By Paulo Trevisani and Luciana Magalhães 

BRASÍLIA -- Brazil's JBS SA, the world's largest supplier of animal protein, said Thursday it has slashed beef production as the country grapples with an industry corruption scandal that has raised questions about the quality of its meat and has no end in sight.

The move follows police allegations that employees at 21 meatpacking plants bribed sanitation inspectors to approve shipments, allowing tainted meat to hit the shelves in both domestic and export markets, and leading Brazil's biggest foreign customers to their close doors to imports from the country.

JBS said it has halted beef production for three days in 33 of its 36 Brazilian plants. Next week, it will cut production by 35% of capacity at all its units.

"The measures aim at adjusting production until there is a decision about the embargoes imposed by importers," JBS said in a statement.

The government is rushing to convince buyers sanitation oversight is sound and the meat is good.

President Michel Temer said he was calling leaders in China, the biggest buyer of Brazilian meat, on Thursday to discuss the issue.

China, 20 other countries and the European Union have issued temporary bans or increased scrutiny on Brazilian meat shipments. The EU, Canada and other markets suspended imports from just a few Brazilian suppliers. The actions, however, knocked down the country's animal protein exports to $74,000 on Tuesday, according to the latest data available, from a previous daily average of $63 million.

"For the industry, this is a disaster," said Carlos Kawall, chief economist at Banco Safra in São Paulo and a former head of Brazil's Treasury.

Meatpackers' share prices sank in response. JBS SA closed at 10.83 Brazilian reais on Thursday, down from 11.99 reais before the scandal broke Friday. BRF SA, another major meat exporter, closed at 35.88 reais, down from 40 reais a week ago.

Brazilian officials say they expect Chile to reverse its temporary ban, as South Korea did on Tuesday.

"We're working hard to get China back," said Luis Rangel, the Agriculture Ministry's head of sanitation.

Economists fear the crisis could have lasting consequences on a sector that has been a rare bright spot in a troubled economy.

"The scope and suddenness of the import restrictions raises significant short-term uncertainties for Brazil's meat sector," Fitch Ratings said Thursday. "The investigation could result in a negative credit impact."

Fitch said initial public offerings JBS and BRF were considering for later this year might have to be delayed.

JBS and BRF declined to comment.

The drop in exports, though harmful for the industry, is unlikely to do much harm to the whole economy, said Silvio Campos Neto, an economist at Tendências consulting firm. The loss would amount to roughly $1 billion a month, he said, a small sum compared with the $203 billion in overall Brazilian exports this year, as per his firm's forecast.

"It's likely to be a short-term impact [that] wouldn't make much difference," he said.

Even though 80% of Brazil's meat production is consumed domestically, the decline in exports could lead to a glut in the local market, which could weaken consumer prices, Mr. Campos Neto said, in a potential silver lining for meat-loving Brazilians.

But that could hardly help meatpackers.

"The damage is done," said Pedro Galdi, from Upside Investors consulting firm. "Meatpackers reduced slaughtering, prices are going to fall, importers will be more demanding," he said.

Brazilian slaughterhouses are already reducing purchases of cattle, industry trade group Abrafrigo said.

"The whole supply chain is going to feel the pinch," Abrafrigo President Péricles Salazar said.

The crisis has already tightened supply and drove up cattle prices in the U.S. and Australia. Some analysts also expect chicken prices to rise in China.

Brazil can hardly afford any long-term damage. Latin America's largest economy contracted nearly 8% over the past two years and is now forecast to grow only 0.5% or less this year.

The Finance Ministry and the central bank declined to comment. Food industry officials have expressed fears the crisis could give importers leverage to ask for lower prices.

To avoid the worst, Agriculture Minister Blairo Maggi is doubling down on a public-relations campaign.

"We are doing everything to lift the embargoes," he said Thursday in a conference call with foreign press, from which he left to take Chinese journalists to visit a meatpacking plant. "We have high-quality products."

Lucy Craymer and Benjamin Parkin contributed to this article.

Write to Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

March 23, 2017 18:53 ET (22:53 GMT)