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Big Salmon Exporter Fights Virus by Risa Grais-Targow Wall Street Journal, July 7, 2009

Chile's Share of Global Output Expected to Fall; Pickup Unlikely Until 2011

SANTIAGO -- A virus is crippling Chile's farmed salmon industry, damping exports and squeezing fish producers.

Chile is currently the world's second-largest exporter of salmon and trout, with salmon exports of a record $2.4 billion in 2008. But producers with infected salmon can't harvest until the virus is eliminated from their farms. As a result, exports have begun to fall and are likely to decline even more in 2010. The harvest cycle typically takes two years, so the industry isn't expected to pick up until 2011.

The Isa virus -- infectious salmon anemia -- is a continuing threat to big fish farms the world over. Norway, the world's largest salmon producer, where the virus originated in the 1980s, has implemented measures to control it, including vaccines and limiting fish numbers. But Chile's industry is heavily reliant on antibiotics, which has allowed harmful strains of bacteria to build immunity, and Chilean farms' close proximity and frequently overcrowded fish pens have led to the rapid spread of the disease.

As a result, Chile's share of global salmon production is expected to fall to 20% in 2010 from 35% in 2008, according to a recent study by the Chilean Association of Banks.

The virus first hit Chile in 2007 but worsened late last year. It comes at a bad time for Chile's salmon farmers, which are heavily indebted to both suppliers and banks, which expanded this decade amid growing global demand. Their debt is likely to mount as the industry is squeezed between a decline in revenue and its need to restructure.

Of Chile's 40 producers, 25 have reported the Isa virus at a total of 200 cultivation centers. The fragmented Chilean industry has an estimated $1.6 billion in liabilities, and producers owe suppliers some $400 million for nets, cages and other equipment.

To combat the virus and tackle the industry's financial problems, the Chilean government and industry group SalmonChile have designed a bill that includes new sanitary requirements, such as increasing disease surveillance, and that guarantees concessions to the banks with producers' water and farming rights if producers are unable to repay their debts.

"This is a drastic redesign of the way we produce," SalmonChile President Cesar Barros says, as the requirements are expected to enhance oversight.

The bill is expected to pass in July. The new standards will require the cooperation of producers, banks and suppliers, Mr. Barros says. "We need confidence from the banks vis-a-vis the producers and we need confidence among salmon producers that everyone is making the necessary changes," he says. "If one actor goes down, it drags the whole industry down with it," he says; if the virus reappears at one farm, it could spread to others.

Chile primarily exports farmed Atlantic and Coho salmon. Atlantic salmon are most susceptible to the virus, and some producers say they plan to produce only Coho in the near term to avoid the problem. While the virus usually kills the affected salmon, making it unsellable, it can't be transmitted to humans via consumption of infected fish.

Marine Harvest ASA was the first producer to report the deadly virus at its Chilean farms in July 2007. The Oslo, Norway-based company's April exports from Chile slumped 64% to $11 million from $31 million in the year-earlier month, according to government export agency ProChile. Marine Harvest didn't respond to repeated calls for comment.

A cut in production poses problems for the fishery work force. In some regions of southern Chile, the salmon industry accounts for as much as 90% of employment, according to SalmonChile. Mr. Barros estimates industry jobs have fallen more than 20% to about 45,000 since the Isa outbreak began in 2007.

Producers have been renegotiating their debts with both suppliers and banks. Recently, feeding-systems supplier Astilleros Calbuco SA sought the bankruptcy of salmon exporter Multiexport in an attempt to recoup the $1.2 million it was owed. Multiexport, which paid Astilleros in full, wrote a letter to its other debtors asking for more time; it hasn't declared bankruptcy. Multiexport and Astilleros didn't return calls and emails seeking comment.