses, as of December 31, 2022, totaled R$15,343,060 thousand, which could adversely affect our financial situation in the event of change in circumstances in the classification of probability of loss, due to the complexity and discretion involved in the assessment, measurement and definition of the time of recognition and disclosure of legal claims between the various spheres in which they are processed. On March 12, 2018, a shareholder class action lawsuit was filed against us, some of our former managers and a current officer of ours in the U.S. Federal District Court in the Southern District of New York. The class action alleged, among other things, that we and certain officers or directors of ours engaged in securities fraud or other unlawful business practices related to the regulatory issues in connection with the Carne Fraca Operation and Trapaça Operation. For more information about the "U.S. Class Action," "Carne Fraca Operation" and "Trapaça Operation," see "Item 8. Financial Information-A. Consolidated Statements and Other Financial Information-Legal Proceedings-U.S. Class Action," "Item 8. Financial Information-A. Consolidated Statements and Other Financial Information-Legal Proceedings-Carne Fraca Operation" and "Item 8. Financial Information-A. Consolidated Statements and Other Financial Information-Legal Proceedings-Trapaça Operation." The parties reached an agreement on March 27, 2020 to settle this class action for an amount equivalent to R$204,436 thousand (US$40,000 thousand, translated to reais at the exchange rate of R$5.1109 as of March 27, 2020). The court approved this settlement on October 23, 2020. In addition, in 2020 we received a final and unappealable judicial decision regarding the exclusion of ICMS from the tax basis of the social contributions of PIS and COFINS, which permitted us to recognize a significant amount of recoverable taxes, which are described in note 9.2 to our consolidated financial statements. For a number of procedural reasons involved in finalizing the settlements for these judgments, it could take an extended period of time for us to receive these amounts, either as compensation or through obtaining a court ordered financial obligation (precatório). In 2021, we started to use these tax credits to offset federal taxes payable. The total amount used for this purpose in the year ended December 31, 2022 was R$384,956 thousand. In March 2020, three confidential arbitration proceedings were brought against us in the Market Arbitration Chamber (Câmara de Arbitragem do Mercado) of the B3 S.A. – Brasil, Bolsa, Balcão, or the B3 or the São Paulo Stock Exchange, in Brazil by investors that had purchased our shares traded on the B3, seeking recovery from alleged losses incurred by them, due to the price fall of our shares, during the period starting from April 4, 2013 and afterwards. In September 2020, the Chairman of the Market Arbitration Chamber of B3 decided to consolidate these three arbitrations into a single arbitration proceeding. In November 2022, the arbitral tribunal was convened, and in December 2022, we formally commenced the arbitration proceedings. We are currently awaiting the next steps of the arbitration to be decided, and because this arbitration is in its initial stage, we believe the possible loss or range of losses, if any, cannot be estimated. In the event that this litigation or arbitration proceeding is decided against us, or we enter into an agreement to settle, there can be no assurance that an unfavorable outcome or settlement would not have a material adverse impact on us. We cannot guarantee that the results of these proceedings or investigations and/or that new proceedings or new investigations will have favorable outcomes for us and our management. Any investigation from governmental authorities currently unknown to us with respect to any potentially unlawful business practice may also result in penalties, fines and sanctions or other forms of liability. With respect to proceedings to which we are a party, we cannot guarantee the dimension of the impacts that the results may have on our business, financial condition and/or reputation, or that we maintain or will maintain provisions in sufficient amount to cover all liabilities that may arise from these proceedings. In addition, we cannot guarantee that any person, directly or indirectly related to us, whether shareholder, employee, officer, director, supplier, service provider, subcontractors or alike, will not be involved in legal, administrative or arbitration proceedings, investigations or police inquiries.

Based on our financial statements, relevant market and shareholder data, and the projected composition of our income and valuation of our assets, including goodwill, we do not believe that we were a passive foreign investment company, or "PFIC", for U.S. federal income tax purposes for 2022, and we do not expect to be a PFIC for 2023, although we can provide no assurances in this regard. If we become a PFIC, U.S. holders of our common shares or ADRs may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of PFIC status is fact-specific and will depend on the composition of our income and assets from time to time, and a separate determination must be made each taxable year as to whether we are a PFIC (after the close of each such taxable year). Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the percentage of our assets (which includes cash) by value (determined on the basis of a quarterly average) in that taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets (including goodwill and certain intangible assets) will be based, in part, on the quarterly market value of our common shares and ADRs, which is subject to change. Accordingly, it is possible that we may become a PFIC for 2023 or future taxable years due to changes in our income or asset composition.

We are subject to several data protection laws in the jurisdictions in which we operate including, but not limited to, the LGPD, the GDPR, Turkey's Law on the Protection of Personal Data No. 6698 dated April 7, 2016, or the LPPD and China's Personal Information Protection Law dated August 20, 2021, or the PIPL. We seek to make our operations compliant with those laws and enhance the security of our personal data processing activities, and while we believe our operations comply with the LGPD in Brazil, we cannot guarantee that we will not be subject to fines and other types of sanctions. Specifically with respect to Brazil, the LGPD came into effect on September 18, 2020. The LGPD changed the way the protection of personal data is regulated in Brazil. It establishes a new legal framework to be observed in personal data processing operations and provides, among other things, for the rights of the owners of personal data, the legal bases applicable to the protection of personal data, the requirements for obtaining consent, obligations, requirements regarding security incidents, leaks and data transfers, as well as the creation of the Brazilian National Data Protection Authority, or the ANPD. If we do not comply with the LGPD, the GDPR, the LPPD, the PIPL or any other data protection law to which we are subject, both we and our subsidiaries may be subject to sanctions, either individually or cumulatively, including warnings, obligations to disclose incidents, temporary blocking or deletion of personal data, and penalties of up to 4% of our revenue or the revenue of our group. In addition, we may be held liable for material, moral, individual, or collective damages caused by us, and may be held jointly and severally liable for material, moral, individual or collective damages caused by our subsidiaries. Failure to protect personal data processed by us and our subsidiaries, as well as the failure to adjust to the applicable legislation, may result in significant fines for us and our subsidiaries, disclosure of any incidents in the media, the deletion of personal data from our database, and the suspension of our activities, which could adversely affect our reputation, business, results of operations and financial condition.

Global markets are currently operating in a period of economic uncertainty, volatility and disruption following Russia's full-scale invasion of Ukraine on February 24, 2022. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine and any other geopolitical tensions could have an adverse effect on the economy and business activity globally and lead to: - credit and capital market disruptions;- significant volatility in commodity prices (such as grains, fertilizer inputs and oil and gas);- increased expenses related to direct and indirect materials used in our production process (i.e., packaging, logistics and inputs, among others);- increased costs of resources (such as energy, biomass, natural gas and coal) for our operations;- slowdown or disruption of the global and local supply chain, which may lead to shortages and lack of critical materials, commodities and products in the market;- potential appreciation of the U.S. dollar;- increase in interest rates and inflation in the markets in which we operate, which may contribute to further increases in the prices of energy, oil and other commodities; and - lower or negative global growth. Any such event may increase our costs and adversely affect our business if we are not able to pass such increased costs onto our customers. The conflict between Russia and Ukraine led to an increase in energy prices in Europe (especially natural gas, electricity and biomass inputs). In particular, the conflict stimulated demand for biomass inputs in the European market, reducing supply to meet international demand and leading to higher prices and, consequently, higher inflation. These conditions generally increased our costs and brought greater volatility to our margins. For example, there was an increase of 46% in the cost of biomass inputs in 2022 when compared to the previous year. Economic sanctions imposed on Russia in response to the war also caused an acute shortage in the supply of oil and natural gas in global markets, leading to an increase in energy prices from January 2022 and reaching the highest level in June 2022. In this context, the global economic slowdown also gained strength, reinforced by Chinese lockdown measures to contain COVID-19 outbreaks in various industrial regions during 2022. The global energy crisis and higher inflation, coupled with a slowdown in global economic production, may have a negative impact on our costs and the demand for our products. Our revenues were R$53.8 billion in December 31, 2022, an increase of 11.3% when compared to the previous year. In addition, as a result of the higher inflation and energy prices, there was an increase in our production costs, which were R$45.7 billion for December 31, 2022, an increase of 18.2% when compared to the previous year. Additionally, Russia's prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People's Republic, and the so-called Luhansk People's Republic, including the agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, payment system. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions, the resulting sanctions and Russian counter measures or retaliatory actions (including cyberattacks and espionage) could adversely affect the global economy and financial markets and lead to further instability and lack of liquidity in capital markets. See "-A failure to comply with export control or economic sanctions laws and regulations could have a material adverse impact on our results of operations, financial condition and reputation." The impact of these measures, as well as potential responses to them by Russia, is currently unknown and, while our exposure to Russia and Ukraine is limited, current and future measures could significantly and adversely affect our business, financial condition and results of operations, including, for example, cancellation and difficulty in exporting goods to Russia, potential sanctions in the marketing of our products to Russia and threats to the safety of our employees in Russia and other locations close to the conflict. Geopolitical and economic risks have also increased over the past few years as a result of trade tensions between the United States and China, Brexit, and the rise of populism. Growing tensions may lead, among others, to a deglobalization of the world economy, an increase in protectionism or barriers to immigration, a general reduction of international trade in goods and services and a reduction in the integration of financial markets, any of which could materially and adversely affect our business, financial condition and results of operations. For these reasons, we are in the process of revising our long-term strategy under the Vision 2030 Plan. See "Item 4. Information on the Company-B. Business Overview-Vision 2030 Plan." We are continuing to monitor the situation in Russia, Ukraine and globally and assess its potential impact on our business. Any of the abovementioned factors could adversely affect our business, prospects, financial condition, and operating results. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described elsewhere in this annual report.

The market for securities issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in other emerging markets. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or adverse economic conditions in other emerging markets have at times resulted in significant outflows of funds from, and declines in, the amount of foreign currency invested in Brazil. In addition, economic and political crises in Latin America or other emerging markets may significantly affect perceptions of the risk inherent in investing in the region, including Brazil. The Brazilian economy, as well as the market for securities issued by Brazilian companies, is also affected, to varying degree, by international economic and market conditions generally, especially economic and market conditions in the United States. Share prices on the São Paulo Stock Exchange, for example, have historically been sensitive to fluctuations in U.S. interest rates as well as movements of the major U.S. stock indexes. Additionally, uncertainties related to global economic activity may result in significant volatility in both Brazilian and international financial markets and economic indicators, including exchange rates, interest rates and credit spreads. For example, as a result of heightened volatility generated by the onset of the COVID-19 pandemic and its perceived future impact on global economic activity, the B3's circuit breaker was triggered eight times in March 2020. We are unable to estimate or quantify all economic and operational consequences of the COVID-19 pandemic, particularly in emerging markets, or the macroeconomic effects this or other worldwide dislocations may have on equities traded on global stock exchanges, including the trading of our common shares and ADRs. In addition, the invasion of Ukraine by Russia has created a period of acute economic uncertainty, volatility and disruption for global markets, leading to an increase in the prices of energy and biomass inputs and, consequently, higher inflation. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine and any other geopolitical tensions could have an adverse effect on the market price of our common shares and ADRs. For additional information, see "-Geopolitical and other challenges and uncertainties due to the ongoing military conflict between Russia and Ukraine could have a material adverse effect on the global economy, certain material and commodity prices and our business." In this way, any significant change in the global financial markets or the Brazilian economy may decrease the interest of investors in assets from Brazil and other countries in which we do business, including our common shares, which may adversely affect the trading price of our common shares and ADRs, or decrease liquidity of our common shares and ADRs generally in addition to hindering our access to the equity capital markets and to financing in the future on acceptable terms or at all.

According to the 18th Global Risks Report published by the World Economic Forum in January 2023, risks related to natural disasters, extreme weather and climate change are considered to be the most pressing for the world in the short term (i.e., within the next two years) and for the next 10 years. In November 2022, the United Nations Climate Change Conference (COP27) in Sharm el-Sheikh brought together governments, businesses and civil society to discuss the climate agenda. Participating countries addressed the food and energy crisis, debated the new geopolitics impacted by climate change and took a range of decisions in a collective effort to limit the increase in global temperatures to 1.5 degrees Celsius and mitigate its effects. New pledges were made to support the world's most vulnerable countries financially. Discussions also addressed forests and nature-based solutions as drivers for climate change mitigation, allowing an important connection between climate and biodiversity, in accordance with the discussions initiated at the COP15 on Biodiversity in December 2022, in Montreal, Canada. In addition, the Food and Agriculture Organization of the United Nations (FAO) highlighted the importance of food systems through the Food and Agriculture Initiative for Sustainable Transitions (FAST), which is based on agriculture for tangible products with a focus on governance. FAO also reinforced the importance of developing and implementing the goal for global adaptation to climate change. There were no significant developments in the discussions agreed upon at the 2021 United Nations Climate Change Conference (COP26) in Glasgow about financially supporting developing countries in achieving the global goal to limit the rise in global temperatures, new rules for international carbon trading mechanisms (Article 6) and regulations determining how countries are held accountable for delivering on their climate action promises and self-defined targets under their Nationally Determined Contributions (NDCs). However, there were earnest demands against greenwashing, reinforcing that businesses committed to Net Zero should ensure that their plans actually reduce emissions to contribute to progress in the global response to climate change. In Brazil, the new federal government renamed the Ministry of the Environment to the "Ministry of the Environment and Climate Change". New secretariats were created with a focus on the climate agenda, bioeconomy and the fight against deforestation. The goal is to fight climate change, define guidelines for Net Zero and implement initiatives for the protection of biodiversity. Considering that climate change contributes to food production insecurity and threatens community nutrition, we take into consideration the potential effects of climate change on our operations and supply chain, and we recognize vulnerabilities associated with natural resources and agricultural products that are essential for our activities. The main risks to our business that we have identified with respect to climate change relate to the changes in temperatures (global warming) and rainfall, including drought and natural disasters (such as flooding and storms), which may affect agricultural productivity, animal welfare and the availability of water and energy. These changes may adversely affect our operating costs and results of operations, including by raising the price of agricultural commodities as a result of long periods of drought or excessive rainfall, increasing operating costs to ensure animal welfare, increasing the risk of rationing and raising the price of electricity. We may fail to effectively implement programs or obtain appropriate environmental or sustainability certifications related to reducing our exposure to climate change, which may adversely affect our business and results of operations in the future. We are also subject to regulatory changes, such as carbon pricing or taxation, and changes in legislation for greenhouse gas emissions at the domestic and international levels. We retained a consulting firm to develop a carbon pricing methodology, allowing us to understand the financial impact of carbon in our projects and helping us to assess global risks and opportunities. By quantifying this variable, we are able to evaluate, compare and prioritize strategic investments incorporating this new perspective. Any changes in carbon pricing or taxation and changes in legislation for greenhouse gas emissions may increase our costs and adversely affect our results of operations. Our operations are largely dependent on electricity, and energy-related expenses are one of our highest fixed costs. Energy costs have historically fluctuated significantly over time – with significant increases being experienced during droughts or diversion of water for other purposes as the Brazilian energy matrix is mostly supported by hydroelectric power plants – and increases in energy costs could result in reduced profits. A significant interruption in energy supply or outright loss of energy at any of our facilities could also result in a temporary disruption in production and delivery of products to customers and additional costs, materially adversely affecting our results of operations.

Because of the growing market share of Brazilian poultry, pork and beef products in the international markets, Brazilian exporters are increasingly being affected by measures taken by importing countries to protect local producers. The competitiveness of Brazilian companies has led certain countries to establish trade barriers to limit the access of Brazilian companies to their markets. Trade barriers can consist of both tariffs and non-tariff barriers. In our industry, non-tariff barriers are of particular concern, especially sanitary and technical restrictions. As a result of the regulators' inquiries and the public announcement of allegations of wrongdoing involving us and other companies in the Brazilian meat industry in the context of the Carne Fraca Operation and Trapaça Operation, some export markets have been temporarily closed, and our average selling prices for some products and in some markets have decreased. For additional information, see "-Health and food safety risks related to our business and the food industry could adversely affect our production and shipping processes as well as our ability to sell our products." and "-We have been subject to significant investigations relating to, among other things, food safety and quality control, and any similar investigations and proceedings related to such investigations in the future could result in penalties, fines or other forms of liability and could have a material adverse effect on our business, reputation, brand, results of operations and financial condition." Some countries, such as Russia and South Africa, have a history of erecting trade barriers on imports of food products. Also, the European Union has adopted a quota system for certain poultry products and prohibitive tariffs for certain products that do not have quotas in order to mitigate the effects of Brazil's lower production costs on European producers. More recently, the European Union and the United Kingdom have been discussing and already applying certain regulations related to sustainability that may result in trade barriers, such as the Due Diligence on Deforestation and the Carbon Tax Adjustment Mechanism. There is a trend in relevant markets to enforce environmental-related regulations that might adversely affect our results in the future if we fail to comply with them. The United Kingdom Environment Act was adopted on November 9, 2021, laying down a framework to address deforestation, pursuant to which a regulated person or entity must not use a commodity associated with forest risk or derived product in its commercial activities. Additionally, on December 6, 2022, the European Parliament, the European Commission and the European Council reached an agreement regarding the European Union Regulation related to deforestation-free supply chains. The U.S. Department of State opened a public consultation, from October to December 2022, entitled "Request for Stakeholder Input on Options for Combating International Deforestation Associated with Commodities", which may result in the discussion or creation of specific legislation on the matter. These regulations or related laws, in particular those included in the "Farm to Fork Strategy" of the European Union, as well as related regulations in other countries inspired by these policies, may impose a greater compliance burden on us and negatively affect our operations and our results. Other countries have also imposed trade barriers against our products. For example, in August 2017, the Chinese government initiated an antidumping investigation in connection with Brazilian exports of whole chicken and chicken parts, including our exports. The investigation ended in February 2019, and Brazilian exporters agreed to certain minimum export prices for sales to China. In August 2018, Iraq increased the tariff on poultry products from 10% to 60%. In addition, in 2021, the South African government has opened up an anti-dumping investigation against certain Brazilian poultry exporters (we are not being investigated), which may result in the imposition of new restrictive measures towards Brazilian exporters. The South African government imposed a 265% provisional tariff for companies that did not file for an individual defense, which was our case. On August 1, 2022 the dispute settlement system of the existing bilateral agreement with the Southern African Customs Union (SACU) decided in favor of the European Union on a dispute against South Africa over a safeguard measure that included an extra import tariff for frozen chicken of 35.3%. After this decision, the South African government decided to suspend the application of the import tariffs under the anti-dumping investigation affecting Brazilian exporters, including us, for a period of 12 months. There can be no certainty that the local government will not impose further restriction to poultry and/or food trade. In the Middle East, in Saudi Arabia, one of our main export markets, the Saudi Food & Drug Authority, or the SFDA, tried to decrease imports by reducing the required poultry shelf-life from one year to 90 days. The change in the technical rules for the validity of in natura frozen chicken and its cuts was notified to the World Trade Organization, or WTO, in May 2021, but Saudi Arabia reversed the change in shelf-life in August 2021. In addition, in March 2021, the SFDA started a reinforced control system on imported meat, resulting in up to three months delays in products clearance at WTO ports and thus negatively affecting our business results. However, the SFDA withdrew the implementation of this measure. We face other risks from a sanitary perspective. For example, African swine fever or highly pathogenic avian influenza in some countries in the Americas carry along with them the risk of market closures in case of an outbreak in Brazilian territory. Especially toward the end of 2022, the Americas region experienced an upsurge in cases of highly pathogenic avian influenza in certain countries, including Canada, the United States, Mexico, Colombia, Chile, Venezuela and Peru. As a result, there is a possibility that certain countries will suspend imports from Brazil, especially considering Brazil does not have many regional trade agreements covering the sale of poultry. If cases of highly pathogenic avian influenza are confirmed within the Brazilian territory, it is uncertain how our export markets will react, considering that any restriction on imports from Brazil might have a negative impact on our business. For more information, see "-Outbreaks, or fears of outbreaks, of any animal diseases may lead to cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on consumer demand for our products. Moreover, outbreaks of animal diseases in Brazil may result in foreign governmental action to close export markets for some or all of our products, which may result in the loss of some or all of these animals." Many developed countries use direct and indirect subsidies to enhance the competitiveness of their producers in other markets. In addition, local producers, importers and even exporters in some markets may exert political pressure on their governments to prevent some foreign producers from exporting to their market, particularly during unfavorable economic conditions, such as the COVID-19 pandemic. Any of the above restrictions could substantially affect our export volumes and, consequently, our export sales and financial performance. If new trade barriers arise in our key export markets, we may face difficulties in reallocating our products to other markets on favorable terms, and our business, financial condition and results of operations might be adversely affected. Trade disputes between other countries also create uncertainties that may adversely affect Brazilian exports and our operations. For instance, the United States and China engaged in a trade dispute for almost 18 months, which has affected the global economy and prices of certain of our raw materials, including corn, soy meal and soybeans. On January 1, 2020, the United States and China signed the first phase of a trade agreement expected to alleviate the tensions between the two countries. A second phase of the agreement is expected to be even more difficult to achieve. There can be no assurances that the trade dispute will be fully resolved and that the global economy (as well as prices of certain of our raw materials) will not be further affected by it. The United Sates is expected to maintain the 25% tariffs on a wide range of US$250 billion of Chinese industrial goods and components used by the U.S. manufacturing sector. Both improvements in the countries' commercial relations and new mutually beneficial trade agreements at the expense of other countries may have a material adverse effect on our results of operations. However, the current trade deal may not be maintained by the United States under the Biden administration, especially since it has generally been regarded unfavorably, particularly for U.S. industry. The U.S. agribusiness sector, on the other hand, has largely benefited from the agreement, with a significant increase in poultry and pork exports, the reopening of the Chinese market to U.S. poultry exports, which had been halted since 2015 due to an avian influenza outbreak, and the accreditation of over 1,000 U.S. plants. These factors have positively affected the United States' market share of Chinese agricultural imports, which in turn has negatively affected Brazil's market share. We cannot control whether commercial tensions between China and the United States will increase again, or whether our business will be adversely affected as a result. In addition, in April 2018, Saudi Arabia instituted a no-stunning requirement for the animal slaughtering process. Saudi Arabia claimed that Brazilian companies' chicken slaughtering practices violated Halal principles due to the use of an electric shock to stun the birds. We, along with other Brazilian companies, were therefore required to migrate our production processes to non-stunning slaughters in order to supply the Saudi Arabian market. We have incurred, and expect to incur, additional costs in connection with these requirements for exporting to Saudi Arabia. In January 2019, the Saudi Arabian Food and Drug Authority published a report authorizing 25 Brazilian facilities to produce chicken meat for the Saudi Arabian market, which included eight of our plants. One of our plants (Lajeado, Rio Grande do Sul), which had previously produced chicken meat for the Saudi Arabian market, was not included as an authorized plant. The continuous shifting of our production of chicken meat for Saudi Arabia to the authorized plants may result in decreased revenues and additional expenses. Beginning in August 2019, Saudi Arabia banned the import of seasoned chicken meat produced in our Kizad facility, in Abu Dhabi, United Arab Emirates. The embargo was a result of Saudi Arabia's Vision 2030 Plan, announced in April 2016 as a national development plan, which included policies to reduce the country's dependence on oil, diversify its economy and substitute imports with local production. Saudi Arabia then expanded the embargo to the other products from our Kizad facility. The embargo was partially lifted in July 2022. In October 2022, we announced that our wholly-owned subsidiary BRF GmbH had executed a joint venture agreement with Halal Products Development Company, a wholly owned subsidiary of the Public Investment Fund (Saudi Arabia's sovereign wealth fund) regarding the development of the Halal industry in Saudi Arabia. We estimate that the investment amount will be around R$2,647,050 thousand (US$500,000 thousand, translated to reais at the exchange rate of R$5.2177 as of December 31, 2022). The transaction is still subject to obtaining regulatory and internal approvals of the parties. There can be no assurance that the Saudi Arabian government will not further restrict our ability to export our products to the country, which may result in a material adverse impact on our business, financial condition and results of operations. In February 2020, we received notification from the SFDA regarding a report temporarily suspending two of our facilities, the Dois Vizinhos and the Francisco Beltrão plants, both located in the Brazilian state of Paraná, from exporting chicken meat to Saudi Arabia. The SFDA informed us that the measure is temporary and, among other measures, requested that the Brazilian authorities provide more details about investigations carried out between 2014 and 2018 regarding alleged violations committed by us in the production of animal feed and PREMIX compound. For more information about these investigations, see "-We have been subject to significant investigations relating to, among other things, food safety and quality control, and any similar investigations and proceedings related to such investigations in the future could result in penalties, fines or other forms of liability and could have a material adverse effect on our business, reputation, brand, results of operations and financial condition." Additionally, the Saudi government has been implementing, since January 2020, a previous import licenses system. In the future, this system may adversely affect our exports to the country, since it might be used by local authorities as a means to control the entry of products and thus, artificially affect demand and offer and, consequently, prices, which run counter to basic principles of international trade rules and regulations. On August 3, 2021, we became aware through a publication on the website of the General Administration of Customs of the People's Republic of China, or GACC, of the suspension of the export to China of pork meat from our Lucas do Rio Verde-MT pork plant as of that date. The alleged reason was the malfunctioning of the refrigerating system of one single pork meat container, which was later demonstrated through the transporter's system log to be the transporter's sole responsibility and fault. Despite evidence being sent to the Chinese authorities, the suspension has not yet been reversed. On December 16, 2021, we were also informed by Brazilian Ministry of Agriculture, Livestock and Food Supply (Ministério da Agricultura, Pecuária e Abastecimento, or "MAPA") and GACC of the suspension of the export to China of poultry meat from Marau under the allegation of the finding of content improper for human consumption in a batch of poultry feet. On March 4, 2022, we were informed by GACC that it was suspending, as of March 5, 2022, the export to China of poultry meat from our Lucas do Rio Verde-MT plant as well. The alleged reason for this suspension were certain nonconformities identified during a videoconference audit executed by GACC, such as the occurrences of COVID-19 infections among our employees that were not disclosed to it and the lack of disinfection tank and detections of salmonella above the maximum limit in the reception of live poultry and in the processing of poultry products. Trade barriers may also be imposed in our key export markets as a result of the COVID-19 pandemic, for example due to outbreaks of COVID-19 in our plants and restrictions that may be imposed on our products because of these outbreaks. For more information, see "-Pandemics or human disease outbreaks, such as the coronavirus (COVID-19) originated in late 2019 and declared a global pandemic by the World Health Organization on March 11, 2020, may adversely affect our business and operations." Furthermore, China announced the end of the 8% special pork import tariff, implemented in 2019, and the consequent return to the normal 12% tariff as of January 1, 2022. The end of the special tariff was a response of the Chinese government to the return of the local price of hogs to its normal levels. According to Boyar China, the total volume of pork and its by products imported by China decreased 43% in 2022 when compared to previous years. A decrease in our ability to export our products to key markets may result in a material adverse impact on our business, financial condition and results of operations.

To support the operations of our industrial plants, we must hire and retain a sufficient number of workers and pay them sufficient compensation. The continuous operations of our industrial plants at target activity levels could be interrupted by our failure to recruit or retain the necessary number of workers. If it becomes necessary for us to operate our facilities significantly below the corresponding installed capacity, then our results of operations may be adversely affected. In addition, if we operate with a reduced number of workers, we may need to choose a product mix that requires fewer workers in the production line, but which may not represent the most profitable alternative among our productive capacity options, which could have a negative impact on our results of operations. We have been experiencing a general labor shortage in our facilities located in the Brazilian states of Mato Grosso and Santa Catarina. In these locations, where the prevailing unemployment rate could be lower than 4%, the number of residents in the workforce may be limited. To reduce the negative impact on our operations, we bring workers from other regions of the country where unemployment rates are higher, which results in additional costs related to relocation. For example, in the Brazilian state of Mato Grosso, approximately 70% of our workers come from the North or Northeast regions of Brazil or are refugees or immigrants from neighboring countries. These conditions increase the competition we face for workers from other industries, and they may force us to raise our compensation package to retain workers and properly manage excessive turnover. This directly impacts our production process and may lead to an increase in our production costs. The agribusiness sector is one of the fastest growing businesses in Brazil, and there is significant competition for workers. For example, Frimesa, a Brazilian industrialized meat and dairy producer, announced 7,000 new job openings in their new facility, which is located 40 kilometers from our industrial plant in Toledo, in the Brazilian estate of Paraná. We may be unable to retain an adequate number of workers, particularly as a result of greater competition, or may incur higher costs in our operations to offer higher compensation than our competitors. Our inability to offer attractive compensation or to properly meet our workforce demand because of the labor shortage may negatively impact our strategic plans and operational performance.

We are a vertically integrated producer of food products, and we depend on a large number of raw materials of animal origin, or animal byproducts, to conduct our business. A substantial portion of the animal byproducts we use to conduct our business is produced by a network of integrated farmers and producers with whom we have entered into integrated production contracts. Such integrated producers are responsible for managing and raising the poultry and pork that we, as integrators, supervise. For the year ended December 31, 2022, we acquired approximately 3.2 million tons of broilers, 138 thousand tons of turkey and 76 thousand tons of pork from our integrated producers. The selection and retention of farmers and producers is highly competitive, and such competition between integrators has intensified in recent years. Our integrated producers are primarily located near our industrial units, where competing integrators conduct activities similar to the activities we conduct. We may be unable to select and retain such farmers and producers, particularly as a result of greater competition, or we may be obligated to pay higher prices for such byproducts or offer greater benefits to retain such farmers and producers. Our inability to retain an adequate number of such farmers and producers may negatively impact our strategic plans and operational performance. In addition, our integrated producers are mostly financed through rural credit financing that they contract directly with financial institutions. Such rural credit financing are offered in the context of financial collaboration agreements that we enter into with the respective financial institutions, which establish obligations related to: (i) selecting integrated producers suitable for obtaining financing; (ii) maintaining a sufficient payment stream to such integrated producers to amortize and settle the financial installments granted within the scope of such financial collaboration agreements; and (iii) supervising the application of the financial resources granted to such integrated producers. In exceptional cases, such as the operational suspension, sale or lease of one of the industrial units that we use to purchase the production of our integrated producers financed through such financial collaboration agreements, we may be obligated to prepay the financing obtained by our integrated producers, or we may be required to maintain a sufficient payment stream to such integrated producers to amortize and settle the financial installments until a new integrator succeeds the affected industrial unit with respect to the integrated production contracts, which may adversely affect our results.

In the last century, water use has grown globally. According to the United Nations Environmental Programme, water scarcity affects more than 40% of the global population and this percentage is expected to increase. Presently, 2.3 billion people around the world are living in water-stressed areas, and the same will be true of more than half the world's population by 2050 if no action is taken. Water is an essential resource for our businesses and is used in the production of grains and other agricultural inputs required for our production processes. The industrial use of water may also adversely affect its availability. In some of our units in the Brazilian states of Santa Catarina, Paraná and Goiás and also in our unit in Turkey, we experienced a reduction in water supply. To manage the shortage in water and maintain our regular operations, we incurred incremental costs to obtain water from more abundant river basins that are located further from our production facilities (sometimes using water trucks). As a result, the shortage or lack of water, including the increasing risk of droughts in the regions where we operate and associated costs to minimize the impact on our operations, represent a critical risk for our business and may materially and adversely affect our business and results of operations. We are also subject to restrictions on the volume of water that we can collect from the environment under our water usage permits, which may be lower than the actual water demands of our business in these areas. In the event we cannot collect enough water to meet our operational demands, due to restrictions under water permits or otherwise, our business and results of operations may be materially adversely affected. The procedures that we have developed to reduce our water consumption and increase water reuse in order to comply with applicable rules and regulations, and to minimize our impact on the environment and the community, may prove to be ineffective or insufficient. Additionally, we assess water shortage risks in the locations where we operate in order to understand the specific impacts of our business on these regions and consequently reduce our water consumption and exposure to risks of water shortages in the applicable unit. The river basins in the region of industrial activities and the characteristics of the use of water resources are analyzed in order to understand growth in local demand and anticipate risks. The methods we employ to analyze the water vulnerability of our industrial plants, as well as our assessments of the micro and macro watersheds in the regions in which we operate and the industrial activities and characteristics of the use of water resources, may be inaccurate in understanding local water demand growth. We may also fail to accurately assess the water supply or anticipate water-related risks, and the increased industrial use of water by water intensive businesses may also adversely affect the continuing availability and quality of water in Brazil. This may result in us or our key suppliers encountering water shortages. Any of these factors may materially adversely affect our business and results of operations.

Our financial success depends on our ability to anticipate changes in consumer preferences and dietary habits and our ability to successfully develop and launch new products and product variations that are desirable to consumers. The resources that we devote to new product development and product extensions may be insufficient and we may not be successful in developing innovative new products or our new products may not be commercially successful. For example, trends towards prioritizing health and wellness present a challenge for developing and marketing successful new lines of products to address these consumer preferences. Furthermore, a reduction in our investment in product development may negatively affect not only our ability to generate innovative solutions, but also the in- market success of any such products. Additionally, our employees working on innovation and research and development may move to one of our competitors, which would compromise our ability to deliver new and innovative products and may also result in our competitors gaining information we view as proprietary. To the extent that we are not able to effectively gauge the direction of our key markets and successfully identify, develop, manufacture and market new or improved products in these changing markets in a timely or cost-effective manner, our products, brands, financial results and competitive position may suffer, which may have a material adverse effect on our business, results of operations, financial condition and prospects. We also seek to maintain and extend the image of our brands through marketing, including advertising and consumer promotions. Due to inherent risks in the marketplace associated with advertising, promotions and new product introductions, including uncertainties about trade and consumer acceptance, our marketing investments may not prove successful in maintaining or increasing our market share. A continued global focus on health and wellness, including weight management, increasing media attention on the role of food marketing and negative press coverage about our quality controls and products may adversely affect our brand image or lead to stricter regulations and greater scrutiny of food marketing practices. For instance, new nutritional labeling rules for packaged foods will require us to change 100% of our packaging labels in Brazil, so that labels present on the front panel the levels that our products exceed the established daily limits of sodium, added sugars and saturated fats as well as an adjustment to our form of nutritional table. In other Latin America countries where these types of health-related regulations are already in place we observed that sales volumes of processed foods was negatively affected and the same may occur in the Brazilian market. Our success in maintaining, extending and expanding our brand image also depends on our ability to adapt to a rapidly changing media environment, including increasing reliance on social media and online dissemination of advertising campaigns. The growing use of social and digital media increases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our brands or our products on social or digital media could seriously damage our reputation and brand image. If we do not maintain or improve our brand image, then our sales, financial condition and results of operations could be materially and adversely affected.