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Fishing has for centuries provided Chileans with sustenance, livelihoods and traditions passed down from generation to generation and, today, it is still big business. But, by the late-1990s, it was also apparent that Chile - like other fishing countries around the world - had a problem.

The industry’s catch was slipping ominously. From around 7 million tons in the mid-1990s, it fell to 3.5 million tons in 1998, according to the national industrial fishing association, Sonapesca.

That drop coincided with an episode of the El Niño climate phenomenon. By increasing the temperature of the sea off Chile, it drove jack mackerel - by far, the most important species - away from the industry’s fishing grounds.

But it also raised concern about stock depletion in a context in which new methods of detecting schools of fish had significantly increased the average catch per boat. And it was clear that the existing system of regulation, based on boat licenses, rather than the size of their catch, needed to be improved.

Closed seasons had been tried in some fisheries but they had usually lasted only a matter of weeks and, once they were lifted, the entire fleet would set sail in a race to make up for lost time. And the results of imposing a Total Allowable Catch (TAC) had been even worse.

It led to a fishing free-for-all, the so-called “Olympic race”, in which boats rushed to grab the largest possible share of the overall limit on the first-come, first-served principle. Widely recognized as the worst of all possible worlds, this was not only bad for the quality of the catch and for crews’ working and safety conditions, but it also encouraged over-investment in new boats.

In 2000, in a bid to put an end to this derby-style fishing, the government of President Ricardo Lagos introduced Individual Transferable Quotas (ITQs), a system also used in other countries such as Australia and New Zealand. These quotas - essentially a percentage of the total catch permitted in a given year - were assigned to industrial fishing companies on the basis of their historic catch. 

There was initially some resistance to the system but promising results over the first two years meant that, in 2002, it was extended for a further decade. “It has helped not just to halt the decline of stocks, but also get them on the path to recovery,” said Sonapesca’s president, Rodrigo Sarquis.

Not everyone agrees about the recovery. After all, at 3.3 million tons, the catch in 2010 was below its level a decade earlier. However, with a more stable regulatory framework and, crucially, the knowledge of a guaranteed quota that could be fished more slowly and with a closer eye on quality, companies gradually shifted into more value-added products.

That has created new jobs while helping to boost the industry’s exports to US$1.5 billion in 2010 from US$1 billion in 1996. Nearly two thirds of the catch is now canned or frozen for human consumption, while only a third is turned into fishmeal which is mainly used as feed by salmon farming companies.

“Our fisheries are producing more with less and creating stable employment as a result,” said Sarquis.

Reform proposal

But the ITQ system will expire next year and the government of President Sebastián Piñera is soon expected to unveil its proposal for a new law. And, as Undersecretary for Fishing Pablo Galilea points out, the stakes are high since the law is expected to regulate the industry for the next 25 years.

Subject to the approval of Congress, the government may seek to modify the ITQ system by putting part of the individual quotas, originally assigned on the basis of historic catches, up for auction. This has raised a storm of protest from the industry which sees the possible auctions as a form of expropriation.

“We agree catch limits must adapt to the biomass volume because we are in favor of making this activity sustainable, but they cannot take away our right to fish,” said Ricardo García, CEO of Camanchaca, one of the country’s largest fishing and aquaculture companies.

Auctions are already used in new fisheries without historically allocated quotas and theoretically they can also be held for up to five percent of the total allowable catch in cases when quotas are not fully used.

But their introduction for other fisheries would violate the rights of companies already awarded quotas, argued Luis Felipe Moncada, general manager of the Biobío Region’s industrial fishing association, Asipes.

“They would be a big mistake because they would infringe the rights of companies that have invested and built an industry over 60 years,” he insisted, pointing out that fishing is not the only industry in which concessions have been awarded based on historic rights. “Legally, it’s no different from the case of water rights, the radio broadcast spectrum or domestic airline routes,” he said. 

Opponents of auctions also point out that they have a poor track record. Only two countries - Russia and Estonia - have used them, with negative results for both their industries and the resource.

The possible impact on local jobs is a further concern, according to Hugo Roa, president of the Biobío Region’s industrial fishermen’s union. In 2010, industrial fishing companies employed 46,000 people but that could drop if auctions were introduced, he argued.

Given Chile’s open economy, it’s very likely they would be open to foreign companies, he said. And that, in turn, could well mean offshore processing at the expense of local employment.

Entry barrier?

Proponents of quota auctions, however, argue that the current system limits the entry of new players into a concentrated industry. After a slew of recent mergers, industrial fishing is dominated by six companies, led by the local Angelini group’s subsidiaries Orizon and Corpesca.

According Rodrigo Vial, co-founder of Lota Protein, a small fishing company, and president of the shipbuilders’ association Anapesca, quota auctions would also promote innovation while generating income for the state. “If you are paying for your quota rather than getting it for free, you have more incentive to innovate,” said Vial.

When quotas were originally allocated, Lota Protein, founded by Chilean and American partners in 1992 but now owned by Norway’s Norsildmel, had no historic catch and received only a very small quota, leaving it almost entirely dependent on the fish it buys from artisanal fishers. “They took away our fishing rights,” said Vial.

In March 2010, Lota Protein asked Chile’s antitrust tribunal to decide whether auctions are necessary to increase competition. In January, it ruled that they are not but it did recommend improving the transferability of quotas to create an efficient and transparent secondary market.

According to Sonapesca, there have been over 400 quota transactions since 2000. However, they have all been between existing quota holders and prices have been high. 

According to critics of the system, another obstacle to the transfer of quotas is that they are linked to boats rather than their owners, making it more difficult for companies to sell and buy them. “We have to make it much easier to transfer quotas,” agreed Undersecretary Galilea.

Resource health

Despite the positive results of the ITQ system, the sustainability of the resource remains a concern. Industrial fishing companies argue that, while their catch is controlled, foreign trawlers and artisanal fishing do much as they like to the detriment of the resource’s health.

Sonapesca points out that jack mackerel, a migratory fish, is scooped up by factory trawlers, principally from China and the EU, that prowl along the edges of Chile’s 200-mile Economic Exclusion Zone in the Pacific Ocean. Part of the problem is their sheer size.

There are 234 Chilean boats authorized to catch jack mackerel in the South Pacific as compared to just 15 EU factory trawlers but their combined hold capacity is 72 percent of the capacity of the Chilean fleet. According to Sonapesca’s Rodrigo Sarquis, these trawlers, which process fish onboard, show little regard for sustainability and are a threat to the industry’s future.

In 2009, Chile joined Australia and New Zealand in creating the South Pacific Regional Fisheries Management Organisation with the aim of recommending sustainable catch limits for its members, including a 40 percent reduction in jack mackerel quotas this year, but it has no power of enforcement. “Chile achieves nothing by regulating fishing in its own waters if neighboring countries do not cooperate,” said Sarquis.

Industrial fishing companies also maintain that artisanal fishing poses a threat to resource sustainability. They argue that Sernapesca, the government agency that monitors how much fish vessels bring into port, has a hard time keeping tabs on the 16,000 artisanal boats that work the country’s coastal waters.

Artisanal vessels are permitted to fish not only within the five-mile limit that industrial vessels may not enter but also beyond this limit. Most of these are small boats owned by fishermen who make a modest living selling what they catch to processing plants.

The total catch of the artisanal fisheries sector has, however, doubled in the last 15 years to 1.8 million tons in 2010 and now accounts for over half of the fish caught in the country. And, according to Sernapesca, this increase is mainly due to 1,400 vessels, between 12 and 18 meters long, which are responsible for 97 percent of the artisanal catch.

The owners of these intermediate-size boats have clashed with industrial fisheries outside the five-mile limit. The problem is that, under the existing system, artisanal fisheries are subject to a total allowable catch but this is not divided into individual quotas, making enforcement difficult.

Research gap

But, particularly in the case of a migratory species like jack mackerel, resource sustainability also depends on a multitude of complex biological and other factors, some of which are not fully understood.

Indeed, according to Andrés Mena, a former fisheries officer at the UN Food and Agriculture Organization’s Regional Office for Latin America and the Caribbean, a lack of quality information is a key problem for regulating fishing in developing countries around the world.

Almost no country in Latin America has good fishing statistics, said Mena. Chile’s scientific research is better than most, he added, but could still be improved.

Part of the problem in Chile is the way research is funded. The Fisheries Development Institute (IFOP), created by the state economic development agency CORFO in 1964, is responsible for performing studies and proposing the annual total catch limit, but its funding from the Fishery Research Fund (FIP) and private sources is limited.

In addition, IFOP’s catch limit must be approved by Chile’s National Fishing Council, which is comprised mainly of representatives of industrial fisheries. As a result, catch limit decisions are “political instead of being based on good technical information”, according to Humberto Chamorro, president of the national association of artisanal fishermen, Fenapach.

Undersecretary Galilea agrees that better research is needed to set catch limits, which is why the government is working on a proposal, in parallel to its quotas proposal, to make IFOP into a state-funded research institute. This new institute would provide information about capture fishing as well as about aquaculture.

Its information-gathering capability must be brought up to developed-country standards, said Galilea, so that fishing companies trust the data used to determine catch limits. “The state doesn’t understand how expensive scientific research is but, without it, we can’t make the right decisions to ensure the sustainability of the resource,” he added.

The evidence suggests that this would be money well spent, and not only because of the greater clarity it would provide. After all, any regulatory system, with or without auctions, can only be as good as the information on which it is based.

Julian Dowling is the editor of bUSiness CHILE.