Faced with mounting losses, Chilean salmon farmers are doing something that commodity producers rarely do -- asking for the government's help to downsize.
The industry, which was on its way to challenging Norway as the top producer before a virus ravaged stocks in 2008, is producing too much again, said Victor Hugo Puchi, who controls the largest local producer and sits on the board of the industry association. With margins eroded by low prices and intensive farming that's pushing up the cost of disease prevention, authorities need to "limit individual liberties," he said.
"What we lose in value for the reduced volume of production, we will compensate for with higher prices and greater stability," Puchi, the chairman of Empresas AquaChile SA, said in an interview in Santiago. "I hope we can get the support of the government, which is the only one that can administer this situation."
The industry has seen a steep rise in the use of pharmaceuticals to control the health of the fish when output of Atlantic salmon rises above 600,000 or 650,000 tons a year, he said. It currently produces about 800,000 tons and has licenses for about 2 million. The strain local companies are under is evident by the fact that they use much more antibiotics than their counterparts in Norway.
Chile's salmon output surged in the 1990s as Norwegian and local business groups discovered optimum conditions for farms in more than 1,000 miles of coastline dotted with fjords and inlets. Then an outbreak of infectious salmon anemia, or ISA, depleted stocks with suppliers losing contracts with buyers including Wal-Mart Stores Inc. That led to tougher regulations including widening distances between farms.
While the industry recovered to near peak capacity last year, farmers including AquaChile are losing money again as prices decline. The Puerto Montt, Chile-based producer posted a $35.5 million loss in the second quarter, the biggest since shares began trading. With Norway banned from selling salmon to Russia, the Scandinavian country increased supply in other markets where Chile competes, Puchi said. At the same time, a surging U.S. dollar is pushing up costs, countering revenue gains, he said.
The woes were compounded this year when Costco started to market antibiotic free salmon, something that's beyond the reach of Chilean industry for climatic reasons, Puchi said.
While farmers are working with the government on a campaign with retailers in the U.S. to improve their image, a reduction in output would also help contain costs associated with sanitary issues, Puchi said.
"The safest road is to reduce production volume to avoid pressures in the environmental and sanitary systems," he said. "The state is the only one that has the capacity to do this adjustment with a regulation that limits individual liberties in function of a biological situation and an ocean freight capacity. That is what every other country has done."
SundayMonday Business on 11/29/2015