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« January 2008 Table of Contents

International Soucring: Chile

An industry in flux has tremendous foothold in U.S. market

Chile - remote, sparsely populated and replete with beautiful scenery and bountiful resources - has in the last few decades become a major international seafood supplier. In 1970 Chile exported $29 million worth of fishmeal and frozen products to 31 countries. By 2006 seafood exports, driven mostly by farmed salmon, reached more than 130 countries and a value of almost $3 billion. Traveling by sea from Puerto Montt down into the remote archipelagos of Region XI, one passes coves full of salmon farms, mussel farms, dive boats and a level of activity that speaks more than statistics about the importance of seafood to the Chilean economy.

The overall situation in Chile is in flux. Some near-shore fisheries are finding their way to sustainability, and mollusk aquaculture continues to grow at a steady rate. But as salmon farmers learn to work around infectious salmon anemia (ISA) the way its main rival Norway has, they also face increasing environmental challenges, including harmful algal blooms associated with intensive fish farming.

The country's biggest wild card is the fishmeal industry, which, despite its increasing importance to Chile's growing salmon industry, relies on volatile stocks of scad, anchovy and sardines that many observers believe are overexploited. The reduction of wild stocks of forage fish may also have a negative impact on catches of the wild species that prey on them.

While Chile has become the No. 6 seafood producer in the world, and the United States' fourth most important seafood supplier, the country's industry is facing crisis on numerous fronts.

Battling ISA

Chile's all-important Atlantic salmon industry, which together with trout and coho accounts for 64 percent of the country's seafood exports in terms of value, is going through some growing pains.

Chile already had major problems with sea lice and bacterial disease, resulting in mortalities of up to 45 percent in 2006. These problems led to a slight decline in Atlantic salmon production and a 7 percent reduction in exports, but higher prices led to earnings of $1.417 billion, up from $1.079 billion in 2005.

Things looked to be improving in the first half of 2007, with exports to the U.S. market up 18 percent in volume and 24 percent in value compared with the first half of 2006. But in late July a particularly pathogenic strain of ISA appeared at several sites owned by Marine Harvest near Chiloé Island. Farms are heavily concentrated in that area, for convenience in feeding and harvesting, and the disease spread rapidly to the pens of Mainstream and possibly other companies. Mainstream initially said its costs as a result of the outbreak would "not exceed $500,000." But by mid-October Marine Harvest cut its production estimates by 45,000 metric tons.

What doesn't kill you makes you stronger, it's said, and Oscar Garay, freshwater manager of Marine Harvest's Chilean operations, believes the current ISA problems may lead to a maturing of Chile's salmon industry.

"This may not be politically correct," says Garay. "But in a way ISA is a gift. It's giving us an opportunity to get our bio-security system organized."

According to Garay, bio-security had become a priority even before the ISA outbreak, and early in 2007 Chile's top salmon producers, Mainstream, Aquachile, Camanchaca, Multiexport, Los Fiordos and Marine Harvest, formed the G-6, an organization to coordinate bio-security.

"If I am doing things right and the farm upstream from me is not, then what good is it?" asks Garay. "This way we will start working together."

According to Glenn Cooke, CEO of Cooke Aquaculture of Blacks Harbour, New Brunswick, Canada, which is currently expanding operations into Chile, the industry there will suffer more from ISA than it realizes. Cooke believes that to work around ISA, Chile should adopt a three-bay management system similar to the one used in Canada.

According to Cooke, Canada split the New Brunswick salmon industry into three different bays, and only one of those areas is stocked every year. That arrangement prevents cross contamination from market fish to smolts, thus limiting the vertical transmission of ISA.

But the process is neither easy nor cheap, says Mike Beattie, a fish health specialist at New Brunswick's Huntsman Marine Laboratory.

"I'd estimate that the new bio-security measures cost the Canadian industry around $40,000 per cage every year," says Beattie.

Chile's salmon industry, like Canada's, has been concentrated in easily accessible areas, but as ISA continues to erupt in the area of Chiloé, with 11 farms under quarantine as of December, the industry is being forced to spread out.

"We have to move south," says Garay. "But this will take time, already I am having to kill smolts or slow their growth until we have a place to put them."

The move into the isolated archipelago will increase production costs, but Garay is confident the market will support higher prices. While demand in Japan has stalled, the United States, which buys 36 percent of Chile's Atlantic salmon, still has an expanding market, according to Garay.

He believes Chile's salmon-farming industry will be able to cope with disease and sea lice.

"At the moment, ISA outbreaks have been low and we have more products in order to control caligus [sea lice], which is a big factor in the spread of disease," says Garay.

He predicts modest growth in salmon production in 2007.

"Less than 5 percent," says Garay. "But for 2008 I think we will see growth around 5 to 10 percent."

That would still be short of the industry's 14.8 percent annual growth over the last decade, but production of trout and coho salmon are on the upswing, adds Garay. Exports of trout and coho in 2006 were $482 million and $248 million, respectively. Chilean trout production jumped 51 percent in the first half of 2007 and coho rose 69 percent in the first half of 2007, according to the Food and Agriculture Organization.

Trout exports rose from 75,000 metric tons in 2005 to 93,000 metric tons in 2006, and coho increased slightly from 78,800 metric tons in 2005 to 79,400 metric tons in 2006, with export values for these species at $481 million and $298 million, respectively.

Fishmeal supply tightens

Scad, sardine, Jack mackerel, anchovy, blue whiting and other pelagic species make their way into Chile's numerous fish reduction plants, and the country produces 600,000 to 900,000 metric tons annually, second in the world behind Peru. But fishmeal production is down worldwide and Chile's industry has slid from a high of 935,000 metric tons in 2004 to 776,000 metric tons in 2006 and production is predicted to be lower still for 2007.

China is the main export market for Chilean fishmeal. U.S. buyers, expected to import only 50,000 metric tons of fishmeal in 2007, shy away from the high price of Chilean product. Current prices, hovering around $1,000 a ton, are believed to have bottomed out, and limited supplies along with strengthening demand herald rising prices across the board.

Aquaculture use of fishmeal has increased from 45 percent of the world supply in 2002 to more than 57 percent in 2006. For countries that depend on fishmeal for the expansion of finfish aquaculture industries - Chile for example, and the United States with its nascent offshore aquaculture program - a tightening of supplies could mean limits on growth.

"It's a problem," says Marine Harvest's Garay. "What I think you will see is people using more fishmeal and oil during the early stages of growth, when the fish really need it, and more mixing of substitutes into the feed during grow-out."

Crabmeat demand increases,

hake seeks MSC certification

There is more to Chile than salmon and fishmeal. Steady supplies and innovative management promise a sustainable future for shellfish producers, says John Wendt, CEO of Seatech, a Snohomish, Wash., importer.

Seatech has developed markets for Chilean langostinos, halfshell scallops with roe, mussels and crabmeat from various species of Chilean rock crabs.

Wendt believes worldwide competition and the weak U.S. dollar - down from 750 pesos to the dollar, to 500 in the last few years - have depressed imports of most Chilean shellfish.

The exception, he says, is 
crabmeat. "Last year we imported about 350,000 pounds of crabmeat. It was all from the species found on Chiloé Island and about two-thirds was inexpensive body meat that we sold to soup manufacturers."

Seatech projects exports to the U.S. market last year increased by around 30 percent over 2006.

An increasing focus by Chilean regulators on the sustainability of nearshore fisheries has led to several changes in the last decade. All along the coast, fishermen's syndicates have been given control of local resources within management areas, which they must manage under the purview of the state. The results, in many cases, have led to increased production and higher prices. But crab processors supply export markets and are vulnerable to global variables.

"The small plants that rely on wild and low-volume products like shrimp and crab are having a hard time keeping their heads above water when they sell in U.S. dollars," says Wendt.

Seatech's reliance on Chilean crab has led it to become active in developing sustainable fisheries.

"We are starting up a new crab fishery in North Central Chile that relies on artisanal vessels and a larger vessel that has been outfitted with longline pot fishing gear under the guidance of a longtime Alaska crab fisherman," says Wendt. "There is also a well-developed fishery around Chiloé Island. The demand and the harvest seem to be pretty much in equilibrium in my estimation. With both resources we expect to have viable fisheries for the long term."

While Wendt lauds the quality of product coming out of Chile, he warns against overglazed langostinos.

"A market demand has been created for langostinos with a 30 to 35 percent glaze," says Wendt. "This allows an innately expensive product to be sold at a lower price." Much of the product, Wendt assumes, "ends up in the hands of unsuspecting consumers who have no idea how much water they are buying."

Chile has an important fishery for merluza, known as hake or whiting in the United States. Artisanal and industrial fleets fished a quota of less than 30,000 metric tons in 2006, down from a high of 70,000 metric tons in 1988. The United States imports less than 10 percent of Chile's hake harvest. U.S. whiting buyers are mainly medium-sized companies that source direct from Chilean processors.

While global supplies hold prices of whitefish stable, artisanal producers in Chile are seeking sustainability certification for their hook-caught hake from the Marine Stewardship Council (MSC). That process is just beginning, but fishermen hope to reap higher prices from conscientious consumers in Europe, and some U.S. retailers are also looking at marketing eco-friendly whiting.

Paul Molyneaux is a freelance writer and author of "The Doryman's Reflection" and "Swimming in Circles"