Swimming Upstream

Rows of cages, brimming with salmon and trout, stretch out as far as the eye can see across the cold waters off Chile’s southern coast and pack the inlets and coves of a nearby archipelago – a testament to the success of fish farming for export.

But for the first time in more than three decades, the salmon are fewer and smaller; some are weak or diseased. The US$2.5 billion export business has become a victim of its own success.

A virus called Infectious Salmon Anemia (ISA) is threatening the trade. Although Chile’s bounty of salmon increased by 12.3 percent in 2008 to 445,000 tons, some major producers predict that output may plunge 40 to 60 percent in 2009 and 2010. Experts inside and outside the fish-farming industry blame the spread of the contagion on poor environmental and sanitary practices. 

Clean up and recovery could take as long as five years. The government has launched a rescue plan that consists of US$450 million in direct financial aid, coupled with sweeping new rules, while banks are offering to modify loans owed by the ailing industry. 

Financial analysts forecast consolidation among producers. Widespread layoffs are expected to devastate southern Chile’s coastal communities, where fish farming in the Reloncaví Gulf and the Chiloé Archipelago currently employs 56,000 workers, most of them women.Avoidable Situation? 

Fish-farming critics say that the problems could have been averted. 

“This is the result of two decades of expansion without regulation,” said Juan Carlos Cárdenas, a director at Ecoceanos, an environmental organization that has long called for an industry-wide clean up.

Cárdenas faulted the industry for carrying out “high-density production with fish cages sitting side by side while disregarding health and environmental issues.” He said that these practices resulted in the deterioration of water quality in Chile’s southern seas.

Industry executives, environmentalists and analysts agree that the unregulated importation of fish eggs from Norway, some of which were infected with the ISA virus, triggered the crisis in Chile’s fish industry. ISA poses no threat to humans, but it kills or weakens the fish, making them susceptible to other diseases. Although the virus was detected in 2001, it was not until the middle of 2007 that fish began dying.

The National Fishing Services implemented an eight-point plan in May. It establishes new controls on the importation of fish eggs and new rules to raise sanitary and environmental standards, as well as reduces the density of the fish raised through cage farming. It also sets up a so-called “neighborhood” system, requiring producers to operating in separate areas to avoid the mixing of fish among producers.

“This is a major crisis,” said Raúl O’Ryan, an economist with the University of Chile, who was tapped to serve on a five-member task force testing the effectiveness of the new regulatory program. Chile’s Production Development Corporation, a government agency that promotes economic development, funds that task force.

O’Ryan is optimistic that fish farming will overcome this crisis. “The industry is coming of age,” he said.

The expected decline in output is a major setback for an industry that has made Chilean salmon a virtual staple in the United States and has expanded its business in Europe, Japan and Brazil in recent years. Fish farming was introduced in the southern city of Puerto Montt in 1977. Since then, it has contributed to the region’s prosperity, bringing jobs and fueling a construction boom. From a foothold around Puerto Montt, salmon and trout production spread south to the Aysen Fjord.

Exports rose from US$160 million in 1991 to some US$2.5 billion last year. Chile is now the second-largest salmon producer in the world, with about 38 percent of the world market, and was closing in on Norway, which has a 40 percent market share.

Some 24 companies comprise Chile’s fish farming industry, including Multiexport Foods, a national outfit that is publicly traded on the Santiago stock exchange and is the parent of one of the large Chilean producers.

The two biggest producers are Norwegian: Marine Harvest, the Oslo-headquartered company that is both the world’s largest salmon producer and the main global producer of fish eggs; rival Cermaq operates as Mainstream Group in Chile.

“The ISA virus is a huge blow to the industry after many years of continuous growth and success,” said Victor Hugo Puchi, an industry pioneer who is president and CEO of AquaChile, a leading salmon producer, in a lengthy interview with the Puerto Montt daily El Llanquihue.

Puchi said when the danger of the ISA virus first became known, some in the industry called for tougher measures to prevent the import of contaminated fish eggs, but obtaining total cooperation was impossible.

“Chile was a country open to trade; it could not erect trade barriers in the name of sanitary provisions, so we continued operating with a ticking time bomb,” Puchi told El Llanquihue.

Puchi said his own company’s efforts to halt the spread of the disease were ineffective since small, immature salmon could escape the cages and infect other fish stocks.

“Self-regulation does not work,” Puchi said. “We cannot grow as an industry working with the absolute freedom we enjoyed. We cannot deny the need for regulation.”

As the crisis spread in 2008, companies began to harvest their fish before they were fully-grown, leaving stocks depleted. Sea lice have also appeared, attacking the weakened fish and causing more industry losses.

Finally the government of President Michelle Bachelet stepped in with bio-security and other regulatory measures. Now all fish egg imports must be tested for disease. The young salmon must grow from eggs in large freshwater pools and be vaccinated. The new rules also impose tough restrictions on the use of antibiotics.

These measures “reaffirm the government’s commitment to ensure a competitive sustainable industry,” said Chilean Minister of the Economy Hugo Lavados.

But the price of the rescue will be steep.

The Chilean government has allocated US$450 million in a direct subsidy to the producers and set aside another US$8.5 million for the unemployed workers.

Banks have extended a two-year grace period to salmon producers who collectively owe some US$2.5 billion. Large producers have been negotiating to defer their loan payments from five to seven years after the end of the grace period. The government may step in with collateral to back the bank loans.

Waleska Donoso, an analyst with Fitch Ratings in Santiago, said industry employment may contract by as much as 40 percent over the next three years.

And not all the salmon producers are expected to survive.

“Because of the financial exposure of some players, we expect consolidation of some producers over the next few years,” said Donoso.