Chile's salmon output likely to fall sharply under new rules

PUERTO MONTT, Chile, July 25 (Reuters) - Chile’s farmed salmon production could drop by almost 25 percent because of stricter regulations aimed at tackling environmental crises that have decimated fish populations in recent years, government and industry sources say.

Salmon farms in the nation’s misty, cool south have been mired in a boom-and-bust cycle, with production climbing during good years and then falling due to the bacterial, viral and algal outbreaks that have become increasingly common.

A massive algal bloom killed up to 20 percent of Chilean salmon this year, costing millions of dollars and likely cutting annual production to around 650,000 tonnes, a level last seen in 2011, when the industry was recovering from an outbreak of infectious salmon anemia virus.

That represents the low end of what the government expects to be a new reduced permanent range for production resulting from incoming rules aimed at reducing fish densities in pens by 27 percent, Raul Sunico, the head of the Chilean government’s Subpesca fishing and aquaculture body, told Reuters.

The specter of a permanent drop in production in Chile, home to the second largest salmon farming sector after Norway, highlights how Chilean salmon farm producers are still struggling to come up with a sustainable business model.

Companies and analysts have predicted the global supply of salmon will fall by between 5 percent and 9 percent in 2016 due to declining production in Norway and Chile, likely leading to a jump in prices for consumers.

The Chilean production decrease would represent a 24 percent drop from the average annual output of the past four years.

Some companies argue that the reduced density rules raise the regulatory burden on salmon farms and could wind up hurting the industry’s competitiveness without solving its most pressing sanitary issues.

“The industry really needs predictable, sustainable regulations ... the regulation that is coming does not go in the right direction,” said Per-Roar Gjerde, who heads the Chilean unit of Norway’s Marine Harvest, the world’s top fish farmer.

Simply addressing fish densities is not enough to make the industry more sustainable, Marine Harvest argues. It wants a stricter mandate to cap Chile’s overall salmon production at 400,000 tonnes per year, matching environmental group Oceana’s suggested limit.

Both Marine Harvest and Oceana say the environment can’t handle more than that level under current sanitary conditions.

SalmonChile wants the government to allow larger production areas, more flexibility to move pens around those areas, and increased spacing between production areas, all of which could shield producers from a neighbor’s potential bad environmental habits, said Felipe Sandoval, head of the industry group.

Still, there is a consensus that the industry’s health issues need to be tackled to assure the longevity of salmon farming in Chile, and companies are not waiting for cues from the government.

“It can be expected that only the companies that have good sanitary conditions at competitive costs will likely survive,” said Gerardo Balbontin, the chief executive of salmon producer Blumar. (Reporting by Anthony Esposito and Felipe Iturrieta; Editing by Christian Plumb and Paul Simao)