Chile’s salmon farming industry nearly went belly up five years ago after the outbreak of a deadly virus, but companies have recovered and global demand is rising. To avoid future outbreaks, however, Chile needs regulations that allow the industry to grow sustainably in harmony with its environment.
Chile is the world’s second largest producer of salmon after Norway. Most of the salmon eaten in the United States comes from Chile but Atlantic salmon, which is the main species farmed in Chile, is not native – it was introduced from Scotland and Norway in the early 1980s. Farmed in floating cages between Puerto Montt and Punta Arenas, salmon adapted well to Chilean waters and aquaculture boomed over the next 20 years. But the industry nearly collapsed in 2007 when the virus Infectious Salmon Anemia (ISA) wiped out more than half of Chile’s salmon stocks.
Probably brought to Chile in salmon eggs from Norway, the virus spread quickly and the result was catastrophic – salmon production fell 65% between 2007 and 2010, according to the industry association Salmon Chile, and many companies were plunged into debt as Chile’s share of the world market plummeted.
Some said the industry would never recover, but it has. Five years on, production of Atlantic salmon reached 366,000 tons last year, up 66% from 2011. At the same time, exports have returned to pre-2007 levels, totaling US$2 billion last year. And Chile’s biggest market is still the United States, which imported US$725 million worth in 2012 as demand continues to grow.
But many companies are still in the red. Prices fell by 28% on average in 2012 as a result of a surge in supply following the recovery of the Chilean industry, as well as warmer waters that favored faster salmon growth in Norway. But the low prices stimulated demand, especially in the United States, which combined with tighter supply this year has pushed spot market prices back up.
In June, a Trim D fillet of fresh Atlantic salmon in Miami – the most popular type of fillet – reached US$5.55 a pound, up 53% from US$3.62 in the first week of January. That’s good news for the industry, says Igal Neiman, corporate marketing and planning director at Camanchaca, which produces salmon and other seafood products.
Since the life cycle of a salmon from egg to harvest is around 25 months, with the last 18 months spent at sea, companies invest without knowing the price. “Most companies were losing money last year, but now we’re breaking even,” said Neiman.
Beyond the numbers, however, there are fears that the industry may be on the brink of another epidemic. Earlier this year Chile’s fishing regulator Sernapesca detected traces of ISA in salmon farmed in cages belonging to three companies – Multiexport Foods, Camanchaca, and Los Fiordos – in the Aysén Region. Unlike in 2007, this time the virus was detected before any fish died.
For now, it seems the threat has passed. “We are far from being in a crisis. The cases of ISA found in April and May are isolated cases,” said Cristián Moreno, general manager of Salmon Chile.
He said the cases represent less than 1% of the country’s total stocks. In addition, since the companies agreed to harvest the salmon in question, they shouldn’t infect other fish. Moreno says that the sanitary measures introduced since the 2007 crisis have helped to detect viruses earlier and deal with outbreaks more effectively.
Even so, the sanitary conditions in the area where the outbreaks occurred are a concern, said Neiman. Levels of sea lice, orcaligus, which weaken the immune system of salmon, have reached high levels in waters off Aysén and companies, along with the authorities, are evaluating Norwegian best practices to deal with this.
But not everyone is convinced that enough is being done. According to Cristina Torres, head of markets for seafood products at the NGO World Wildlife Fund Chile, the recent cases of ISA are a sign that the industry needs to make big changes.
For example, she says the levels of antibiotics used in Chile’s salmon industry to fight disease are unacceptably high. According to Sernapesca, the use of antibiotics per ton of salmon harvested has been reduced by 36% since 2007 thanks to the mandatory vaccination of smolts against ISA in the hatchery, but the industry still used 338 tons of antibiotics last year, which is far more than Norway per ton of salmon produced.
“ISA has shown that the system is not sustainable,” said Torres. “Uncontrolled expansion is not the right path.”
Living with ISA
ISA is endemic in Chile as it is in Norway, Scotland and Canada. Norway, for example, has had an average seven cases annually in the last five years. But, despite the recent outbreaks, Chile has learned to “manage” the virus better, says Moreno.
As with other viruses, a salmon that carries ISA won’t necessarily die from it and it can’t be transmitted to humans, but it is highly contagious so early detection is key. New sanitary measures adopted by Sernapesca since 2009 include regular monitoring of cages, containment in the event of an outbreak, the adoption of biosafety measures and better communication between all actors in the industry.
Sernapesca’s enforcement role is also important, says Torres. Unlike countries like Norway were the industry is basically “self-regulated”, she says that Chilean aquaculture companies push the limits of what they can get away with.
“If the government doesn’t enforce these measures with fines, few companies will take them seriously,” she said. But Sernapesca has flexed its muscles – it recently fined several companies for misreporting levels of sea lice in their cages.
Today 55 Sernapesca inspectors are working in the Aysén, Los Lagos and Magallanes Regions – the country’s main salmon farming regions – which is far more than pre-2007, says Sernapesca’s director Juan Luis Ansoleaga.
“In the last few years there has been a sustained and permanent increase not just in economic resources, but also human and technological,” said Ansoleaga.
But perhaps the most important change is in regulations. Before 2007, Chile faced a “tragedy of the commons” with concession-holders trying to produce too much salmon too quickly with damaging environmental consequences. The new production model established by the new Fishing and Aquaculture Law is designed to change that.
Sernapesca has defined eight coastal “macro zones” for the industry (five in Los Lagos and three in Aysén) separated by corridors of five nautical miles to contain potential outbreaks. In addition, these macro zones have been divided into 35 “neighborhoods”, orbarrios. Each neighborhood can only be used to farm salmon for 18 months before it must be left to “rest” for another six, allowing the environment time to recover.
“This makes a lot of sense to us, it’s a very good measure,” said Cristina Torres. “When the density exceeds the capacity of the environment, many diseases can thrive, not just ISA.”
But according to José Ramón Gutiérrez, president of Multiexport Foods, which is one of the largest producers of Atlantic salmon in Chile, the new regulations do not solve the real problem, which is the more than 1,200 concessions awarded in southern Chile that exceed the area’s natural production capacity.
“There is a consensus in the industry that the approved production capacity in certain regions of the country far exceeds the real capacity determined by nature and biology,” he said.
In trying to fix a “poorly designed model”, he said the new regulations have imposed restrictions on the industry that in general have made salmon farming into an “extremely complex” and “increasingly inefficient” activity.
That’s partly due to higher costs. Although companies agree that the new sanitary measures are necessary, they have taken a financial toll on the industry.
“Instead of having 1.5 million salmon in a concession, you can only have one million but your fixed costs are the same,” explains Neiman. In addition, restrictions on production density mean cages must be located further from processing plants, which in turn increases transport costs.
Companies have also invested in safe harvesting techniques. In the past, boats would drag cages with infected salmon through waters near other cages, thereby contaminating more fish. “It was like taking a kid with a cold to the school and everyone gets sick,” said Neiman. Today, companies use closed boats for harvesting so the virus, if it is present, does not spread.
Meanwhile, production costs have been rising. While still competitive with Norway, prices for fishmeal, labor, and fuel in Chile have risen about 60% in the last decade. Salmon farming, which uses boats to stock cages, feed the fish and harvest them, is labor and fuel intensive. Add in the cost of exporting salmon by ship or plane, and transport costs represent as much as 20% of the retail price, said Neiman.
The price squeeze has led to a slew of mergers recently and not just in Chile. Marine Harvest, the world’s biggest salmon farmer, has recently made a takeover bid for fellow Norwegian farmer Cermaq. In Chile, Mainstream, one of the biggest producers in the country that is owned by Cermaq, acquired Cultivos Marinos Chiloé for US$110 million in October.
There are currently over 30 aquaculture companies in Chile, but ten of these produce two thirds of the Atlantic salmon in the country. In addition, two companies – Marine Harvest Chile and AquaChile – hold 25% of the concessions in Aysén and Los Lagos.
But consolidation is not just a way for companies to survive financially, it also reduces the bio-sanitary risks, said Neiman. With fewer companies farming fewer salmon per square kilometer, the risk of disease spreading is reduced, which ultimately benefits everyone.
Crucially, consolidation may also be the fastest way for the industry to reach a consensus on sustainable production levels, says Multiexport’s Gutiérrez. “It’s very unlikely that the State will intervene and solve the structural problem in the sector,” he said.
Demand and supply
Fortunately for salmon farmers, slow production growth is expected to sustain the current high prices, at least for the next two years, says Arturo Clement, founder of SalmonEx, an online salmon-trading platform focused on the US market.
“The financial conditions of the industry are very limited, companies are not in a very solid position to take risks,” said Clement.
On the demand side, the world’s appetite for salmon is rising partly due to its well known health benefits – rich in omega 3 fatty acids and antioxidants, it’s good for your heart and your head, without costing an arm and a leg, points out Igal Neiman.
One positive result of the ISA crisis has been the diversification of markets. Brazil is Chile’s second biggest market for Atlantic salmon and China’s growing middle class represents an important market in the future, said Neiman.
In fact, China is the focus of a new joint venture between Japan’s Mitsui and Multiexport Foods to specialize in the production and commercialization of Coho salmon and trout destined for Asian markets.
For now though the US is far and away the biggest market. And Americans are eating more salmon – per capita consumption rose from 0.3 kilograms annually in the 1990s to over 1kg in 2010, according to Salmon Chile. But there is room to grow, says Bert Bachmann, CEO of Miami-based Camanchaca Inc.
The problem is that Chilean salmon doesn’t have the brand image of its rivals, he said. In US supermarkets, it’s around 10% cheaper than Norwegian salmon, which is considered the “premium” brand. That’s mainly due to Norway’s success in selling itself as a “pure, clean, cold country” rather than any real difference in quality, he said.
“There is a need to do more country promotion,” said Bachmann.
But Chile does have a big competitive advantage. Despite rising costs, it has relatively cheap labor compared to Norway and Canada. Along with investment in technology, this has allowed Chilean companies to process salmon into value-added products, such as custom-sized portions, at competitive prices.
“We produce salmon portions and fillets for restaurant and retail chains prepared at our plant in Chile,” explains Bachmann. “Chile has a niche in this product segment.”
Salmon farming 2.0
But consumers in the US and Europe are increasingly concerned about the origin of their food. That’s why certifying that Chilean salmon is farmed according to international standards is good for business, says Cristina Torres.
“Now that the industry has returned to pre-crisis levels of production, we think now is the time to implement new tools that were not available in the past,” she says.
One such tool is the aquaculture certification offered by the Holland-based Aquaculture Stewardship Council (ASC), using standards created by the Salmon Aquaculture Dialogues, coordinated by the WWF. Torres says this certification, which includes a review of the company’s production practices, will help achieve “more responsible” aquaculture in Chile.
Consumer pressure should eventually force all companies to take a holistic view of their business, says Torres. “It’s not just a check-list of items, it’s the whole ecosystem they should consider.”
This means investing more in research and training. For example, more studies are needed to determine the impact of salmon farming on local communities and training is needed to better safeguard biodiversity, said Torres.
The industry has learned important lessons, but it needs to keep improving. Although the latest outbreaks of ISA have apparently been contained, the sanitary situation remains a concern. “The industry has to keep doing more, you can’t minimize the problem,” said Clement.
To be sustainable in the long term, the industry needs to grow in harmony with nature. For now, it cannot afford to grow too quickly and that’s not necessarily a bad thing. As the past has shown, slow growth is much preferable to no salmon at all.
Julian Dowling is Editor of bUSiness CHILE