Chile’s Achilles heel is exposed, and it can become even worse

Editorial
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Unilateral dependence on two major fresh markets punishes the country’s salmon farming industry.

Christmas salmon is being sold at the lowest prices of the year. Chilean salmon farmers have been beaten during the last month’s price slump. They have been particularly hard hit by their heavy and fairly one-sided investment in two key markets: the United States and Brazil.

The United States has traditionally been Chile’s most important market, ever since Norway was evicted from there with punitive tariffs in 1991. The 400,000-tonne US is primarily a fresh market, and Chileans have built this up by flying in fresh, bone-free fillets to airports in Florida and California for the past three decades.

Shock
However, during this year’s coronavirus shock, the airline industry has been hit hard. There are fewer airliners with salmon in the cargo holds. Fewer flights means lower volume capacity and higher shipping costs per kilo.

Comment: Aslak Berge

The Chileans have sought to compensate for this by hiring transport planes. It’s also not cheap. AquaChile’s commitment to air freight from Puerto Natales, at the southern tip of Latin America, to Los Angeles, as well as 22-hour air freight to China, are also measures that are environmentally tough and hardly something one can rely on in length.

The organization IATA, which represents the country’s aerospace industry, estimates that Chile’s airborne salmon and trout exports will be reduced by 15.4 percent as a result of Covid-19. That’s equivalent to 130,000-140,000 tonnes. Since most of Chile’s trout are exported in containers as frozen products, it is primarily salmon that we are talking about here.

During a salmon seminar recently hosted by the Undercurrent News (behind the paywall), a sales representative for the salmon farming company Blumar expressed that he hopes the low salmon prices will win over new consumers.

He shouldn’t be hoping too much for it.

Chilean salmon farmers have been delivering red numbers for months, and need a turnaround to avoid seeing their accounts being slashed.

Hit
Brazil has long been a bright spot for the Chileans. The country is within trucking distance of Regions X and XI sea cages, and it does not rely on expensive air freight. Brazil has grown rapidly, up to 100,000 tonnes in annual consumption, led by the metropolises of Sao Paolo’s and Rio de Janeiro’s sushi restaurants and supermarket chains.

With reduced supply to the US market, Chilean salmon exporters have poured as much salmon as possible into the Brazilian market. At the same time, Brazil has been hit hard by Covid-19, and this combination has sent the country’s salmon prices to historic lows.

As both of the country’s two main and dominant fresh markets are oversupplied, and Chile must freeze fish. Part of it is being stored, for later sales, but much is sent straight into the world market. To Asia, Russia, the United States and Europe.

Competition
The catch of frozen salmon is that it costs more, about EUR 0.5 per kg, and achieves a lower sales price than fresh salmon, not least since it competes with wild salmon that only available fresh for a few short summer months.

These are competitive conditions that no fish farmer is served by. Not least for Chile, which is ending the year with tens of thousands of salmon in freezing storage.

What about 2021?

Chile’s salmon production is expected to be reduced by around 80,000 tonnes. But the world’s total production, which forms the price in a global market, is expected to show a slight increase. Next year will therefore not provide any radical improvement in the market balance for the Chileans.

Also if one looks further into the future, it looks tough.

Because then, gradually the land-based salmon farmers, especially in the United States, will start eating up the market share. This will in turn facilitate price pressure. It will primarily be felt for the salmon farmers with the highest production costs. And Chile is about to take on this category.