*

Companies in large Brazilian exporting states may not get

permits initially

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Talks to sell beef to Japan gained momentum after a March

state

visit

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Australia and US are Japan's main suppliers

By Ana Mano and Marcela Ayres

SAO PAULO, Aug 5 (Reuters) - Ongoing talks to open the

Japanese market to Brazilian beef are focusing on supplies from

three small Brazilian exporting states, upsetting other parts of

the South American country's industry that are eager to reach

the high-paying customers, according to multiple sources.

Brazil, the world's biggest beef exporter, has tried for two

decades to crack the Japanese market without success. A deal

would give Japan an alternative to its top suppliers, the United

States and Australia, at a time when U.S. tariffs are reshaping

global food trade.

Negotiations gained momentum after a state visit of Brazil's

President Luiz Inacio Lula da Silva in March to Japan, one of

the world's largest beef importers.

But the current state of talks, which focus on states

representing less than 4% of Brazil's exports by volume, worries

meatpackers in the big beef-producing states of Sao Paulo, Mato

Grosso, Mato Grosso do Sul, and Para.

Together, they accounted for nearly 60% of Brazil's total

beef exports, or 1.72 million metric tons last year.

A Brazilian government memo, issued after a technical visit

by Japanese officials in June, showed Brasília answered "a

questionnaire for the import of beef from the southern part of

the Republic Federation of Brazil," naming Rio Grande do Sul,

Parana, and Santa Catarina.

Those three small exporting states were declared free of

foot-and-mouth, a contagious viral disease in cattle, earlier

than the other states, although Brazil acquired in May the

national status of being free of the disease without vaccination

from the World Organization for Animal Health. Brazil's last

outbreak of the disease was in 2006, according to the

government.

The Brazilian Agriculture Ministry did not have an immediate

comment on its talks with Japan.

A local government source, who asked not to be named,

confirmed talks were taking place by region. The person said

Brazil initially has no plans to negotiate permits beyond the

three states.

Beef sector representatives, including exporters, told

Reuters they hope more states will be included.

"We know talks are difficult," said Paulo Mustefaga, head of

beef lobbying group Abrafrigo, which represents Marfrig

and smaller beef exporters. "The surprise for us is

that this is now moving towards approval for only three states."

Japan's Ministry of Agriculture, Forestry and Fisheries said

it was aware of Brazil's status of being free of foot-and-mouth

disease. It added that Japan is "conducting a risk assessment in

accordance with Japanese procedures" ahead of issuing any export

permits to Brazilian meatpackers, without elaborating.