Dying assets

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Jul 30th 2009 | SANTIAGO
From The Economist print edition

A bankrupt industry faces reform


THIS time two years ago some 300m Atlantic salmon were being fattened in farms off the coast of southern Chile. Now its sheltered bays contain just a tenth of that number. Many fish have died of infectious salmon anaemia (ISA), a virus, whereas others have been prematurely harvested for fear they would catch it too. Coho salmon and trout, which Chile also produces, are not susceptible to ISA. Even so, output of the country’s fish farms this year is expected to be down by at least 40%. The industry faces a long road back to health.

This blow comes after 15 years of meteoric growth that saw exports rise more than tenfold to $2.3 billion in 2007, turned Chile into the world’s second-biggest salmon producer after Norway, and brought prosperity to a far-flung area with few other jobs.

Salmon farms in Norway, Scotland and Canada have all suffered ISA too. Even so, Chile seems to have been unprepared for the virus when it turned up, apparently in imported salmon eggs. The farmers seem to have been blinded by booming profits. The National Fisheries Service, the industry’s regulator which is more used to policing catch quotas at sea, lacked both a plan and the powers to deal with ISA. The resulting disaster has bankrupted the industry, which had piled up $1.8 billion in bank debts by last December.

With over half of salmon farms now empty of fish, the industry has the chance to restock and start again, says César Barros of SalmonChile, the industry association. He reckons output will be back to its 2007 level within four years. It could take longer. Congress is, slowly, debating a bill to regulate the industry more tightly. The fisheries service will have to be strengthened. And the farms need working capital to restock. The banks may not oblige, although they have renegotiated much of the debt.

The industry has also come up with a voluntary plan to reduce the use of antibiotics to control disease—a practice which has harmed the image of Chilean salmon in the United States. Hitherto, lower production costs allowed Chilean salmon to compete in the United States against less distant rivals. The reforms might erode that advantage—but perhaps not if they work: salmon farmers hope that fewer dead fish will compensate for the cost of cleaning up their act.