A general overview investments opportunities · 2019-06-12 · Fig 18: Fish feed x shrimp feed ......

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KTP Marine Market Brazil, Chile and Peru

A general overview and investments opportunities

October, 2016

Prepared by Felipe Suplicy (Brazil) and Carlos Wurmann (Chile and Peru) In cooperation with:

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Contents Brazil...............................................................................................................................................................................7

1. Introduction......................................................................................................................................................7

2. Generaloverview...........................................................................................................................................7

3. Freshwateraquaculture.............................................................................................................................8

3.1Tilapia........................................................................................................................................................11

3.2Surubins(Catfish)................................................................................................................................32

3.3Roundfishes...........................................................................................................................................35

3.4Emergingfishspeciesinfreshwateraquaculture.................................................................43

4. Marineaquaculture.....................................................................................................................................45

4.1Cobia...........................................................................................................................................................46

4.2Scallops......................................................................................................................................................57

4.3Mussels......................................................................................................................................................61

5. Legalandinstitutionalframework.........................................................................................................68

5.1Federallevelinstitutions..................................................................................................................68

5.2Statelevelinstitutions........................................................................................................................71

5.3Aquaculturelegalframework.........................................................................................................72

6. Valuechainbusinesssegments................................................................................................................82

6.1Aquaculturefeed...................................................................................................................................82

6.2Aquacultureequipmentsuppliers................................................................................................84

6.3Vaccinesandmedicines.....................................................................................................................87

6.4FishHatcheries......................................................................................................................................87

6.5Research&Development.................................................................................................................91

7. Discussionandrecommendations.......................................................................................................92

Chile............................................................................................................................................................................106

8. AquacultureandAquaculturedevelopment................................................................................106

8.1Landings,capturefishingandaquaculture........................................................................................106

8.2Aquacultureproduction.............................................................................................................................108

8.3Mainfarmedspecies........................................................................................................................114

8.4Theproductionmodelandaquaculturetechnology.........................................................124

8.5Governance:thebasics...................................................................................................................135

9. Aquacultureuntil2030:opportunitiesandlimitations.............................................................137

9.1Thebasicsforfutureaction..........................................................................................................138

9.2Objectivesandgoalsto2030....................................................................................................................145

9.3Aquaculturedevelopmentstrategiesto2030......................................................................152

10. Businessopportunitiesrelatedtoaquaculturedevelopment............................................157

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10.1Infrastructure...................................................................................................................................157

10.2Equipmentandservicestobeprovidedtoprimaryandsecondaryactivities..158

10.3ResearchandDevelopmentinfrastructureandactivitiescoveringallaspectsofaquaculture..................................................................................................................................................162

10.4Equipmentandservicestoservelogisticaspectsalongtheaquacultureproductionchain.......................................................................................................................................163

10.5Equipmentandservicesrelatedtothedevelopmentofmarketandmarketingactivities........................................................................................................................................................165

10.6Servicestobeprovidedtoimprovethecapacitiesofthehumanresourcesinvolvedinallaspectsrelatedtoaquaculture(FormalEducation,continuoustraining).........................................................................................................................................................165

11. Mainbusinessopportunitiesrelatedtotheaquaculturedevelopmentprocess:finalcomments.......................................................................................................................................................166

Peru............................................................................................................................................................................169

12. AquacultureinPeru...............................................................................................................................169

12.1Landingsandcapturefisheries................................................................................................169

12.2Theaquacultureindustry...........................................................................................................171

12.3Theinstitutionalframework.....................................................................................................181

12.4Legalframework.............................................................................................................................184

12.5Servicesrelatedtoaquacultureproduction.......................................................................184

13. Aquacultureproductionsystems....................................................................................................186

13.1Scallop(Argopectenpurpuratus)productionsystems.................................................186

13.2Shrimpproductionsystems.......................................................................................................188

13.3Rainbowtrout(Oncorhynchusmykiss)productionsystems....................................190

13.4Tilapiaproductionsystems........................................................................................................192

13.5Paiche(Arapaimagigas)productionsystems...................................................................193

13.6Otherspecies....................................................................................................................................194

14. Aquaculturedevelopmentprospectsuntil2030:opportunitiesandlimitations.....195

14.1Traditionalspeciesmakingupforthebulkofcurrentproduction.........................196

14.2 Newspecies..............................................................................................................................199

14.3 Moreondiversificationanddiversificationprospects.........................................201

15. Aquaculturedevelopmentstrategies.............................................................................................202

16. Mainbusinessopportunitiesrelatedtotheaquaculturedevelopmentprocess.......204

16.1Basicoceanographicstudies.....................................................................................................205

16.2Hatcheryandbreedingtechnologydevelopmentandadaptation..........................205

16.3Innovationinproductionsystemsandfeeding................................................................206

16.4Ancillaryequipmentandservices...........................................................................................208

16.5Researchanddevelopment........................................................................................................209

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16.7Financialsupportandinvestment..........................................................................................209

17. Conclusion..................................................................................................................................................210

18. FinalRemarks...........................................................................................................................................211

19. Annex............................................................................................................................................................218

20. References‐Brazil..................................................................................................................................219

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Figures & tables: Fig1:Distributionofaquacultureestablishmentsandmainfarmedspecies..............................8 Fig2:CatfishandhybridspeciesinBrazilianaquaculture...................................................................9 Fig3:RoundfishesandtheirhybridspeciesinBrazilianaquaculture...........................................9 Fig4:Mainfishgroupsandtotalfreshwaterfishproductionin2013and2014(SourceIBGE).............................................................................................................................................................................10 Fig5:SmallVolumeHighDensity(SVHD)farmingsystem................................................................12 Fig6:Basinswithpiranhas:Serrasalmusrhombeu(green)/Pygocentrusnattereri(red)/Pygocentruspiraya(violet)...............................................................................................................................13 Fig7:Basinsaffectedbytheinvasivegoldenmusselin2010...........................................................14 Fig8:Wiremeshofsmallvolumecagesfouledwithgoldenmussel..............................................14 Fig9:LargeVolumeLowDensity(LVLD)cagesusedintilapiafarminginBrazil...................16 Fig10:Useofwiremeshnetsinlargevolumecages.............................................................................16 Fig11:Copacolusingafishpumptoharvesttilapiainponds,atasmall‐scalefarm.............18 Fig12:Atypicalsmall‐scalefishfarmintegratedintoCopacol........................................................18 Fig13:SaltoCaxiasreservoirontheIguaçuRiver,SouthofParanástate...................................20 Fig14:OneofmanyriverbendsintheSaltoCaxiasreservoirintheIguaçuRiver,SouthofParanástate...............................................................................................................................................................20 Fig15:Rankingbyareaofmainmariculturenationswithcurrentspeedsanddepthssuitableforseacagesandlonglines...............................................................................................................45 Fig16:MarineEnvironmentalProtectionAreasalongtheSãoPauloNorthcoast.................55 Fig17:EmbrapaFisheriesandAquacultureheadquartersinPalmas,TO..................................71 Fig18:Fishfeedxshrimpfeed.........................................................................................................................82 Fig19:FeedproductioninBrazil....................................................................................................................83 Fig20:Importedcommodities:Soybeanmealandcorn......................................................................83 Fig21:Aquabeltilapiabreedingcenters.....................................................................................................90 Fig22:TheGuaraniAquifer...............................................................................................................................98 Fig23:ComparisonbetweenChile,NewZeelandandBrazilinmusselfarming...................102 Fig24:ChileRelativeimportanceofaquacultureandcapturefisheriesintotallandings,2000‐2014,%........................................................................................................................................................107 Fig25:Mainaquacultureproducts,byspecies,2000‐2014(tonnes)........................................109 Fig26:Chileanditsregion..............................................................................................................................111 Table27:Concessionsforaquacultureactivities,bygroupofspeciesandgeographicdistribution,2015................................................................................................................................................112 Fig28:Distributionofaquacultureproductionbyregion,2004‐2014(%oftotals)..........113 Fig29:Harvestsofsalmonandtrout,2004‐2014(tons)..................................................................115 Fig30:Harvestofsalmonids,byspecies,2004‐2014(tons)...........................................................115 Fig31:MainsalmonidsfarmedinChile....................................................................................................116 Fig32:Chileanmussel(Mytiluschilensis).............................................................................................117 Fig33:Musselaquacultureproduction,2004‐2014(tons).............................................................117 Fig34:NorthernScalloporScallopfarmedinChile...........................................................................118 Fig35:Scallopfarmedproduction,2004‐2012(tons).......................................................................119 Fig36:RedAbalone............................................................................................................................................120 Fig37:Abaloneproduction,2004‐2014(tons).....................................................................................120 Fig38:Figure18Greenabalone...................................................................................................................121 Fig39:Gracilariaalgae......................................................................................................................................122 Fig40:Productionoffarmedgracilariaalgae,2004‐2014(tonnes)..........................................122 Fig41:OystersfarmedinChile.....................................................................................................................123 Fig42:Productionofoysterbyspecies,2004‐2014(tons)............................................................124

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Fig43:Basicinstallationsusedinsmoltproduction..........................................................................126 Fig44:Typicalmetalandplasticnet‐pensystemsusedinsouthernChile..............................127 Fig45:Typicalpontoonsusedbysalmonfarmers..............................................................................128 Fig46:Well‐boatatharvesttime.................................................................................................................129 Fig47:Atypicalprocessingplant.Partialview.....................................................................................129 Fig48:Overviewofatypicalmusselfarm...............................................................................................130 Fig49:Concretemooringdevicesusedinmusselfarming..............................................................131 Fig50:Bargesusedformusselhandlingatsea.....................................................................................132 Fig51:Abaloneseeds,packedfortransportationtoon‐growingsites......................................132 Fig52:Inlandon‐growingfacilitiesincentralChileandfreshalgaeusedasfeed................133 Fig53:Figure33Differentcontainersthathavebeenusedtofarmabalonesonfloatingdevices,atsea........................................................................................................................................................134 Fig54:Equipmentusedtoclassifyabalonesbysizeandtopreparethemforcanning,Chile......................................................................................................................................................................................135 Fig55:TheHumboldtcurrent.......................................................................................................................170 Fig56:LatinAmericaandCaribbean2014aquacultureproductionbymainproducingcountries..................................................................................................................................................................172 Fig57:MainPeruvianaquaculturespecies.............................................................................................174 Fig58:Peruvianaquacultureproductionbyspecies,2010‐2015(tons).................................175 Fig59:Majorproducingregions(Departments)inPeruvianaquaculture–2013‐2014(%oftotals)...................................................................................................................................................................176 Fig60:MajoraquacultureareasinPeru...................................................................................................176 Fig61:RelativeimportanceofdifferentspeciesfarmedonPeruvianexports,2013‐2014......................................................................................................................................................................................178 Fig62:Localsalesofaquacultureproducts2000–2015(tons)..................................................179 Fig63:SeafoodconsumptionintheAmericas.......................................................................................180 Fig64:seafoodconsumptionbyregion,2014(kgper/cap/year)...............................................180 Fig65:Productioncycleinsuspendedsystems....................................................................................187 Fig66:Suspendedscallopfarmingsystem..............................................................................................187 Fig67:Shrimpproductionsystems............................................................................................................189 Fig68:ThePeruvianClusteroftheshrimpindustry..........................................................................190 Fig69:Rainbowtroutproductionsystems.............................................................................................191 Fig70:Trouteggandfingerlingcenters...................................................................................................192 Fig71:Tilapiabreedingcenters...................................................................................................................193 Fig72:TilapiaproductionsystemsinPeru.............................................................................................193 Fig73:Paicheproductionsystems..............................................................................................................194

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Brazil

1. Introduction The purpose of the document is to provide an overview of Brazilian, Chilean and Peruvian aquaculture industry and make recommendations of investment opportunities for Norwegian companies. The Brazilian shrimp farming sector is not included among the aquaculture sectors analyzed due to the short time available to prepare the document. The report covers both freshwater and marine aquaculture sectors. A general overview with the latest statistical data is given, followed by subsector analyses. The subsectors tilapia, round fishes, catfish, cobia, scallops and mussels were described in detail, identifying main production areas and players. All information has been gathered through primary and secondary sources and more than thirty people within the industry were interviewed during its preparation. Brazilian aquaculture is highly diversified. The size of the country, with many local peculiarities and circumstances, make it difficult to provide a generalized description of the industry, or to provide detailed analyses of all possible investment opportunities in the country. Having said that, this study indicates the most promising opportunities, with the suggestion that further in‐deep analysis of particular opportunities is made before taking any decision or making investments in Brazilian aquaculture.

2. General overview Brazilian aquaculture has registered steady growth in recent years. Official statistics data about Brazilian aquaculture are limited and not very reliable, due to limited resources, lack of institutional capacity for data collection in a vast national territory like Brazil, and also because sometimes these data have been prepared by the authorities for the purpose of demonstrating good governance of the sector. Only recently, the official statistic agency (Brazilian Institute of Studies and Statistics – IBGE) released the latest statistical data about the Brazilian Aquaculture industry in 2013 (IBGE, 2013), based on data collected between 2009 and 2011. The survey covered all 27 states and identified aquaculture activities in 2,618 municipalities. Freshwater fish farming represents 70% of total aquaculture production with a total production value of R$ 3.87 billion (NOK 9.89 billion), with shrimp farming in second place, with 25.5% of the total production. IBGE figures are far behind reality. The IBGE technical team believes it will take a couple of years for their statistics to reflect the real production of the aquaculture sector. A past official data on aquaculture production are not so reliable, the consultancy company Acqua Imagem has implemented a systematic collection of data

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on production and prices across the major aquaculture areas in Brazil. This work included a survey of fish farming in the most important production clusters. In addition, an online survey was completed by many different players in the aquaculture sector. Freshwater finfish aquaculture in Brazil was estimated at 486,000 MT in 2014. This volume is close to the IBGE data of 474,330 MT for the same period. However, the tilapia production estimated in the Acqua Imagem survey, at 260,000 MT, is much higher than the IBGE data of 168,000 MT. Similarly the volume of round fished estimated by Acqua Imagem is 50,000 MT higher than IBGE numbers. Having said that, this report will use the official statistical data provided by IBGE to characterize Brazilian aquaculture, including some comments based on Acqua Imagem findings during their surveys.

3. Freshwater aquaculture In general, the industry is based on small‐scale farmers and low technology farming system with a total of 15,469 freshwater fish farmers, made up of 13,495 small‐scale (87%), 760 medium‐sized (5%) and (0,2%) 33 large companies, and more than a thousand farmers who preferred not to answer to this question (Fig. 1). According to the IBGE census, freshwater fish farming in Brazil is very diversified, with 63 species. This huge diversity is a result of the first development stage of Brazilian aquaculture, in the 1980s, when most of the fish production was intended for recreational fishing establishments. With a strong growth period since 1990, the sector naturally selected the species with better zoological technical attributes and faming potential. Besides tilapia, the main farmed species are catfish surubim, also know as pintado, cachara and their hybrids, and the round fishes tambaqui, pacú, parapitinga and their hybrids.

Fig01:Distributionofaquacultureestablishmentsand main farmed species.

Fig1:Distributionofaquacultureestablishmentsandmainfarmedspecies.

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Pacú (Piaractus mesopotamicus)

Tambaqui (Colossoma macropomum)

Tambacu (hybrid)

Pirapitinga (Piaractus brachypomus)

Tambatinga (hybrid)

Pintado (Pseudoplatystoma fasciatum)

Cachara (Pseudoplatystoma corruscans)

Pincachara (hybrid)

Jundiá (Rhamdia quelen)

Pintado da Amazônia (hybrid)

Fig2:CatfishandhybridspeciesinBrazilianaquaculture

Fig3:RoundfishesandtheirhybridspeciesinBrazilianaquaculture

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According to IBGE, the total production of Brazilian fish farming was 474,330 MT in 2014, representing an increase of 20.9% compared to the previous year. The North Region has emerged as leader driven mainly by the state of Rondônia, which rose to first place in the ranking of states, with fish production of 75.02 MT. The state of Mato Grosso, in turn, fell to second place, harvesting 60.95 MT. The municipality of Sorriso (MT) continued in first place among Brazilian cities with 21.00 MT, 2.4% less than in 2013. The Municipality of Jaguaribara (EC) remained in second place with is harvest of 16,920 tons, an amount 16.0% higher than recorded in 2013. In terms of volume, tilapia and round fish jointly account for 82% of national production, followed by catfish and carp, both with 5% each.

Fig4:Mainfishgroupsandtotalfreshwaterfishproductionin2013and2014(SourceIBGE)

Confirming its lead in the previous year, tilapia was the species most farmed in 2014, with 198,490 MT, equivalent to 41.9% of total Brazilian fish farming, with an increase of 17.3% in relation to 2013 (IBGE data). The Municipality of Jaguaribara (CE) continued to lead the municipal ranking of tilapia production, with 16,920 MT in 2014. Second place, which was previously occupied by Santa Fé do Sul (SP), was assumed by Orós (EC), with a tilapia harvest of 6,280 tons. While the production of Orós increased by 18.9%, in Santa Fé do Sul it decreased by 11.2% compared to 2013. The lead in tilapia production is expected to return to São Paulo in 2015 statistics as a severe drought in recent years has dramatically reduced tilapia production in Ceará since 2014.

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Production overview by main species groups

3.1 Tilapia The following brief history of tilapia aquaculture in Brazil by Dr. Fernando Kubitza, a recognized expert of tilapia farming in Brazil and abroad, presents the situation very well: “Nile tilapia was introduced in Brazil in 1971, when fish from Ivory Coast were brought to the aquaculture research station at Pentecostes, Ceará (DNOCS – National Department of Drought Alleviation). However, by the end of the 1980s tilapia aquaculture output was still irrelevant. With the adoption of sex reversal technology in early 90s, tilapia aquaculture gained importance, mainly in the south and southeastern states. In 1995, tilapia aquaculture production in Brazil was estimated at nearly 12,000 metric MT, mostly concentrated at the western area of Paraná state. In 1996 the first introduction of Chitralada strain of Nile tilapia (Thai tilapia) improved the genetic quality of broodstock in many tilapia hatcheries. The Thai tilapia showed a better growth performance and Status and gradually replaced the non‐selected stocks of Nile tilapia. At the same time, tilapia producers were introduced to the small volume/high‐density cage technology (SVHD cages), which enabled expansion of tilapia production in reservoirs of São Paulo, Paraná and Minas Gerais. In 1999 tilapia production in SVHD cages reached the northeast of Brazil, firstly at Xingó’s reservoir, in the lower course of San Francisco River. A tilapia festival held at Paulo Afonso (state of Bahia) in 1999 illuminated SVHD cage technology to aquaculturists and potential investors from other northeastern states. …. Meanwhile, fish feed manufacturers focused on developing better quality feeds to overcome nutrition‐related problems observed when first attempting to produce tilapia in cages. Soon, a large variety of high quality feeds were available for cage and intensive pond production of tilapia.” Today Brazilian tilapia production has reached 260,000 MT (Acqua Imagem survey), and more than half of Brazilian fish farmers raise tilapia (57% ‐ 8,855 establishments) (IBGE data). In terms of number of establishment, 41% of tilapia farmers are in the South Region, 31% in the Northeast, 22% in the Southeast, 3% in the North and 3% in the Midwest. In terms of production volume, South Region has 37.5%, Northeast 28.4%, Southeast 27.1%, Midwest 6.8% and North 0.2%. The large recreational fishing market established in south and southeast Brazil delayed the establishment of a significant tilapia processing industry. The recreational fishing market for tilapia had started to flatten by 2001/2002, and large scale and processing oriented tilapia projects began to spread throughout south and southeast Brazil. Since 2003 many processing plants have been built exclusively to process farmed tilapia in São Paulo, Paraná, Bahia, Minas Gerais, Espirito Santo, Ceará and other

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states. At first, many of these projects focused on the US market for fresh fillets. However, with the exchange rate being unfavorable since 2005, tilapia processors were forced to expand domestic sales. High quality, export grade fresh fillets and large size whole fresh fish were presented to Brazilian consumers, who rapidly learned to appreciate and value tilapia, overcoming the bad impression wild caught tilapia had on consumers in the past (small size, full of bones, and tasting off). Nowadays, nearly all the tilapia produced is sold in domestic markets, and whole tilapia and tilapia fillets are among the most reliable fish products sold in the major Brazilian supermarkets, because of the reliable quality, regular supply and stable prices.

3.1.1 Tilapia production methods and systems Tilapia is generally produced in a three‐phase system starting at 1 to 30 g (40 days), 30‐200 g (80 days) and 200‐800 g (110 days), totaling 230 days. Although the three‐phase system is the most used, some farmers use monophasic or four‐phase systems. Fingerlings are sexually reversed using a diet with hormones (60 mg 17α‐methyltestosterone kg‐1). The main systems are Small Volume High Density cages (SVHD), earth ponds and Large Volume Low Density (LVLD) cages. The ideal water temperature for tilapia is 27 – 32oC, but it can survive within the range of 20 to 35oC. Most of the work for stocking, feeding, grading and harvesting is manual, demanding a large work force and only five companies use modern technology like fish pumps, scanners, feeders and automatic graders.

3.1.2 Small volume cages The SVHD system with 6‐18 m3 metal cages and yields between 30 and 300 kg/m3 in six months cycles is still the most common in Brazil. This system is employed in the major production regions in São Paulo, Ceará, Minas Gerais, Pernambuco and Bahia. The average yields vary between 100 and 150 kg/m3/cycle and 2.5 ‐ 3.5 MT/ha/cycle.

Fig5:SmallVolumeHighDensity(SVHD)farmingsystem.

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These cages are made with screen mesh that can be 5 x 5 mm for nursery and wire mesh 17 x 19 mm for fattening. In the nursery phase, 14 mm fingerlings are stocked at 500 – 1000 fish/m3. When the fry reach 45 to 60 days or reach the size that does not pass through the 5 mm mesh they are transferred to growth cages at a density of 200 tilapia/m3. Tilapia is stocked at 50 to 100 fish/m3 in larger volumes (> 5 m3) and up to 200 to 600 fish/m3 in smaller cages (<5 m3). It is possible to obtain production from 50 to 300 kg of tilapia/m3 in the SVHD system, this system showing better productivity per unit volume due to more efficient water exchange inside the cages. An advantage of the SVHD system is the very high water replacement rate within the cage, which enables production at very high densities (100‐250 fish/m3). The Feed Conversion Ratio (FCR) in this system varies between 1.3:1 and 2.2:1. A study in São Paulo state, with 4 m3 cages stocked with 20 g fish, density of 150 fish/m3, water temperature of 28 ± 2.0oC, and feed with 32% of protein, obtained 62.05 ± 0.7 kg/m3 of 490 g fish, with FCR 1.3 ± 0.1 and survival rate of 84.60 ± 6.8% (Leonardo, et al., 2012). The SMHD system is the most popular tilapia farming system in Brazil and is present in all producing states. This system is very efficient and without doubt the best system for producing volumes of up to 500‐800 MT per year, using maybe 500 cages. However, beyond this volume, labor and operational costs grow exponentially, and it is almost impossible to manage and repair thousands of small volume cages, or to adopt mechanized feeding and harvesting practices.

In spite of the presence of many suppliers of small volume cages in Brazil, many fish farmers build their own cages. The material most used is wire mesh to prevent tilapia predation by piranhas. There are three piranha species in Brazil and they are distributed in almost all basins. A single small hole in the mesh can result in the loss of all the fish in the cage within a few hours. Some tests have been made with Dyneema nets at tilapia farms in São Paulo. Small holes, possibly caused by piranhas, led to 10% of the fish in the cage escaping. The results were inconclusive as the net survived very well for many months, and it is possible that the hole was caused by

cage towing before harvesting. Regular inspection and repair of small holes could enable strong fibers like Dyneema to be used to protect tilapia from piranha attack.

Fig6:Basinswithpiranhas:Serrasalmusrhombeu(green)/Pygocentrusnattereri(red)/Pygocentruspiraya(violet)

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A major constraint on the use of wire mesh is it is liable to heavy fouling by the golden mussel. The golden mussel is a bivalve mollusk that originated in China and probably arrived in South America accidentally in the ballast water of ships. Argentina was the entry point in 1991. Since then it has been spreading across the continent, especially in the basins of the Paraná and Paraguay rivers, as it has no natural predators. The exotic species is now infesting riverbeds, sunken trees, large water pipes and hydroelectric turbines. The species has already spread throughout almost all of the South, Northeast, Southeast and Midwest Regions and some scientists warn that it will reach the Amazon basin in the next few years.

Fig8:Wiremeshofsmallvolumecagesfouledwithgoldenmussel.

Fig7:Basinsaffectedbytheinvasivegoldenmusselin2010.

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Preliminary tests using nylon nets with antifouling paint to counter the golden mussel have been very positive, indicating that in regions without piranhas, fish farmers could use textile nets instead of wire mesh.

Test of antifouling paint on nylon nets to counter golden mussels. The paint with the best results was applied in the bottom left square. The top left square was not painted (control).

3.1.3 Pond farming Tilapia pond farming is mainly found in Paraná state, but is present to a lesser extent in other states throughout Brazil. In extensive systems, with pond fertilization only, productivity reaches between 1 and 3.7 MT/ha/year in densities between 8,000 and 10,000 fish/ha. In semi‐intensive systems with water renovation (10L/sec/ha) and good quality feed, tilapia production is between 2.5 and 8.0 MT/ha/year in densities from 20,000 to 30,000 fish/ha. Natural fish food consists of numerous plants (algae, aquatic plants, fruits, seeds, etc.) and animals (crustaceans, larvae and insect nymphs, worms, mollusks, amphibians, fish, etc.). Some species of tilapia, particularly Nile tilapia, feed efficiently on phyto and zooplankton. In ponds with low rates of water turnover, about 50 to 70% of tilapia growth is attributed to the consumption of natural food, even with the provision of additional feed. This detail explains the lower cost of tilapia production in ponds compared to intensive cultivation in cages or raceways. Plankton is rich in energy and high‐quality protein and serves as a source of minerals and vitamins in tilapia farmed in ponds. Tilapia farming in ponds has the advantage of combining the benefits of natural food with the use of additional or supplementary rations, to increase productivity and improve feed conversion rates.

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Many farmers use aerators to raise oxygen levels inside the pond during the most critical hours of the day, which enables a 20 to 60% increase in productivity, between 10‐20 MT/ha, depending on the feed quality and the aeration power applied.

3.1.4 Large volume cages In Large Volume Low Density cages (LVLD), tilapia carrying capacity reaches 80‐120 kg of fish/m3. Only a minority of establishments, just a few large aquaculture companies, employ this system in Brazil, using High Density Polyethylene (HDPE) cages from 6.5 to 20 m in diameter, or steel square cages up to 1,000 m3. The most common size is 11 m Ø, with 4m depth (360 m3). As piranha is widespread in Brazilian bodies of water, most farmers use wire mesh covered with PVC, and only three farmers located in areas free of piranhas have tested the use of nylon nets. The wire mesh net can be practical in small volume cages but it becomes cumbersome to clean, manage and repair in large volume cages. It is common to use aerators in association with large volume tanks, in particular inside large square cages with high stocking densities.

Fig9:LargeVolumeLowDensity(LVLD)cagesusedintilapiafarminginBrazil.

Fig10:Useofwiremeshnetsinlargevolumecages.

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With regard to the fish management, the same three‐phase farming system is employed. Starting with 3.5 to 50 g (60 days), 50 to 150 g (60 days), and 150 to 850g (90 days), it is possible to attain 60 kg/m3 after 210 days, or 22.8 tons per cage.

3.1.5 Tilapia production regions and main players

3.1.5.1 Paraná Tilapia production is growing very fast in Paraná. According to the IBGE census in 2013, Paraná produced nearly 45,000 MT. In 2015 the Department for Rural Economy (Deral), under the Paraná Secretariat of Agriculture and Supply (SEAB), estimated that fish production reached about 91,000 MT, 19% more than the in 2014. In 2016, the expectation is that the volume will reach 110,000 MT, a further increase of 22%. Around 61% of Paraná fish farms are located in the western pole of the state, especially concentrated in the regions of Toledo (4,492 tons), Assis Chateaubriand (4,913 tons) and Alvorada do Sul (4,271 tons), where small‐scale farmers are linked to the cooperative Copacol. Tilapia processing plants have been operating in Paraná since the early 1990s, selling frozen fillets and other processed products at local markets. Big agribusiness cooperatives in poultry and swine meat, such as Copacol, are well established in this state and fish farming appeared as an interesting opportunity for cooperatives already working for the processor driven integration of small‐scale farmers.

Copacol Founded in 1963, and based in Cafelândia, western Paraná, Copacol brings together 5,200 members and generates 9,000 direct jobs. In 2015, Copacol had revenues of R$ 2.9 billion, an increase of 18.92% on the previous year. The surplus for the year, distributed to members of the cooperative, reached the amount of R$ 71.2 million.

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"Despite the adversities, we believe we can maintain the same level of growth in 2016," said its President, Mr. Valter Pitol. The cooperative is alone in using the processor driven integration system, providing technical assistance, feed, and fry to cooperative members and using modern fish pumps to harvest. In 2008, Copacol inaugurated a processing plant in Aurora, and recently invested R$ 80 million to double the daily processing capacity from 70,000 to 140,000 tilapia. Currently there are 150 producers integrated into the cooperative.

A typical small‐scale farm integrated into Copacol has all its income generated by 7.2 ha of fishponds. In a very good crop, it can harvest up to 173 t (25 t/ha), with FCR 1.26, an average weight increase of 623g and 2.61% mortality rate (Fig. 9). Another big Paraná cooperative entering into fish farming is C. Vale. C. Vale is investing R$ 80 million to build a processing unit to come into operation in the first half of 2017, which will initially process 50 MT per day.

C. Vale C. Vale cooperative operates in Paraná, Santa Catarina, Mato Grosso, Mato Grosso do Sul, Rio Grande do Sul and Paraguay. It has 141 business units, more than 18,000 members and 7,500 employees. It is prominent in the production of soybeans, corn, wheat, tapioca, milk, chicken and pork. In 2015, C. Vale produced a total of 3.49 million tons and profits of US$ 1.7 billion. The cooperative has more than 260 professionals who provide agronomic and veterinary assistance to cooperative members. To keep

Fig11:Copacolusingafishpumptoharvesttilapiainponds,atasmall‐scalefarm.

Fig12:Atypicalsmall‐scalefishfarmintegratedintoCopacol.

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members technologically updated, C. Vale continually provides new courses, lectures, training sessions and field days. C. Vale also funds production, guaranteeing credit to cooperative members, especially small producers. The company sells raw materials, parts, accessories and agricultural machinery, ensuring competitive prices to members. It also produces soybean in Santa Catarina, which is marketed throughout Brazil. In addition, the cooperative maintains a supermarket chain with eight stores in Paraná, Mato Grosso and Mato Grosso do Sul. In the industrial segment, C. Vale produces modified cassava starch and animal feed. In the same segment, the cooperative maintains a poultry complex with the capacity to slaughter 600,000 chickens/day. Its poultry farming system is the first in Brazil to use automated processes for environmental control on a commercial scale. The northern part of the state (including the municipalities of Londrina and Maringá) is also growing in importance in the production of tilapia and its share is already 23% of the total production in the state. In this region, there is more production in small volume cages than in ponds. Farmers in this region of Paraná are organized in ANPAQUI (Association of Fish Farmers of Northern Paraná), which was founded in 1994 and is very active in training and guiding producers through monthly seminars with recognized experts on production management, marketing, new equipment, health issues, and so on. Apart from the Copacol integrated system in Western Paraná and the small–scale cage producers from Northern Paraná organized in the ANPAQUI, there is great development potential in tilapia farming in the Iguaçu River, in the south of Paraná. Close to the border with Argentina, the Iguaçu forms vast lakes with very good conditions for fish farming in cages. One of these lakes is the Salto Caxias Reservoir, for the hydroelectric power plant of Salto Caxias (Fig. 11). This hydroelectric plant has been built in the final stretch of the Iguaçu River, between the municipalities of Captain Leonidas Marques and Nova Prata do Iguaçu, about 400 kilometers distant from the capital Curitiba, state of Paraná. The lake, with a surface area of 131 square kilometers, was flooded in 1998. This giant lake has no piranhas, as they cannot traverse the Iguaçu falls.

COOPERÇU The Cooperative of Iguaçu River Fish Farmers – COOPERÇU, with 250 members produces 2,000 MT of tilapia in 600 small volume cages (6 m3). COOPERÇU has been linked to COPACOL for some years, but in 2013 decided to become independent. Now it buys feed from Poli Nutri, Integral, and Guabi (all them have feed factories in Paraná) with an average price of US$ 0.60/kg, fingerlings from Aquabel and other local hatcheries at US$ 40 – US$ 50 / thousand fingerlings, and sells the fish to independent processor plants at US$ 1.45 – US$ 1.66/kg.

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Fig13:SaltoCaxiasreservoirontheIguaçuRiver,SouthofParanástate.

Fig14:OneofmanyriverbendsintheSaltoCaxiasreservoirintheIguaçuRiver,SouthofParanástate.

In 2011 COOPERÇU submitted an application for aquaculture leases for 34 areas covering 15,000 m2 (100 x 150 m) and 23 areas covering 50,000 m2 (200 x 250), totaling 1,215,000 m2. Approval was delayed until 2015, when the state and federal environmental authorities finally released a new regulation allowing tilapia to be produced in the Rio Iguaçu lakes (Itaipu, 2015). Its lease application is now in the final phase and according to COOPERÇU President, Mr. Paulo Langner, should be granted before the end of 2016. In 2013, a consultancy company prepared a Technical and Economic Feasibility Study (EVTE) for COOPERÇU on scale production of tilapia in large volume cages. The study proposed a total investment of US$ 23.3 million, in a three‐phase system using 485 HDPE cages – Ø11.3m (250 m3) and Ø15m (530 m3) – to produce 4,500 MT in the first year and 25,000 MT in the sixth year of operation, when COOPERÇU would have about 330 members and an annual gross revenue of US$ 38.9 million. According to the report, production costs using modern fish farming technology could be kept between

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R$ 2.66 and R$ 3.50/kg (US$ 0.82 and US$ 1.09/kg), depending on the degree of verticalization in the industry. COOPERÇU is now contacting investors in Canada, USA and Mexico in search of a partner to develop a vertical industry, based on a processor driven integrated system, and to build a meal and feed factory and a processing plant, and to fund the enterprise during the start‐up phase. Apart from international investors, COPERÇU is also opening discussions with C. Vale and Gomes da Costa, a fish processing company from the Spanish group Calvo, which plans to invest R$ 30 million in setting up a 10,000 MT processing plant in Toledo (PR), which is expected to produce canned tilapia.

3.1.5.2 São Paulo

The Northwest of São Paulo state, along the borders with Mato Grosso do Sul and Minas Gerais states, has become a major production region with hundreds of small‐scale fish farmers and large companies in operation. According to IBGE, the production of tilapia in São Paulo reached 24,329 MT in 2013. The predominant production system is superintensive and uses small volume cages (6‐18 m³), with densities of 90 to 100 kg/m3. In 2012 some fish farms introduced large volume cages of up to 1,600 m3, with densities of 40 to 50 kg/m3. Fish farming is present in the reservoirs of Ilha Solteira, Jupiá, Água Vermelha, Marimbondo, Nova Avanhandava, Três Irmãos and Promissão. The region has at least three hatcheries specialized in tilapia breeding, which perform sex reversal and subsequently provide fingerlings from 0.5 to 5.0 g. These laboratories produce around five million fingerlings per month. However, local farmers report that it is necessary to acquire some fingerlings from other laboratories located in other states such as Mato Grosso do Sul. One of the bottlenecks of tilapia production in São Paulo is to find tilapia juveniles of an appropriate size (over 25 g) to directly stock cages with mesh ¾". Thus, the

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production of juveniles can be a great alternative for producers who have ponds since the results are better in ponds than in small volume cages, and there is great demand for this product, not only in Northwest, but also in other regions of the state of São Paulo. There are already some fish farmers who only carry out this phase of juvenile production, which is one of the most profitable stages with quick turnover and small feed volumes. Much of the farming equipment used, such as cages, rafts and classification tables, on these fish farms was developed and is manufactured by the local producers themselves. Average feed price in this region is R$ 1.60/kg (US$ 0.5/kg) and the price paid for the fish is R$ 4.30/kg (US$ 1.34/kg), farm gate price for whole tilapia.

Geneseas Founded in 2011, Geneseas is the biggest company in São Paulo processing a volume of 9,500 MT/year, of which 7,000 MT is from its own production and the remaining 2,500 MT comes from other local farmers. In 2004 it inaugurated its processing unit in Promissão (SP) and started exporting fresh filet to USA. Geneseas has operations in São Paulo and Mato Grosso do Sul with four fish production centers in Ilha Solteira Dam. It uses both large volume cages (1,200 m3), from Akva, and small volume cages (18 m3). Like many other companies in the region, Geneseas has been reluctant to adopt modern technology to handle the fish, such as fish pumps, scanners, and automatic feeders. In 2015 Geneseas was acquired by the investment fund Aqua Capital, with plans to expand production volumes and increase the adoption of technology for the farming and processing of fish. In 2016 a new processing plant was inaugurated in the city of Aparecida do Taboado (MS), with greater capacity (20,000 MT/year) and modern fish processing equipment. Geneseas counts on its own fleet to distribute the fish in São Paulo city, and it also exports fresh fillets to the USA, although this market represents a share smaller than 10% at this moment.

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Ambar Amaral The Ambar Amaral Group has been farming cattle for 25 years and in 2006 expanded its business into fish farming. Ten years later this family company has consolidated as a major fish feed supplier in the region, through its Reguife factory, as well as becoming one of the main tilapia farming players in Brazil, with production of around 3,000 tons/year in the Ilha Solteira reservoir. Its processing plant is relatively small, with capacity of 7.5 MT/day. Like most of the companies in this region, Ambar Amaral uses small volume cages (18 m3) and all the work, with exception of fish grading, is done manually.

Royal Fish Royal Fish was born more than 20 years as Agricultural Saint Peter. The partners initially chose to invest in the genetics of red tilapia (St. Peter), aiming to operate on a larger scale. Many years of selective breeding resulted in growing time being reduced to 6 months, with a FCR of 0.5:1. The company has three units located in strategic locations in the state: Genetics and reproduction: Itupeva – SP; production: Santa Clara D´Oeste – SP and processing: Sumaré – SP. With a volume of around 2,000 MT/year, Royal Fish supplies the main supermarkets, such as Walmart, Carrefour, Pão de Açúcar, and more than 200 restaurants and hotels all over the country. The company also provides a retail delivery service through its Facebook page.

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MCassab The M Cassab group has existed for 90 years, starting in 1926 as a small retailer; the group gradually expanded its market and range of products, diversifying into importing chemicals and pharmaceuticals, toys, medical equipment, kitchenware, cosmetics, home appliances and animal nutrition products. M Cassab started in tilapia farming in 2010, in Rifaina – SP, using large volume metal cages from Akva (1000 m3). The lake where the farm is located was affected by droughts, increasing the water turnover time from 10 days to 60 days. This affected their water quality parameters, particularly dissolved oxygen. M Cassab produces its own tilapia fingerlings, with a volume of 2 million units/month. The company is the only one in São Paulo to use fish pumps, fish scanners and automated feeding. In 2015 it inaugurated a processing plant next to the farm with capacity for 1,600 MT of IQF filets per year. Its market is restricted to São Paulo supermarkets and restaurants, but the company is planning to expand its sales to other states and abroad. It is achieving production of 3,500 MT/year and plans to increase volumes in the next few years. Therefore, it is searching for investors to complete the farm project or to acquire the whole business, evaluated at US$ 30.5 million.

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Zippy Alimentos Zippy Alimentos was founded in 2008 as a vertical project with a fish meal and fish oil factory, a feed factory, fingerling production, a processing plant and 1,000 small volume cages installed in an area of 10 ha. Its production of tilapia fingerlings is around 2 million fish/month. This volume meets its internal demand and the excess is sold to local farmers. The hatchery has broodstock with 600 males and 2,000 adult females, each producing an average of two thousand tilapia eggs every 21 days. Meal and fish oil production uses 600 kg/hour of filleting residues from its processing plant. The feed factory produces 580 MT/month, with different products for each tilapia growing stage. About 80% of the feed is for its own consumption and 20% is sold to other fish farmers. Its location could be better, as it has limited water renewal and massive mortalities have already occurred due to Oxygen depletion. Another problem is the large volume of aquatic plants that is dominating the lake arm where it has hundreds of cages, probably due to the nutrient enrichment of the water with fish faeces and feed residues. Here again the company has not invested in modern technology to feed, transfer and harvest the fish. All equipment has been designed and built by its own people and although it provides some benefits in comparison to other small farmers, the technology is very simple and limited. In 2014 a newly founded group, Braspeixe, bought Zippy Alimentos with plans to increase production volumes and processing capacity. Direct sources in the region stated that the transition was complex as Zippy has many debts with suppliers and its production has actually reduced instead of expanding.

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Regal Springs Regal Springs is one of the largest vertically integrated aquaculture companies in the world, with large operations in Mexico, Honduras and Indonesia. In 2015 it announced a plan to expand tilapia production in Brazil to as much as 100,000 metric MT by 2020. A new company formed by Regal Springs and Axial Holding, a holding company of Mar & Terra, called Tilabras, plans to invest US$51 million to achieve 25,000 MT of tilapia production per year. The operation in Brazil will have a hatchery, achieving capacity to produce 15 million fingerlings per month in two years; a processing factory; a fishmeal and feed plant with capacity of 160,000 tones, a vaccine factory and a biodiesel plant. When fully operational, Tilabras is expected to generate 1,850 direct jobs and 3,000 indirect ones in the municipality of Selvíria, where the Ilha Solteira reservoir is located. At this stage, the executives of Tilabras in Brazil are meeting authorities and politicians in an attempt to speed up the process of analysis and issuing of lease permits and environmental licenses, which can take 3‐ 5 years to be granted in Brazil. The Southeast and Northeast Regions experienced a severe drought in 2014 and fish farmers from the Ilha Solteira reservoir saw losses due to extreme water temperatures (32oC) and low oxygen levels, when they were reducing feeding rates by 40 or 50% to avoid bacteriosis, with a direct impact on the growth rate. Together with 30 smaller producers operating in the Ilha Solteira reservoir, big companies, such as Geneseas, Ambar Amaral, Royal Fish and Zippy, produced 20,000 MT in 2014. During the 2014 drought, the volume of the Ilha Solteira reservoir dropped by half, and production was lower in 2015, probably around 15,000 MT (a fall of 25‐30%).

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3.1.5.3 Ceará

Tilapia farming in Ceará passed through a rapid growth period in the last decade, increasing from 18,000 MT in 2004 to 32,000 MT in 2013. The conditions that contributed to this development are the large area of reservoirs suitable for cage culture, with 60 reservoirs covering 134 ha where fish farming is practiced, and the constant water temperature at around 26 to 30oC, favoring fish growth and feed efficiency all year round. Ceará also has the highest tilapia consumption per capita and a strong local market for tilapia (mainly in its capital Fortaleza, with over 2.5 million inhabitants). Aquaculturists in Ceará and other northeastern states were mainly presenting fresh whole and gutted tilapia to consumers, also developing a unique domestic market for live tilapia in Fortaleza and its surroundings, as well as in other major cities of that state. Small‐scale farms organized in 130 associations are the main source of the 1,500 fish farming jobs in this state. The main production centers are in reservoirs, most significantly the Orós and Castanhão reservoirs, where hundreds of families raise tilapia in small volume cages (6 to 18 m3). In 2011 there were 360 families and 8,000 cages producing 6,480 MT in Orós. In Castanhão, production reached 18,000 MT in 2013, from both small and large‐scale producers. One typical large‐scale fish farm in Castanhão produces 60 MT/month using 396 m3 cages (6 x 12 x 5 m). Unfortunately, the lack of proper planning and management has disrupted this growth phase. Ceará and other Northeastern states have experienced severe drought in the last five years, drastically reducing water levels in the reservoirs, some even drying up. In smaller reservoirs like Pereira Miranda, in the city of Pentecostes, which was the third largest tilapia producing‐town in Ceará, all cages were removed due to the low water levels in the reservoir. Some fish farmers abandoned the activity and others migrated to larger reservoirs like Castanhão, occupying it in a disorderly manner and

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causing a concentration of cages in some specific regions of the lake, probably overloading the water body beyond its carrying capacity. The Castanhão reservoir located in the Hydrographic Region of the Middle Jaguaribe, in the municipality of Alto Santo, has water storage capacity of 6.7 billion cubic meters, currently containing 1.34 billion cubic meters (20%). Producers in Jaguaribe town, which appeared in IBGE statistic as the main tilapia‐producing town with 16,920 MT in 2014, said they have lost almost 100% of their production. In 2015, losses in the Castanhão reservoir reached R$ 18 million. Evidence gathered during the fish mortality in 2015 and 2016 indicate depletion of dissolved oxygen as the main cause, particularly during the night. In June 2015, losses reached 3,400 MT in one week. Orós and many other reservoirs have also experienced large losses. As a result, Ceará production has declined in the last few years and it is estimated that it is close to 20,000 MT now. This fluctuation in supply has caused unstable prices for some tilapia products. The availability of fillets, in particular, is quite uneven. There are few fish processing companies in Ceará, and on many occasions the fillets come from other states, especially Bahia, which contributes to increased product costs. The price of whole gutted tilapia was US$ 1.69 – US$ 2.00/kg in 2014, but now consumers are already paying US$ 5.46/kg in Fortaleza markets. The National Department of Works Against Drought (DNOCS), the oldest federal institution with operations in the Northeast Region, has constructed more than 300 medium and large public dams throughout the Brazilian semiarid region during its 100 years of existence. Besides constructing dams, DNOCS operates in several other areas, such as drilling wells and promoting fish farming, the latter being a branch to which the agency has devoted considerable attention in recent decades. The DNOCS Fish Farming Research Center in the municipality of Pentecostes has worked in fingerling production for several species, including tilapia and even adapting the Amazon's arapaima species for stocking public ponds across the Northeast, as well as private fish farm in

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reservoirs. DNOCS is the main fingerling supplier in Ceará, maintaining four fish hatcheries in the state, which produced 13.6 million in 2015. Tilapia 1 g fingerlings are sold for R$ 120.00/thousand and 150 g juveniles are sold for R$ 400.00/thousand. Bomar Aquabel is the second major supplier with 3 million/year and Aquanorte the third with 1 million/year. DNOCS is proposing the reorganization of aquaculture areas in the Castanhão reservoir, spreading the small volume cages throughout the lake, instead of concentrating them in one small portion of it, as they are now. Besides relocating farms, DNOCS’s plans for recovering the productivity of Castanhão include training fish farmers to adopt Best Aquaculture Practices and sanitary control measures. Meanwhile, the production will be interrupted by a state regulation prohibiting the activity in the lake. The only hope to recover the production levels obtained in the good period is the conclusion of the works to divert the São Francisco River that are scheduled for November this year.

3.1.5.4 Paulo Afonso Reservoir

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Netuno Alimentos SA. Tilapia producer Netuno began operating as a fishmonger in Recife, Brazil in 1989. Twenty‐seven years later, Netuno has evolved into a 100% Brazilian company specializing in seafood production and trade. Its tilapia production structure consists of a central nursery, grow out farms, fish processing units, a flour and fish oil factory, a support center for small producers and centralized storage and distribution. Netuno utilizes small and large volume cages spread over two farm locations, Jatobá and Petrolândia, situated in the Paulo Afonso reservoir on the São Francisco River. The reservoir has a water renovation rate of 1,200 cubic meters per second and much lower risks of low‐water levels associated with drought periods, than in the reservoirs in Ceará state. One of Netuno’s partners, BNDES Participações SA (BNDESPar), is the share‐holding company created to manage investments in companies held by the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social ‐ BNDES). BNDESPar has invested US$ 27 million and has held 33.25% of Netuno Alimentos SA shares since 2006. The original project supported by BNDESPar created a network of 2,400 small‐scale farms, in a processor driven integration scheme, with the company supplying fingerlings, feed, and technical assistance and guaranteed purchase of the product. Less than a year after establishing the partnership, due to administrative changes within the company, the integration was seen to be lower priority and the support for small producers ceased, ending the technical assistance and the provision of fingerlings and feed. Small farms and local authorities looked for government support and the inclusion of local development agencies created a Local Productive Arrangement (Arranjo Produtivo Local – APL) to provide assistance. The APL allows public investment to support the development of cooperative activities or the offer of public goods. Between 2006 and 2008, Netuno experienced financial problems and the staff was reduced from 1,500 employees to 1,000 employees. The company's revenue, which reached approximately US$ 138 million in 2007, fell to US$ 92 million in 2008.

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In 2009 Netuno began a partnership with the Japanese group Nippon Suisan Kaisha, Ltd. through its subsidiary Nippon Suisan America Latina S.A., which invested US$ 9 million to acquire 50% of the new company renamed as Netuno International S/A. With the merger, the capital was divided between Nippon (50%), Netuno Alimentos (33%) and BNDESPar (16.5%). The money was used as working capital at Netuno, which had debts of US$ 65 million and was hindered in accessing credit from Brazilian banks. The venture lasted for 4 years and Nippon left the company in 2014, with a notice on declaration of extraordinary loss stating that “given that the earnings of Netuno International S.A. were no longer expected to improve soon, the Company will withdraw from the business and declare a loss on the liquidation of the business to the amount of 8 million yen (US$ 81.3 million)”. In 2010, Netuno’s production was 7,800 MT/year in 500 small volume cages (14 m3) and 65 large volume cages (365 m3), harvesting with Aqua‐Life fish pumps and processing 35 MT/day of raw product. The meal factory was producing 5 MT/day of fishmeal and 2,000 liter/day of tilapia oil. Its production of fingerlings was variable and highly influenced by temperature and water quality, with a volume of 500 thousand to 1.2 million fingerlings, meeting between 20 and 50 % of its demand. In 2011, the hatchery was closed and since then the company relies on external suppliers, such as AAT, Fine Fish, and Aquabel. Nowadays, Netuno production is around 500 MT/month. In 2016, Netuno started a new partnership with Tropical Aquaculture. Founded in 1995 and based in Vermont USA, Tropical Aquaculture Products, Inc. works in sales, distribution, marketing and accounting operations for a growing cooperative of aquaculture farms. Tropical's 11 tilapia farms are distributed in Ecuador, Colombia and Brazil. This network combined with five dedicated processing plants, four daily points of entry into the United States and six distribution centers enables them to avoid interruptions in supply. Tropical has grown from a staff of one to a team of 15, supporting more than 5,000 jobs in Mexico, South America and Europe. Through a growing cooperative and list of sustainably sourced species, they are continually expanding their product offering. Currently Tropical product lines include: fresh and frozen tilapia, fresh and frozen shrimp, fresh steelhead trout, fresh EU certified organic salmon, fresh cod and they recently added fresh cobia to the product line, produced by the Ecuadorian company Ocean Farms1. In 2016, Netuno attained Aquaculture Stewardship Council (ASC) certification for its tilapia farming operation. Netuno has become the first farm in Brazil to gain ASC certification and became the fish supplier to the Olympics 2016. Besides being an international showcase, it was a big contract in itself. It was estimated that more than

1OceanFarmsSAoperatesanoffshorecobiafarmwithsurfacecagesandwiremeshtoavoidsharkpredationandfishescapes.Theywaitedfiveyearstoobtainallthegovernmentlicensestoobtainanaquacultureareaat9.5nauticalmilesoffthecoastofManta,andareinfirstcrop.

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14 million meals were served during the Games – an operation considered the world's largest catering business. In addition to the ASC label for its tilapia farms, Netuno is enrolled in the Global Aquaculture Alliance‐iBAP program for its processing plant in Paulo Afonso.

Pescanova Brasil Pescanova started its operation in Brazil in 2010, with an office in Rio de Janeiro and a tilapia farm in Itacuruba – PE. Pescanova SA controls 98.50% of the Brazilian subsidiary. Its farm uses land‐based nursery tanks, 51 large volume cages and a processing plant. In 2013, Pescanova Brazil filed for bankruptcy, according to a company statement issued on the National Stock Exchange. The bankruptcy came on the heels of multiple Pescanova subsidiary bankruptcies throughout Latin America, but the situation has now normalized, according to its farm manager. Its production passed from 80 MT/month in 2013 to 150 MT/month in 2016. AAT, Aquabel and Fine Fish are their main fingerling suppliers.

3.2 Surubins (Catfish) The term catfish in this report refers to surubins such as pintado (Pseudoplatystoma fasciatum), cachara (Pseudoplatystoma corruscans), jundiá (Rhamdia quelen) and their hybrids. These catfish are noble, known and valued fish in the domestic market for white, mild and boneless meat. From the zootechnical point of view, they are easy to handle and very resistant to disease and poor water quality. Unlike an international commodity like tilapia, this fish does not have an indexed selling price. As production is still well below the market demand, the producer can set the price. According to IBGE, national catfish production in 2014 was 20,437 MT, an increase of 30% on the previous year. Mato Grosso is the main producer state with 11,000 MT, followed by Rondônia with 1,621 MT and Mato Grosso do Sul with 1,336 MT.

3.2.1 Catfish farming systems and methods The Brazilian surubim is produced mainly in earth ponds in a three‐phase system, starting with Phase 1 in 7,000 m2 ponds and one fish/m2, or 150 fish/m3 in small volume cages, adjusting the density in Phase 2 to one fish in 2 m3, or 50/m3 in cages, and concluding with Phase 3 with one fish every 4 m2 or 40/m3.

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Table1:Surubimproduction–three‐phasesystem

Phase Initial Weight (g)

Final Weight (g)

Days Production (ton/ha) without H2O renewal

Production (ton/ha) with H2O renewal

Food Conversion Rate (FCR)

Average Survival

1 15 250 90 – 100 2.5 3.0 1.3 90%

2 250 1.000 120 – 150 4.5 – 5.0 7.5 1.6 98%

3 1.000 2.000 120 ‐ 150 4.5 – 5.0 7.5 2.0 96%Source: Projeto Pacu, 2008

In nature, the surubins feed on other fish and only accept dry‐feed after conditioning or food training during the nursery period. The use of commercial feed with protein content higher than 40% is essential to enable surubins to be produced in Phase 1. The purchase of fingerlings trained to accept extruded / floating feed is a decisive factor in the success of farming these fish. In Phase 2 the feed protein is lowered to 32% and in Phase 3 to 28%. Among the surubins, the Jundiá and Cachara hybrid, called Pintado da Amazônia, has the best zootechnical characteristics. With better performance in all of the three phases, the production cost of Pintado da Amazônia (US$ 1.77/kg) can be 38% lower than for Pintado (U$ 2.43/kg). Table2:Pintadoproduction

Phase 3 duration (days)

Initial and Final Weight (g)

Density (fish/hectare)

Food Conversion Rate (FCR)

Pintado 240 400 ‐ 1200 3,500 2.2

Pintado da Amazônia 180 500 ‐ 1500 5,000 1.8 Source: Mar & Terra, 2013

3.2.2 Catfish production regions and main players

Mar & Terra Mar & Terra is a company specializing in the creation and processing of species of Brazilian native fish such as pintado and pacu, from the Pantanal, and the pirarucu and tambaqui, from the Amazon, as well as tilapia. It was founded in 2003 and its headquarters are located in Mato Grosso do Sul, in the city of Itaporã, 230 km from Campo Grande. Its Center for Research and Development is located in Pimenta Bueno, in the state of Rondonia, and is especially designed for breeding pirarucu and surubim fingerlings. They have a squad of matrices and breeders, individually identified by tagging with microchips. This allows it to track the development of each animal, to evaluate their reproductive efficiency, and their progenesis and to plan the matings for the breeding

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program. The company is now in its second generation of genetically improved breeding. Fish farming is carried out at two farms, located in the municipality of Itaporã ‐ MS, with 132 hectares of ponds producing native fish species such as pintado and pacu. Mar & Terra also has a partnership with pintado producers in the region who receive full and free technical assistance and have their production purchased by guaranteed contract. Mar & Terra also has a production center in Rondônia, which focuses on fingerlings of native fish from the Amazon, such as the pirarucu and tambaqui. Independent producers farm these species under the coordination of the state government. The Mar & Terra processing plant, located in the municipality of Itaporã ‐ MS, occupies an area of 1,900 m² and is one of the most modern in Brazil. Under its harvesting schedule, the fish come live to the plant, where they go through a period of stress reduction in tanks with water renewal and dissolved oxygen control. Stock for the internal market is held in trucks equipped with a thermal partition that allows the transport of frozen and chilled products. Mar & Terra products can be found in the states of São Paulo, Rio de Janeiro, Minas Gerais, Rio Grande do Sul, Paraná, Mato Grosso do Sul and Bahia, and abroad, in the United States, Germany, Switzerland, Japan and other countries.

Projeto Pacu Projeto Pacu did pioneering work in the technical development of native fish production, and researched and implemented the first fish farm for surubim on an industrial scale at Agropeixe, now known as Mar & Terra. Projeto Pacu was the first company to produce and market catfish fingerlings adapted to feed. From 1992, Projeto Pacu established new techniques of leather fish breeding, especially for catfish (Pseudoplatystoma coruscans) and cachara (Pseudoplatystoma fasciatum), becoming the first worldwide producer to breed these species in captivity, opening up broad possibilities for the development of national aquaculture. In 1993, they developed technology to produce pirarara (Phractocephalus hemiolopterus) and yet Projeto Pacu is still the world's only producer of this kind. The year 1994 was dedicated to the golden fish (Salminus maxillosus) and since then, its production has been developed on a commercial scale. Projeto Pacu, through its specialized construction company, designs and deploys medium scale and large scale fish farms. This includes works site selection, detailed design preparation, earthworks and construction using a fleet of five articulated tractors with graders exclusively for providing services for fish farms deployment. In the last 8 years, it has designed and implemented about 938 hectares of fish farms in

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different states. Among its many clients, one major project being nursed by Projeto Pacu is Peixes da Amazônia, in Acre (see page 39).

3.3 Round fishes The production of the round fish pacu, tambaqui and pirapitinga, as well as their hybrids, is growing very fast in Brazil. According to IBGE data, tambaqui maintained second place in the fish ranking by production with 139,210 MT in 2014, which corresponds to 29.3% of national fish farming production. The production of tambaqui and the other round fish has seen an increase of 16% from 2013 to 2014. The rapid growth rate (it can achieve between 1 and 1.5 kg in the first year), diversified feeding habits, hardiness under farming conditions and its excellent flesh has popularized its production, especially in the North and Midwest Regions. The pirapitinga grows more slowly than tambaqui, so farmers prefer to use this species as a breeder with pacu to produce the hybrid “patinga” or with tambaqui to produce “tambatinga”. The capital of Amazon state, Manaus, with 2.3 million inhabitants, is the main market for the large majority of tambaqui produced in the North Region, particularly the production from Roraima and Rondônia. Although market studies undertaken by Sebrae in Manaus indicate consumption of 40,000 MT/year (17 kg per capita), since 2013 the offer has surpassed the demand and for the first time the price has fallen, by 30%. The excess production began to be directed to processing plants in Rondônia that in the past could not flourish because of the strong competition from demand for fresh fish on the Manaus market. These processing plants opened new markets in the Southeast and Midwest Regions, relieving the pressure on the Manaus market. Prices have dropped from US$ 2.37/kg for fresh fish in Roraima in 2010 to US$ 1.61/kg in 2015, a fall of 27.8%. In Rondônia prices have also fallen by 16.5% in the same period. Feed factories have also reduced their profit margins and feed prices in the North Region are lower than five years ago, in spite of an increase in the price of feed ingredients. Production of this fish group was further expanded by the entry of big agribusiness groups, such as Bom Futuro and Nativ, into the activity, producing value added products to supply large clients, such as Walmart, Grupo Pão de Açúcar and Carrefour.

3.3.1 Round fish farming systems and methods These fish are mainly produced in earth ponds but they can also be farmed in cages. The production of fingerlings is relatively easy, starting with extruded gametes from mature breeders, fertilization and incubation in conical tanks with 1,500 – 2,000 eggs/liter with good oxygenation (4mg/l). The fertilization rate is about 90%. Absorption of the yolk bag can take 4 to 6 days and post‐larvae are stocked in earth

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ponds previously prepared with fertilizers, where they feed on cladocerans, rotifers and dipterous before accepting commercial feed from the 12th day. Although they can be farmed based solely on the natural food available inside the pond, with previous pond fertilization and preparation, productivity is limited to 1.8 MT/ha. The productivity of round fishes with commercial feed can vary between 4 and 30 MT/ha, depending on whether the farmer uses natural pond food or commercial feed, on the water renewal rate and on the use or not, of aerators. For tambaqui, production has been reported at 17 MT/ha with a daily water renewal of 40%, and for tambacu, 22 MT/ha, without aeration and with water renewal of 17%. As in other fish species, a three‐phase system is also recommended for the production of tambaqui and other round fishes. The table below shows the main numbers for tambacu farming in the three‐phase system, to produce 49 MT in 5 ha ponds within 360 days: Table3:Mainnumbersfortambacufarminginthethree‐phasesystem

Parameters Phase 1 Phase 2 Phase 3Initial weight (g) 1 10 350 Final weight (g) 10 350 2,000 Feed Conversion Rate (FCR) 1.20 1.40 2.20 Farming period (days) 40 120 200 Fish biomass gain (g/day) 0.2 2.8 8.3 Economic biomass (kg/ha) 4,800 6,000 6,000 Survival rate 80% 92% 96% Cycles per year 9 3 1.8 Stocking density (fish/ha) 600,000 18,634 3,125 Density at harvest (fish/ha) 480,000 17,143 3,000 Source: Kubitza, F. 2004.

The farming of round fishes in small volume cages uses densities of 20 to 80 fish/m3 to produce a biomass of between 50 and 100 kg/m3, depending on the final fish weight and cage volume. In this system, the access to natural food by the fish is limited and the use of commercial feeds is essential to promote good growth and fish health. Embrapa recommend a stocking density of 20 fish/m3, with an initial weight of 40 g and the use of feed with 32% and 28% protein content (4, 6 and 8 mm) in different development phases, to produce 1 kg fishes in nine months.

3.3.2 Round fish production regions and main players The main production regions for tambaqui and other round fishes are located in Mato Grosso, Rondônia and Roraima. In Mato Grosso, a major soybean and corn producer in Brazil, production is increasing rapidly. Rondônia takes advantage of its plentiful water supply and the high availability of grains at competitive prices from its neighbor Mato

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Grosso. Other states also contribute to the production of these fish, such as Maranhão, Amazon, Piauí, São Paulo, Bahia, Acre and Mato Grosso do Sul.

3.3.2.1 Mato Grosso

Mato Grosso state is the largest fish producer in Brazil, producing 75,000 MT (IBGE, 2014). This state has a warm climate, huge water availability and plenty of raw materials for feed production, as most of Brazilian grain production comes from this region. These conditions have attracted investment from companies such as Nativ Pescados, as well as from large groups already established in Mato Grosso such as Bom Futuro Group and Gaspar Group (Delicious Fish). Fish farmers are well organized in the AQUAMAT (Association of Aquaculture Producers of Mato Grosso), which represents more than 300 entrepreneurs in the aquaculture sector, accounting for 80% of fish production in the state.

Delicious Fish The Gaspar Group, a big grain producer since the 1990s, decided to diversify its activities in order to add value to the production of grains, turning vegetable protein into animal protein, and began to farm pigs and fish. The positive results obtained from this experience motivated the Gaspar Group to invest in the expansion of fish farming activities. Fish sales started in the garage of Mr. João Pedro da Silva, the owner, who later created Delicious Fish in 1998. This company has a hatchery, a fishmeal and oil factory, and a feed factory. In 2014 it invested US$ 7 million in building a new processing plant in Sorriso – MT. The new plant has 4,800 m2 of covered area and a production capacity of 40 MT of fish per shift. It is probably the largest processing plant in Brazil working exclusively with native fish species. In the last five years, their annual production has jumped from 1,000 to 3,000 MT of fish.

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For many years, Delicious Fish and Embrapa have been involved in the genetic improvement of tambaqui and cachara through the program Technological Basis for Aquaculture Sustainable Development in Brazil – Aquabrasil. Its hatchery in Sorriso breeds tambacu, pacu, painted Amazon, pintado, piraputanga, jatuarana and tambatinga. Currently it produces about 15 million fingerlings per year for its own use and for fish farmers across the country. According to the hatchery manager, the company did not continue its support for the genetic improvement project with Embrapa. Its farming system is unique in Brazil as it uses raceways instead of ponds. The farm started with a weir and the raceways, giving high water renewal (two to four times the total volume per hour) and high fish density, were built around it. This system can produce around 100 MT/ha. The company has plans to enhance their production by increasing the pond and raceway area from 400 hectares to 1,000 hectares and including others species such as pirarucu. Delicious Fish already has 254 pirarucu breeders that are the subject of research projects to improve the breeding techniques.

Bom Futuro Group The Bom Futuro Group employs more than five thousand people, involved in many separate activities in different divisions. With 86 farms that cover nearly twice the area of São Paulo city ‐ or about 410,000 hectares – for soybeans, corn and cotton, 31 centralized units, and 13 stores for grain with a capacity of 800 MT in Mato Grosso, Bom Futuro has become a nationally and internationally recognized company. There is also a unit focused on benefiting from the water potential of Mato Grosso, generating clean, renewable energy, through three small hydroelectric plants. The Group also has a Livestock Division, which produces 165,000 head of cattle. Feed for this herd is produced in its own factory, the output of which reaches 100 MT per day. Fish farming is a relatively new addition to its activities. In five years, it progressed from a small farm on one of its properties to 250 hectares of ponds, producing 2,700 MT per year in 2015. Besides the hybrid tambatinga, it also produces pintado da Amazônia, tilapia and piauçu.

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Bom Futuro plans to increase its production using large volume cages and already has 12 cages of 18 by 18 meters in the testing phase, where it expects to produce 50 MT of fish per cage. It operated its own processing plant for two years before adopting the strategy of focusing only on production and leaving the processing to other players focused on this segment. However, it is now doing feasibility studies in an attempt to reactivate it, in partnership with these customers. This company already has experience of the advantages of using modern technology to reach production scale in a number of commodities and it believes this a trend to be adopted in the fish farming business as well. However, preliminary tests using Chilean fish pumps (Aquaservice) with round fishes has found them to be cumbersome and damaging to the fish, and they are now reluctant to try other pump models. Like many other companies working with round fish, Bom Futuro is waiting for some other producer to invest first to see it working before it decides to buy another pump, such as Aqua‐Life models. It also tried AquaScan counters in 2014, and in spite of the good results with tambaqui juveniles (>95% precision), it is still reluctant to invest in this technology. Mr. Jules Ignácio, Bom Futuro Director, said that it invested US$ 243,000.00 to buy all the breeders of round fish and catfish that Embrapa has passed on to project partners. Many of the research partners did not continue to support the breeding program. As all those fish were tagged with microchips, it was relatively easy for Bom Futuro Group to find them to continue the genetic improvement program.

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Nativ Pescados Nativ ‐ Indústria Brasileira de Pescados Amazônicos S.A. was founded in 2006 by Mr. Pedro Furlan Uchoa Cavalcanti, heir to the founder of the giant food producer and distributor Sadia. The company began to operate at the end of 2008 with 90 ha of ponds, a fish hatchery and a large processing plant with capacity to produce 15 MT/day. Since the beginning, Nativ invested in the formula of valued‐added product, such as fish burgers, nuggets and other preparations and planned to export its products to countries such as the United Arab Emirates, Saudi Arabia and Qatar. Its plans were ambitious: with revenues of US$ 9 million in 2011 and US$ 13 million in 2012, the company was aiming to reach US$ 30 million in 2013 and multiply its revenue by 12 to reach US$ 116 million in 2018. However, Nativ passed through a number of problems such as unreliable fingerling production during the first two years and the accumulation of debts with suppliers and banks, leading to its bankruptcy in 2014, the dismissal of 200 employees and a debt of US$ 18 million. The company partially resumed operations in the market, and is processing and selling fish in the state and other urban centers, as part of the conditions imposed by the judiciary when accepting the recovery plan. Apart from the big companies in Mato Grosso, it is worth mentioning the cooperation between 30 small‐scale fish farmers in Manso Lake. These farmers are organized in a cooperative and receive technical assistance from the Mato Grosso government, through its development agencies and Sebrae.

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3.3.2.2 Rondônia

Aquaculture is the fastest growing activity in the state. It increased by almost 400% between 2010 and 2015. The main fish produced by far is tambaqui. Besides all the natural favorable conditions for fish farming, Rondônia has state laws that facilitate and encourage investment in aquaculture. The main fish farming players in Rondônia are Biofish, Projeto Pacu, that has a branch and hatchery in the region, and consortium groups that are entering in the fish‐farming sector, such as Rovema Group.

Biofish Aquicultura Established in 1996 in Ariquemes, Biofish Aquicultura produces fingerlings of native Amazon fishes, farms tambaqui and provides technical assistance for entrepreneurs interested in fish farming. Biofish prepares business plans, provides engineering services to build fish farms and is responsible for the main aquaculture projects in the Amazon region. Since 2001, Biofish has been developing the cryopreservation of tambaqui semen and also runs its own genetic improvement program for this species. Besides tambaqui, Biofish produces and sells fingerlings of pirarucu, pacu, pirapitinga, curimatã, jundiá da amazônia and piau.

Grupo Rovema The history of Rovema Group began in 1985 with the company Jet Electro Diesel in the city of Porto Velho. In 1988 it started to diversify its business to other fields, such as engine reconditioning, marketing of light and heavy vehicles, tires, technical assistance and grinding engines, maintenance, leasing and sales of generator sets, light vehicles leasing, bus rentals, gas stations, insurance, sales of semi‐new vehicles, cattle, forest management, and more recently, fish farming. Two years ago the group initially invested US$ 0.6 million in building 35 ha of ponds for tambaqui production (17 tanks, of 1.8 ha each). It has already harvested 80 MT and its plan is to invest a further

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US$ 3 million, increasing the pond area to 110 ha and achieving 900 MT/year. The investment plan includes a meal and oil factory, a feed factory and a processing plant.

3.3.2.3 Acre

Peixes da Amazônia S/A Inaugurated personally by President Lula in 2013, the Peixes da Amazônia S/A complex is one of the most modern enterprises in the segment in the country. Installed in an area of over 60 hectares, the complex includes a modern hatchery with the capacity to breed 12 million fingerlings, 122 nursery ponds, one of the most modern feed mills in Brazil and a state‐of‐the‐art processing plant that will generate 400 jobs in the region. Investments for the installation of the complex are of the order of US$ 30 million, with an investment fund that has BNDES as a bondholder (FIP Amazônia), which has invested US$ 4.6 million in the venture. The Acre state government has invested 20% and the private sector has joined with another party, also financed by BNDES. Among the project partners, besides Peixes da Amazônia S/A and the Acre state government, through the Acre Business Agency (ANAC), is the Central Cooperative of Acre Fish Farmers (Acrepeixe), which holds 25% of the company and brings together hundreds of small‐scale fish farmers. The largest fish farming company in Brazil, the pioneering Projeto Pacu, is behind all of the project design and implementation. The company has

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the strategic objectives of attaining scale production with high technology and a strong concept of socio‐productive inclusion.

3.4 Emerging fish species in freshwater aquaculture

3.4.1 Pirarucu The Pirarucu (Arapaima gigas) is the largest freshwater fish in the world, with flesh that has almost no bones and is highly valued. The growing demand and limited supply of fingerlings have aggravated the problem of illegal capture of wild animals and this fish is listed as an endangered species by the Brazilian Environmental Agency ‐ IBAMA. Arapaima has a number of positive characteristics for intensive farming. The main ones are:

The rapid growth rate (about 10 kg in the first year).

Good tolerance to high density and intensive farming conditions in tropical environments, attaining productivity between 100 and 120 kg/m3.

The ability to breathe air in the most advanced development stages, taking advantage of air directly from the atmosphere, without relying on dissolved oxygen in the water.

Easy adaptation to balanced feed.

Clear, lean meat, tender, high quality and free of intramuscular bones.

High fillet yield (over 45%), surpassing the yields obtained for most species of fish currently farmed in the country.

High demand and market value, with excellent prospects in the international market.

Despite all the advantages for cultivating arapaima, the knowledge necessary for its sustainable commercial production have not yet been consolidated. The accumulated growing experience comes from the pioneering efforts of some fish farmers and technicians who have covered the cost of preliminary research. Pirarucu production still relies solely on the collection of fry and fingerlings from

natural spawning (egg mass collection is rare). Survival rates are usually low, between

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10 and 20%, which is a waste considering the high market value of the pirarucu juveniles. At the forefront of the huge and growing interest of the industry in investing in pirarucu production, is the need to build a database of reliable information on the zootechnical and economic performance of its production in different environments and under various farming conditions. The success of commercial farming of this species still depends on the ability to deliver high quality and value added products to the market. For this to be possible, knowledge of consumer demand and competing products, and other information relating to the market, are essential for planning marketing and sales strategies. Once this knowledge is consolidated, it will be possible for entrepreneurs to invest in production and marketing of this fish. In recent years, there has been strong investment in R&D from both private companies like Projeto Pacu and government institutions such as Embrapa and Sebrae to stimulate pirarucu farming in Brazil. A key focus is mastering the controlled breeding of the species. Most pirarucu farming techniques come from the empirical knowledge of producers and technical studies carried out in recent years. This species requires much more research and development effort as there are many bottlenecks to be overcome before increasing production to its full potential. Although still small in comparison with tilapia and round fishes, and in spite of the limited extent of juvenile production, farming of the Amazon giant fish is growing exponentially, increasing from 2,300 MT in 2013 to 11,762 MT in 2014, an astonishing increase of 419%. Embrapa is the main government agribusiness research corporation. Its scientific outputs have positioned Brazil as a leading nation in soy, sugarcane and meat production. It coordinates a project with several research programs trying to solve production bottlenecks. Among the fields of knowledge are breeding, management, genetics, nutrition and health. The research is being conducted in the seven states of the North region, with the involvement of Embrapa units in the states of Acre, Amazonas, Amapá, Pará, Rondônia, Roraima and Tocantins, under the coordination of the Embrapa Fisheries and Aquaculture headquarters in Tocantins.

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4. Marine aquaculture Although marine aquaculture takes place in many Brazilian coastal states, there has been no company involvement to date. All the production comes from small‐scale farmers. After shrimp production, mussels are the second major product, followed by oysters and scallops. Marine fish farming is still incipient, with only five small farms growing cobia. There are also some small algae (Kappaphycus alvarezzi) farms, no more than a dozen, along the coast south of Rio to Janeiro to north of São Paulo, most situation in the vicinity of Ilha Grande, RJ. Mollusk farming was introduced as a secondary income for fishermen through a number of projects implemented by university and extension agencies within these states, many times with financial support from federal institutions. The development of mollusk farming is not uniform along the Brazilian coastline. It is highly dependent of the institutional capacity of state agencies to actively promote and support this activity. There have been several cobia farming initiatives in the last 10 years, including at industrial scale, but they did not flourish due to various obstacles, mainly related to difficulty in accessing aquaculture licenses and technical issues, such as nutrition and health problems. Although development is still limited, Brazil has more than 8,000 km of coastline, the great majority with tropical weather and sheltered bays, far from hurricane routes. A global assessment of potential for offshore mariculture development from a spatial perspective, prepared by FAO2, identified Brazil as the top nation in terms of potential, given the technical feasibility of using cages and longlines in an area that would be cost‐effective to develop.

Source: Kapetzky,

et al. 2013

2KAPETSKY,J.M.,AGUILAR‐MANJARREZ,J.&JENNESS,J.2013.Aglobalassessmentofpotentialforoffshoremariculturedevelopmentfromaspatialperspective.FAOFisheriesandAquacultureTechnicalPaperNo.549.Rome,FAO.181pp.

Fig15:Rankingbyareaofmainmariculturenationswithcurrentspeedsanddepthssuitableforseacagesandlonglines

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4.1 Cobia

4.1.1 World status of cobia farming Cobia (Rachycentron canadum), known in Brazil as bijupirá, is a large, migratory, pelagic fish found in tropical and sub‐tropical waters, with lesser presence in temperate waters. The ideal water temperature range for cobia is between 22 and 32oC and its feeding activity reduce at lower temperatures. Cobia is a delicious, high‐quality and high‐value white flesh fish with limited capture in the wild. Worldwide production does not exceed 10,000 MT per year. As cobia has a swimming bladder, the fish needs to swim continuously. This relentless habit is what makes the quality of farmed cobia as good wild captured ones, and the higher fat content of farmed cobia makes it even tastier. Table4:Cobiafarming

Source: Dr. Chyuan‐Yuan Shiau, National Taiwan Ocean University, apud David Chang

The very fast growth rate of Cobia is attracting the attention of the world aquaculture industry. Under ideal environmental conditions and with good nutrition this fish can achieve 5‐6 kg in one year, almost double that attained by salmon in the same period. Cobia flesh is not only rich in proteins, but also contains high levels of unsaturated fatty acids such as EPA and DHA, as well as nutritional substances such as vitamin E, taurine and ornithine. Around 55 to 60% of the fish is edible and the variations in moisture and fat content means it has different texture, appearance and flavor in the many possible cuts of the fish. The fish can be prepared in many

Wild cobia Farmed cobia

Humidity 73.3 66.6 Protein 18.8 18.4 Fat 6.7 16.7Ashes 1.3 1.3

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different ways, such as sashimi, sushi, baked, grilled, and smoked. It is highly prized for sashimi, as its flesh is as firm and tender as amberjack flesh, which is highly valued in the Japanese market. The quick growth cycle and sturdiness are also definite advantages of cobia. The following articles published in World Fishing & Aquaculture in 20143 and by Fish Farming International in 20154 provide a very good overview of the of cobia farming status in the world, so we decided to reproduce them ipsis litteris. “The first attempts at growing cobia in captivity were probably carried out in Taiwan in the early 1980s, but it was not until 1995 that any serious production was registered. In 2007 almost 30,000 tonnes of cobia were farmed, mostly in mainland China. However, production then plummeted as Asian farmers switched to other species such as pompano (Trachinotus blochii), and in 2012 was thought to have been less than 5000 tonnes. According to fish farming specialist Bjørn Myrseth who set up cobia farming operations in Belize and Vietnam when CEO of Marine Farms – this company was taken over by Morpol in 2010, which in turn was bought by Marine Harvest in 2013 – there were production problems. “Cobia is a beautiful fish with a firm, white flesh, so we had great hopes for it,” he says, “but we did have some production problems. It seemed to eat a lot, but at a certain size it stopped growing, or it grew too slowly.”5 Cobia produced by Marine Farms Vietnam were aimed at the European market, while the fish produced in Belize were flown to southern USA. “[Marine Farms] Belize used to be the largest supplier of fresh cobia into the US for several years (2007‐2010) until Hurricane Richard hit us,” says CEO Jorge Alarcon. Production then ceased, but the hatchery continues to produce cobia fingerlings for sale to other companies.

3http://www.worldfishing.net/news101/Comment/analysis/cobia‐at‐a‐crossroads.4FISHFARMINTERNATIONAL,2015.TheTaiwanesecobiadream.http://download.taiwantradeshows.com.tw/2015/fishery/news/20150602.pdf5MarineFarmsVietnamobtainedFCRof1.3:1between1and2kgcobias,and4:1tofishesbetween2and4kg,usingcommercialfeeds(EWOSHarmony).Themortalityrateto40kgwasaround30%atdensitiesof12kg/m2.Yieldsforloinskinoffwere27%andfilletskinPBO38%.Peakproductionreached1000MT/year.Source:CarlosMassad,FormerMFVmanager.

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Marine Farms started to harvest cobia in Vietnam in 2006‐7. At the time it was said to be the world’s largest cobia farm with the potential to produce 5000 MT annually. However, production peaked at 1200 MT in 2010 then steadily declined. The actual harvest of cobia in 2012 was just over 300 MT, although the company also produced 700 MT of pompano that year. The original intention had been to produce fish for the European and US markets, and frozen farmed cobia fillet portions and loins were introduced at the European Seafood Exposition in 2010. Reaction was said to have been favourable and the product was subsequently stocked by various distributors. However, despite the introduction of value‐added cobia products, sales in Europe didn’t fulfil expectations and Mr. Alarcon has now changed the marketing strategy. In 2012, the bulk of the cobia produced in Vietnam was sold fresh ex‐farm to the local market, with a small amount of fresh fish exported to Australia, and some frozen products sent to Taiwan, Japan and Korea. A very small amount of fresh cobia was exported to Europe. Mr. Alarcon believes the reason that cobia sales in Europe were poor is that it is an unknown species competing in a diverse market with plenty of cheaper fish available. “Cobia certainly is never going to compete on price with the likes of pangasius, tilapia, or Alaska pollock. “It is a premium product that deserves a better price,” he says. “I guess it all goes back to educating consumers about its qualities and properties.” Meanwhile Open Blue Sea Farms, which farms cobia in submerged cages in the open sea off Panama, is now the largest exporter of cobia to the USA, and also has plans to export it to Europe and Asia as well. “We don’t know the potential [for cobia] yet,” says Brian O’Hanlon, founder and CEO. “What I can tell you is that nobody to date has developed a more aggressive approach to marketing the species.” Open Blue Sea Farms was only founded in 2007 but was expected to harvest 1100‐1200 MT of cobia in 2013. “We are on track to hit 2000 MT of harvest biomass in 2014,” Mr. O’Hanlon says. “All of the fish are already stocked.” The company is flying fresh HGT (headed, gutted, tail‐off) fish to the USA. The fish are going to distributors who sell it on to individual restaurants. However, Open Blue is investing in additional processing capacity so that it can begin to target restaurant and retail chains with both fresh and frozen products.

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These products will not be cheap. “The product we have to offer at the price point we are offering it will be more suitable for the chains that want the absolute best fish on the market,” Mr. O’Hanlon says. “Cobia is a great, high quality white fish. The upscale segments of the market desperately need a high quality white fish that is farmed consistently. We are not competing with the other white meat [fish] like tilapia and catfish.” Mr. O’Hanlon believes that Open Blue will succeed in selling frozen cobia into Europe where Morpol, which bought Marine Farms, failed. “We have an amazing product and a great story. It is simply going to take a lot of persistence, hard work and feet on the ground work with the customers to get the general public to realize how amazing and versatile our fish is.’ Mr. Alarcon believes that cobia production will cycle into larger volumes in the coming years as the limited supply in the last couple of years has increased its price and attracted some producers to stock some juveniles again. “Similarly I think the production of pompano, to which many cobia farmers switched, will drop some, given current prices.” The former Marine Farms’ plans for cobia have been on hold. Jerzey Malek who founded Morpol, has now taken over the two operations and it remains to be seen what program he will put in place. Meanwhile it seems as though Open Blue’s aggressive expansion will continue, although the company has yet to target Europe and Asia, and it may be that the USA will continue to be its major market.” Taiwan was a pioneer in the field, and according to the FAO, production peaked at around 4,000 to 5,000 metric tons in 2006 and 2007. But it has slumped in recent years, and in 2012 production was thought to be less than 5,000 metric tons worldwide, nearly a 90 percent reduction from its global peak of around 30,000 metric tons. Fish Farming International, 2015: “Many of Taiwan’s cobia farmers switched partly or fully to pomfret6 and so did Ever Spring, located in Pingtung County in southern Taiwan. There have been a number of issues in recent years, Leo Huang, assistant marketing manager and assistant to the chairman at the company, told Fish Farming International during a visit of the company’s operations in May this year. A number of farmers went bankrupt, he said, due to cheap equipment and technology, coupled with environmental challenges such as diseases caused by poor or no management systems in place as well as the annual threat of typhoons.

6Alsocalledpompano

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Because of this threat, some farmers located their grow‐out systems in more enclosed, lower energy areas, at the expense of higher water flow and flushing rates, FAO also said. This intensification of near‐shore production resulted in increased disease outbreaks and, in some cases, lower‐quality flesh from cobia raised in cage systems from more polluted areas. But despite all the issues, Ever Spring pulled through and is looking at a sizeable operation today. The company operates 25 marine cages in a sea area of 20 hectares, producing around 300 MT of cobia, and 200,000 to 300,000 harvested pompanos per year. Next year, the firm is planning to ramp up production to 900 metric tons, and is extending some of its marine farms and constructing 15 new farms on land, Huang said. The key to success is a special feed blend, he believes. The company, which started operations in 1999, developed a special formula with probiotics in cooperation with Taiwanese feed suppliers, which allows it to farm without the use of medication. The location of the cages plays another vital role, Huang believes. Farmed along the south‐west coast of Taiwan, relatively low water and wind flows provide the ideal environment for the fish to grow in temperatures of between 26oC. The cage nets are tailored for Ever Spring by a local Taiwanese firm, with smaller holes, sturdier and more difficult to break. Investments in good‐quality equipment is paying off in the long run, Huang believes. The fries, which Ever Spring sources from local hatcheries, are introduced at 300 grams to the marine cages, where they reach a market size of 5‐6 kilograms for the Japanese market and 7 kilograms for the Taiwanese market within one year, Huang said. Price per kilogram for the whole fish stands at around $10, he said, and fillet yield is at around 50 percent. Ever Spring’s biggest markets are China, Hong Kong and Taiwan, he said, adding there are hopes that with the expansion it will be possible to target new markets with its live, frozen and fresh products. “We used to sell a lot of cobia to Japan,” Huang told Fish Farming International through an interpreter. “But that market has vanished because of the rise of kampachi and the unfavorable exchange rate. But we’re hoping to get into the Japanese market again,” Huang said. China is also proving difficult, he said. While the company sells frozen fish under the Ever Spring brand to retailers in Beijing and Shanghai, the growth in local Chinese production is hitting sales. At the same time, the Taiwanese brand “has more value,” he said, as the fish are farmed without the use of medication, and in more “pristine” waters.

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While Huang declined to share current turnover figures with Fish Farming International, he is convinced Ever Spring is looking at a profitable future ahead, with one of the biggest potentials for Taiwanese aquaculture – and exports. During the May visit talk was of cobia being “the salmon of the future” – its quick growth cycle, high‐quality and high‐value flesh and sturdiness are the definite advantages Ever Spring believes in. The company is planning to play an active part in the redevelopment of the cobia culture in Taiwan. We’ll be checking back how it fared.”

4.1.2 Brief history of cobia farming in Brazil The first coordinated government effort to develop marine fish farming in Brazil began at a meeting in Brasília called by the Special Secretariat for Aquaculture and Fisheries (SEAP) in September 2003. The purpose of the meeting was a first approximation between the SEAP and Brazilian researchers who were working with marine fish farming, for information gathering and goal setting for a joint action to develop the activity on a commercial scale. Participants came from all Brazilian regions and were joined by Dr. Daniel Benetti, from the University of Miami, who presented his achievements with cobia. Dr. Benetti started to assist both private and public institutions in Brazil, including the state agency for aquaculture and fisheries development in Bahia – Bahia Pesca – which was the first Brazilian institution to successfully breed cobia, in 2006. Soon after, in 2007, Aqualider, a large shrimp hatchery in Pernambuco, was also successful. Commercial cobia farming in Brazil began in 2009 with an investment US$ 3 million from Aqualider S/A in Pernambuco state, in an offshore area 8 km from the Recife coastline. With a large hatchery complex to produce shrimp larvae, Aqualider searched for a new investment option at a time when the antidumping action imposed on Brazil by USA, and the appearance of many diseases, had drastically affected the shrimp‐farming sector in Brazil. Aqualider captured wild cobia breeders in 2005 and breeding was achieved in 2007. This pioneering and audacious initiative attracted the attention of the whole aquaculture sector and the farm was opened personally by President Lula, who was at the peak of his popularity at that time. Unfortunately, the enterprise faced numerous problems and it ceased its activities in 2010, leaving a

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terrible “red flag” for those that were willing or thinking of following in its footsteps to engage in marine fish farming in Brazil. Among the main difficulties faced by Aqualider was the lack of availability of proper feed for marine carnivorous fish in Brazil. All national brands of feed tested, even with high protein content, resulted in to poor growth rates and low resistance to diseases, leading to high mortality, caused by the dinoflagellate Amyloodinium ocellatum. Its best result was achieved in 2009, when ten months old cobia reached 3 kg with an FCR of 2:1, and it harvested its first crop with yields of 5 kg/m3. Besides the nutritional and health issues, the company made many mistakes in running its business. Critical investments such as the acquisition of a proper fish farming boat were not prioritized and, consequently, the farm team spent four hours daily taking the feed to the farm. Fish feeding and management was compromised on many occasions due to bad weather conditions. As its hatchery had been adapted from a shrimp hatchery, the water intake and distribution system had limited water flow rates that could not sustain the biomass of tens of nursery tanks with cobia fingerlings. This affected the fish quality even before they were stocked in the cages. The lease area was poorly selected and was affected by coastal pollution with a great deal of plastics and coliforms reaching the offshore farm after episodes of heavy rain. The lack of farm planning and uncoordinated marketing activities hindered Aqualider in adjusting its production to the demand, leading to an interrupted and unstable supply to its initial clients. The farm was designed to produce 5,000 MT/year with the installation of 48 cages, of 5,400m3 each (25m Ø and 11 m deep), but the number of cages never progressed beyond four. The uncertainty and delay in making further investments to attain scale production, especially because of the technical problems being faced, was reflected in increasing monthly costs to feed the fish and to maintain the farm, hatchery and administration personnel. By the end of 2010, Aqualider had accumulated debt of US$ 2 million with its banks and was selling no fish. An accident involving a Petrobras boat that passed over two cages and caused all of the fish stock to escape helped to bring about the closure of Aqualider.

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LANAM and TWB The federal government, through the Special Secretariat of Aquaculture and Fisheries (SEAP) inaugurated a large cobia hatchery, called the National Laboratory of Marine Aquaculture (LANAM), in 2008, to produce 1 million fingerlings per year in the municipality of Ilha Comprida, on the south coast of São Paulo state, through an agreement with the Ilha Comprida government. However, the mayor never fulfilled his part of the agreement and the hatchery operated in precarious conditions, including having no water intake pumps. The management of this hatchery was outsourced to the private company TWB, which was interested in cobia farming at that time. Faced with the lack of commitment by its partner, TWB tried to overcome the water shortage in the hatchery with an improvised pump, but its interest in cobia farming started to diminish. The excessive bureaucracy to obtain the lease for a nearby farming area was a strong reason to give up, and it ceased activities, leaving the LANAM building abandoned since then. In 2009 TWB changed its focus to Bahia state, mounted a small hatchery in a warehouse by the port, and applied for a large aquaculture area near to Itaparica Island. Its plan encountered a lot of resistance from the artisanal fishermen association and an NGO that was very well connected to international organizations that fight against aquaculture, particularly shrimp farming. It tried to convince them that its project would be socially inclusive, adopting a processor driven integration scheme, and even held a large seminar in collaboration with Bahia Pesca to present their plans. The seminar, attended by nearly 300 fishermen, was a disaster and the audience, influenced and guided by the activists, clearly positioned against the project, arguing that they were privatizing the ocean, that cobia was transgenic, full of antibiotics, extremely dangerous and so on. Besides the intense campaign against cobia farming on the Bahia coast, TWB also faced strong resistance from the environmental agency in Bahia for awarding its license, and after a two‐year wait to obtain the lease, it gave up and left the business definitively.

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4.1.3 Current initiatives in cobia farming

Maricultura Itapema In 2009 a new initiative started in the São Sebastião municipality, a 1.5 hour drive from São Paulo city, with the company Maricultura Itapema. Itapema signed an agreement with the São Sebastião government, where the city allowed the hatchery to be constructed on public land by the sea, and in turn, the company committed to receive school visits and to provide training and demonstrations on cobia farming to local anglers. Inaugurated in 2012, its hatchery is simple and small but very functional and has been having success in maintaining a constant production of cobia fingerlings. Itapema has six cages at Ilha Bela, in an area 20 km away from the hatchery. As other cobia farmers became established in Rio de Janeiro, they began feeding the fish with trash fish, basically chopped or minced sardines, sometimes mixed with trout feed and vitamin premixes. This alternative was not suitable for attaining scale production as chronic fish mortality continued, trash fish availability was inconsistent and the FCR was 3:1. With technical assistance from Acqua Imagen, a consultancy company owned by Dr. Fernando Kubitza, Maricultura Itapema began a partnership with the Matsuda feed factory in 2013 to develop a feed specifically for cobia. The first batch was 4 MT and very good results were achieved in the tests with good attractiveness, palatability, FCR of 1.64:1 and an end to the fish mortality. Cobia has grown from 60 g to 3 kg within one year, even when passing through the typical winter temperatures in São Paulo, with water between 19 and 23oC during six months.

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More recently, Itapema started to produce its own feed using sardine meal and oil as a substitute for salmon meal and oil, achieving better results than those obtained with Matsuda feed. Its new feed has 45‐48% of protein and is achieving FCR of 2.5:1. Cobia is reaching 4 – 5 kg in 15 months, even in the low‐water temperatures off the São Paulo coast. Its production is around 100 MT/year and the fish is sold to restaurants in São Paulo city at US$ 13.7/kg, fresh and whole. It has also begun testing a new market for smaller fish (2 kg), selling it for US$ 7.6/kg. According to the farm manager, this market is very interesting because it takes advantage of the faster growth rate and better FCR seen in fish at this weight. Itapema is producing 150,000 cobia fingerlings per year and sells them at US$ 1,500/thousand fish to supply four or five small farmers in the region of São Paulo and to the south along the Rio de Janeiro coast, in the region of Ilha Grande (Big Island). The company will start testing for producing pompano fingerlings this year. The main problem Itapema is facing at the farm is infestation with the ectoparasite trematoda Neobenedinia melleni. This parasite attacks fish eyes, infesting their heads and opening the way to opportunistic bacteria that lead to fish mortality. Another significant problem in expanding the farm is the great difficulty in obtaining the environmental license to farm fish along the São Paulo coast. In 2008 the state government created three Marine Environmental Protection Areas covering almost half of the São Paulo North coast.

Fig16:MarineEnvironmentalProtectionAreasalongtheSãoPauloNorthcoast.

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Current initiatives in cobia farming

Fazenda Marinha Ilha de Búzios Mr. Claudio Doneux, a former partner of Itapema Maricultura, created Marine Farms Ilha de Búzios in 2014. The farm, with four large volume cages, is located at Búzios Island, near São Sebastião – SP. It buys fingerlings from Itapema or Redemar, which is another marine fish hatchery located at Ilha Bela (Beautiful Island). Inconsistency in cobia fingerling supply was highlighted as one of his problems. According to Claudio, the Matsuda feed costs US$ 2.46/kg but he is currently using Guabi feed that costs him US$ 1.72/kg. The FCR with Gabi feed is 2.2:1 and the cobia is attaining 3‐4 kg within 16 months with this feed. He has problems with fish mortality, which he believes is caused by nutritional issues. Neobenedinia infestation was mentioned again as a major health problem, although he says there is lower incidence of this parasite at Búzios Island. It seems that this company will be the first to obtain the environmental license to farm fish on the São Paulo state coast, and this represents an important landmark for the sector in this state.

Nautilus Inn

Nautilus Inn is a lodging specializing in dive programs that is located at Jacunema Beach, Ilha Grande – RJ. The lodging receives many visitors throughout the year and maintains a small marine farm integrating seaweed, scallops and cobia. For cobia, they have 5 large cages and 10 small cages and all of the production is consumed in their restaurant or sold to restaurants in the Ilha Grande Region.

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4.2 Scallops

The farming of the native scallop (Nodipecten nodosus) in Brazil is still incipient. Although the production of spat has dominated since the mid‐1990s, scallop production is limited to small‐scale farmers concentrated along the coast to the South of Rio de Janeiro and North of São Paulo. The farming system is based on surface longlines with 5 or 10 floors lantern nets. Many scallop producers have

aquaculture as a secondary income and maintain other activities such as fishing or public service jobs. The great majority of the 27 small‐scale farms established in the region are not active, and only a handful of these have scallop farming as their main economic activity. According to the Secretary of Aquaculture and Fisheries Development in Angra dos Reis, scallop production in 2014 was 31.5 MT. At one time, the majority of this production was locally sold to seafood restaurants, but in the last few years scallops have gained growing interest in white tablecloth restaurants and nowadays most of the product is marketed in the Rio de Janeiro and São Paulo cities at US$ 10.60 – US$ 13.70/dozen. The Marine Farmers Association of Big Island Bay (AMBIG) involves all the small‐scale farmers in Angra dos Reis and Ilha Grande, and

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together with SEBRAE, is very active in organizing meetings and seminars to inform and train scallop farmers.

Main players in scallop farming

IED‐BIG (Institute for Eco‐development of Big Island Bay) Scallop spat is produced by the IED‐BIG hatchery located in Angra dos Reis – RJ. This hatchery was built in 1994 as a compensation measure imposed by environmental agencies on Petrobras and Eletronuclear, to allow oil exploration and nuclear energy generation in the region. The main purpose was the re‐population of the natural environment but soon most of the spat produced was being directed to aquaculture. The laboratory has an area of 1,150 m2 and production capacity of 20 million seeds of 8 to 10 mm per year, but currently produces only 3 million spat/year due to the low demand. IED‐BIG has donated millions of scallop spats in coordination with federal government programs and this NGO, particularly its president, Mr. José Luis Zaganelli, played a major role in the development of scallop farming in this region during the past 21 years. As the volume of spat produced and sold to farmers is very small, IED‐BIG working capital comes from the support and subsidies provided by governmental institutions and state owned companies. Although it may sound good, this resource is very unstable and uncertain, and Zaganelli has passed through difficult times on many occasions, even almost closing the hatchery. Scallop spat is sold at US$ 37.00/thousand spats.

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Maricultura Guará Vermelho A key player in the expansion of the scallop market is Maricultura Guará Vermelho. Guará Vermelho evolved from a demonstration project established in 2005 by the federal government in Picinguaba Village, to the upper north of São Paulo state. The project aimed to demonstrate better management practices and the adoption of mechanization to enhance farm productivity. The innovation involved using a fiberglass raft with winches, which allowed the use of larger lantern nets and a scallop grader. Ten years later this project has become a small, well‐organized and productive group of farmers, and the leaders of this group developed good access to the main gourmet chefs in São Paulo, creating a niche market for their small volume of scallops. To meet the growing demand in São Paulo, Guará Vermelho included other small‐scale farmers from Ubatuba and Ilha Grande Bay among their suppliers. Nowadays Guará Vermelho has conquered the position of main supplier of scallops in one of the biggest towns in the world, with a monthly volume of 600 dozen at US$ 18.3/dz, and its only competitor is the product imported from Chile or Peru. Table5:BrazilianscallopimportsfromLatinAmericannations:priceandvolumeforthelastfiveyears

Source: AliceWeb

10,00

11,00

12,00

13,00

14,00

15,00

16,00

17,00

18,00

19,00

20,00

2010 2011 2012 2013 2014 2015

0

10

20

30

40

50

60

70

US$/kg

MT/year

Volume (tons) Price (US$/kg)

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As with the cobia farms in São Paulo state, Guará Vermelho and the few other farms are not yet licensed, and there is a lot of uncertainty of when they will get this. The discussion with the reserve managers and state environmental agencies are taking years to achieve a consensus about the impact and risks of marine aquaculture inside the protected areas. Another issue is that neither São Paulo nor Rio de Janeiro has a shellfish sanitation program in place, with control of faecal contamination or harmful algae blooms in the areas where mollusks are harvested. Guará Vermelho also does not have sanitary inspection, a pre‐requisite for the food market in Brazil. It transports its product as live animals, with an animal transit permit. This practice has been possible only because the law enforcement and surveillance capacity of food safety agencies is very limited, and they focus their efforts on other animal products such as cattle, poultry and swine meat.

Source:AliceWeb

Table6:BrazilianscallopimportsfromChileandPeruinthelastfiveyears

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4.3 Mussels

Marine aquaculture of bivalve mollusks is an important economic activity in Santa Catarina state, with more than 5,000 people directly and indirectly involved and annual revenue of US$ 18 million in 2013. Santa Catarina state is responsible for nearly 95% of Brazilian production of farmed bivalve mollusks, which includes brown mussels (Perna perna), Pacific oysters (Crassostrea gigas) and scallops (Nodipecten nodosus). The state has many sheltered bays spread along 561 km of coastline and 29 municipalities facing the Atlantic Ocean. Twelve of these municipalities are important shellfish producing zones: São Francisco do Sul, Balneário Barra do Sul, Penha, Balneário Camboriú, Itapema, Porto Belo, Bombinhas, Governador Celso Ramos, São José, Biguacú, Palhoça and Florianópolis. The Federal University of Santa Catarina introduced shellfish farming in 1987, starting with small groups of interested artisanal fishermen. The number of mollusk farmers further increased, surpassing 1,056 by the year 2000, with production of 11,365 MT of mussels and 762 MT of oysters. Currently, total bivalve production reaches 19,082 MT, with 729 marine farmers scattered among the 12 municipalities mentioned above.

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Santa Catarina is the only state that completed preparation of a Marine Farm Development Plan (PLDM). The PLDM is a multidisciplinary and participative study for coastal aquaculture planning and management. In this process, the government assumes responsibility for preparing all of the environmental studies to create aquaculture parks and areas, and once these areas are officially demarcated, they are offered through a public tender process. This long process took more than ten years. Of the 837 aquaculture areas grouped inside the 27 aquaculture parks originally proposed in the PLDM, 798 areas and 24 parks are already licensed and attended by 618 shellfish farmers who represent 74% of all shellfish farmers in Santa Catarina state. The remaining areas without environmental licenses are located inside or in the area of influence of the conservation units, where a complex permission process is involved; therefore, these areas are awaiting additional approval from the environmental agencies. Besides the regulated mollusk farms, Santa Catarina counts on a State Program for Shellfish Control and Sanitation that maintains a surveillance program for coliform bacteria levels and toxic algae presence in all farming regions, with classification of areas according to their pollution levels and with the closure of farming areas when a harmful algae bloom occurs. A mollusk traceability program was developed in cooperation with FAO and the state government will start to adopt this tool in 2017. Unlike the other Brazilian states, the Santa Catarina government is making strong sanitary vigilance and law enforcement efforts to ensure that all fishery production, including farmed mollusk, takes place inside inspected installations. This action promotes the legal market and the value chain of regulated products, and is gradually eliminating the competition from illegal products in the seafood market.

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Mussel farming systems

In general, mussel farming in Brazil is based on small‐scale farmers occupying aquaculture leases between 1 and 3 hectares. The production of mussels in the current artisanal system requires a high effort of hand labor in the seed and harvest processes. The use of equipment is virtually non‐existent and all work is done manually, using the hands and feet, and overloading the vertebrae in the spine. The farming system employs recycled material, such as plastic gallon containers and

fishing net waste, with very low productivity and high production costs. Most farmers do not actually know their production costs. A typical farmer produces around 40 MT/year, and the selling price is around US$ 045/kg for fresh mussels. As mussels attach to almost any exposed surface in the seawater, most farmers produce mussels by hanging spat collector cables near the water surface during specific spawning seasons (autumn and spring). After the spat attachment, farmers just provide some maintenance to the longlines, replacing lost floats when needed, and harvest the product with 8 cm shell length after one year. This extensive farming method wastes most of the attached spat, as mussel pass through a self‐thinning process as they grow and dispute space on the cables. Initial mussel density during spat collection can be as high as 1,000 animals/meter and after one year, most of these have fallen off and only 250‐300 mussels will be harvested. Growth rate is also affected as mussels filter up to 10 liters of seawater per hour and high densities increase the competition for food.

The low level of technology in this sector has stabilized the production between 15,000 and 20,000 MT in the last ten years. Meanwhile neighboring countries like Chile, which started to farm mussels in the same period as Brazil, adopted mechanized farming systems and achieved the volume of 242,000 MT/year with export earnings of US$ 75 million in 2015.

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Farm productivity with the artisanal farming systems is well below that obtained with mechanized and continuous farming systems. In addition to the better utilization of farming areas, the continuous system allows production costs to be reduced to US$ 0.10/kg. This average cost is what Santa Catarina farmers need to achieve to maintain their competitiveness in a now globalized mussel market. The mussel farming technique in the main producing countries is called the continuous system and consists of the mechanized removal of spat from collector cables and their reseeding at lower densities (200‐250 mussels/meter) to increase the efficiency of spat use, and to provide ideal space and food renewal for mussels to reach commercial size within the shortest possible time. In reseeding, spat are added to the substrate cable “power loop” with the aid of a biodegradable cotton stocking, which has the function of keeping them around the cable until they attach with their own filaments, in one or two weeks.

Mussel seeding: a cotton stocking is used to hold spat around power loop cable.

This farming system employs hydraulic machinery for seeding and harvesting operations, with a production capacity of 3 MT/hour. Mechanized mussel farming improves the lease area and water column utilization so that, in a hectare, the farmer can install up to 20,000 m of spat collectors, and after reseeding, between 10,000 and 15,000 m of continuous power loop cables, to harvest volumes greater than 100 MT/ha/year.

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The Santa Catarina state government and some companies are looking closely at efforts to introduce mechanized mussel farming in Brazil. The main players in this process are EPAGRI, Leardini and Marine Equipment.

Mussel market It is necessary to consider that mussel meat yield varies between 16 to 20% of the fresh product, so that it takes 6 kg of fresh mussels to obtain 1 kg of shelled cooked meat. This means that, with an estimated production cost of US$ 0.40/kg for fresh mussels in the artisanal system, the cost of raw materials to produce 1 kg of mussel meat is US$ 2.40. Adding a manual processing cost of US$ 1.00/kg we come to the current cost of production for cooked meat mussel of US$ 3.40/kg. To get an idea of the competitiveness of Santa Catarina mussels, IQF Chilean mussels, with sanitary control that meets the standards for international markets, arrives in Brazil at US$ 3.20/kg. In the retail market of São Paulo and Rio de Janeiro the average price of mussel meat is US$ 12.20/kg. The Aquaculture Company Federation, from Santa Catarina, estimates that only 20% of state production is processed inside inspected premises and distributed through legal channels, and the great majority is still marketed without government control. The Chilean mussel industry has a strong marketing strategy in Brazil and other international markets, with the brand "Patagonia Mussel". Brazilian imports of Chilean mussel meat has been stable over the last five years at around 2,500 – 3,000 MT/year and US$ 4 million. Since the beginning of 2016, with a deep crisis in Brazil, the brand stopped its promotional activities and imports have reduced substantially in 2016, in spite of the lower prices.

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Table7:Chileanmusselimports

Source: AliceWeb

Key players in the mussel industry

Laboratório de Moluscos Marinhos – LMM/UFSC The Marine Mollusk Laboratory from the Federal University of Santa Catarina (LMM/UFSC) is responsible for a number of research projects on bivalve mollusks, aquaculture undergraduate and post‐graduate activities, and the production of mollusk spat. The LMM hatchery produces 40 million oyster spats per year and supplies 60 oyster farmers in the Florianópolis region. Besides oysters, LMM also produces mussel and scallop spats, which are provided to both commercial farming and R&D projects.

Epagri

Epagri is the state agency that provides research and extension services for the aquaculture industry. The advanced development of marine aquaculture in Santa Catarina in comparison with other Brazilian states is a result of the perfect match and joint efforts of Epagri and LMM/UFSC over the last twenty years. Epagri maintains extension officers in all the 12 municipalities with mariculture and this trained staff assist marine farmers in technical aspects and on credit access. Besides the extension services, Epagri runs a number of research and demonstration projects, such as remote setting of mussel spat, density‐dependent productivity tests, development of small‐scale machinery for mussel farming, and training activities. Epagri was responsible for the long‐running work to prepare the PLDM in Santa Catarina, which culminated in regulating hundreds of marine farms. Similarly, Epagri launched the Shellfish Sanitation

2011 2012 2013 2014 2015 2016

Volume 2 906 2 928 2 899 3 071 2 731 1 973

Price 1,56 1,42 1,49 1,31 1,25 1,00

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

1,60

1,80

‐

500

1 000

1 500

2 000

2 500

3 000

3 500

US$/kg

MT

Chilean Mussel Imports

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Program in Santa Catarina, which subsequently came under the responsibility of the Animal Defense Agency, CIDASC.

CIDASC

CIDASC is responsible for maintaining the vegetation and animal sanitary defense program in Santa Catarina state. Besides the Shellfish Sanitation Program, which runs a surveillance service across the aquaculture areas and mollusk value chain, CIDASC is launching a shellfish health program to control oyster and mussel farming areas, in order to provide an early warning system and launch appropriate sanitary measures in case of the arrival of shellfish disease.

Leardini

Leardini Pescados is a family business based in Navegantes (SC) with revenues of US$ 60 million from the sale of seafood such as shrimp, hake and ready meals. It is the first Brazilian fishing company that realized the economic potential of mussel farming. It entered into this sector by acquiring 75% of the shares of a smaller company called Cavalo Marinho (Sea Horse). Cavalo Marinho has a ten hectare mechanized mussel farm in the municipality of Palhoça, and was processing its production in a small plant with manual labor. After the two companies merged in 2011, Leardini took out a contract with BNDES for a credit line of US$ 3.6 million to modernize the processing plant with state‐of‐the‐art machinery and to increase its mussel farming areas. Leardini’s portfolio of products depends strongly on imported seafood and with the devaluation of the Brazilian currency in the last few years, the company found itself in serious economic difficulties resulting in a judicial recovery process. While the new processing plant is ready, Leardini is waiting on the government analysis of its lease request for a further 40 ha, and the processing plant is working at half capacity because of the lack of raw material.

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Marine Equipment

Since its foundation in 2010, Marine Equipment has invested in the development of mechanized mussel farming in Santa Catarina and other states. The company is the local dealer for the main mussel cable factory in the market, New Zealander Quality Equipment ltd. Marine Equipment is positioned as the main supplier of marine aquaculture equipment, selling cables, floats and machinery for mussel farming. With increasing import costs in the last few years, the company started to develop its own machines in Brazil, in cooperation with the Federal University of Santa Catarina and a company in the stainless steel sector. In 2014 it received a government grant for innovative projects in aquaculture and started to build a modern aluminum mussel barge with capacity for 20 MT. Marine Equipment’s plan is to get involved in production, launching a processor driven integration scheme for mechanized mussel farming.

5. Legal and institutional framework

5.1 Federal level institutions

Ministry of Fisheries In 2003, the federal government created the Special Secretariat for Aquaculture and Fisheries (SEAP), with ministry status, and directly linked to the presidency. Its role was to formulate policies and guidelines for the development and promotion of fisheries and aquaculture. The transformation of SEAP into a ministry took place under Law No. 11,958 of June 26, 2009, and the name became the Ministry of Fisheries and Aquaculture (MPA). During the 12 years this ministry existed, it was considered to be of minor importance and the ministerial appointment was political, as a favor to parties allied to the government coalition. Between 2003 and 2015, six different ministers commanded the institution, causing high staff turnover and discontinuity of government programs for aquaculture development. Among the main achievements during the MPA period are the following:

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• Development of the legal procedures for obtaining an aquaculture area lease in

public waters; • Development of the legal framework for planning and managing coastal

aquaculture; • Coordination of working groups with environmental agencies to develop the

legal framework for environmental licensing of aquaculture; • Creation of a National Shellfish Sanitation Program; • Provision of financial resources to many aquaculture research projects and

demonstration units in both freshwater and marine environments; • Active promotion of fish consumption in Brazil and increasing it to 10.6 kg per

capita; • Creation of EMBRAPA Aquaculture, as the main federal institution for

aquaculture research; • Establishing, with the Economic and Social Development Bank (BNDES), specific

credit lines for aquaculture, with subsidized interest rates and favorable payment conditions.

The MPA was abolished In October 2015 and incorporated into the Ministry of Agriculture, Livestock and Supply (MAPA) in a ministry cabinet reform. Before being extinguished, the MPA had ambitious plans, with an annual increase of 20% in fish production to achieve 3 million MT by 2020. It goal was to grow from 760,000 MT to 1 million MT in capture fisheries, and from 700,000 MT to 2 million MT in aquaculture. At MAPA, aquaculture was allocated on a third‐level secretary with reduced staff and the industry is receiving less government attention among the other food sectors where Brazil is well positioned in the global scenario. With the transition to MAPA, the budget and staff reduced drastically before any important action or measures were taken. The new ministry requested a deep analysis of all project agreements signed during the MPA period, as many corruption scandals emerged and some high‐level staff were prosecuted and jailed for demanding bribes from fishing companies for their operating licenses. Since 2015, MAPA has had two ministers, causing more staff turnover. As new managers are politically appointed or do not have aquaculture knowledge or experience, it takes more than one year for them to become familiarized with the activity, and this has practically paralyzed all federal government actions to develop aquaculture in Brazil. There are rumors in the media that President Temer may reinstate SEAP, but this is very unlikely to occur as the presidency has reduced the number of ministries in an attempt to reduce public costs during the current crisis.

IBAMA IBAMA’s main responsibilities are to exercise the power of environmental police; perform actions under national environmental policies related to federal

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responsibilities in regard to environmental licensing, control of environmental quality, authorization to exploit natural resources, inspection, and environmental monitoring and control. With regard to fisheries, IBAMA has shared responsibility with MAPA on regulating capture fishery issues, such as listing endangered fish species, establishing fishing seasons, and analyzing request for aquaculture leases in federal waters. Together with the state and municipal environmental agencies, the National Environmental Council (CONAMA) and the Chico Mendes Institute (ICMBIO), which is responsible for creating and managing environmental protected areas, IBAMA is part of the National Environmental System – SISNAMA. SISNAMA is responsible for developing environmental standards for all productive activities and for the compilation of an annual report on the state of the environment in the country. IBAMA analyses applications and issues environmental licenses for activities with regional impact, such as roads, ports, power plants, mines and other activities that might impact large areas. Any activity that may cause a local environmental impact has the license application analyzed by state or municipal environmental agencies before they issue the license. Applications for aquaculture leases for federal waters (ocean and federal rivers) are analyzed initially by IBAMA before being forwarded to the state agencies responsible for licensing.

EMBRAPA Fisheries and Aquaculture Created in 1973, EMBRAPA is the Brazilian Agricultural Research Corporation linked to MAPA. Its research efforts helped transform Brazilian agriculture into one of the most efficient and sustainable on the planet. Its achievements enabled a wide area of degraded savanna land to be incorporated into the food production system, a region that now accounts for almost 50% of Brazilian grain production. They also quadrupled cattle and swine production and expanded the poultry industry 22 times over. These are some of the achievements that elevated the country from the status of a basic food importer to the condition of one of the largest food producers and exporters in the world. Founded in August 2009, Embrapa Fisheries and Aquaculture is the youngest decentralized unit of this corporation. Its headquarters are in Palmas, Tocatins state. The unit is designed to operate with about 90 employees and has a national mission to generate knowledge and technologies for fisheries and aquaculture and act regionally to develop solutions for aquaculture production in integrated systems.

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Fig17:EmbrapaFisheriesandAquacultureheadquartersinPalmas,TO.

Its mission is to develop technologies and knowledge about the aquaculture production chain, working with species like the pirarucu, tambaqui, the surubins, tilapia, cobia and shrimps. For this, it has a multidisciplinary team with expertise in the areas of nutrition, genetics, health, fish processing, economics, production systems, breeding and conservation of fishery resources. This team has 16 doctors and 10 masters, among its analysts and researchers. In terms of infrastructure to carry out the research, the core features laboratories in different areas: bromatology; biotechnology; aquatic biology; histology and physiology; fish technology; pathology of aquatic organisms; water quality; environmental biophysics; breeding and larval rearing; and experimentation in aquaculture. The unit also has an area of experimental fishponds covering about 9.5 ha. This experimental area is used for experiments in breeding, nutrition, health and production systems involving fish processing.

5.2 State level institutions At the state level, aquaculture is managed by the State Secretaries for Agriculture and Fisheries. The level of political will and the institutional and human capacity for aquaculture support is highly variable among states, being stronger in those states with higher production levels and at an advanced development stage. The environmental licenses are issued by the state environmental agencies and in some cases, by the municipal agencies, in those municipalities where such an agency has been created. Some states, such as São Paulo, Santa Catarina, Bahia, Minas Gerais and Rio de Janeiro, have their own fisheries and aquaculture research and extension agencies. Linked to the state secretaries for agriculture and fisheries, their role is to assist the industry

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with technical training and advice, compilation of fisheries and aquaculture statistics, assistance on farmers’ access to credit lines, and the preparation and implementation of state plans and actions for aquaculture development.

5.3 Aquaculture legal framework

Aquaculture lease access Aquaculture lease permits are regulated by Decree no 4895/2003 and by Normative Instruction no 6/2003. Brazilian citizens and companies, including companies constituted in Brazil with foreign partners, can submit an aquaculture lease application. The application is analyzed by federal and state governmental agencies. Environmental licensing analysis time varies dramatically among states and the application can take from one to five years to be approved. One major constrain in the current legislation is that the lease has to be publically offered before being granted to the interested party. If there is another person or company interested in the same area, a public bidding process will decide the owner. This means that the applicant can pay for the project preparation and wait years for the application to be analyzed, only for some other person to pay more in the bidding process and take control of the area. If there is no other person on the bidding day, the interested party can pay the minimum lease price defined by the Union Patrimony Secretariat (SPU). Once granted, the lease is non‐transferable and lasts for 20 years, with the possibility of extension or renewal for the same period. A flow chart of the aquaculture lease process is presented below. The states with easiest access to aquaculture environmental licenses are Pernambuco, Santa Catarina, Rio de Janeiro and Paraná.

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Table8:Flowchartofaquacultureleaseprocess

Environmental licensing Environmental licensing is one of the main bottlenecks in Brazilian aquaculture. Aquaculture activity has suffered for decades from the absence of a specific standard for the environmental regulation of projects, a fact that has generated huge legal uncertainty for both investors and managers. Currently, aquaculture producers can only access public initiatives, such as agricultural credit, incentives, exemptions, and the government program for food acquisition, if the farm has environmental approval. In 2003, SEAP conducted a national survey of the legal and institutional framework for environmental licensing of aquaculture in the states of the Republic. The conclusions showed that in the great majority of the 27 states, there was no specific legislation on the subject and that in these states environmental analysts have only a general environmental law (CONAMA Resolution 237/97) as the legal basis for the environmental licensing of aquaculture. Among the states that were regulating the area, this was largely restricted to fish and shrimp farming, and almost no state had regulations for mollusk farming. There was a lack of standardization of procedures and

FARMER

•Detailed project description with layout plans and localization maps, in accordance with Normative Instruction no6‐2004.

•File the application at the state agency of MAPA.

MAPA

•Check the declared coordinates and area size, verify attached documents and information.

•Circulate application copies to the Navy, IBAMA, and National Water Agency ‐ ANA (the latter for freshwater projects only).

FEDERAL AGENCIES

• IBAMA ‐ check if ite project involves introducing exotic species or has a regional impact. If not, approve and forward it to the state environmental agency for further analysis and licensing.

• Navy ‐ analyze any risk with regard to navigation only.

• ANA ‐ analyze the volume of freshwater needed to maintain the production level and confirm it is below the carrying capacity of the waterbody and issue a water permit.

STATE AGENCY

•The state environmenatal agency, generally called OEMA, analyzes the application and issue the environmental license.

SPU

•Once the MAPA receives the responses back from the Navy, ANA, IBAMA and OEMA, it forwards the lease application to the Union Patrimony Service (SPU), which will approve the lease permit and return the application to MAPA.

MAPA

•Before issuing the lease permit, MAPA performs a public bidding process to investigate whether any oher company or person is interested in the same area.

FARMER

•Once the lease permit is issued, the proponent has one year to start the project and three years to complete all of the installation.

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requirements for environmental licensing and in some states there was duplication in the documentation requirement of different bodies involved in the different stages of the application. Based on these conclusions, SEAP proposed creating a working group under the National Environmental Council – CONAMA to discuss the matter and formulate a specific legal framework for aquaculture licensing. This was a long process and subject to intense debate between environmental and aquaculture managers. It took five years to complete, leading to the publication of CONAMA Resolution n. 413/2009, which sets standards for aquaculture licensing in the states. According to SISNAMA, it is not mandatory for state agencies to adopt a CONAMA resolution as a state regulation. The states have autonomy in formulating the laws, which can be more restrictive on environmental requirements, but not less restrictive than the requirements stipulated in the CONAMA resolutions. Since CONAMA no. 413 was published, some states have published their own environmental laws for aquaculture licensing, while other states are still debating or prevaricating until the present day. In many states, analysis is conducted by an individual government technician with little or no aquaculture knowledge, who is therefore prone to make misjudgments. In addition, the process can be extremely long, bureaucratic and complex. In those states where there is a technician with good aquaculture knowledge and experience, such as Paraná, Rio de Janeiro, Santa Catarina and Pernambuco, the environmental licensing is much faster. States such as São Paulo, with intensive production levels, are still discussing their aquaculture legislation with industry representatives, and the environmental licensing process is paralyzed.

Aquaculture insurance MAPA manages the Rural Insurance Premium (PSR), which gives farmers the opportunity to insure their production at lower cost, through financial aid from the federal government. Any person or entity that cultivates or produces species covered by the program can apply for the economic subsidy granted by the Ministry of Agriculture, which also allows the values to be supplemented with grants from states and municipalities. To take out the rural insurance, the producer should look for an insurance company authorized by the Ministry of Agriculture in the grant program. The cover limits established by the government for the period 2016‐2018 allow 45% of the costs of aquaculture insurance to be subsidized by the PSR, up to limit of US$ 7,317.00. In 2009, the RSA Group launched an insurance service for aquaculture in Brazil. The insurance covers losses related to production costs, with coverage against natural hazards (storms, floods, drought, etc.), against contamination and pollution, and even against the spread of parasites. This service was aimed at farming fish, crabs, shrimp,

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crabs, snails, mussels, clams and oysters, at farms both onshore (land) and off‐shore (at sea). Aquaculture insurance requires very special expertise, as risk assessment requires in‐depth knowledge of the livestock farming process and related issues. Aqualider S.A., the Brazilian pioneer in cobia farming had their farm visited by an RSA director in 2010, but the insurance giant declined to cover the farm, because of the small volume involved, with just four cages, and the high risks of the operation (open‐ocean farm, presence of sharks, pollution and diseases). To date, although aquaculture insurance services are available in Brazil, any aquaculture venture that is insured has not used the government subsides and the insurance offered by RSA has been cancelled. Despite being an important producer of aquatic livestock in the Latin America region, Brazil does not benefit from aquaculture insurance services. This is due to a variety of factors, such as the lack of technical knowledge, the small‐scale of the industry and the limited experience the national insurance companies have of this segment.

Brazilian Taxation system The current Brazilian taxation system was introduced by the 1988 Constitution, which granted power to Federal, State and Municipal Governments to collect taxes. Due to the various regulations enacted by each of these government levels, the Brazilian taxation system is very complex, leading to an environment in which taxpayers are required to comply with many obligations, for both tax collection and reporting (accessory obligations). Within this same context, Law #11,638 came into force in January 2008. This law was enacted in December 2007 to amend, repeal and add new provisions on accounting matters. Its main purpose was to enable the accounting practices adopted in Brazil to converge with the International Financial Reporting Standards (IFRS). The transition in accounting procedures could have a direct effect on the Brazilian taxation system. This is the reason why Federal Law #11,941 was enacted in May 2009, providing for the transitional tax regime (RTT), with the aim of neutralizing the impact of adopting the new accounting rules in calculating federal taxes, until the introduction of specific tax regulations on this matter. A brief summary of the Brazilian Taxation System is given below, outlining the main taxes and contributions and the corresponding calculation basis and rates, including some of the changes observed in recent years.

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Federal Taxes Federal taxes vary according to their nature, those of most importance to the upstream industry being those levied on:

Revenues / Sales: Social Contributions on Gross Revenues (PIS and COFINS) and Federal Tax on Industrialized Goods (IPI);

Importation of Goods: Federal Tax on Industrialized Goods (IPI), PIS‐importation and COFINS‐importation;

Importation of Services: PIS‐importation and COFINS‐importation; and

Profits / Net Income: Corporate Income Tax (IRPJ), and Social Contribution on Profits (CSLL).

Federal taxes also comprise Social Security Taxes (INSS and FGTS) and taxes levied upon financial transactions (IOF). In addition to those taxes, international transactions, especially those related to loans, royalties and service rendering, can be affected by the Brazilian Withholding Income Tax on Outbound Remittances (IRRF) and by the Contribution for Intervention in the Economic Domain (CIDE). An overview of the Brazilian federal taxes is given below, briefly pointing out their rates and calculation bases. Table9:Brazilianfederaltaxes

TAX Rate Calculation basis

PIS and COFINS

1.65% and 7.6% (respectively)

Calculated on gross revenues, subject to a “non‐cumulative” mechanism in which some credits are allowed (basically, calculated upon inputs)

PIS and COFINS are calculated and paid on a monthly basis;

Some entities and/or revenues are not subject to the so‐called “non‐cumulative” system, being subject to lower rates of these taxes: PIS – 0.65% and COFINS – 3% (e.g. entities adopting the Estimated Profit for purposes of calculating their federal income taxes);

PIS and COFINS rates applicable to financial revenues were reduced to 0% (except those derived from Interest on Net Equity);

Revenues derived from the exportation of goods are exempt from PIS and COFINS and the corresponding credits accrued according to the “non‐cumulative” system can be kept and used to offset other federal taxes;

Rendering of services for entities resident or domiciled abroad, the revenues will also be exempt from PIS and COFINS (and credits accrued according to the

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“non‐cumulative” system can be kept and used to offset other federal taxes), as long as the applicable payments are made in a convertible currency.

Table10:Brazilianfederaltaxes


IPI – Federal Tax on Industrialized Goods

Variableby product (HTS code)*

Price of the industrialized good (Note that there is a credit mechanism that may be compared to a VAT system)

IPI are usually calculated and paid on a monthly basis and the rates are based on the Harmonized Tariff Schedule (HTS) code;

All products from aquaculture have IPI zero rate;

IPI is to be collected by the manufacturing company (note that importers of goods are deemed to be manufacturing company);

Goods exported from Brazil are exempt from IPI and the corresponding credits accrued can be kept and used to offset other federal taxes.

Table11:Federaltaxesonimportationofgoods


II – Import Duty

Variable by product (HTS code)

Custom value of the importedgood (CIF value)

II is due on clearing customs and the rates are based on the Harmonized Tariff Schedule (HTS) code;

II is not a creditable tax.



IPI – Federal Tax on Industrialized Goods

Variable byproduct (HTS code)

Customs value of the imported good (CIF value) plus the Import Duty (Note that there is a credit mechanism that may be compared to a VAT system)

IPI is due on the customs clearance and the rates are based on the Harmonized Tariff Schedule (HTS) code.

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PIS‐importation and COFINS‐importation


CIF value added by State Value‐added Tax – ICMS (specially calculated) – due upon importation and the PIS‐importation / COFINS‐importation themselves (gross‐up method).

The above‐mentioned rates are the general rates applicable on the importation of goods. However, some items are subject to exemptions or different PIS‐importation and COFINS‐importation rates;

PIS‐importation and COFINS‐importation are due upon the registration of the Import Declaration (DI).

Table14:Federaltaxesonimportationofservices


PIS‐importation and COFINS‐importation


CIF value added by State Value‐added Tax – ICMS (specially calculated) – due upon importation and the PIS‐importation / COFINS‐importation themselves (gross‐up method).

PIS‐importation and COFINS‐importation are due upon the payment, credit, delivery or remittance of the amounts related to the service import. Table15:Federaltaxesonprofits/netincome


Corporate Income Tax (IRPJ)

Effective 25% rate (15% plus a 10% surtax on annual taxable income exceeding R$240,000.00)

Taxable Income, understood as the accounted for net income (profit or loss) as per financial statements as of the end of the tax period (quarter or year), adjusted by add‐backs and exclusions provided by the tax legislation.

Social Contribution on Profits (CSLL)

9% Similar to the IRPJ’s calculation basis.

Taxpayers may choose one of the three taxation methods provided by the tax legislation for purposes of calculating IRPJ and CSLL. These methods are: Taxable Income (Lucro Real), Estimated Profit (Lucro Presumido) and Arbitrated Profit (Lucro Arbitrado);

Taxpayers that choose the Taxable Income method are eligible to calculate IRPJ on an annual (Lucro Real Anual) or quarterly basis (Lucro Real Trimestral). If

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adopting the annual calculation period, tax anticipations must be calculated and collected (if applicable) on a monthly basis, based on monthly revenues (Receita Bruta e Acréscimos) or year‐to‐date accounted for net income (Balancete de Suspensão e Redução);

Tax losses, understood as the IRPJ Net Operating Losses (NOLs) and the CSLL negative bases (CSLL NOLs) have no statute of limitations, with liability for an indefinite period. However, please note that NOLs offsetting is limited to 30% of the Taxable Income / CSLL positive calculation basis for the period;

The IRPJ and CSLL calculations in the Estimated Profit and Arbitrated Profit methods are not based on the company’s net income, but rather on the determination of deemed profit percentages, which varies according to the company’s activities. Under these methods, IRPJ and CSLL payments are due on a quarterly basis.

Table16:Socialsecuritytaxes


INSS (Social Security Contribution)

Usually ranges from 26.8% to 28.8%

Total gross compensation amounts paid to employees.

FGTS (Severance Indemnity Fund)

8% Total gross compensation amounts paid to employees.

The INSS rate is based on: a) the Social Security contribution itself (20%), b) the RAT contribution (Work accident risk – 0.5% to 6%), which is determined considering the risk‐level associated with the activities performed by the Company, and c) the payments of additional Social Security charges (usually 5.8%), that must be made to the Federal Government, which will then transfer the funds to third parties (Senai, Sesc, Sebrae, among others).

Regarding the Severance Indemnity Fund (FGTS), companies must pay a 50% fine in case of unfair dismissal (that is, termination without cause). The applicable FGTS rate is 8%.

Table17:Taxesonfinancialtransactions


IOF Varies according to the financial transaction

Financial operations (e.g. outstanding loan balances, insurance contracted).

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State Taxes The 1998 Constitution granted authority to the Brazilian States to collect the tax on the circulation of merchandise and on rendering of interstate and intermunicipal transportation services and on communications, even when the transaction and the rendering of services start in another country, including import operations. It is not a cumulative tax, that is, such tax is only assessed on the increase in the price of the product in each part of the circulation process. The calculation process involves a system that, in each payment period, the taxpayer must check the amount of ICMS debits (generated on the circulation of merchandise/rendering of services) and ICMS credits (generated on the acquisition of goods) and if the taxpayer has more debits than credits, it will have to pay the tax on the difference. Since the collection of this tax is under state responsibility, each of the Brazilian states has specific regulations concerning ICMS calculation, rates, payments and accessory obligations. Therefore, companies that operate in different states are subject to several different compliance requirements. In some states, aquaculture products are exempt from ICMS. The ICMS is collected by most states at the rate of 17%, except for the states of São Paulo and Minas Gerais, where the tax rate is 18%, and Rio de Janeiro, where the tax rate is 19% ‐ special rates apply to interstate sales.

Municipal Taxes Supplies of services, other than those subject to ICMS, are subject to a cumulative tax called Imposto Sobre Serviços (ISS). This is a municipal tax on certain services listed by the federal government as per Complementary Law # 116/2003. The taxable basis of ISS is the price of the service rendered. In general, the service tax is levied by the municipality in which the company is established and its rates vary from 2% to 5%. ISS is also due on the purchase of services from entities domiciled overseas (the so‐called importation of services) if the service is performed in Brazil or if the results of this service are verified within the country.

Incentives for foreign investments Foreign companies interested in investing in Brazil can count on numerous tax incentives granted by the Brazilian government at the municipal, state and federal level. Most incentives are granted upon the submission of a project proposal comprising the minimum invested value, addressing job creation and other relevant matters.

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Tax Reduction Regime for Imports of Capital Goods with no National Similar Product – “Ex‐Tariff” The Ex‐tariff regime comes under the responsibility of the Secretariat for Development of Production (SDP) and is currently one of the instruments available for fostering expansion and re‐structuring of national industrial capacity, and improving the Nation’s services infrastructure, through cost reductions for acquisitions of machines and equipment not produced in Brazil, with reduced import tax rates, particularly in those areas and sectors of strategic importance to Brazil's sustainable development.

Special Regime for Procurement of Capital Goods by Exporting Companies (RECAP) Under RECAP, payment of PIS/PASEP and COFINS charges is suspended on imports or domestic‐market purchases of new machines, appliances, instruments and equipment, listed in the Decree, to be incorporated into fixed assets. Eligible for RECAP are: corporate entities that are major exporters, i.e., those whose gross earnings from overseas exports, in the calendar year immediately prior to RECAP registration, were equal to or greater than 80% of their total gross billings for goods and services in the period, and that assume a commitment to maintain this level of exports over a two calendar‐year period; corporate entities that are just beginning activities and that in the previous year did not attain the required percentage of export earnings, may be eligible, provided they assume a commitment to attain, over a three calendar‐year period, gross export revenues equal to no less than 80% of their gross billings for goods and services; and Brazilian shipyards.

Incentives for Technological Innovation Ever more intense competition worldwide has required the Brazilian State and productive sector and other agents in the national innovation system to make permanent and increasingly effective efforts to consolidate a favorable environment for development of high quality, low‐cost, technologically innovative products and services to supply Brazilian consumers and the international market. For this reason, the Brazilian Federal Government has established support mechanisms, including legislation to facilitate initiatives to enable consolidation of the competitiveness of Brazilian industry, and to strengthen the relationship between agents in the national innovation system.

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6. Value chain business segments

6.1 Aquaculture feed An extensive report was prepared by a consultancy company in 2013 with an in‐depth analysis of the aquaculture feed sector in Brazil. This study identified 39 companies and 66 feed factories operating in the country. More recently, the Acqua Imagem survey identified 70 manufacturers and 92 aquafeed mills in operation. Based on local interviews conducted during the study and the information provided by the Syndicate of Animal Feed Companies (Sindirações), aquafeed production reached 575,000 MT in 2012. This demand grew to 940,000 MT in 2015, which represents a 63% increase over a three‐year period. Although the drought affected several reservoirs in the Northeast and Southeast Regions, the aquaculture production chain benefitted from many advances in tilapia farming in 2015, with strong development of this activity in the South and Southeast Regions. Fish feed quality has evolved substantially in Brazil in the last ten years, from a generic fish feed available on the market in 2005, to specific feeds for different species, feeding habits and life development stages. Nowadays, it is possible to find specific feed for tilapia, round fishes, surubins and other carnivorous native species and trout. Many feed companies in Brazil use high‐quality equipment, have qualified technical support and expertise, and count on good supply and wide choice of feedstuffs, enabling them to produce high quality products. In the last decade, some of the national feed mills were acquired by large multinational animal feed companies. However, most animal and aquafeed manufacturers in Brazil are Brazilian owned companies, ranging from small (6,000 MT/year) to very large (24,000 MT/year), with a strong local and regional presence, and some with wide national distribution coverage for feeds. The majority of the volume of aquafeed produced in Brazil is for the grow‐out of omnivorous fish (extruded, floating pellets from 4 to 10 mm and 28 to 32% crude protein). Some feed millers also produce feeds for carnivorous fish, such as the hybrid spotted catfish, rainbow trout, pirarucu and cobia. Those are 2 to 15 mm extruded floating pellets, containing 40 to 50% crude protein and 10 to 15% fat.

110130161160168

240

300345

500

575

661

740

835

144120

666757848084717579

99105

0

100

200

300

400

500

600

700

800

900

Thousand M

T

Fish feed Shrimp feed

Source: Sindirações, 2016.

Fig18:Fishfeedxshrimpfeed

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Despite the limited supply of fishmeal and fish oils, animal feed manufacturers in Brazil have good quality animal meal, derived from the processing of poultry by‐products, pork and beef. Plant materials, especially corn, sorghum, soybeans (whole and meal),

wheat bran, cottonseed meal, rice middling and brans, among others, are also widely available at very competitive prices. During the year 2015, the effect of the devaluation of the Brazilian Real affected the price of raw materials for feeds with strong impact on poultry, swine, beef and milk, and agricultural wholesale prices, undermining the financial strength of many companies. This was the case for imported additives and commodities that are indexed to the dollar. For example, corn, for which the price per ton increased by 24% from January to November, and soybean meal, the price for which rose 31%. This currency devaluation reduces the competitiveness of Brazilian aquaculture products as, in world outside, there was a reduction on overall costs of animal feed, largely because of a

5% decrease in the soybean price in dollars and a 17% decrease for the oilseed bran. Fig20:Importedcommodities:Soybeanmealandcorn

Although global demand for animal protein continues to be firm, the reasons for the pressure on these prices are certainly related to the good American harvest and climatic conditions favorable for planting and productivity in South America. The fall in oil prices, the gradual slowdown in China, currency devaluation, high interest rates in



Fig19:FeedproductioninBrazil

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the United States and the still undefined recovery of European nations have also contributed to this economic scenario.

6.2 Aquaculture equipment suppliers There are a large number of aquaculture equipment suppliers in Brazil. The great majority focus on small‐scale fish farmers, selling small cages, aerators, and feeders. In the last few years, the number of small companies selling aquaculture equipment has increased considerably, with low‐tech products, often invented by the entrepreneurs themselves. This report will not list and describe all these small and emerging companies, but rather present the main players in the segment.

Bernauer Aquacultura ‐ Beraqua Bernauer began its activities in 1991 with the sale of aerators, initially imported from Taiwan and Germany, for shrimp farms in Santa Catarina. Soon after, the company began distributing boxes for transporting live fish, with Italian technology adapted to the roads and fish of Brazil, and fish eggs incubators using Hungarian technology. In 1994, it officially became Beraqua, with a commitment to produce national quality equipment for the development of the Brazilian aquaculture. In 2011, Beraqua moved to its current premises in Indaial (SC). The company also has a wide network of representatives, distributors and outposts for sales and services throughout the Brazilian territory. Beraqua sells aerators, incubators, automatic feeders, oxygen meters, boxes for transporting live fish, manual fish graders, workwear bibs, water pumps, compressors and spare parts. Beraqua is also the exclusive distributor in Brazil of the aquaculture line of YSI Incorporated from the United States. Among the YSI products are oxygen, pH, salinity and multi‐parameter meters. The company maintains a laboratory to provide technical assistance for YSI instruments. Beraqua offers technical presentations on the application and correct use of its products. Beraqua customer maintenance teams also receive training on the installation and maintenance of the products sold by the company. Their clients are fish and shrimp farmers.

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Trevisan Trevisan Agroindustrial Equipment, founded in 1987, headquartered in Palotina ‐ Parana, started its activities providing maintenance services to farmers and local industries. In 1991, Trevisan expanded activities by increasing its portfolio and entering into the aquaculture market with a paddlewheel aerator for fish and shrimp farming. Nowadays, the Trevisan production line includes the following equipment: Aerators, live fish transport boxes, incubators for fish and shrimp hatcheries, and fish feeders. Although the company is based in Paraná, South Region, Trevisan has clients in all Brazilian states. Its distributor in the Northeast Region is AcquaSystem. AcquaSystem is based in Acaraú‐ CE and sells pumps, kayaks and other equipment for shrimp farming.

Escama Forte Escama Forte has operated its fish farm for producing tilapia since 2003, ranging from juveniles in nurseries to the grow‐out phase in cages. It has diversified its business to sell fish and shrimp farming accessories and equipment. Among the accessories are fish bags, aprons, workwear bibs, landing nets, and portable digital scales. With regard to aquaculture equipment, Escama Forte sells fish graders and aerators. It sold Vaky fish pumps for a while but later decided to give up on this equipment. Its focus is on small‐scale farmers, with cheaper products. The Escama Forte headquarters is in Botucatu (SP) and the company has a distributor for the Northeast region based in Ceará. Additives, probiotics and medicines are important items in Escama Forte’s business. According to the company director, these items provide the majority of the company’s income and this market is increasing. Its probiotics are used for pond soil management or to promote better water quality inside the fishpond. Another product in this line is the oxygenator and selective fertilizer. In aqueous medium, this product decomposes into active oxygen, and sodium carbonate. With regard to medicines, besides the traditional antibiotics such as florfenicol and oxytetracycline, Escama Forte provides homeopathic medicines for different purposes in fish farming, such as stress reduction,

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parasite control, and control of contagious infectious diseases caused by bacteria, viruses and fungi, and to increase fish fertility. A few years ago, Escama Forte launched an immunization service with a team that goes to the fish farms to immunize all fish against streptococcus during the grading process.

Marine Equipment Founded in 2010 and based in Florianópolis (SC), Marine Equipment focuses on industrial and mechanized aquaculture. This company attends fish, shrimp and mollusk farming companies with modern equipment and technology. Among its products are fish and shrimp pumps, fish scanners and counters, aeration hoses, air injectors and compressors, automated feeding systems, rotomoulded floats, special cables for mussel farming, lantern nets for scallop farming, plastic and fiberglass boats, aquaculture nets and cages, water treatment equipment (drum filters, UV filters, skimmers, and pump) and oxygen meters. Its many suppliers come from all continents and many are international leaders in supplying the aquaculture industry such as Magic Valley Inc. (USA), AquaScan (Norway), Badinotti (Chile), and Hvalpsund and Oxyguard (Denmark). Its clients are the main companies in the fish, shrimp and mollusk farming industry such as MCassab, Copacol, Netuno, Pescanova, Leardini, Valença da Bahia, Aquatec, among others. Besides equipment, Marine Equipment provides services, such as technical and economic feasibility studies for aquaculture projects, site selection and aquaculture lease applications, assistance in environmental licensing of aquaculture projects, aquaculture sectorial analysis, and cage or farm assembly with installation and underwater services.

Sulpesca Aquicultura Among the many manufacturers of small‐volume cages, Sulpesca excels for its product with rotomoulded floaters. Besides this product, Sulpesca has many other accessories, such as nets, aerators, fish egg incubators, workwear bibs, and feeders. The company is located in Toledo (PR) and this benefits its business through close contact with a large number of small‐scale tilapia farmers.

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6.3 Vaccines and medicines Registered vaccines and medicines for aquaculture are a fairly recent innovation in Brazil, as in 2007 there was no product for fish health treatment registered with MAPA. MSD Animal Health stands out as a pioneer in the introduction of the first health concepts and veterinary products developed specifically for aquaculture use in Brazil. The first and only antibiotic registered for fish in Brazil is Aquaflor 50%. Aquaflor is indicated for tilapia species and hybrids in the treatment of Hemorrhagic Septicemia Bacterial, a disease caused by gram‐negative bacteria of the genus Aeromonas sp. and Estreptococosis, a disease caused by gram‐positive bacteria of the species Streptococccus agalactiae. It is also indicated for the treatment of the Red Mouth Disease caused by gram‐negative bacteria Yersini ruckerii in Rainbow Trout. Although there is only one antibiotic registered, it is common to see fish farmers using enrofloxacin, oxytetracycline, and sulfonamides indiscriminately. With regard to vaccines, MSD AQUAVAC® is the only product available in Brazil. It is indicated for active immunization of tilapia to reduce mortality and disease caused by estreptococosis. Masoten® from Bayer, combat echtoparasites in freshwater fish (trout, carp, eels and others), such as Argulus sp., Ergasilus sp., Lernea sp., Trichodinas (protozoan), Dactylogyrus sp., Gyrodactylus sp. and various trematode sensitive to triclorfone.

6.4 Fish Hatcheries In 2005 a national survey identified 175 fish hatcheries in Brazil, varying from small installations producing a few thousands seed to bigger installations with a capacity to produce over 20 million seed per annum. At that time, the sum of the seed production of all freshwater fish species was 617 million seed. Tilapia was the main fish produced in Brazil with a production volume of 304.5 million in 2005, followed by tambaqui with a volume of 52 million seed in the same year. The remaining 261 million seed are spread among 35 other species, of which 26 are indigenous to Brazil. The great majority of hatcheries are privately owned. Many government institutions and hatcheries were created in the 1970s to provide seed supply for stock enhancement in federal rivers and reservoirs. The two main government institutions are CODEVASF (Company for the Development of the São Franscisco Valley) and DNOCS (National Department of Engineering Against Droughts). These institutions are still very important in the Northeast Region where they supply seed for restocking and for small‐scale aquaculture. The production of freshwater fish seed from government hatcheries was 75.1 million in 2005, which represented 12.2 percent of national seed production.

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This huge diversity of fish species is mainly because the freshwater fish seed industry was strongly focused on the supply fingerlings for recreational fishing parks in the 1980s. Commercial fish farms to supply restaurants, supermarkets and processing factories were only established in the 1990s. Only a small percentage of seed producers have appropriate means to evaluate the quality of their product. One aspect that is observed by most hatcheries is the mechanical classification of seed sizes in order to deliver seed batches that are homogeneous in this aspect. Tilapia seed producers have great care with sexual reversion efficiency and most of them report that rates of 99 percent are attained. Some producers have reported that there are bad quality tilapia seed being offered at lower prices in the market, particularly with regard to lower rates of sexual reversion. Most producers also stated that their seed attain survival rates of 95 percent if well handled by fish farmers. Some large hatcheries maintain constant contact with their customers to get feedback on survival and feed conversion rates. Information about seed health management is very limited and there is no sanitary control to avoid the spread of diseases through the marketing of seed within different regions of the country.

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Table18:ScientificnameoffreshwaterfishseedsinBrazil‐2005

Only a minority of fish farmers produce their own seed. Therefore, business between seed suppliers and fish farmers is a critical point in the production chain, where there is a need to standardize seed size classes. The seed is currently sold as fingerling I or fingerling II or juvenile, accordingly to its size or weight. The variation in terms of sizes and prices leads to great confusion in the seed market, leading to great variation in the product.

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Among the main companies producing freshwater fingerlings it is worth mentioning Aquabel, AAT, Projeto Pacu, and Fine Fish.

Aquabel Aquabel develops, produces and sells genetic material distributed as fingerlings and juveniles and has production facilities throughout Brazil. Founded in 1994 by Ricardo Neukirchner and Claudio Batirola in Rolândia (PR), it soon became the main tilapia fingerling supplier in the South and Southeast Regions. In 2012 a new breeding center was inaugurated in Ilha Solteira (SP), in partnership with AquaInNovo, a Chilean company with a team of scientists and top‐level professionals who work in research and development of breeding strategies and biotechnology. Between 2006 and 2013, Aquabel expanded the territory inaugurating four new breeding centers, in the Midwest Region: Turvânia – GO (2006), Parnaíba – MS (2008), and the Northeast Region: Recife – PE (2012) and Fortaleza – CE (2013). In the Northeast, Aquabel has a partnership with BOMAR Pescados, an important company in the mariculture sector of Ceará. (http://bomarpescados.com.br/). Aquabel production is currently near 100 million fish/year and the company counts on a very well organized distribution system with a fleet of 21 transport vehicles that cover a radius of 1200 kilometers around each production unit. With regard to the distribution of production units in the country, Aquabel already reliably serve the South, Southeast, Midwest and Northeast.

Norwegian salmon genetics company AquaGen recently announced it has taken majority ownership of shares of Aquabel. AquaGen is a part of EW Group, a holding

Fig21:Aquabeltilapiabreedingcenters

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company of several independently operating companies in the areas of genetics, nutrition and animal health.

Advanced Aquaculture Technology ‐ AAT Advanced Aquaculture Technology (AAT), based in Paulo Afonso produces fingerlings and juvenile tilapia. It has 55 employees, including 3 fishing engineers, to produce 1,300,000 tilapia juveniles per month (20 and 40 grams) and 600,000 fingerlings weighing between 1 and 2 grams. It supplies clients throughout Bahia, Sergipe, Alagoas and Pernambuco. Its biggest customer is Netuno Alimentos, to which it sells up to 400,000 fingerlings per month. It also donates all its mortality to Netuno, for fishmeal production. Pescanova Brasil, Braspeixe and Tilápia São Francisco are also major clients of AAT. The remaining production goes to small‐scale producers because AAT has a social concern for the production in the region. These people sometimes find it difficult or too expensive to buy fingerlings in other cities due to logistical costs. Therefore, it reserves a large part of production for these people, keeping them in their hometowns and encouraging the local fish farming chain. AAT is the only company in Bahia that sells tilapia juveniles vaccinated against Streptococcus. All the juvenile production comes from raceway batteries with 208 tanks (32 m² each).

6.5 Research & Development In 2010, EMBRAPA established a national network of research institutions and universities to create a scientific basis for the development of sustainable technologies for cobia farming in Brazil. The project focused on the major bottlenecks linked to feed and nutrition, genetic resources, health, and production management. In this sense, the proposal to reduce the reliance on fish meal as the main source of protein and fatty acids, respectively, in feed for marine aquatic organisms is extremely important and timely. The use of alternative ingredients, such as soybean and linseed, to replace fishmeal and fish oil in the formulation of diets was one of key topics investigated. With regard to genetic resources, the network developed the semen cryopreservation protocol, which will serve as a key tool to support the breeding programs. Specimens from different regions of the country were analyzed to characterize the genetic diversity and distribution of cobia along the Brazilian coastline. With regard to health, alternative herbal treatments were tested to combat agents of the most prevalent diseases in cobia farming, aiming to avoid environmental impacts and the creation of resistance to chemotherapy, as well as proposing preventive measures at all stages of the production system, from eggs to adulthood. The network also investigated production systems, and generated information about the economic viability of the farming systems used in Brazil – both at industrial and artisanal scale. The project

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evaluated the product yield for different processed products that could add value to the fish and meet consumer demand. In addition, slaughter techniques and transportation were also investigated. Besides cobia, EMBRAPA Aquaculture embraced many other production chains such as tilapia, round fishes, catfish, pirarucu and shrimps, and considering the short time since its creation, has produced a large amount of scientific knowledge applicable to aquaculture7. In addition to the efforts of EMBRAPA, many aquaculture departments and research facilities at Brazilian universities and federal development agencies concentrate aquaculture research, teaching and technical support and, on a yearly basis, provide hundreds of newly graduated professionals to the aquaculture industry.

7. Discussion and recommendations The current economic and political environment in Brazil is challenging. The downturn in the economy in 2015, poor growth expectations for 2016 and 2017, strong devaluation of Brazilian Real, overall increase of prices (inflation), unemployment at an increasing rate, investors and people with no confidence in the government, the unfavorable political environment for the government to promote the necessary adjustments in the economy, major cuts on investments for infrastructure, the downgrade in the investment rate, and the loss in international credibility place Brazil under a cloud of uncertainty for potential investments. From the international perspective, the Brazilian economy seems stuck and shows no evident signs that it will recover in the short term. Experts predict that such an adverse scenario will persist until the end of 2017. Agribusiness has prevented the total collapse of Brazilian economy, mainly through the export of soybean, corn, and meat products, with increased revenues due to the appreciation of the dollar. The agrifood sector is now among the most dynamic in the Brazilian economy and has made the country the world’s third agrifood exporter after the European Union and the United States. In addition, it has surpassed the United States as the country with the largest surplus in agricultural trade. Grain production more than doubled and meat production more than tripled between 1990 and 2010. The agrifood economy generates about 8 percent of the country’s GDP at present, representing 17 percent of total employment and about 40 percent of total exports. In the aquaculture sector, despite the adverse economy and water shortage in Northeast and Southeast Brazil, farmers are expecting to close 2016 with a slight

7EMBRAPAAquaculturepublicationscanbefoundfordownloadat:https://www.embrapa.br/pesca‐e‐aquicultura/publicacoes

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increase in production over the past year. Cultured fish is more expensive now to Brazilian consumers, already suffering reduced income due to overall increases in prices and the unemployment rate in the country. With 206 million inhabitants, Brazil is the largest market in Latin America. In 2014 Brazil produced 12.7 million MT of chicken, 8.2 million MT of beef and 3.4 million MT of pork, using 64 million MT of animal feeds. Capture fisheries is depressed and estimated at 500 ‐ 600 thousand MT/year. The offer and consumption of seafood in Brazil has grown mainly through the expansion of aquaculture and the importation of seafood. In 2015 Brazil imported 338,000 MT of seafood products and nearly 30% of all fish consumed in the country is sourced from other countries. Imports grew at an annual rate of 11 percent from 2005 to 2014. But his trend has been changing since 2015 with the devaluation of Brazilian Real. Table19:Totalseafoodimportsduring2005‐2015

Source: MDIC; Rabobank, 2016

The seafood demand that the imports once created will, at least in part, need to be filled by either locally produced chicken and beef, or locally produced fish and shrimp. This could provide a unique opportunity for local aquaculture producers to step up, initially by providing products to the domestic market and, in a few years, perhaps by also positioning Brazil among the ranks of seafood exporters.

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Table20:Animalproteinpricecompetition

Source: Rabobank 2016.

According to IBGE, while the Brazilian annual per capita consumption of fish is around 10 kg, pork consumption is roughly 15 kg, beef above 30 kg and poultry around 45 kg. However, no different from what has happened globally – a growing part of the Brazilian population has been changing its dietary habits toward fish products, as growing health concerns lead consumers toward healthier meals. In this context, fish consumption in Brazil increased by 76% over the past decade (2004‐2014), according to a 2015 study by FAO. Trendy and innovative products such as sushi and sashimi tend to convert new and younger seafood consumers. Japanese restaurants grow exponentially in Brazil. According to Gastronomic Restorers Association of the Americas (Aregala), Brazil currently has about 3000 Japanese restaurants. The city of São Paulo has more Japanese restaurants than steakhouses. There are 600 stores against 500, respectively, according to ABRESI (Brazilian Association of Food, Hospitality and Tourism). Ranked as the third largest city in the world by population with 17.7 million inhabitants, the state capital produces up to 400,000 sushi per day. The growth of restaurants for this type of food was 3% per year from 2004 to 2012, according to the institution. Chilean salmon is among the most consumed products. Brazil is third‐largest market for fresh Chilean salmon in terms of volume and Chile's farmed salmon exports to Brazil last year totaled 15,086 MT. However, the large emerging market of Brazil, which has represented a significant proportion of the growth in the Chilean salmon market over recent years, are no longer such attractive prospects for Chilean exporters. Two years of biological challenges, financial losses and devastating algae bloom – which in less than two months destroyed 20% of harvestable biomass – have forced the industry to contract. The following years will require new regulation and restructuring, which means declining supply and sky‐high

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prices. In local currency, the price change is extreme. A kilo of salmon was 58.6% higher between January and April this year, from US$ 7.28 to US$ 11.55, according to the Ceagesp (General Warehouse Company of São Paulo), a leading supplier to São Paulo restaurants. Brazilian aquaculture grew considerably in the last two decades. However, it could have grown more with better organization, more effective policies and more support from the government. Brazil is considered to be one of the best suited countries for aquaculture, thanks to the strong domestic market, record crop of grains, well‐established feed industry and vast territory (8.5 million km2), largely under a tropical climate, with abundant supply of freshwater, and large areas suitable for pond construction. Besides this potential advantage, the country has more than 8,500 km of coastal line to develop marine aquaculture and 4.2 million hectares of reservoirs that can be used for cage aquaculture. The aquaculture sector in Brazil is already established, attracting the interest of domestic and foreign investors looking for opportunities for farming as well to invest in related business, such as aquafeeds, aquatic health, genetics, equipment and technical services. The main factors that limit the growth of aquaculture production on Brazil are the difficulty to obtain environmental permits, the lack of specific policies for the development of this sector, obstacles in accessing credit, high production costs and difficulty in accessing technology. Brazil still needs to improve the coordination of environmental policies and the regulation of the use of its natural resources across responsible government agencies, both at the ministerial level and between tiers of government. In a recent report about Brazilian aquaculture potential, the Dutch bank Rabobank expects Brazilian tilapia production to increase by 10 percent a year, surpassing 490,000 MT by 2020. Additionally, annual production of tambaqui is projected to surpass 33,000 MT over the same period. Much of this expansion will be supported by rapidly expanding grain production, particularly in the Midwest, were abundant supply, coupled with underdeveloped logistics, acts to keep local grain prices relatively low. Rabobank believes that the sector’s prospects are also enhanced by a weak exchange rate, along with the declining profitability and competitiveness of key aquaculture exporters, which will allow Brazilian aquaculture to develop in the following years. There is substantial variation in aquaculture development status both across and within Brazil’s five regions. Moreover, close to two‐thirds of the total variation in Brazilian aquaculture development is explained by non‐geographical factors including access to natural resources and socio‐cultural aspects. Thus, the proper selection of the region in which to invest in an aquaculture business is paramount and can make the difference between success and failure.

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Learning from the mistakes of others is priceless and any investor should take advantage of their predecessors’ failures. One common mistake is aiming for scale production but remaining between medium and large scale when the project is implemented, due to financial problems and limited investment, resulting in huge fixed costs and low revenues. In the fish industry, scale is a determining factor and can derail an industrial processing plant. The scale must be linked across the chain to maximize the processing scale, from production to the potential consumer market. The most effective production capacity dilutes fixed costs, generating economies of scale. In fish farming, due to the expense of hatchery and farm operations, there is no space for pilot projects. It is just too expensive and it always takes more time than expected. Therefore, to be a pioneer in industrial marine aquaculture in Brazil, everything must be carefully planned. The enterprise plan must be prepared as if planning to cross the Atlantic Ocean paddling, as the Brazilian navigator and planning key‐speaker, Mr. Amyr Klink, did in 19848. There is no second chance. Once the project is launched, there is no return, and so detailed planning and appropriate investment to reach scale production as fast as possible are crucial aspects of success. To date, there have been very few projects with detailed business plans prepared by experts with industrial aquaculture experience. We have seen large aquaculture projects failing because technology has not been adopted or only adopted at a low‐level. BNDES also identified this issue, as stated in its report about aquaculture development potential in Brazil, modernizations and technology upgrades, automation, replacing methods that use intensive manual work and achieving larger scale are key to leverage in the industry. Brazil has a long learning curve to travel in replacing rudimentary and informal methods of production. Another common mistake is to forget about investing in marketing. That is, most aquaculture farmers think of the production aspect alone, and only close to harvest decide to search for a market. Potential marine aquaculture products presented in this report, such as cobia, pompano, mussels and scallops, are not commonly found in the market, and where they are, they are unknown by the great majority of consumers. Therefore, investing in a marketing strategy must be seen as an intrinsic component of the business plan. Similarly, incorporating the positive experiences of successful enterprises is also very important. The processor driven integration of fish farmers and the company via contracts or agreements, similar to what happens with chicken and swine meat in Brazil, is a good example from the positive experience of tilapia farming in Paraná state. This vertical integration and structuring of the chain contributes to the

8AmyrKlink,1984.Cemdiasentreocéueomar.http://entretenimento.uol.com.br/noticias/redacao/2014/09/28/amyr‐klink‐diz‐que‐cem‐dias‐entre‐ceu‐e‐mar‐e‐mais‐importante‐que‐travessia.htm

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coordination among actors and better organization of its links. In general, the integration company offers the genetics, feed and technical assistance. The producer, in turn, should deliver its production and cannot sell it in the spot market if prices are higher. On the other hand, the producer does have the assurance that the company will buy its production. As the relationship between the business and producers matures, bonds of trust can be developed through the selection of those who honor the agreements. Thus, there is greater consistency in receiving products of the required standard, through increased homogenization of production methods, the feed used and genetics. The company provides technical support to integrated producers, so that they use the best management practices, achieve better conversion indicators and reduce mortality, in short, achieve better results and productivity. An extreme form of full vertical integration comes in the form of agro‐holdings. These can be described as closed‐circuit production cycles covering all stages from raw material to finished products. As there is no buying of feed, fingerlings or paid assistance services in the integration scheme, there is a substantial reduction on taxes and production costs. Large national protein companies and cooperatives with integration schemes are diversifying their portfolios, but few are producing fish. They could take advantage of their distribution channels as well as their financial and administrative resources, to dilute fish production costs. These agro‐cooperatives are definitely good candidates for Brazilian partners for freshwater aquaculture projects in Brazil. Limited water supply has begun to concern tilapia farmers in the Northeast and Southeast of Brazil, and the Northeast is facing its fourth consecutive years of drought. The severe water shortfall has affected not only the Northeast and Southeast but also the Midwest Region. It has affected not only energy supply but also urban and industrial consumers, and agriculture, particularly aquaculture, users. Lower rainfall has resulted in significant reductions in water inflows to major storage reservoirs. The current water challenges are affecting the country’s productivity in several profound ways, as the availability of water is critical for the water, energy, industrial and agricultural sectors. Conflicts among water use are increasing, as economic use is either being restricted or banned to prioritize human consumption. The situation raises profound questions about the need for considering the water‐energy‐food nexus and for more integrated water‐energy‐food production planning. Insufficient investment in improving water security, including multipurpose reservoirs and water transfers, and poor management of water allocation among users, increases risks to water security and thus to all economic sectors for which water is an important or essential input, such as freshwater fish farming.

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Freshwater fish farming Considering freshwater finfish aquaculture, tilapia is undoubtedly the candidate species with better conditions and a series of technical advantages in genetics, nutrition, reproduction, farming practices and health management, which are well advanced in comparison with the farming practices of round fishes and catfishes. Compared to tilapia, tambaqui has a higher cost of production due to its feed conversion rate, of around 1.8. In these two species, feed represents more than 70% of the costs, given that they have the same production system. Tambaqui prices for growers are higher than tilapia prices, which is a competitive advantage for the Amazon species. It is important to mention that the stocking rate for tambaqui is lower than that of tilapia, which also explains the higher costs. While the yield of tilapia can reach more than 50 MT/hectare of body of water, tambaqui’s production is less than 10 MT/hectare. This optimization of the costs and stocking rate can be addressed by genetic improvement and by the development of specific feed for this species. Besides the species, a key factor for investment in aquaculture production in Brazil is the selection of country region. This involves careful analysis to consider which locations have lower risks. The main risk for freshwater aquaculture projects in Brazil, as seen above, is water shortage. Taking this into consideration, our recommendation would be to avoid those regions affected by the drought in the last few years. Considering the trends in global climate change and the increasing world population, it is very likely that water limitation and competition for different purposes will get worse in the next few decades. The South Region is less affected by this

problem because there is a large water system located beneath the surface of Argentina, Brazil, Paraguay, and Uruguay. It is called the Guarani Aquifer, and is one of the world's largest aquifer systems. It is an important source of fresh water. It covers 1,200,000 square kilometers with a volume of about 40,000 cubic kilometers a thickness of between 50 meters and 800 meters and a maximum depth of about 1,800 meters. It is estimated to contain about 37,000 cubic kilometers of water with a total recharge rate of about 166 km³/year from precipitation. It is said that this vast underground reservoir could supply fresh drinking water to the world for 200 years. Another major factor is the possibility of obtaining environmental permits for aquaculture. As seen above, this aspect is highly variable within Brazilian states and in many states aquaculturists are fighting to obtain government support without success.

Fig22:TheGuaraniAquifer

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Therefore, the selection of a state where environmental licenses are issued without major problems increase the chance of legalizing the aquaculture enterprise and, consequently, the chance of obtaining access to credit lines. Paraná state meets these conditions. Besides abundant water and the ease of obtaining licenses, Paraná already has a strong culture, among agricultural and fish farmers, of processor driven integration schemes and a strong extension service provided by the local government. However, the lower water temperatures imply longer farming time, with 2 or 3 additional months for tilapia to reach the commercial size in comparison with the Northeast Region. Nevertheless, it is much better to wait a few more months to harvest than running the risk of massive mortalities due to water shortage or water quality problems, and the impossibility of legalizing the farm. Locations such as Salto Caxias reservoir, fed by the Iguaçu River, the same from the Iguaçu Falls, which is where COOPERÇU is based, have the additional advantage of being one of the few places in Brazil where there are no piranhas, which allows the use of textile nets with antifouling paint in large volume cages, to overcome the golden mussel problem. Having said that, we believe that COOPERÇU offers a very good investment environment for a modern enterprise with large volume cages for tilapia farming. Additionally, COOPERÇU members have already worked under the forward integration scheme and this cooperative applied for its aquaculture leases many years ago, and it is very likely that they are close to obtaining the permission for tilapia farming in vast areas, enabling the installation of a large scale aquaculture project in the region. There is long delay in environmental licensing in this region because the state government was reluctant to allow tilapia farming in the Iguaçu river, but in 2014 the authorities recognized that tilapia is already established in these waters, and that commercial tilapia farming has been practiced for many years already, and tilapia farming has been allowed in the river and associated lakes.

Marine fish farming With regard to marine fish farming, we believe that although cobia is a fantastic candidate for investment, and there is a unique opportunity to replace salmon space in the increasing Japanese restaurant market, there are still some technical constraints that need to be overcome before this fish can become a reality in Brazilian aquaculture. The main issues relate to nutrition and health problems. Feed companies have excelled at feed for more traditional species, such as salmon and trout, but in emerging species, the picture is different. The little that is known about the nutritional requirements is based on trials with small fish, with juveniles, while the vast majority — 80 to 90 percent, is given to fish in the grow‐out phase, close to harvest size. Consequently, since the nutritional requirements are not being met, their aquaculture performance in terms of growth, feed conversion and survival is poor.

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Thus, new operations raising cobia are losing money primarily because of the high costs of the feeds, high FCRs, and poor fish health. With FCRs above 2 — often above 2.5 — and feeds costs above US$ 2 per kg, the numbers simply don’t work. The key to success, as stated by large Taiwanese companies, is a special feed blend with probiotics. The Florida pompano (Trachinotus carolinus) is endemic to the eastern nearshore continental shelf of North, Central and South America. This species has been collected in summer months from as far north as Delaware (United States of America) to as far south as central Brazil. The pompano’s meat is more tender and soft than cobia, but you can eat the skin or grill the whole fish, and the quality is high in terms of nutritional composition ‐‐ it’s high in omega‐3 fatty acids, has a flaky soft texture and a mild flavor. Breeding techniques for Trachinatus spp. are now well understood9 and there are hatchery technicians in Brazil trained by Dr. Daniel Benetti, University of Miami, with the skills to produce fries on a regular basis. There are no public published reports describing the Florida pompano’s adaptability to open water sea cages. During the last 10 years, two private companies reportedly have used inshore floating sea cages to raise Florida pompano in the Bahamas, Panama and the Dominican Republic. Since these are private companies, details of the operations, including production quantities, are unknown. All indications are that Florida pompano should do well in the cage culture environment but further investigation is needed as to the cage design to meet their specific behavioral and environmental needs. However, Florida pompano farming remains in its infancy as an industry and therefore farmers and fishery scientists have had limited exposure to short‐ and long‐term experiences with specific pompano disease issues. Therefore, exhaustive literature searches on diseases of the Florida pompano yield little to no specific assistance on this subject.

Aquatic feeds There need to be more resources poured into R&D for these emerging species. Moreover, it needs to be done only after changing the perception that the market for feeds in species such as cobia and pompano is still small. The question is: What comes first? The feed or the fish? Global leaders in aquatic feed such as Nutreco, InVivo NSA and Cargill, are already present in Brazil. Cargill has been in Brazil since 1965 and has over 8,000 employees, making it one of the largest food companies in the country. Headquartered in São Paulo (SP), the company is present in 15 Brazilian states through industrial units,

9DetailsofPompanobreedingtechniquesavailableat:http://www.fao.org/fishery/culturedspecies/Trachinotus_spp/en

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warehouses and offices in 137 municipalities. In 2015, its consolidated net revenue reached US$ 9.75 billion. In 2015, Cargill acquired seven feed manufacturing facilities from EWOS; three in Norway, and one each in Chile, Canada, Scotland and Vietnam, as well as two state‐of‐the‐art R&D centers located in Norway and Chile. EWOS produces more than 1.2 million metric tons of salmon feed for the biggest salmon producers in the world. Alongside this significant transaction, its second aquaculture acquisition, Cargill has announced that strategic investment will be made for the long‐term growth of the facilities and stated its commitment to the growing aquaculture industry. In Brazil, Cargill has acquired Nutron and part of the Nestlé Purina factories, in an agreement in which Cargill’s factories will produce feed for large animals only while the Purina feed factories for small animals stay with Nestlé. Therefore, the activities of Cargill‐Nutron in Brazilian aquaculture have been limited to the production of premix and services for large agro‐cooperative groups running tilapia farming projects, such as Copacol and C. Vale. Skretting established the Skretting Aquaculture Research Centre (Skretting ARC), a research center focused on the development of world aquaculture. Skretting ARC employs an international team of highly qualified experts, supported by a substantial annual investment in advanced R&D, and its core competencies relate to nutrition and the health of fish and shrimp, raw materials, food safety and quality, technologies and production processes. Part of the Nutreco group, Trouw Nutrition Brazil is integrated into this technological network, adapting innovative concepts and processes to Brazilian conditions and the species of fish and shrimp grown in the country. The BioMar Group has launched a fish feed containing marine fatty acids from microalgae and the new algae ingredient now being delivered to BioMar has been developed by TerraVia Holdings and Bunge Limited and is produced at their joint venture renewable oils manufacturing plant in Brazil. The strong development capacity of these feed multinationals can be combined with Embrapa research achievements to overcome the lack of proper feed production for marine fish in Brazil. The development of cobia or pompano farms in Brazil would have to grow simultaneously with investments in specific feed production. With regard to the best location to start cobia or pompano farming in Brazil, our recommendation would be the south of Rio de Janeiro state, mainly because of the good availability of sheltered areas with pristine water such as in Big Island Bay, and the ease of accessing the environmental permits for marine aquaculture. As with freshwater fish, the processor driven integration scheme would be the best way to go to avoid conflicts with local fishermen, the lack of skilled workforce, high labor costs and high turnover of employees, and to generate favorable public opinion and to attract government support to the enterprise.

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Mussel farming Mussel farming is also an interesting investment option. As filter feeders with no feed input and natural recruitment of spat, mussel farming requires much lower capital in comparison to finfish production, and payback times are also much shorter. Due to the sub‐tropical conditions of Santa Catarina, the Brazilian mussel grows two to three times faster than in other producing countries, achieving longer shell length and higher meat yield. With ideal water temperature, access to environment licenses and marine aquaculture leases, and with a shellfish sanitation program in place and nearly 600 small‐scale farmers already established and legalized, Santa Catarina state offers a good investment environment for the development of industrial mussel farming. Chile followed this path with very good results. Mussel farming in Chile started in the same period as Brazil, but while Brazilian production has never exceeded 20,000 MT, in Chile the industry grew very fast and became an important marine aquaculture product with growing export earnings. Foreign investment from Spanish companies with the participation of Chilean fishing companies was the formula for their success. Fig23:ComparisonbetweenChile,NewZeelandandBrazilinmusselfarming

With the cancelation of fishing permits due to unreported captures, devaluation of the Brazilian Real and the economic crisis, many fishing companies in Santa Catarina with product portfolios largely based on imported seafood went bankrupt. Many of these companies have very good facilities, boat access and storage capacity that are underused. The current scenario is very opportune as industrial mussel farming could be a new and attractive investment option for these companies. There are possible synergies between mussel farming and marine fish farming. Besides the Integrated Multi Trophic Aquaculture (IMTA) that has been gaining increased world attention over the last few years, including from Canadian and Norwegian salmon

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companies, mussel meal can be used to replace fishmeal in fish diets10,11. Blue mussel meal is expected to meet the essential amino acid requirements of fish. Blue mussel meal contains high levels of various free amino acids with possible positive attractant properties. The gonads have high glycogen content and the level of glycogen therefore varies with season. DHA and EPA account for 16% and 17% of the fatty acids. This makes mussel meal a renewable and very good source of these important fatty acids. Previous research indicated docosahexaenoic acid (DHA, 22:6n‐3) as essential to satisfy cobia LC‐PUFA demand, whereas eicosapentaenoic acid (EPA, 20:5n‐3) is required in trace amounts. Table21:Comparisonbetweenmusselfarmingandmarinefishfarming

Mussel meat

Mussel meal

Fish meal

Rape cake

Peas Soy cake Wheat

Protein, g kg‐1 DW 645 764 670 237 265 520 120

Methionine, % of protein 1.8 2.5 2.8 2.0 1.0 1.4 1.6

Methionine + Cysteine, % of protein

2.6 4.2 3.7 4.5 2.4 2.9 3.9

Lysine, % of protein 6.0 7.7 7.4 5.6 7.1 6.2 2.8

Source: Aquabest, 2013.

With mechanized mussel farming, it is possible to produce one ton of live mussels at US$ 61.00 (US$ 0.61/kg). A ton of live mussel yields 50 kg of mussel meal, at a final cost of US$ 1.25/kg, while the international current price of fishmeal is US$ 1.55/kg. Good results were obtained with common sole (Solea solea).

Ocean pollution The treatment of wastewater is still a major challenge in Brazil. The National Sample Survey of Households (PNAD) in 2009 showed that 99% of the population have access to the electricity grid, 89% to garbage collection, 84% to water supply and 84% to fixed telephony. However, only 59% of Brazilians have collection and treatment of sewage, including by septic tank, which covers only half of the waste. Among the 52.2% the municipalities that have a collection service, only 20.2% treat the sewage collected, with the remaining 32% only collecting. The collected and untreated sewage is led by pipes to be dumped in the environment, making rivers and seas a focus for the spread of disease, affecting water quality and the ecosystem. There is a great shortfall in sewage treatment in Brazilian coastal cities and only 12% of the Santa Catarina state population has access to the sewage system. In 1990, the rate

10NORDEN,2015.Localfishfeedingredientsforcompetitiveandsustainableproductionofhigh‐qualityaquaculturefeed.NordicInnovationPublication2015:02.72pp.11LINDAHL,O.2013.MusselmealproductionbasedonmusselsfromtheBalticSea.ReportsofAquabestproject6/2013.FinnishGameandFisheriesResearchInstitute,Helsinki.11pp.

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was 9.5%. To achieve 30% sewage treatment, Casan invested R$ 1.2 billion with funds from the Growth Acceleration Program (PAC), Japan International Cooperation Agency (JICA) and the French Development Agency (AFD). In 2010, a further R$45 million was invested in the costal municipalities of Criciuma, Sao José and Florianópolis, with a minimum target of extending the service to attend to 54.5% of the population. Although some areas of the Santa Catarina coast near to urban centers are polluted by sewage runoff, shellfish farming is not allowed in these areas and the state maintains a Shellfish Sanitation Program with surveillance for detecting coliforms and toxic algae present in marine aquaculture areas, prohibiting mollusk harvest in contaminated areas and temporarily closing areas during Harmful Algae Blooms (HAB). The state is also implementing a traceability program and counts on the assistance of the Centre for Environment, Fisheries and Aquaculture Science (Cefas) from the UK to improve the shellfish sanitation program and ensure that farmed mollusks meet European market standards.

Scallop farming Scallop farming could be an interesting investment option as Norway has strong expertise in this sector. Established in 1995, Scalpro AS is the only commercial bivalve hatchery in Norway. Scalpro AS owns hatchery and nursery facilities in Western Norway, producing 2 to 4 million 15‐20 mm spat on a yearly basis, and in addition sells agal cultures and research and development services. Scalpro AS is interested in the development of sustainable production to increase output and meet market demand. Scalpro AS has a long record of cooperation with research institutions, both in Norway and internationally. The most promising regions to invest in scallop farming in Brazil are Santa Catarina and Rio de Janeiro. Both states have potential institutions and hatcheries that could cooperate with Scalpro AS to boost the industry to industrial level. While warmer water temperatures along the Rio de Janeiro coast favor scallop growth rates, the absence of a shellfish sanitation program imposes difficulties on market access through the formal routes, and favors competition with non‐inspected seafood products.

Equipment and services With regard to equipment and specialized services, there are good opportunities in Brazil for Norwegian companies from this sector, as there is practically nothing available in the country in terms of equipment for industrial aquaculture, excluding imported items such as those sold by Marine Equipment. Here again, the same question applies: What comes first? Equipment and services, or aquaculture companies to buy them? Marine Equipment believes that either one or other side of the industry needs to take the first step to start a virtuous cycle, and that

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is why, six years ago, we won the position of local dealers for the best known brands of equipment for industrial aquaculture. However, with the devaluation of the Real and the high import taxes charged in Brazil, imported equipment is inaccessible for the great majority of Brazilian aquaculturists and very expensive for the few large companies that have decided to invest in it. Although sales volumes still do not justify investing in a factory for local manufacturing, Brazil has good industrial infrastructure and production capacity in cordage and netting, plastic, metal‐mechanics, hydraulics, electronics, boatbuilding and machinery, and the establishment of joint ventures between Norwegian and Brazilian companies should be seriously considered and studied by Innovation Norway clients. The great majority of aquaculture services, such as net cleaning and painting, veterinary control, environmental surveillance, and farm assembly and installation are dependent on the pre‐existence of an industry, and the market for these services will develop with the sector, as part of the virtuous cycle of industrial aquaculture development in Brazil. The discussion and recommendations presented in this document reflect the opinion of Marine Equipment staff about some good investment opportunities in Brazilian aquaculture. This opinion is based on our best knowledge and more than two decades of professional experience in this sector, with time spent in the academic, government and private sectors, and continuous interaction with both the freshwater and marine aquaculture industry. It is supplemented by wide research and compilation of technical articles and reports from financial and research institutions. Obviously, there may exist many other investment options that are outside our knowledge, as it is practically impossible in the short time available to prepare this study to analyze all of opportunities in such a widespread and diverse industry as Brazilian aquaculture. We seriously recommend a more detailed analysis of any interesting investment opportunity in Brazilian aquaculture industry, before deciding on investment.

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Chile

8. Aquaculture and Aquaculture development

8.1 Landings, capture fishing and aquaculture Chile is one of the leading fishing nations of the world, with highly developed pelagic fisheries, currently exploited by industrial and semi‐industrial fishing vessels whose catches are destined to produce fish meal and oil and canned, frozen and fresh products for direct human consumption. Those fisheries, ranking among the most important worldwide, are complemented by a good number of other fishing activities, most of them of a coastal nature, which are either exploited by big industrial boats, or by a large number of artisanal fishermen scattered all along the coastline. Practically all commercial fishing activities in Chile take place on the marine environment, while sports fishing is well appreciated, particularly in southern lakes and rivers. Traditionally, Chilean fisheries have destined most of their production to exports, as local demand is limited and volumes landed exceed by far domestic consumption levels. This fact has shaped an industry which, from its very inception was designed and built to export the major part of its fish production. Therefore, most fisheries with important volumes are exploited by large and well‐organized enterprises, most of them vertically integrated, and operating state‐of‐the‐art fishing vessels and large and well equipped processing plants, which allow them to produce at reasonable costs and sale their products all over the world in competitive terms. Poor management and the uncontrolled activity of international fishing fleets outside the 200 mile limits have caused a very marked diminution of Chilean capture landings since the mid‐1990s, when total catches surpassed the 8 MM ton mark in 1994, and approximated again that figure in 1995 and 1996. Currently, total landings amount to only 3.8 MM tonnes, including 1.2 MM tonnes of aquaculture products. As it can be calculated (figures in Table 22), that aquaculture, with a total production of 1.2 MM tonnes in 2014 contributes to total fish landing with a very relevant 32.1% to totals in that year, up from only 8.5% in 2000 (425 000 tonnes). Chilean landings are composed of fish species (74% of totals in 2012‐2014), mollusk (11.6%), algae (12.5%), invertebrates (0.9%) and crustaceans (1.1%). Crustaceans and invertebrates come only from capture fisheries, and so does a 97% of the algae landed in 2014, while only 66% of fish and 47% of mollusks are caught in the wild, with the remaining parts coming from farming.

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Table22: Chile: Fish landings,by typeof activity andmain group of species,2000‐2014 (thousandtons)

Source: Calculations of the study on FAO figures Fig24:Chile Relative importance of aquaculture and capture fisheries in total landings, 2000‐2014, %

Source: Prepared by the consultants on figures from the FAO As told, the main species captured in Chilean fisheries are all pelagic, and have noticeably diminished since the 1990s. Moreover, the remaining species caught since 2000 and on also show a decreasing trend, as can be inferred from the figures in table 23. This diminution poses a severe problem to local small‐scale artisanal fishermen, whose work prospects look very challenging. The same happens to local producers of

Species 2000‐2002 2003‐2005 2006‐2008 2009‐2011 2012‐2014 2 012 2 013 2 014

Capture fisheries 4 364.9 4 658.9 4 178.0 3 445.7 2 630.2 3 008.9 2 288.9 2 592.8

Crustaceans 29.1 20.8 22.2 27.2 39.4 40.6 37.8 39.8

Invertebrates 55.9 44.5 38.7 35.3 32.1 30.6 31.6 34.3

Molluscs 62.2 222.1 229.7 196.8 183.0 190.7 143.4 214.9

Fish 3 976.0 4 001.6 3 554.3 2 806.3 1 918.5 2 311.0 1 558.2 1 886.5

Algae 241.9 369.8 333.1 380.0 457.1 436.0 517.9 417.3

Aquaculture 558.0 681.0 836.4 854.6 1 116.2 1 075.5 1 045.7 1 227.4

Molluscs 57.7 98.2 178.4 242.0 250.8 253.3 252.5 246.4

Fish 443.4 557.5 627.2 574.3 855.6 818.1 780.7 968.1

Algae 56.9 25.3 30.8 38.4 9.8 4.1 12.5 12.8

Total Landings 4 922.9 5 339.8 5 014.5 4 300.3 3 746.4 4 084.5 3 334.6 3 820.2

Crustaceans 29.1 20.8 22.2 27.2 39.4 40.6 37.8 39.8

Invertebrates 55.9 44.5 38.7 35.3 32.1 30.6 31.6 34.3

Molluscs 119.9 320.3 408.1 438.9 433.8 444.0 396.0 461.3

Fish 4 419.3 4 559.1 4 181.6 3 380.6 2 774.2 3 129.1 2 338.8 2 854.6

Algae 298.8 395.1 363.8 418.4 466.9 440.2 530.4 430.2

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fish meal and oil, who have substantially reduced their activity levels along recent decades, Table23:Mainspecieslandedfromcapturefisheries,2000‐2014/Tableshowsallspecieswhoselandingsexceed30000tonnesin2014

Source: calculations of the study, on figures from the FAO

8.2 Aquaculture production While capture fisheries decay along these last decades, aquaculture production has evolved very rapidly since the early 1980s, helping to compensate those loses with high‐value products and a growing influence on sectorial employment. Moreover, aquaculture has shifted the geographic center of fishing activities in the country from the northern and central regions, where most pelagic fisheries take place, to southern locations, including down to the Magellan Region. Nowadays, Chile is among the ten most important aquaculture producers in the world, and ranks second globally in salmonids and mussel production, being the main foreign supplier of salmon/trout to the US and Japanese markets. Together with Norway, Chile is among the only two ‘top‐ten’ aquaculture producers in the world that are not sited in Asia.

Species Scientific name 2000‐2002 2003‐2005 2006‐2008 2009‐2011 2012‐2014 2 012 2 013 2 014

Anchoveta(Peruvian anchovy) Engraulis ringens 1 360 1 411 1 169 967 842 904 803 818

Araucanian herring Strangomera bentincki 465 317 506 831 543 848 237 543

Chilean jack mackerel Trachurus murphyi 1 468 1 434 1 193 516 243 227 231 272

Chilean kelp Lessonia nigrescens 82 155 167 218 267 269 313 220

Jumbo flying squid Dosidicus gigas 3 162 174 140 143 145 106 177

Lessonia trabeculata Lessonia trabeculata 21 60 31 54 49 48 39 61

Mote sculpin Normanichthys crockeri 2 63 136 127 57 65 55 51

Patagonian grenadier Macruronus magellanicus 128 78 70 74 50 62 48 39

Southern rays bream Brama australis 9 6 4 20 24 23 12 36

Leister Sarcothalia crispata 7 21 15 31 35 37 34 35

Chilean sea urchin Loxechinus albus 54 43 37 34 31 29 30 32

Gracilaria seaweeds Gracilaria spp 70 75 59 29 34 24 46 32

Other species 697 832 618 403 313 327 334 278

Total 4 365 4 659 4 178 3 446 2 630 3 009 2 289 2 593

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Fig25:Mainaquacultureproducts,byspecies,2000‐2014(tonnes)

Source: Prepared by the study on figures from FAO

443 073

557 138

626 915

573 964

851 141

33 307

74 335

155 816

225 686 241 355

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Main species farmed,2000‐2014 Tonnes

Salmonids Mussels

Other molluscs Other fish

Algae

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Table24:Aquacultureproductionbyspecies,2000‐2014

Source: Prepared by the study, with figures from FAO Current production of 1.27 MM tons in 2014 has allowed exports to approach U$ 4 800 million in that year, and even if results were poorer in 2015, it is expected that both volumes and export values will continue to grow in coming years, as it will be described in the next chapters.


Fish 443 368 557 469 627 236 574 254 855 631 818 114 780 678 968 102

Atlantic salmon Salmo salar 228 824 338 354 365 455 206 963 512 155 399 678 492 329 644 459

Coho salmon Oncorhynchus kisutch 110 937 94 875 105 338 146 427 155 159 161 953 144 577 158 947

Rainbow trout Oncorhynchus mykiss 100 381 121 389 154 808 219 796 182 936 254 353 142 681 151 773

Freshwater fishes nei Osteichthyes ‐ 0 23 ‐ 4 307 ‐ ‐ 12 920

Turbot Psetta maxima 294 330 298 288 184 442 107 2

Yellowtail amberjack Seriola lalandi ‐ ‐ ‐ ‐ 0 ‐ ‐ 1

Bastard halibut Paralichthys olivaceus ‐ ‐ ‐ 2 ‐ ‐ ‐ ‐

Chinook salmon Oncorhynchus tshawytscha 2 931 2 519 1 313 778 891 1 688 984 ‐

Cherry salmon Oncorhynchus masou ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Sea trout Salmo trutta ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Molluscs 57 745 98 204 178 441 242 012 250 752 253 307 252 528 246 421

Chilean mussel Mytilus chilensis 33 307 74 335 155 816 225 686 241 355 244 137 241 841 238 088

Peruvian calico scallop Argopecten purpuratus 17 559 19 002 19 142 12 241 4 982 5 798 5 001 4 146

Choro mussel Choromytilus chorus 259 381 746 698 814 330 550 1 561

Cholga mussel Aulacomya ater 832 1 235 1 094 2 325 2 314 1 995 3 775 1 172

Red abalone Haliotis rufescens 84 234 421 823 1 023 828 1 111 1 130

Chilean flat oyster Ostrea chilensis 221 178 181 173 215 194 227 225

Pacific cupped oyster Crassostrea gigas 5 483 2 830 1 034 63 28 ‐ ‐ 83

Japanese abalone Haliotis discus ‐ 8 7 3 21 25 23 16

Algae 56 886 25 282 30 770 38 355 9 825 4 126 12 512 12 836

Gracilaria seaweeds Gracilaria spp 56 886 25 269 26 313 38 255 9 793 4 111 12 460 12 808

Giant kelp Macrocystis pyrifera ‐ ‐ 0 6 1 ‐ ‐ 2

Porphyra columbina Porphyra columbina ‐ 12 ‐ ‐ ‐ ‐ ‐ ‐

Haematococcus pluvialis Haematococcus pluvialis ‐ ‐ 489 18 27 15 41 26

Spirulina maxima Spirulina maxima ‐ ‐ 3 967 76 4 ‐ 11 ‐

557 998 680 954 836 447 854 621 1 116 208 1 075 547 1 045 718 1 227 359 Total

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Most part of Chilean aquaculture production is organized in large entrepreneurial complexes, vertically integrated and using state‐of‐the‐art technology and management, basically oriented to exports. This is particularly true in the case of the salmon/trout industry and in a portion of mussel farming and processing. Salmonids and mussels prevail in local farmed production, accounting for 77.8% (down for 79.4% in 2000‐2002) and 19.4% (up from 6% in 2000‐2002) of total harvest in 2014, respectively. In both cases which together account for over 99% of production in 2014, production trends upward, while farmed algae and the remaining fish and mollusc species diminish along recent years. Salmonid farming takes place in the south of the country, with activities in fresh water (smolt production) occurring mainly in La Araucanía and Bio‐Bio regions and south of them, while growth in sea water is

concentrated in Los Lagos, Aysén and Magellan regions. Mussel farming is almost exclusively centered in Los Lagos region. These two species have permitted to develop an important cluster in and around the Puerto Montt area, capital of Los Lagos Region, with over 1 200 enterprises rendering services of all types that enable and support well organized and efficient export‐oriented activities, which are currently very relevant in that part of the country in terms of employment opportunities and economic

Fig26:Chileanditsregion

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development. In this respect, 40 or so years ago, the economies of those southern regions were below national averages and their lack of opportunities caused massive emigration, particularly to Argentine, while nowadays, they show the lowest unemployment figures in the country and have to import manpower, being it occasionally or on a permanent basis. Aquaculture activity takes place in over 3 600 farms registered at the National Registry for Aquaculture. As shown in Table 27, 86.4% of them are located in Los Lagos Region or south of it, and 46.7% farm fish and 37.3% mollusks. Table27:Concessionsforaquacultureactivities,bygroupofspeciesandgeographicdistribution,2015

Source: SERNAPESCA This high concentration of local aquaculture in southern territories has a been a matter of discussion, and there is currently the view that more efforts should be applied to open new farming alternatives in the central and northern parts of Chile, an issue which is receiving an increasing attention by the authorities, which have also expressed concern about the fact that the most important part of farmed production is in the hand of large‐scale enterprises, and want to open new opportunities to smaller‐scale operators all over the country. Figures 28 show that in direct relation with the geographic deployment of fish farmers, production output is highly concentrated in Los Lagos region (59.3% in 2014, down from 82.4% in 2004), an area which, however, has systematically lost ground in recent

Region Microalgae Macroalgae Crustaceans Molluscs Fish Other TOTAL

Arica‐Parinacota 0 0 4 9 0 0 13

Tarapacá 5 3 0 17 1 1 27

Antofagasta 0 4 0 8 1 0 13

Atacama 0 40 0 53 2 0 95

Coquimbo 2 7 3 71 9 4 96

Valparaíso 0 0 4 4 7 1 16

Metrop. Region 0 0 0 0 8 0 8

O'Higgins 0 0 1 0 0 0 1

Maule 0 0 0 0 15 0 15

Bío‐Bío 0 5 0 8 26 0 39

Araucania 0 2 0 12 98 0 112

Los Ríos 0 6 0 11 47 0 64

Los Lagos 0 480 2 1 165 667 10 2 324

Aysén 0 1 0 5 745 0 751

Magallanes 0 0 0 3 81 0 84

TOTAL 7 548 14 1 366 1 707 16 3 658

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years with respect to Aysén (36.9% in 2014 and up from 12.4% in 2004) whose salmon activity has increased very substantially over time. Fig28:Distributionofaquacultureproductionbyregion,2004‐2014(%oftotals)

Source: Prepared by the study, on figures from SERNAPESCA Aquaculture exports are very significant in Chile, and they are only second to copper, the main local product traded internationally. As indicated in Table 6, volumes exported have risen to over 735 000 tonnes in 2014 and to 779 000 tonnes in 2015. Because of lower prices, particularly for salmon products, export values diminished in 2015 to U$ 3 970 Million, down from a record annual value of U$ 4 800 Million in 2014. As shown in Table 25, aquaculture volumes exported in 2015 account for 62.9% of total volumes exported by the Chilean fishing industry, and 81.9% of its values, demonstrating very clearly that, by now, aquaculture is locally more relevant than traditional fisheries, on a country that had gained far more national and international sectorial visibility because of its capture results for many decades until recently.

82.4 78.6 78.1

72.5 70.6 68.6

74.1 69.7

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Table25:Chilean exports of aquaculture and capture fishery products, 2014‐2015

Source: Subsecretaría de Pesca, Chile, Fishery exports report 2014‐2015

8.3 Main farmed species

8.3.1 Salmonids Farming activities are mainly related to Atlantic, coho (silver) salmon and trout, introduced from the northern hemisphere, starting in the second part of the XIX century, with the aim of enhancing sports fishing, and afterwards, trying to ‘ranch’ these species, by releasing juveniles into the wild and waiting for their return as adults. This last option was interrupted many years ago, and now commercial farming is concentrated in intensive farming, with the production of juveniles in southern lakes and rivers, while on‐growing to market sizes takes place on marine sites, the majority in sheltered places in Los Lagos, Aysén or Magallanes. Egg production is mainly local, with relatively small quantities still being imported. Handling of photo‐periods and temperatures have allowed industry to have eggs and juveniles available throughout most part of the year, allowing to produce and harvest fish during all months of the year. This, however, is not still the case with cohos, whose harvest are still concentrated in late spring and summer. Smolt production, which originally took place in open spaces in rivers and lakes, is growingly being accommodated in recirculation systems, and there is also an evident trend to augment the size of these juveniles in fresh water, so as to start marine on‐growing with stronger fish, and to shorten marine cycles, to avoid diseases, which are still widely spread and are the cause of severe production losses.

2014 2015 2014 2015

Atlantic salmon 383 565 401 933 3 013.4 2 511.9

Coho salmon 107 593 121 694 648.7 582.3

Trout 75 333 66 687 700.8 433.0

Mussels 64 093 69 617 188.8 201.9

Unidentified salmon 100 896 114 597 146.5 166.1

Gracilaria algae 2 207 2 538 49.9 50.5

Red abalone 577 641 18.5 17.0

Northern scallop 526 591 5.5 5.5

Pacific oyster 3 4 0.5 0.9

Salmon and trout 261 224 1.0 0.7

Green abalone 18 16 0.3 0.4

Total 735 072 778 542 4 773.9 3 970.3

Capture fishery products 605 699 459 043 1 391.0 878.8

Total fishery products 1340771 1237585 6 164.9 4 849.1

Volume, tonnes Value, Million U$Product

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Until recently, Chile also farmed chinook salmon, but this no longer the case, as can be seen in Figure 30. Artic charr was also introduced experimentally, but commercial production was interrupted. Fig29:Harvestsofsalmonandtrout,2004‐2014(tons)

Source: SERNAPESCA Fig30:Harvestofsalmonids,byspecies,2004‐2014(tons)

Source: Figures from SERNAPESCA Figures indicate that Chilean production of salmon is centered in Atlantics, a species which has adapted very well to local conditions, but, at the same time, is affected by diseases, which have caused extensive damage in many years, such as 2008‐2010,

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when the ISA virus decimated production. The farming of Atlantics has swiftly recovered in more recent years, regaining lost ground. However, and even if there have been important changes in governance since the ISA event, local production is still unstable, and better and more effective regulations will have to be put in place to guarantee sustainability in the future. Chances are that harvest volumes, which fell in 2015 (no official figures available), might continue to decrease in 2016 and for one or two extra years, to accommodate production levels, to what appear to be the carrying capacity of various water bodies, until a new plan, based in better scientific knowledge is devised, so as to define how to deploy fish farms for future seasons, in order to diminish diseases as far as possible and to work on a more sustainable manner. Available figures indicate that there are about 250 farms currently authorized for juvenile and smolt production, while about 400 sites are being used in the marine environment. Direct and indirect employment associated to the whole value chain related to salmon production rises to approximately 60 000 to 70 000 posts. Fig31:MainsalmonidsfarmedinChile

Salmón del Atlántico (Salmo salar) Salmón del Pacífico o Coho (Oncorhynchus kisutch) Salmón Rey (Oncorhynchus tschawytscha) Trucha Arcoiris (Oncorhynchus mykiss)

Salmon farmers are associated in the Asociación de la Industria del Salmón de Chile A.G., SalmonChile (Chilean Association of the Salmon Industry) representing about 70% of primary production and a good number of ancillary service companies. This institution has a technologic branch, INTESAL, through which it coordinates and satisfies R&D initiatives of interest to its members and industry alike. Salmon production is mainly exported, most part either fresh or frozen, with a good proportion in fillet form.

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8.3.2 Mussels The second species in importance in Chilean aquaculture, after salmonids, has been farmed since the 1960s, but before the end of the 1990s, only in small farms and with rather basic technology. Its current level of development owes its magnitude and technical situation to foreign entrepreneurs, particularly from Spain, that revolutionized this trade, and opened new market alternatives to local production, initially in Europe, to supplement a decaying traditional production in Galicia. Chile is only second to China in mussel farming, and together with Spain are the only nations to surpass the harvesting of 200 000 per year (2014). Thailand, who comes forth, produces 127 000 tonnes per year, and all other farming nations, below 100 000 tonnes per year. Fig32:Chileanmussel(Mytiluschilensis)

Farmed mussel production takes place almost exclusively in Los Lagos region, and it is estimated that this activity generates in primary and secondary activities, plus ancillary services, a total of 17 000 direct and indirect job openings.

Source : SERNAPESCA

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Fig33:Musselaquacultureproduction,2004‐2014(tons)

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Currently, there are over 555 authorized concessions for mussel farming in Chile, with a total area of 3 604 hectares, or an average of 6.5 ha per unit. The majority of producers are relatively small and mid‐size farmers, not vertically integrated, who sell their crops to large industrial concerns, owning very modern and efficient processing plants and eventually their own farms. End products, still without much value added, are mainly exported in frozen form. Farmers are also associated in local organizations, not as effective nor as well financed as SalmonChile. Mussel production in Chile is 100% based on wild seed, which are collected in enormous quantities in several areas particularly fit for these purposes. However, there are years, when seed have been in short supply, and even if the cost of production of mussel seed in hatcheries can be overwhelmingly more expensive, there already are mounting pressures to start advancing in that direction, to ascertain that this important crops can be sustained and even increased in the future.

8.3.3 Scallops These valuable bivalves, are basically produced in the center‐north part of Chile, and constitute one of the few species that are not currently originated in southern areas, even though this has been tried in many occasions, so far without success. Fig34:NorthernScalloporScallopfarmedinChile

This species is native to Chile, and it is also native and farmed very successfully in Peru, in much higher quantities than locally. In fact, the ‘industrial model’ followed in Chile has not been sustainable, as average production per farm is rather small, and therefore no economies of scale are possible, nor is it the introduction of better and more efficient technology and mechanization.

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This excellent product is, again, mainly exported, in frozen format to France. As told, the size of this sector has not allowed to invest more in market diversification, and therefore, scallop farmers have recessed in recent years, as a result of an ill‐conceived production system, the incapacity to compete with Peru and a lack of remunerative market alternatives.

Source: SERNAPESCA Most part of what is produced relies on wild seed, this time obtained in the same areas where on‐growing takes place. However, there are a few hatcheries that produce seed, whose output could be easily augmented if a ‘second chance’ is ever given to this species, a fact which for now is not necessarily evident.

8.3.4 Abalones This herbivore gastropod was introduced in Chile in the 1980s, but it was not until the 1990s that farmed production started to evolve. Initially, efforts were centered on the green abalone, but afterwards, production advanced almost exclusively based on red abalones, introduced from southern California. This is the first exotic species introduced in Chilean aquaculture for which an environmental impact report was prepared, to define its authorized habitats. Currently, seeds are produced inland, in hatcheries, and on‐growing takes place on the marine environment or inland, in southern Chile, and exclusively inland, in the center‐north part of the country.

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Fig35:Scallopfarmedproduction,2004‐2012(tons)

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This product is almost exclusively exported, particularly to Asia, or Asian communities elsewhere, in frozen or canned format. Live and fresh format alternatives have also been tried and/or are currently marketed. To accommodate to market demand, the size of the farmed product has increased over the years, and production cycles nearing three years are common. The green abalone is also being farmed, but its production has encountered a number of difficulties, that keep volumes to a minimum this far.

Source: SERNAPESCA There are few producers of this species, most of them medium‐size, concentrated only on the farming stage. However, there are fully integrated companies, that even produce the artificial diets necessary for this culture. In general terms, abalones are raised combining fresh macroalgae with artificial diets along the process. Diets might be produced locally, but they are as well imported from countries such as South Africa.

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Fig36:RedAbalone

Fig37:Abaloneproduction,2004‐2014 (tons)

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Fig38:Figure18Greenabalone

Abalone producers also have their Association, called APROA, Association of Abalone Producers. Being a valuable product, several countries are producing farmed abalones of different types, and even though prices are attractive, and Chile has learnt its farming technicalities and has market abilities as well, future events are not easy to predict, even though chances are that local producers will consolidate their doings, and progress even more in years to come. World markets for this species are limited, with China dominating the scene and producing over 100 000 tonnes per year of farmed abalones.

8.3.5 Gracilaria algae Locally called “pelillo”, this valuable native red alga is found naturally in protected bays and environments, and is also farmed. In northern Chile, farms are larger, but in the southern part of the country farms are really small‐scale, and are owned by individuals or cooperatives/syndicates, who usually sell their crops to exporters of dried algae, or manufactures of agar and colagar.

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Fig39:Gracilariaalgae

Source: SERNAPESCA There are 778 authorized farms for gracilaria along Chile, occupying 2 578 ha, with an average of 3.3 ha per farm. Producers have no association to represent their interests. As shown, farmed gracilaria output has varies substantially from year to year, and even considering the statistical anomaly of 200912, it shows a diminishing trend, because of market and/or environmental problems, affecting a good number of producers, which are mostly small‐scale operators.

12Gracilaria algae is also extracted in important volumes from the natural environment, and most likely, during 2009 there was a statistical error, assigning part of that algae to farming.

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Fig40:Productionoffarmedgracilariaalgae,2004‐2014(tonnes)

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8.3.6 Oysters Two species are currently farmed in Chile, namely, the Chilean oyster, or Ostrea chilensis, a native species, and the introduced Pacific oyster, or Crassostrea gigas. In the former case, seeds are obtained from the wild, while Pacific oyster seeds are only produced in hatcheries, one of which operated since the 1980s by Foundation Chile has been able to supply all local needs, and has exported (and keeps doing so) substantial numbers to countries such as South Africa and Canada, among others. Fig41:OystersfarmedinChile

Production of Pacific oysters has dramatically diminished along recent years, while that of Chilean oyster augments modestly but steadily, particularly since 2005. Pacific oyster was very successfully farmed up to 2007, and afterwards export markets deteriorated, and production declined. Most part of production takes place in the Los Lagos region.

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Source: SERNAPESCA Local consumption is the basis for current farming levels, and there are doubts if this trade can progress in the future, so as to regain past production levels. In the case of native oysters, there is neither a drive to mass‐produce seeds in hatcheries. Production, particularly that of the native species is undertaken by small farms, while Pacific oysters used to be farmed by larger and better organized enterprises which were vertically integrated and had their own processing plants or rented that service from third parties, to elaborate frozen half‐shelf oysters for exports.

8.4 The production model and aquaculture technology Chilean aquaculture production model has been based on a few premises that have permitted a swift development process during these last forty years. Even if the path to reach its current level has not occasionally been easy, and sustainability issues remain to be solved, the country has created a well‐established activity that is bound to continue evolving and growing in coming decades. The basic premises structuring the process have been: i) A clear orientation towards exports; ii) Large‐size‐ enterprises using state‐of‐the‐art facilities, technology and equipment, allowing to become competitive on a global basis; iii) Well trained manpower at all levels, plentifully available at reasonable costs; iv) Market and marketing abilities allowing to expand sales all over the world, successfully accommodating to varied and complex commercial requirements. All these concepts have guided investments and actions along the years, taking advantage of excellent environmental conditions. However interesting this process might have been, it is also true that up to now only salmonids and mussels have remained being the main species farmed, and concerted efforts of the past to diversify the production matrix have not been sustainable in most other cases, where production is still limited, or show decreasing trends. However,

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Fig42:Productionofoysterbyspecies,2004‐2014(tons)

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having experimented with a good number of species; buying technology abroad, adapting them to local circumstances and developing R&D initiatives, have permitted to have available well organized institutions and trained personnel that can currently deploy diversification efforts and support activities to enhance as well salmon and mussel farming. As further and important developments are expected in salmon/trout and mussel farming and, as well, in the diversification of the production matrix, the objectives and goals linked to this advances will be reviewed in the following chapters. This being the case, there will be multiple business opportunities linked to these processes, most of which are related to the sales of equipment, materials and services, if not, to direct investment in production, processing and/or ancillary services, facts that justify to present introductory notes on the technologies currently used by aquaculture producers in Chile, with the most relevant species. In principle, a wide variety of technologies have been used in the various farming undertakings, ranging from basic small‐scale artisanal schemes in mollusks and algae, to more sophisticated systems applied to abalone, scallop and mussel production and state‐of‐the‐art technologies in the production of the European turbot, trout and salmon. As mentioned, and particularly in the case of trout/salmon production, mostly‐if not only‐ large enterprises are in operation in primary and secondary processes. In general terms, as well, there is a clear tendency to become more mechanized and well equipped in all production phases and services, to continue being globally competitive. This has meant that new technologies have and/or are being adopted at different velocities, for instance, transferring different phases of production to recirculation systems; moving marine on‐growing operations to more exposed or even altogether unprotected marine sites, etc. As discussed later on, there are also R&D initiatives exploring the best possible technologies and species to incorporate the central and northern parts of the country to aquaculture, in an effort to widen work opportunities in those areas and to consolidate Chilean production with more diverse and massive volumes in the years to come.

8.4.1 Salmon‐Trout farming Up to recent years, most work to produce smolts was linked to gravity and open‐flow sites in several fresh water sources, complemented with floating cage‐systems to grow juveniles until they turn into smolts. Because of difficulties with local communities that oppose the salmon farming in lakes, bio‐security considerations and a growing scarcity of water sources, production has been (and will continue being) moved to recirculation systems. Furthermore, to produce more resistant smolts and to shorten seawater fattening cycles, bigger juveniles are being produced, and genetic selection is gaining acceptance, as means to

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diminish loses and become more cost‐effective all along the primary production process. Eggs, originally brought from abroad, are currently produced in Chile to a large extent and chances are that the country will become completely self‐sufficient in a matter of years only. The use of photoperiods and different water temperatures has allowed Chilean farmers to have access to ‘accelerated’ or ‘retarded’ smolts, facilitating the seeding of those juveniles practically all over the year, and therefore smoothing seasonal variations and having production available in more regular volumes, to all foreign buyers, year‐round. Recirculation systems are becoming more popular in recent years and use circular fiberglass tanks of different sizes, ranging from some 3 cubic meters at the beginning, to 300‐500 cubic meters in the final stages of 100‐150 grams smolt production. Automatic feeding systems are extensively used, together with different types of filters, necessary to keep water quality within acceptable ranges. Temperature is also controlled at will and oxygen is always available, being supplied automatically according to requirements. Mortalities extracted and treated carefully in different systems, while liquid and solid residuals are duly disposed of using diverse procedures and equipment. Automatic control for most production phases is also extensively used. Thus, recirculation is a modern bio‐secure production alternative that is becoming increasingly popular in Chile, even if initial investments are higher and production costs might not yet compete with those of gravity and flow‐through schemes ‐ still extensively used in southern Chile‐ as they address the problem of the increasing scarcity of freshwater resources and the need to produce consistent results on a more secure and controllable environment.

Feed required for smolts production is

plentifully available

through several producers,

almost all of them of foreign origin and owning and running very

modern production

plants, with most diets

developed originally

Fig43:Basicinstallationsusedinsmoltproduction

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abroad, but thereafter adapted to local requirements and raw materials. If so needed, smolts are almost always transported to the coast in specialized vehicles, and from there to the respective marine sites in well‐boats or vessels that carry tanks on board for these purposes.

The marine phase of production, where most investment is concentrated, takes place in floating net‐pen systems of different sizes, designs and materials, located almost exclusively in sheltered places and only occasionally in semi‐exposed locations. Cages are normally built of steel or plastic (HDPE, high density polyethylene). In the first case, they are normally aggregated and interconnected through metal corridors or aisles of different widths, used by their operators to perform their normal duties. These lengthy and wide systems can stretch for well over 300‐400 meters, and be over 60 meters wide. In turn, plastic cages are normally set individually, even if all units in any one site form a pattern of 10 or many more cages, usually organized in two rows, and united by a common mooring system and grid, that keep each unit and whole system in place. They are mainly serviced using boats of different types, and in them, fish are almost always fed using automatic systems controlled from nearby floating barges, where feeding equipment is located and where provisions for several days are

Fig44:Typicalmetalandplasticnet‐pensystemsusedinsouthernChile

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accumulated. They also have full and generally comfortable accommodations for all personnel performing their duties locally. Nets are almost universally of textiles or plastics, but in recent times, metallic units are also being incorporated. Even if they are much more expensive than textile or plastic nets, they do not require the type of maintenance needed by them, and therefore, in the long run, they might be even more economical to run and more secure than those made out of fibers or plastics. More often than not, these last nets have to be treated with antifouling materials (paints), whose effect has a limited duration, a fact that forces operators to change them and have them cleaned whenever they become clogged with fouling, noticeably diminishing water flows. These processes are expensive, time consuming and risky, and have to be carried out using cranes, specialized boats, etc.

Surface nets are also used to protect fish from bird attacks and perimeter ones, to prevent as far as possible the incursion of other predators, such as wolfs, which otherwise cause extensive losses.

Mortalities are continuously extracted from the nets, and are normally discarded using silage processes on the same site, or are transported for further treatment elsewhere. Depending on the type of farm, different procedures, such as classifications by size, counting, treatment with vaccines, chemicals of different sorts and other therapeutics are part of the breeding routines. Almost all companies have their own fish pathologists but contract as well additional specialized services for the diagnosis and treatment of their biomasses. These services, together with laboratories of varied characteristics are widely available in most regions where salmon is farmed.

Fig45:Typicalpontoonsusedbysalmonfarmers

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Finally, at harvest time, varied systems, with equipment owned by the farms, or more often, renting them from specialized companies that either have very sophisticated well‐boats, to transport fish live to the processing lines, or sacrifice and bleed fish on the farms, and transport them iced, in small containers to inland factories for further processing. Transporting fish live to the processing facilities has become more popular in recent years, as this process results in better quality of the end products, meeting the highest and more competitive standards globally. In general, salmon and trout are basically sold in fresh or frozen formats. However, canned, smoked, and/or salted fish are also elaborated, and eggs are additionally extracted, treated and sold. Most part of the offal obtained in the processing lines is sold to fish meal plants, where oil is also extracted.

Fig46:Well‐boatatharvesttime

Fig47:Atypicalprocessingplant.Partialview

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Processing is normally carried out in sophisticated installations, with high biosecurity standards, able to guarantee product wholesomeness. Processing plants are normally owned by the farmers, so that salmon production is normally fully integrated, from egg production to end products. Along the years, more value‐added products are being sold, so much so, that Chile is the most important foreign supplier of fresh and frozen salmon fillets to the US market and to other destinations. Local producers accommodate their end products to the specific requirements of their clients, and very often, products are processed, portioned, packed and labelled directly in Chile, so that on arrival to the importing nation, they can rapidly be put in supermarket shelves without much extra work. This phase of the value chain has also proven to give meaningful competitive advantages to local industry.

8.4.2 Mussel farming Mussel, a native bivalve is farmed based on seed caught in the wild by specialized producers, which hang special nets during several months on selected sites for these purposes. This process can also take place directly in different farms where on‐growing takes place. Whatever the case, this basic raw‐material is delivered to producers, generally, medium‐size farmers, who use a similar technologic approach for this primary stage, with diverse levels and quality of mechanization.

The usual farming system is based on long‐lines of different lengths (100 meters and over are normal lengths) supported by large floats (350 lts., for instance) from which

Fig48:Overviewofatypicalmusselfarm

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ropes with seeds attached are hung, until these bivalve mollusks reach commercial size. These lines are kept in place, and separated from each other at reasonable distances, using very heavy anchoring systems, mainly built of concrete, whose individual weights might very well be close to 10 tons each. Occasionally, farming also takes place using the same nets where seed collectors caught their seed. Mussel ropes have different lengths and are separated from each other by different distances, chosen by the farmers. They are checked at different time intervals, to control mussel growth. When deemed appropriate, ropes are stripped from mussels, which are thereafter classified by size and re‐loaded again in ropes with individuals of comparable dimensions, so that, end‐products might reach market sizes, approximately at the same time. This system also gives smaller specimens a better chance to grow adequately in other ropes. These operations are carried out in floating barges, specifically designed and equipped with cranes, classification machines, devices to re‐load ropes with mussels, etc.

Harvest normally takes place after 12 ‐18 months, though, the over‐loading of several marine areas has meant that production cycles there take longer, because natural feed available has to be distributed among larger biomasses, subsequently extending growth periods.

Fig49:Concretemooringdevicesusedinmusselfarming

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Processing is mainly done in very modern and large size installations, guaranteeing wholesomeness and excel‐lent quality, a fact that has allowed local farmers and exporters to expand sales to many countries which initially were not targeted, but which are now addressed because of the huge volumes produced, converting Chile into the

second largest producer and exporter of this species,

worldwide. Mussels harvested are generally sold cooked and whole or clean, without shell, frozen, normally in IQF format. These and other products are kept in huge holds at ‐18°C, until shipped by boat to their final countries of destination.

8.4.3 Abalone farming Abalones have been introduced to Chile, and are farmed on commercial terms since the 1990s. The most successful species farmed is red abalone, whose first seeds were brought in from California. Local methods have adapted technology from the USA, and afterwards, from South Africa, New Zealand and Australia, but nowadays, it can be claimed that there is a ‘Chilean version’ that works, permitting the country to become the 4th largest producer of farmed abalone in the world.

Seeds are produced at in‐land hatcheries only, and thereafter are transported to their marine or in‐land on‐growing sites. On the marine environment, floating devices and/or long‐lines are used, while inland, seawater is constantly pumped through various alternative designs of containers and raceways.

Fig50:Bargesusedformusselhandlingatsea

Fig51:Abaloneseeds,packedfortransportationtoon‐growingsites

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Infrastructure and equipment to produce abalones are fairly standard, and include different sorts of containers and devises to where abalone adhere and eat, thereafter submerged on the marine environment or in raceways / tanks of various designs, into which low pressure air is blown‐in.

Fig52:Inlandon‐growingfacilitiesincentralChileandfreshalgaeusedasfeed

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Fig53:Figure33Differentcontainersthathavebeenusedtofarmabalonesonfloatingdevices,atsea

In the case of marine farming, the main farming activities are related to feeding, the extraction of dead specimens and classification of individuals by size, to keep work densities under control, and to try to crop, at an appropriate time, individuals of comparable sizes. Clearly, though there is still much lot to be learnt, to make production and economic effectiveness more attractive, as, among other issues, individuals grow at very different rates, and feed conversion rates are not necessarily at their best. The main difficulty associated with this activity is the duration of the production cycle, which can have a duration of 3, 4 or more years, according to the sizes demanded by the market. Most farms in Chile, therefore, concentrate efforts in improving their diets, which currently consist of freshly extracted algae (Macrocystis and other species) together with artificial diets, manufactured by a few, and/or imported. To shorten farming cycles, a fair amount of work is still necessary on genetic selection and the improvement of diets. There is also room for development and improvement, to lessen manpower, aeration and pumping requirements, as much as making raceways and other containers less expensive and more durable, to improve the economic outcome of this trade.

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Chilean end‐products started to be sold live to the Japanese market, but nowadays, with more pragmatic views, exports have been extended to several other Asian countries such as Singapore and other nations, where demand is centered in canned or frozen products, preferably. Abalone production will probably continue to expand, but moderately only, until better technology is incorporated to the process in all aspects mentioned above. No further information is provided regarding oyster, other mollusks and gracilaria algae as they are almost always farmed in low quantities and even rudimentarily, but for the case of Pacific oysters, where seed are mass‐produced using traditional technology, that has performed well for years in central Chile, and on‐growing was usually handled with adequate mechanization levels.

8.5 Governance: the basics From a Government stand point, aquaculture in Chile depends from the Undersecretariat for Fisheries and Aquaculture (SUBPESCA), headed by the Sub Secretary and directly responsible to the Minister of Economics, Development and Tourism. This same Ministry also has an independent service, SERNAPESCA, the National Fisheries and Aquaculture Service, which controls the activities, norms and regulation applicable to fisheries and aquaculture. SUBPESCA has five Divisions, one of which specializes in Aquaculture and deals with sectorial policies and generates norms and regulations. That Division has five Units in charge of different sectorial aspects, such as environmental affairs, territorial deployment, sanitation and related issues, policies and management, and sectorial procedures.

Fig54:Equipmentusedtoclassifyabalonesbysizeandtopreparethemforcanning,Chile

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Responsibilities of both these bodies are very ample and complex, and will not be discussed further here, beyond saying that they are responsible for granting sites and enabling companies and persons to become legally established as aquaculture operators. In several of these instances, they interact with other agencies dealing with the environments, national security and marine affairs, indigenous populations, regional matters, coastal planning, etc., etc. There also exist the Fisheries Development Institute (IFOP), which produces the basic information used in the production of regulations for both fisheries and aquaculture activities. Other bodies such as CORFO (National Corporation for Development) and CONICYT (National Commission for Science and Technology), plus regional instances, finance most of R&D sectorial activities. In the case of CORFO, they also finance pre‐competitive initiatives, such as those dealing with aquaculture diversification on their early stage of development, and therefore, influence sectorial activities by directing their financial support to areas, programs and projects they consider adequate and in the best long‐term interest of the country. In the eyes of most observers, current legislation and administrative regulations and norms are excessive, and have been responsible for overloading aquaculture and fisheries with regulations which affect economic competitiveness and constrict industry’s movements. On the other hand, the velocity of aquaculture development in these last 40 years, has been accompanied by public services that have not been able to match in time the needs and expectations of producers and other stakeholders alike, to the point that several ‐if not most ‐ aspects dealing with current unsustainable salmon and mussel production patterns relate to the fact that norms and regulations in place have been unfit, late and insufficient to prevent overcrowding of certain parts of the territory; for the unwanted spreading of diseases; for the excessive period of time required to get established and to obtain farming sites (in this last respect, anywhere between 2 and 5 years in most cases), etc. Co‐responsibly with public services, producers have pressed too much for short‐term results, forgetting about the unwanted externalities suffered by their neighbor producers, and occasionally, by society at large, as well as the need to become sustainable in the long run. They have thus directly suffered the consequences of their wrong‐doings, being severely affected by diseases and becoming resisted by civil society in many places, to the point that‐ as mentioned‐ salmon production might have to decrease in coming years, to be able to re‐organize the physical deployment schemes in place, to guarantee future sustainability to all parties involved. Governance, therefore, is being challenged by most aquaculture stakeholders, and it has become evident that there is a need of new instances for public‐private ‘arbitration’ of ideas, proposals and arrangements, and for better ways to approach local communities and society as a whole, which have somehow felt that this industry

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has irrupted in their lives with little concern for their local habits, culture and traditions, being the cause of several conflicts which embitter public opinion and disfavors support from authorities and politicians, which feel therefore constrained to support aquaculture because of its poor public image. Clearly as well, even though producers and service suppliers are generally fairly well organized, their organizations also need reshaping and being recognized as the legitimate representatives of their membership, to become valid partners in the eyes of government, in the very frequent discussions in search of common wellbeing and better development and sustainable schemes, to guarantee long term progress and development. In all, and with respect to the aims of this report, in can be pointed out that Chilean aquaculture could benefit in the future with technical assistance helping to solve current conflicts, and moreover, enabling sustainable development for the coming decades.

9. Aquaculture until 2030: opportunities and limitations Commercial aquaculture of any significance started fairly recently in Chile ‐ late 1970s and early 1980s ‐, with salmon being at the center of fish farming activities ever since. Up to these days the Chilean aquaculture production model has been based on a limited number of facts and ideas, which made this country progress and turn into one of the most important fish farming nation of the world, and one of the two most important world producers or farmed salmon/trout and mussels. By now, Chile and Norway are the only western countries, outside Asia, that are a part of the ‘top‐ten’ aquaculture producing nations. The basic considerations that permitted this development to take place in about forty years are, among others:

a) Excellent natural conditions and a well‐organized society b) A basic definition, which privileges exports over domestic consumption, because

of the relatively reduced size of the internal demand. Since its inception, this concept permitted to start installing production capacities which allowed to reap the benefits associated with economies of scale; the introduction of suitable technologies, adequate managerial abilities, and perform very competitively on a global basis.

c) Adequate drive, by private entrepreneurs, d) A process catalyzer, Foundation Chile, that lowered the perceived risk of

investing in salmon farming, and later on, in other aquaculture ventures, and e) Work with – both‐ introduced and native species. In the first case, to take

advantage of technologies already developed and available elsewhere (salmon and trout, from Norway, Japan and The US), which were bought and adapted to

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Chilean needs and circumstances, shortening R&D processes necessary to prepare the ground for new aquaculture undertakings with limited risks only. In the case of mussels – a native species, and the second most important species farmed ‐ technology used in recent years has been mainly adapted from Spain and New Zealand; that for turbot, from the UK and Spain; for abalones, from the US and Japan, etc.

f) The availability of fairly well trained personnel that worked in aquaculture‐related activities (salmon ranching; small‐scale mollusc farming, and others) before the inception of ‘commercial aquaculture’, as known today.

Governmental backing was also important at the beginning, as State organizations provided financial support to initiate R&D exploratory work, being it for salmon/trout, oysters, mussels or other species. Foundation Chile also played its role, exploring with its own resources farming possibilities with salmon/trout, turbot, abalones, oyster, scallop and several other species, buying technologies abroad, adapting them to local possibilities and disseminating them whenever felt they were adequate and promising enough. In fact, this institution also built and run demonstration units of pre‐commercial sizes, to factually demonstrate that those technologies made sense and that aquaculture ventures were feasible on technical, economic and commercial terms, substantially diminishing the perceived risks of those novel ‐at the time‐ initiatives.

9.1 The basics for future action Chilean aquaculture should progress in many different and complementary ways in the future. The main strategic lines that require further attention for future action are discussed in the following paragraphs.

9.1.1 Reinforcing current options In the foreseeable future Chile’s aquaculture industry will keep focused on exports and all its requirements, such as sustainability, uniformity, steadiness, price competitiveness, public image, etc.

It should also be expected that a good number of local fish farming companies will invest abroad, in the production/distribution of other species such as shrimp, tilapia and others, which are in high demand almost everywhere and which are massively produced in Latin America, where Chile has good commercial contacts and a common/similar language and culture.

Chile will also persist and amplify its efforts regarding its current leading species, i.e. salmon/trout and mussels. In fact, no one can foresee that salmon/trout nor mussels might lose their focal importance during the coming 10‐30 years, as there are no farming alternatives at hand for the short nor in the mid‐term to challenge their

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preeminence. Therefore, it is clear that the main national fish farming objective for the coming decades will be to strengthen these two aquaculture initiatives as far as needed and possible. This time, however, under a renewed ‘industrial model’ based on a number of concepts to be described later on.

9.1.2 Sustainability issues Facts have demonstrated that, particularly with salmon and mussel farming, the production model used until now has to be modified if not replaced, as current practices have proven to be non‐sustainable. In mussel farming, this fact is associated – for instance‐ with longer production cycles necessary to achieve market sizes, a clear sign of over‐crowding. In the case of salmon/trout farming, diseases are widely spread and cause massive mortalities; the sea bed in several locations is becoming contaminated; lakes are being threatened by eutrophication and other undesirable side effects, etc. These, and other social and economic sustainability issues, added to market problems, require new approaches, to ascertain that Chilean aquaculture grows on a sustainable manner in the future, a fact correlated to the need for a better and fresh governance scheme.

Additionally, and more specifically, this diagnosis calls for an intense and sustained effort to address the more demanding and urgent matters, such as: (1) New regulations to improve the physical deployment of farms, particularly in coastal areas, according to the carrying capacity of the different water bodies, and, (2) Sustained and relevant efforts to solve the problems of several diseases, through effective methods. These subjects are already receiving a great deal of attention, and formal compromises already exist to address them properly as from now.

Social sustainability issues, are also to be addressed, to improve the ways and means used by this industry in relation to local communities and the population at large. In parallel, other important issues will have to receive serious consideration, to safeguard the long‐term viability and sustainability of this industry. Among others: economic subjects, pointing at improving competitiveness; market subjects, to ascertain Chile’s compromise with environmental and social sustainability and to improve Chile’s image abroad and in the domestic scene.

9.1.3 Diversification of production As production growth rates in Chilean aquaculture are diminishing in recent years, irrespective of the market opportunities for salmon/trout and mussels ‐ which should remain quite open for at least the coming 10‐15 years‐ it is reasonable to believe that diversification with other species is convenient and desirable. This fact has received and will keep receiving growing attention by governmental institutions, which will most certainly back a series of R&D initiatives aimed at developing new technologies, market options, logistics, etc.

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At this stage, though, most ‐if not all‐ efforts to diversify will relate to ‘native’ species, as opposed to former strategies that privileged work with introduced (foreign) species for which market opportunities and technology were readily available elsewhere in the world. This change in paradigms will deeply affect the outcome of future actions in aquaculture, as (i) There are no readily available technologies to commercially farm most of those native species in the short run. Therefore, meaningful results will have to wait for variable periods, normally within an 8 to 15‐year range, if not more, and (ii) with few exceptions, most native species are basically known locally, or limitedly in a few more markets only. Therefore, for several years after technology becomes available, production will probably be restricted mainly to the volumes demanded by local buyers, even if occasionally they might be amplified by foreign demand. Costly and time‐consuming market campaigns will have to be developed abroad, to widen market prospects for them, with still unpredictable results.

Therefore, eloquent results of production diversification with most native species should not be expected before at least ten years, and this, provided that R&D efforts are well conceived, financed and executed without interruptions (which are fairly common as a result of changes in policies, governments and so on). Otherwise, their effect might only be felt in 15 years or more.

Diversification will not only refer to working with ‘new’ (mostly native) species, if not as well, in relation to new geographic areas beyond southern Chile, where most aquaculture takes place these days. Here, efforts are currently under way, and will probably be intensified, to look for species and technologies adequate for farming purposes in central and northern Chile. In parallel, other initiatives are also focusing on areas between Puerto Montt and Santiago, on a stretch of about 1 000 km of coast and fresh water resources, which at present are scarcely used in connection with fish farming.13

When talking about non‐traditional areas for further farming, being them in connection with diversification efforts or the future development of salmon farming activities, it is envisaged that more exposed and even ‘open‐ocean’ sites will be required to expand fish farming.

9.1.4 New technologies Another dimension of the diversification process is linked to technology and related knowledge and activities. Here, a move towards more exposed or open‐ocean sites requires to concentrate on the development of new technologies, equipment, logistics,

13This, with the exception of salmon smolt production in the Araucanía region and less important initiatives that take place further north of the Los Lagos region, and up to Santiago. The Araucanía region concentrates anything between 40 and 60 percent of the smolts currently used by salmon farmers in their on‐growing cage systems further south.

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security measures, legal framework and the like, which are not as yet fully developed elsewhere, and to which Chile is already paying attention and will certainly adhere to during the coming decades.

There is also a need to improve and make more competitive recirculation and other production technologies, to make them more easily applicable throughout the country, for marine and fresh water projects with different species.

In‐land production of larger‐size smolts, say 300‐500 or more grams and farming in areas with very cold waters (Magellan and south of Aysén regions), where marine species are among the most valuable in Chile, should also receive further attention as production and management strategies there should differ from those applicable elsewhere. A good amount of investment is necessary to cover R&D efforts, and, thereafter, production and ancillary services.

Needles is to say that technology improvements are required as well all along the production process and the value chain, so that, future developments cannot be imagined without substantial technologic improvements, further mechanization, the incorporation of biotechnology, genetics, nano‐technology and other sources of knowledge that, together with better training of human resources, will guarantee global competitiveness to aquaculture in Chile.

9.1.5 Fish processing Chile not only has very favorable natural condition to farm various hydro biologic species. It as well has the resources, the technical capacities, managerial and marketing abilities and the manpower to continue supplying value‐added end products to several markets that prefer ready‐to‐sell products, as they don’t have processing facilities and/or manpower is in short supply or relatively expensive. Therefore, the processing side of this industry should be expected to progress according to world demand and the expansion of local production, at a level complying with the most stringent market requirements and with global competitiveness. Here, new opportunities are also foreseen for novel product forms in non‐traditional markets within the developing world. In this case, demand will probably show different patterns, as compared to exports to industrialized nations, and Chile should make sure that it accommodates production and supplies to this additional demands, as well. Therefore, important investments are foreseen in relation to these activities.

9.1.6 Market issues

A high proportion of Chilean exports of aquaculture products is highly concentrated on a limited number of markets only, a factor which imposes risks and limitations to future development. Therefore, additional strategic goals to be considered are: (i) To broaden destination options for exports, particularly those related to developing countries; (ii)

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To augment value‐added products and, (iii) To expand and improve market options in countries where Chile already outstands (USA, Japan, EU, Russia, Brazil and others), as there still are plenty of opportunities there.

9.1.7 Small‐scale farming Small‐scale aquaculture production is still very limited in Chile, as up to now government and the private sector have mainly concentrated on large‐scale production schemes and exports, while somehow forgetting about family and community oriented fish farming. Therefore, it is expected that renewed governmental efforts will be made to strengthen this line of activity in several directions, among which: (i) The reseeding of coastal areas, to enhance depleted wild populations and improve livelihoods of coastal artisanal fishermen; (ii) Widening the scope of aquaponics, a mixture of agriculture and fish farming, with lower‐end technologies; (iii) Facilitating access to small‐scale projects, by improving regulations and governance in general, and (iv) Other measures aimed at augmenting farmed production by this segment, a policy which should help: (a) Widening the availability of good quality fish for human consumption in the domestic market, and (b) Generating work possibilities for coastal fishermen, currently being displaced from that activity, because of the decaying availability of wild stocks.

9.1.8 Governance Improving governance all along the value chain is a must, being it in relation to obtaining farming permissions, becoming legally established, controlling production and its environmental effects, caring about all negative externalities associated with aquaculture, regulating the use of vaccines, antibiotics, anti‐parasite treatments and the like, ascertaining the final sanitary condition of farmed production, regulating interactions between all stakeholders in this industry, promoting a better involvement of industry with local communities and the public at large, helping producers to enhance market and marketing capabilities and credibility both abroad and in the domestic scene, widening the financial support to R&D efforts, taking care about its appropriateness and coverage, developing of human capital and training facilities and programs, etc.

In relation to farming sites, it should also be expected the framing of new regulations, aimed at least at addressing the following topics: (1) Better regulation for the geographic deployment of farms, to guarantee that industry works on a more sustainable manner( considering the ‘carrying capacity’ of the different water bodies where farming takes place; sites more separated from each other (sanitary corridors), etc.); (2) Adding new authorized areas to expand fish farming in ‘coastal’, semi‐exposed and oceanic zones, (3) Adapting regulation to offshore farming in all respects, and (4) Producing regulations specially adapted to small‐scale operators, which are otherwise subject to ‘unfair’ competition with larger‐scale enterprises.

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In what particularly relates to diversification, Governmental support will be necessary to jump‐start the first developments stages, as local industry has not yet come to terms with the idea that it should cooperate more in these endeavors. They neither have the necessary financial resources or will required to initiate R&D activities where results cannot easily be appropriated by those involved (pre‐competitive stages of R&D work).

9.1.9 Research, development and innovation ‐ R&D&i

Now that the diversification process will be increasingly focusing on native species; that offshore aquaculture is a matter of concern; that salmon farmers will require better quality and bigger smolts; that better productivity and global competitiveness are a must; that diseases are severely affecting production with many species; that there are growing environmental concerns; that market requirements are growing and more demanding; that logistic improvements are necessary along all activities; that small‐scale farmer should be further included in the production scene; that more and better technology and knowledge is required, etc., it becomes indispensable to ascertain that more and long‐term financial support is given to Chilean aquaculture, a fact, which in turn requires a holistic view on what is really urgent and necessary in the field of R&D&i. Therefore, more and better efforts will be required to plan how best to use R&D resources in the future, and on how to make industry become more involved with this process, to make sure that the most important matters are the ones receiving proper and adequate attention.

Any reasonable estimate on this matter indicates that investments in the order of hundreds of millions of US dollars will be required for these purposes during the next decade or so, and governmental sources are being motivated to come to terms with these requirements.

9.1.10 Ancillary services, infrastructure and logistics Promoting more and sustainable development of the aquaculture industry also requires better and more efficient ancillary services. It is estimated that enterprises providing services and logistic support to fish farming in Chile provide at least an equal number of jobs than that of farmers and processors put together. Adding up to over 1 200 companies, they require further support and financial help to continue growing and improving their capacities to render world class services all along aquaculture’s value chain. This sector is expected to produce export‐oriented services and products in an amount not inferior to US 300 to 500 MM per year, by 2030. Enhancing infrastructure (roads, landing points, airports, etc.), all logistic aspects (sea and surface transportation, warehousing, laboratory work, repairs & maintenance, etc.), connectivity and social services (housing, education, health, communications,

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etc.) essential to the growing number of workers directly or indirectly participating in this industry, and indispensable to farmers at large, will also be required, particularly in isolated places.

9.1.11 Financial services Improved financial services and schemes, to facilitate the activities of industry members and newcomers and to fulfill the needs for economic resources linked to future expansion and/or to venture in new initiatives are also necessary. It is already estimated that aquaculture development might require an additional U$ 5 000 MM or more only in relation to direct salmon production up to 2030. Adding up mussels and other species; the incorporation of new areas and technologies and considering basic ancillary services required all along the production and marketing chain, that figure might easily grow to well over U$ 10 000 million up to that same year.

These basic points, and the way they are addressed in future years will determine to a large extent, the way Chilean aquaculture will evolve, and the goals to be achieved. For now, there is no such thing as a comprehensive National Development Plan for Aquaculture up to 2030, but the criteria to be used to address every one of these issues have already been discussed in several occasions, particularly during 2015 and 2016, and therefore, there exists what could be called an ‘informal consensus’ and understanding on what should be done to move this activity forward in Chile up to 2030. These ideas are reviewed in more detail in the next chapters. Of course, a careful reading of these proposals directly relate to many and varied business and investment opportunities that will become available in the coming fifteen years or so throughout this industry. During the coming fifteen years or so Chile will move away from its ‘comfort zone’ in aquaculture production, that is, working in protected areas in southern Chile to basically produce salmon/trout and mussels, with adapted technology from abroad, to other geographic spaces, including in‐land marine projects under recirculation and open‐ocean activities, where local comparative advantages that prevailed during the past forty years will be practically lost, and the country will have to resort to additional and more complex means, and longer maturation periods related to diversification, to continue being competitive and desirable, from a global market perspective. Therefore, Chile will be compelled to remodel almost completely its aquaculture industrial production model as known today and will have to define new governance rules, to accommodate to a more demanding stage for its fish farming sector. In this

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new phase, perhaps, Chile’s most valuable comparative advantages for its aquaculture industry will be its already well gained position in several international markets; the massive volume of its output (about two thirds of countries are still struggling to produce over 10 000 tonnes per year, while Chile already crops over 1.2 MM tonnes) and, managerial / governmental expertise to run a fairly complicated activity requiring to meet a good number of conditions to become sustainable and successful. An additional critical issue needing further attention is the requirement for a proper development policy to promote and support a world‐class ancillary service sector that should supply local needs, but this time should as well become enabled to address the requirements of a growing Latin American and world aquaculture sector, due to substantially augment their current production levels in coming decades.

9.2 Objectives and goals to 2030 The main development prospects for aquaculture in Chile up to 2030 are related to the following topics:

1 Further development of salmon and trout farming, 2 Further development of mussel production, 3 Production developments connected with the diversification process, in

the already described dimensions. As repeatedly mentioned, all of these expectations should be framed by two general concepts: (i) Environmental social and economic sustainability, and (ii) A renewed governance, that solves most outstanding difficulties, and opens new avenues for a less complex and a more amicable development process.

The following paragraphs describe in some detail the main objectives and goals in each case

9.2.1 Salmon and Trout The main objectives to be achieved in salmon farming can be described as follows:

To consolidate an environmentally sustainable industry that takes full advantage of Chile’s production potential.

To generate (and/or regain) confidence among national and international buyers/consumers, and to integrate in a better manner with local communities

To develop and sustain better collaboration between farmers, processors, ancillary service suppliers, government and R&D institutions, strengthening labor relations and providing good quality and stable employment opportunities.

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To strengthen human capital and R&D infrastructure, to be able to generate, adapt and apply the best science and technology available throughout the value chain.

To devise and put in place a modern, strong and flexible governance.

Should these aims be achieved, this industry should reach the following concrete goals by 2030:

A sustainable crop of no less than 1.2 to 1.3 MM tons per year of salmon and trout,

Fish exports with a value not inferior to U$ 6 000 to 6 600 Million per year

Direct and indirect employment for about 80 000 to 90 000 people, mainly in the four regions of the country currently being used for salmon farming, but not necessarily only restricted to them

Sales of services‐products abroad by ancillary services providers and R&D institutions of about U$ 300 to 500 MM per year

The incorporation of between 70 000 and 147 000 new hectares to produce agriculture raw materials necessary in the elaboration of salmon diets with less fishmeal and fish oil

The production targets of 1.2 to 1.3 MM tonnes for 2030 is not the upper limit to which Chile can aspire, if not, a volume considered reasonable and prudent by many stakeholders, considering current problems (poor governance and geographic deployment of farming sites, diseases, market image, which make this industry unstable and non‐sustainable in the long run), and the time required to solve and/or mitigate them. These estimates are based on several considerations that include rationalizing the spatial distribution of salmon farms in the Los Lagos and Aysén regions; a further expansion to the Magellan region and the use of more exposed and offshore sites up to 2030, after adequate technologies for these purposes are mastered and proper equipment become available. In parallel, sales prospects are mainly based on exports, and here, sustained and meaningful efforts to consolidate current destinations are envisaged, together with the incorporation of new alternatives of products and buyers all over the world. Clearly, market prospects are open to further Chilean expansion, a fact that will receive further attention in due course. It is also considered that enterprises supplying ancillary services together with R&D institutions should be reinforced to facilitate their upgrading and the possibility of becoming world‐class exporters of products and services, particularly for the Latin American scene, where marine aquaculture is just starting, and where substantial progress is envisioned during the coming decades

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9.2.2 Mussels This industry, exporting over 64 000 tonnes of end products valued at U$ 189 MM in 2015, is responsible for about 17 000 jobs and is physically deployed almost exclusively in the Los Lagos region. Composed by 89% of micro, small and medium‐scale enterprises (farming only), they have incorporated technology and equipment since the late 1990s, transforming Chile into one of the two most important world producers ‐ and first exporter ‐ of this farmed mollusc, currently sold to sixty different countries. The strategic objectives for mussels farming up to 2025/2030 can be summarized as follows:

1 To diversify destination of exports, widening market scopes to Russia, Brazil and other non‐European countries, which for now constitute the main clients

2 To enhance domestic consumption of mussels 3 To diversify end‐products offered both domestically and abroad 4 To enhance and apply more and better technology throughout the value

chain 5 To improve the geographic deployment of mussel farms, to accommodate

them according to the best available knowledge on environmental issues 6 To improve governance and make this industry more competitive world

wide This far, there are no official production goals available for this industry for the coming years, but these authors consider that, provided the objectives stated and the following ideas are duly considered and new sites are incorporated for further growth, including semi‐exposed locations, Chilean production of mussels should continue to evolve and grow at annual rates that might vary between 3% and 5% per year up to 2025/2030. In fact, considering the production trend for 2008‐2014 figures, it can be calculated that if a base production of 246 120 tonnes (average of actual 2013 and 2014 figures) is assigned to 2015, harvest volume by 2030 could be estimated at some 431 600 tonnes (75% increase), with an implicit average annual cumulative growth of just over 3.8% per year.

As this industry is 100% based on the collection of seeds from the wild and production is increasing, there are no doubts that this sector should devote increasing efforts to the development of technologies that enable the production of genetically selected seeds in laboratories, at reasonable costs. Basic knowledge on how to produce exists, but no one has yet been able to suggest that those seeds can be produced at reasonable costs. Action on this

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matter does not as yet receive proper attention, because it is considered a very long‐term goal, with only limited prospects for the coming 5‐10 years

As stated above, it is desirable that several farms currently in operation and future units should be redeployed and/or located in new areas, if consistent duration of production cycles are to be achieved. Currently, as production increases in traditional areas, production takes longer than in previous years, demonstrating that the environment is being saturated with production lines in several water bodies.

The relatively low value of these crops makes it compulsory to improve logistics and processing activities, to become more competitive, as those items significantly affect final costs and therefore, market competitiveness and/or desirability.

It is equally important to suggest that current farming technologies, equipment and human resources do receive dedicated and further attention, so as to improve efficiency and competitiveness. This is a central point for future action.

Better relations are wanted and needed with local communities, where this industry is deployed, and extensive work should be done in this respect

Under these sets of hypotheses, Chile should continue being a very relevant player in world production and trade of farmed mussel. If these concepts are correct, and the main goals already mentioned are achieved, Chilean aquaculture will continue to be based on salmon, trout and mussels for the coming decades, as there are no substitutes that can compete in volume nor total value with these species at least for the coming 10 to 15 years. However, and due to the fact that diversification efforts are also under way in many dimensions ‐ as those described earlier – a good amount of investment is foreseen to open the way to new native species, territories and technologies currently under study or to be selected in the future.

9.2.3 The diversification process with native species Diversification activities should start considering that some species currently farmed with poor technology and/or in reduced volumes and/or facing other difficulties should receive further help, to ascertain that they do not become irrelevant. Among them, the following should be included:

1. Native and Pacific oysters, with eventual support from Government and private firms 2. ‘Cholga’ and ‘Choro zapato’, with eventual support from Government 3. Spirulina algae, mainly with private sector efforts 4. H. Pluvialis, still requiring governmental support to scale up and stabilize farming and processing technologies

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A fifth group of introduced molluscs, that comprising red and green abalones, should also receive further attention, with continued private sector efforts and eventual R&D funds from different governmental sources. Here, efforts should concentrate in the coming years only, and if any or all of the above mentioned species do not show adequate results, official support should probably be discontinued altogether. Referring to species whose technologies are still fragile and under development, a recent study of 201514 financed by CORFO, suggests the following ones for diversification purposes, implying that this selection should be heavily backed with long‐term financing from governmental sources. Here, marine fish targeted for intensive farming are:

1. ‘Bacalao de profundidad’ or Chilean seabass Dissostichus eleginoides 2. ‘Congrio dorado’, or Golden kingclip Genypterus blacodes 3. ‘Congrio Colorado’, or Red Kingclip Genypterus chilensis

Chilean seabass aquaculture is just starting in Chile and in a few other locations, but it certainly is the most promising undertaking for the future, in commercial terms. If practical aquaculture solutions are devised after a prudent period of time‐ say 10‐15 years – this industry will have ‘found’ a ‘new salmon’, with wide market possibilities for high‐end customers. Because of its potential world demand, and current scarcity, there should be no limits to production quantities, as the quality of the product guarantees that any reasonable harvest volume will be sold at reasonable prices for a good number of years. ‘Congrio dorado’ is also an excellent species with promising market prospects abroad, although at a smaller scale, while ‘congrio colorado’ could be mainly directed to a thirsty domestic market, which has faced decreasing supplies of wild species for several decades. Two more species are still to be added to the former three: 4. ‘Palometa’ o ‘Dorado’, or Yellotail kingfish Seriola lalandi 5. ‘Corvina’ or ‘Croaker’ Cilus gilberti

14 Cooperación y Desarrollo Limitada , May 2015, Informe Final Consultoría de actualización de ranking de especies prioritarias para la diversificación acuícola, CORFO, Gerencia de Capacidades Tecnológicas , Santiago.

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Work with these two species is already under way, but will be reinforced in the coming years with further financing, to finalize their development process, with adequate and highly efficient farming techniques. This same study selected as well the following species for diversification purposes, but this time concentrating in the production of juveniles/seeds only, to be further released and grown in the wild, even though other more sophisticated options are not discarded at all: 1. ‘Erizo rojo’, or red sea urchin Loxechinus albus 2. ‘Loco’ or chilean abalone Concholepas concholepas 3. ‘Almeja venus’ (Clam) Venus antiqua 4. ‘Almeja taquilla’ (Clam) Mulinia edulis 5. ‘Almeja culengue’ (Clam) Gari solida 6. ‘Macha’ or razor clam Mesodesma donacium This ‘reseeding’ option will not have much future in Chile unless formulas to permanently finance these juvenile/seed production efforts are devised and applied. Otherwise, whatever investments are made to improve seed/juvenile production techniques and/or further farming facilities will be completely lost. Here, Government should be prepared to subsidize seed/juvenile production for a number of years only. Thereafter, however, fishermen that take advantage of these seeding efforts should pay an agreed upon fee, so as to finance the costs involved in producing and seeding these juveniles, to give continuity to the process. Additionally, and even if they do not as yet appear as main targets for official backing, it is the author’s opinion that further attention will be given to the full development of intensive farming techniques for king crab (‘centolla’) and red sea urchin. The latter is a valuable species that could enhance aquaculture prospects in the Magellan Region and further north, and for which seed production is fairly well handled by now, while intensive growing methods are being developed in Norway, Australia and in other countries. Those advances can very well be applicable and tried in Chile. In the case of king crab, local scientists have already closed the production cycle in captivity, but there still remain a good number of aspects to be researched until commercially viable methods are devised, most likely during the coming 10‐15 years. New farming technologies should also be incorporated in future years‐ or some currently at use should be adapted ‐ to open new work opportunities in Central and Northern continental or marine areas. If this is the case, these aims should be combined with the idea of developing ‘open ocean’ aquaculture techniques and equipment, as sheltered marine places will not be plentifully available in those regions.

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Additionally, the idea of strongly supporting offshore farming (or aquaculture in high‐energy areas) as from now also relates to the fact that Chile will need to compete with foreign countries that will certainly move towards high‐energy areas in the not too distant future, with projects that will challenge local salmon/trout exports15 . These techniques and equipment are also required to incorporate new untouched and available areas to farm more salmon and other species in more exposed locations in southern Chile. In the case of salmon, the use of higher‐energy sites is particularly promising as they should help redeploying some heavily loaded production sites, diminishing biomass there, and lessening prospects of disease outbreaks and dissemination and/or of environmental damage. The same applies to recirculation, a technology that, if improved and made more accessible, will help eliminating smolt production in southern lakes, and will substantially contribute to enhancing small and medium‐scale marine aquaculture production all over the country’s coastline, and with new initiatives in fresh water as well. Clearly also, there is a tendency to grow salmon smolts to higher weights, so as to ‘strengthen’ their survival opportunities in sea water, while shortening farming periods on the marine environment. Finally, diversification of markets is also a must, to diminish dependency of Chilean exports on just a few major destinations. These moves are also needed to respond to changes in demand patterns, as a very relevant part of sales increases in future decades will be associated to developing countries, a fact that needs further preparation of local market and marketing people; new products; new commercial practices and the like. All these factors will also challenge customary practices with new requirements that will have to be met by the aquaculture industry. In sum, Chile has enormous growth and diversification possibilities for aquaculture activities in the coming decades, including the introduction of ‘new’ species (mostly native ones), technologies, markets and new production areas. The basis for diversification are strong, and even if there are problems to be addressed, chances are that if adequate resources are devoted to these aims, aquaculture could evolve reasonably well in coming years, were it not for the fact that again, even if a selection process has been undertaken by official sources as recently as in 2014‐2015, their results plus other priorities, as those highlighted above, will most probably require financial and human resources that are not readily available in Chile or, alternatively, cannot be sustained for the required number of years to produce meaningful results. Therefore, it is again evident, that a new prioritization effort will be needed to narrow down the diversification focus, as otherwise, the handling of this ample set of options

15Reference is made to probable salmon production in oceanic waters in front of the US coastline; in Europe; in Australia, New Zealand, China, etc., which at some future date will challenge Chilean salmon exports to any or all of those destinations.

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will not produce the required outcomes and will frustrate the wishes and expectations of many. In the foreseeable future, local aquaculture production will still be concentrated on very sophisticated and massive production units, but this time supplemented by a number of small and medium size enterprises that until now were mostly nonexistent in the country. Moreover, however important diversification efforts might be, it will still be true ‐ as repeatedly stated ‐ that local production and exports for at least the coming 15 years or more will still be highly based on salmon, trout and mussel production. Finally, it should be taken into consideration that the eventual incorporation of small‐scale farming participants in the future, particularly in the case of marine species, has to consider in parallel the need to produce seeds and/or juveniles and to handle brood stocks by third parties, as those techniques nor the associated capital requirements will not be easily accessible to small‐scale farmers. Therefore, if Chile wants to incorporate them to aquaculture production, juvenile/seed production and/or availability might become critical or limiting, and therefore, a formal solution to this restriction has to be devised, either through public or private initiatives. On top of this, a proper statute to govern small‐scale production will also be required, as well as adequate financial schemes and technical assistance. If reasonable actions are taken, and support investments are assigned to these aims, probable production volumes of newly farmed species could very well be in the 40 000 to 80 000 tonnes range by 2030, if not more.

9.3 Aquaculture development strategies to 2030 Chile has come a long way in the handling of technologies during the last 40 or so years. Universities have organized programs to prepare aquaculture scientists and technicians (and lately, for postgraduate studies); sophisticated laboratories and pilot plants have been built; private entrepreneurs and R&D institutions have bought technology and trained personnel abroad. Thus, there is a lot of accumulated experience while developing salmon, trout and mussel farming to world class levels, and moreover, with R&D with different species, so much so that whatever needs to be done in terms of further diversification can take advantage of all these gained abilities. Basic opportunities for further diversification and aquaculture development in Chile are based on the following aspects:

a. Open market opportunities worldwide and in local markets, in the decades to come. No restrictions are envisaged in this field, except for those that may arise from lack of competitiveness or in relation to product characteristics and/or quality.

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b. Ample space and excellent environmental conditions to sustainably increase production levels with currently exploited species, and in the near future, with the introduction of native species to the farming matrix

c. Good and experienced scientific and technological communities, with well‐established labs and pilot facilities in most parts of the country. However, Chile still needs to prepare human capital, to achieve the standards observed in more developed and competing nations

d. A skilled workforce in fresh‐water and marine farming techniques, together with manufacturing and logistic processes at all stages of production and the value chain

e. A large number of enterprises rendering specialized services to current aquaculture production, that could widen their activities to serve new farming initiatives

f. Governance experience that has already shown what should best be done to facilitate and consolidate future diversification and development actions.

To take advantage of the aforementioned possibilities, though, a fair number of problems have to be addressed and gaps be closed, if a sustainable and a more diversified aquaculture development process is desired for Chile. Therefore, the following aspects are relevant components of a strategy to move forward and meet the objectives and goals already outlined:

Better planning and long term goals To progress and diversify, it is desirable to have a clear ‘Vision’ of where should aquaculture head towards in the long run. Objectives and measurable goals ‐ such as some that have already been exposed ‐have to be defined, and a strategy (roadmap) is needed to know exactly what the main activities/tasks to be undertaken are. This basic planning approach has not been used in the past. Consequently, efforts, financial, human resources and equity have most certainly been lost or mismanaged during an interesting but bumpy development process. In 2015 and 2016 new efforts have been made to devise a better planning route, establish roadmaps and direct future aquaculture activities along well established paths. Even if a ‘fully integrated planning exercise’ has not being carried out, proposals for further development regarding salmon and trout, mussels and aquaculture in general are already in place, having been elaborated separately, by different ‘programs’ or institutions. Each of these programs has its own vision, objectives, goals and roadmap and provided that a synthesis work is carried out, Chilean aquaculture will have access to a good proxy for a concerted vision on ‘where to go’, where concentrate scarce

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financial and human resources, and above all, where to focus governmental and private actions according to long term views and requirements. Considering only the day‐to‐day needs of industry, as has normally been the case, results in erratic moves that confuse sectoral actors and even stop a healthy evolutionary process. Such consequences are well reflected in recent production statistics, in overcrowding of several water bodies, and in severe losses of competitiveness in salmon farming because of disease outbreaks, excess costs related to the use of vaccines and other therapeutics, more and costly controls and the like.

R&D Government should support R&D through different organizations, taking good care to coordinate their actions. It should also concentrate funds on a limited number of promising species mainly, and finance whole ‘programs’ rather than ‘isolated projects’, as this last approach has shown poor results in the past. R&D programs should be financed for as long as required, without interruptions, and if so needed, for six, eight or more years. Joint ventures by Government, private enterprises and R&D institutions should be favored at all times. All R&D initiatives financed with governmental funds should be evaluated in their achievements on intermediate dates, with the option of cancelling initiatives exhibiting poor results or mishandling. They should also be evaluated at the end, making as much information available to the community as practically possible16. Participating enterprises and/or R&D institutions that perform improperly should be punished forcing them to comply with much more stringent requirements in their next eventual bid for funds, or should be banned at all from bidding for public resources, according to circumstances. Evaluation of project proposals should be as stringent and dedicated as possible, to ascertain that scarce public and private funds are duly used Government should only call for project proposals on subjects that are relevant to the global development/diversification strategy17 .There is a need for

16Measure should be taken to safeguard proprietary information, resulting from these projects, particularly when private enterprises and/or R&D institutions co‐finance these initiatives 17 There is no such thing as a detailed aquaculture development plan for the coming decades, but several studies with official funding are proposing strategies to further promote this trade sustainably, in what refers to salmonids, mussels, aquaculture diversification and others topics. These studies provide a good background on what is most desirable. However, they do not show priorities ‘among’ different options, a fact which should therefore receive detailed attention.

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consistency on what should and should not be done, following the above mentioned criteria

Governance Governance has been the most fragile of drivers in recent years and the cause of much frustration to industry, communities, workers, etc. Governance has to improve in many areas to address severe problems that jeopardize diversification and development efforts, some of which are outlined here:

o All efforts should be made to devise regulations that guarantee aquaculture sustainability, from environmental, economic, financial, social and market perspectives.

o Aquaculture farming authorizations should only be granted after assessing the carrying capacities of the different water bodies, whether in fresh water or marine environments. If studies take more time than a prudent amount of, a precautionary approach should be used at the beginning. A trial‐and‐error approach can also be used, with certain limits

o Appropriate ‘sanitary corridors’ should be devised to avoid as far as possible the dissemination of diseases. In parallel, rules to identify and control other disease vectors should be devised and put in place

o Further attention has to be given to small‐scale production, incorporating a special statute applicable to small‐scale farmers, to ‘level the ground’ with large‐scale aquaculture and make small‐scale activities feasible and sustainable

o Efforts have to be done to ensure that technical assistance is given to initiatives aimed at supporting small‐scale farming activities. The same should be applicable to small‐scale providers of services along the production chain

o An evaluation of the performance of this industry has to take place at regular intervals. The end product of each analysis has to be made publicly available on a timely manner.

o Collection and timely analysis of good quality environmental, production, economic, market and social data is required. Data and analysis should become available for public scrutiny.

o A limited number of control procedures have to be devised and put in operation to guarantee industry’s behavior, establishing heavy penalties to offenders. All other superfluous restrictions should be abandoned.

o New measures to further facilitate and promote investment in aquaculture development have to be devised and made available as soon as possible, to favor primary and secondary activities and support ancillary services.

o New measures are required to safeguard animal welfare

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Communities, coordination, workforce The Chilean aquaculture industry has not been particularly successful in relating to local communities where it works. As well, labor relations and public image of this industry should be improved. Therefore, continuous and meaningful efforts are required and a proper plan is needed to address all of these problems, to improve the social acceptance of aquaculture and to facilitate the full implementation of future development and diversification efforts.

Climate change Chile is being affected by climate change for quite some time, resulting in the desertification of several coastal areas; in changes in fish availability in coastal and oceanic waters and on a marked change in rainfall levels in many parts of the country, among other situations. In the first case, sand dunes are advancing in many areas, while in the case of fish availability, patterns are changing and artisanal as well as industrial fishermen are experiencing diminishing fish landings in several occasions and very fluctuating availability levels of pelagic species, some of which provide the raw material for the production of fishmeal and oil that Chilean aquaculture requires. Variation in rainfall levels in many parts of the country are also accompanied by erratic behavior of rivers and/or several flooding episodes that have affected thousands of people in several occasions during recent years. Additionally, algae blooms, which recurrently but unexpectedly affect some parts of the country, have also been present with noticeable strength, particularly during the early months of 2016 in southern Chile, severely distressing salmon production and the extraction of wild bivalves, affected by poisonous ‘red tides’ in several locations where these events were not ordinarily present. Clearly, though, some of these events should happen more or less periodically, linked to ‘El Niño’ event, but others are bound to become established in the long run as a net effect of climate change. Higher temperatures between one and three (moderate scenario) or two and four degrees Celsius (severe scenario) are also expected to occur by the end of this century, with further changes in rainfall patterns, glaciers and snow storage capacity in mountain areas, which can probably result in still unpredictable but meaningful effects on the regional capacities to continue farming hydro biologic species, as known today. However important these events might be, the truth is that little can still be predicted on the precise effects of climate change in the future of aquaculture in Chile. In any case, though, as these changes take some time to occur and get established, there might be chances for adequate responses, or in the worst

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scenarios, to apply whatever mitigation measures are possible. The warming of the oceans can certainly affect fish aquaculture production in many different manners, such as limiting salmon production and/or production densities in some southern areas, but encouraging the farming of species such as yellowtail kingfish in the northern seas, as a result of higher and ’more favorable’ (warmer) temperatures. In all, because of the many worries and uncertainties attached to climate change, there is no doubt that Chile will have to invest much more on R&D dealing with this subject, as the only means to learn predicting, solving and/or mitigating the several unwanted effects that could be forthcoming. As well, aquaculture stakeholders will also have to learn how to make the best of any positive effect related to climate change.

10. Business opportunities related to aquaculture development Chilean aquaculture currently presents clear options for investment and business, which will evolve and grow as time passes.

As mentioned earlier, a very preliminary assesment of investment opportunities in primary and secondary production indicate that, in principle, massive sums of the order of U$ 10 000 MM or more are considered necessary to develop Chilean aquaculture to its expected production level up to 2030. Some U$ 5 000 MM are directly linked to salmon farming initiatives only, and the remaining sum should cover expected developments in mussel farming, R&D work, the production of new species and the upgrading and enlargement of basic ancillary services.

In broad terms, the main areas in which these opportunities are more evident, are the following:

10.1 Infrastructure An area in which much work and investment will be necessary. Some of the main opportunities will be related to:

Roads, Ports, Airports, Communications, Energy supply, Housing, Health, Education and other basic services commonly related to public actions

As activities should cover a broader geographic area beyond the Los Lagos and Aysén regions and farmers will probably resort to more distant and offshore sites, an increase in port activities are envisaged. More, larger and better equipped airports for small and normal commercial aircraft will also be needed. Energy is an item of particular

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relevance also, and very likely, new autonomous systems linked to renewable energy sources will have to be supplied to assist farmer in isolated places, inland or at sea. An increase of approximately 20 000 work position only in salmon farming and related activities up to 2030 will also require massive state intervention to provide all public services required to house and service these extra workers and their families. As more agricultural land will have to be devoted to supply the raw materials needed by aqua‐farmers, these needs will also be far higher.

10.2 Equipment and services to be provided to primary and secondary activities

This area, in which very specialized equipment and services will be needed, has enormous possibilities as well. The main investment/sales opportunities linked to further development are:

10.2.1 Marine environment

Cages, nets and mooring systems for salmon and other marine fish.

Floating warehouses and habitat for technicians serving the different marine sites

Feeding devices of different automation levels, and related equipment

Other farming equipment related to the handling of fish at all stages of marine‐production (loading and unloading, grading, handling of mortalities, disease treatments, etc.)

Equipment to produce the required energy to operate all types of machinery/equipment and support other human activities

Equipment related to security and communications

Software and electronic equipment related to data and information processing and analysis in all phases of production

Diving and cleaning equipment.

Fixed and/or mobile cranes and other equipment to move nets and to harvest fish and to move different cargo, containers and the like

ROV.s (Remote operated vehicles), to assess the state of cages, mooring devices and the environment (sea beds, etc.), etc.

Different types of containers/boxes to handle fish and eventually medication, feed and other materials, as required.

Clothing, according to environmental conditions

Aerators, oxygen suppliers and related equipment/machinery

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In the case of mollusk farming and other species such as sea urchins, again, the list of equipment is very wide, and includes, among others:

Long‐lines, floats and their mooring systems

Different sorts of containers to grow mollusks, such as lantern‐nets and other devices

Nets of different types to collect spats, produce seeds and to support mollusks being farmed

Floating barges, as support units to handle mollusk and their containers; to facilitate harvest procedures and similar activities, etc.

All other categories included above, as specifically applied to these farming activities

In the case of abalones, sea urchins and other mollusks that require special feed, there is also a need to store these raw material and to distribute them as necessary

All marine activities require adequate means of transportation to:

Transport personnel to, from and within farming sites

Transport fish juveniles/seeds to their farming sites

Move fish within the farming site

Transport feed (whenever required), petrol, fresh water, food, medicines, paints, nets, and other provisions, as specifically required

Harvest fish, mollusks, sea urchin and other species and move them to processing lines/markets in‐shore. In most cases, products have to be transported live.

Most marine sites are as well equipped with different types of sensors, according to their needs, and therefore, one or more of the following instruments/equipment are commonly present

Buoys, including different sensors, electronic equipment, communications equipment and the like, including sources of energy (solar, Aeolic, batteries, etc.)

Different equipment to measure temperature, oxygen levels, salinity, oceanographic conditions, etc.

Instrumentation requirements will also grow in the future, when more exposed and offshore sites are more frequently used. For those environmental conditions, remote‐control devices to command different pieces of equipment and tasks will become extremely important and necessary as well, as exposed sites need to guarantee that all

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critical operations (submerging cages; feeding; theft controls, etc.) can proceed without interruptions and/or as required under bad weather conditions, without direct human intervention. In the case of reseeding programs, or, for intensive production, several hatcheries, to produce fish and mollusk juveniles will also be required, along with algae laboratories. Here, the production of microalgae is also necessary in many cases, as well as units to handle and/or produce rotifers, copepods, artemia and the like. All these installations require very sophisticated pieces of instrumentation and equipment, as well as water filters of many kinds; pumping stations to move water; all sort of electric equipment and transformers, aerators and unites to treat effluents, being them solids or liquids, etc. As it has been traditional up to now, when buying turn‐key projects, particular production units or even individual pieces of equipment/machinery and the like, many and very varied engineering services are necessary, several of which can be contracted abroad or locally. The same applies to oceanographic, weather and related subjects, where future requirements will be substantial. Here, reference is particularly being made to mathematical modelling and/or physical experimentation in suitable sites to predict future events and/or to prove new designs for floating devices of many types (submergible and/or floating cages; mooring systems and the like), particularly those that will be required for more exposed or offshore farming. Expertise and equipment to study the sea bed and control/mitigate/remediate the undesirable side effects of production will also be in high demand. New, more secure, easy to handle nets, ropes and cables of many types will also become necessary in large quantities, and further commercial opportunities attached to these needs will be plentifully available. Among the very varied need for other supplies required in marine farming operations, there will be further requirements of different types of anchors and related mooring devices, paints and other protecting materials, lubricants and oil, gases such as oxygen, etc., directly linked to the production process and/or used by ancillary service suppliers. Of course, the list of other equipment and supplies required by fish farmers is too wide to describe it in detail, so, the former paragraphs should serve as a guide to some of the major items to be required in marine aquaculture during the coming years in Chile, all of which can be considered as commercial opportunities of different degrees of significance. A detailed assessment of the precise demand for any one of this vast list of requirements needs specific consideration, whose scope exceeds the limits of this report. Again and according to the relative magnitude of the growth expected for

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marine aquaculture in coming years, the most relevant opportunities will no doubt still relate to salmon and trout farming, followed by those in mussel production.

10.2.2 Continental aquaculture A very similar list is applicable to fresh‐water aquaculture projects to be installed in the future, with the difference that here, emphasis will be related to machinery, equipment, raw materials and other elements needed mostly in the production of salmon/trout smolts/juveniles, now, with an increasing emphasis in recirculation units, fresh‐water stations to handle brood‐stock, new installations to produce salmon smolts of about and over 300‐500 grams and to complement current efforts to become fully independent in the local production of eggs. In all these dimensions, further efforts to improve the genetic basis of productions will also become necessary and new/better installations to handle more fish for these purposes will also have to be built. Further expansion in the production of microalgae is also envisaged, and therefore, all types of equipment used for open‐pond and controlled operations will be required. New designs for photo bio‐reactors are here a must, and other related equipment to extract different components from microalgae will as well be needed. It has to be remembered that solar radiation in Chile is extremely intense, particularly in the northern part of the country and therefore, further investment in this area is also expected. In this case, special attention is required in civil works, farming containers of all types and sizes (tanks), pumping and filtering equipment, together with adequate transport for live fish and treatment plants for mortalities, liquid and solid residuals. The same massive requirements for engineering services are also envisaged, and there will be enormous opportunities for specialized services related to these aims in the coming decades. Finally, it is by no means of secondary importance that a good part of Chilean competitiveness in global aquaculture markets will not only be linked to the farming stage of production, if not as well, to the processing side of this industry, where this country has already built a good reputation for its fillets, steaks, smoked, salted, canned products and the like, which are sold and distributed all over the world, and particularly in the US, Japan, Brazil and Europe. Chile’s advantages in this field refers to accessibility to available and well trained manpower, sophisticated and state‐of‐the art factories and the whole logistics related to the elaboration and further handling of good quality, wholesome and cost‐effective end‐products as required by different markets in a consistent and reputable manner. As opposed to this situation, other producers, with more sophisticated economies

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either lack manpower, or its cost is excessive, to reach many world destinations at convenient prices. Therefore, as production rises, there will be a correlated need for more equipment, engineering services, civil works and all the logistics linked to this phase of production, which will lead to an extensive number of commercial opportunities related to the supply of equipment, services, raw materials and the like associated with all lines of products, being them fresh, frozen, canned, smoked or their derivatives. It is here envisaged that foreign markets will continue to ask for more elaborate and ready‐to‐sell products that can be sold directly as packed, branded and labelled in its origin ‐in this case, Chile. Not only equipment, services and raw materials will be needed, if not as well, a wider variety of value‐added products, including new packaging materials, all types of containers, etc., together with adequate warehouses, loading/unloading and transport equipment, all of these, leading to additional business possibilities, starting from product development activities.

10.3 Research and Development infrastructure and activities covering all aspects of aquaculture. At this stage, further, more focused, specialized and higher‐level R&D is required in Chile to develop local aquaculture to the new heights expected for 2030. Therefore, new and better laboratories will have to be built, together with other experimental facilities which are typical for these endeavors the world over. More sophisticated equipment and personnel will be needed, and in the case of equipment, most specialized parts will still have to come from abroad. New R&D facilities to carry out experimental / development work with medicines, vaccines, feed, etc. will have to be built, along with quarentine stations to control the quality and safety of biologic material that will have to be moved from one region to others, or that might have to be imported/exported. Local infrastructure to accommodate more students, and new post‐graduate programs are also envisaged. Here, Chile is regarded as a ‘focal’ country for Latin American aquaculture, particularly in what relates to marine farming and it should surprise no one that many students from this continent would like to formally learn about aquaculture techniques and related subjects in this country . Therefore, it is also foreseen that in the near future, more foreign students will attend classes in Chilean Universities, a fact for which this organizations will have to become prepared. It is highly desirable that new study and R&D programs be undertaken as far as possible with experts/lecturers/researchers coming from different latitudes, such as Norway, to give these students a real opportunity to learn aquaculture at its best, and make Chile become an attractive development pole for these aims for the Latin American sub continent.

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10.4 Equipment and services to serve logistic aspects along the aquaculture production chain One of the main concerns of current policies referred to aquaculture development in Chile is that of accomplishing a twofold goal. The first, to increase fish production, to be able to offer more employment opportunites all along the country and to improve food security, and the second, to develop the provision of ancillary services in the most important categories to world‐class levels, to be able to provide local farmers with better, more competitive and readily available alternatives, while at the same time, augmenting exports ‐this time‐ of equipment, machinery and all sort of services and knowledge directly or indirectly linked to the aquaculture business. Being Chile located far away from its main markets, it is compulsory that all activities throughout the production chain be permanently scrutinized for cost‐effectiveness and carbon footprint and therefore it is envisaged that there will be varied opportunities here, related to mechanization, sophistication and improvements all along the value chain. One of the most important businesses related to fish farming in Chile is feed production, an activity almost entirely in the hands of foreign companies, which produce world‐class products, but have not necessarily sufficient incentives to improve their performance in the best interests of local farmers, were it not for the fact that they are all competing for the same customers. Here, there is a need to improve knowledge on the best agricultural products that can be locally produced and be incorporated in future diets ( salmon, trout, abalone, yellowtail kingfish, sea‐urchin, etc.), and thereafter, to incorporate new arable land to these aims. As stated before, then, not only the ‘fish‐side’ of the feed industry will have to grow substantially. As well, it is envisaged that well over 100 000 hectares of new agriculture land will have to be devoted to produce the required agricultural raw materials needed by feed producers, thus generating a huge and varied market for further business, covering from machinery, warehouses, transport equipment, chemicals, fertilizers, etc. and all related infrastructure, being them roads, energy, water availability and distribution, and/or products and services required by the extra number of workers that will have to move to these new agriculture farms, and will need housing, health, education, entertainment and other services for their convenience. Feed producers also require to tranports well over 1.1 MM tonnes of end‐product from their production facilities to the main farming sites. Here, there currently exist a massive amount of land vehicles, cranes and boats that are used to handle, store and transport in and out feed over a lengthy terrestrial and marine territory, and the demand for all of these services is also due to augment in years to come and not only in southern Chile, as aquaculture is expected to expand further south an to more northernly locations, and as well, to more exposed oceanic sites.

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Warehouses, being them for normal temperature, for fresh or frozen products will also become more demanded in the future, and are a clear area for businessmen interested in civil works and rentals. Laboratories of all kinds, being them related to fish health, to environmental issues and/or to ascertain the wholesomeness of Chilean aquaculture production will also have to grow or increase in numbers in many parts of the country. Production of medicines and vaccines is also of outmost importance in Chile, and an enormous effort is still required here to make local production safer and more efficient. This line of business is therefore very open to new business undertakings, for enterprises that have the required abilities. Here Chile spends hundreds of U$ millions each year, and chances are that this situation will not dramatically change in the short run. The production of cages and floating warehouses, perl‐nets, mooring devices, floats and nets of many different types, together with the provision of ropes, cables and related material will also have to be augmented substantially in the coming years, generating, again, a formidable option for further business. Demand for all sorts of communication equipment, including computers, phones, printers, scanners and the like, together with services such as software and sofware design for all purposes, the provision of communication channels and the like will also increase substantially in the future, and can be thought of as another line of activity associated with further business opportunities, together with specialized clothing, safety material and equipment, etc. The demand for repair and maintenance services, including the handling of nets, floats, cages, engines, cranes, boats, transport vehicles, energy equipment, containers, and the like, together with those related to processing, infrastructure, communications, safety and many more are also to grow in a meaningful manner up to 2030, being as well the source of varies bussines opportunities for Chilean and foreign companies with the required abilities and prestige. Further developments and opportunities are also envisaged in relation to sea and air tranportation and related activities, as the cargo moved by Chilean farmers is substantial, will continue growing and require the best and more cost‐effective solutions available the world over.

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10.5 Equipment and services related to the development of market and marketing activities As told, Chilean aquaculture will aim at diversifying market opportunities in coming years, a fact that will require product development, more value‐added end‐products, and ready‐to‐consume preparations, that can be sent directly to supermarket chains in different countries, or to distributors elsewhere. Further to product development, the Chilean aquaculture industry will have to invest heavily in promoting its products in the designed destinations. As consumers and the organized society turns more demanding and sophisticated, so will product requirements, and therefore, it is envisaged that there will be incresing demands for traceability, quality assurance all along the value chain, the use of best practices and the satisfaction of several niche requirements. All of these conditions are thereafter translated into practical tasks that should continuously affect and renovate the production and transformation processes and all related activities throughout the value chain in a manner that requires capital, organizational abilities and market/marketing strength. Fortunately, since their ouset, Chilean salmon and mussel farmers have shaped their companies in large enough farms and processing lines, using state‐of‐the‐art technology, so that they can accommodate to most market demands in reasonable periods of time. Anyway, as this is a continuous process, a constant investment effort will be required, and no doubt many new business opportunities are linked to these events. Additionally, as demand for several fishery products tends to increase in developing countries, processing lines and fish farms will also have to be adapted to cope with different requirements associated with this new commercial environment. In this case, adaptation to more limited and frequent demand levels will have to be reflected in production schemes that fully adapt to those conditions.

10.6 Services to be provided to improve the capacities of the human resources involved in all aspects related to aquaculture (Formal Education, continuous training) Productivity at work throughout the value chain and better science and technology, managerial abilities, and a dynamic system to govern aquaculture and become adapted to its changing needs and socio‐economic, market and environmental conditions require to train the full workforce associated with this industry, either through formal educational long‐term courses, or short‐term diploma‐releted activities through internet , in classrooms or combining both systems as required. There is no doubt that ‘continuous’ and permanent training is a must for the future in Chilean aquaculture, if this sector is to keep being competitive both abroad and locally, a fact that opens many and wide new opportunities for further investment in this field in several parts of the country.

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11. Main business opportunities related to the aquaculture development process: final comments

The former paragraphs have described at length some of the main opportunities linked to the development of Aquaculture in Chile up to 2030. A more exhaustive description and the precise dimension of the different investment and business alternatives/opportunities require more detailed studies, whose scope exceeds the terms of reference for this report, and therefore, do not receive further attention. Clearly, it has been stated that most development prospects for the period being considered will still be associated to salmon/trout and mussel farming, while emerging undertakings, particularly those related to the diversification process with ‘new’ native species, will be highly concentrated in the second half of the period stretching between now and 2030, while R&D on this subject should preferably be more intense in the short‐term. These broad considerations are a good guide to whatever can be attempted with the aim of engaging in new business undertakings related to the Chilean aquaculture industry, being them related to investment or sales of equipment, products and/or services. In this last respect, chances are that the current development level of business activities in Chilean aquaculture recommend to explore the market in much more detail before engaging locally in commercial activities, as there is a fairly good level of competition in the majority of services rendered, with a strong participation of top‐of‐the‐line world‐class suppliers. This is particularly so with regard to ancillary services, where recent estimates indicate that there are over 1 200 enterprises offering all sort of products and services to a fairly limited number of farmers and processing lines. However, the market is fairly open to state‐of‐the‐art companies offering sophisticated equipment and services dealing with robotics, electronics and complex engineering and manufacturing processes, and many other related subjects. In the case of the Norwegian oil and gas industry, attention should be paid to the possibilities of using Chilean oil platforms currently ‘abandoned’ in the Magellan region, that could eventually be adapted for aquaculture purposes. As well, many subjects related to open‐ocean aquaculture, particularly, on the development of production and transport units and systems (cages, nets, mooring systems and devices, boats, floating warehouses, feeding systems, etc.) should be targeted, as a lot of what might happen in marine aquaculture in several parts of the

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country (northern and central areas, and as well in southern seas) will depend on the ability of this industry to work in more exposed or offshore sites. Attention is also recommended with respect to sales of equipment, services and products for the production in‐land, under recirculation, as these systems will also be in high demand along the study period and particularly in what relates to the production of larger‐size smolts and related subjects. Further consideration is also encouraged with regard to the provision of renewable energy systems that can be used in isolated areas, where electric lines are not available. With respect to the strategy of ‘doing business’ in Chile, the following concepts might be of use:

1 As indicated above, more detailed market and marketing studies are recommendable, before getting established with new/novel products and services, particularly if they are not properly or massively marketed in Chile. Commercial strategies should be analyzed and proposed, with particular reference to products/equipment/services to be offered.

2 Chile is considered a focal point for marine aquaculture development in South America, and therefore, is a good country to get established by foreign suppliers of aquaculture equipment, products and services because: (i) It already has critical mass for the demand of several services and aquaculture equipment, while the majority of neighboring countries don’t, this far, and (ii) Whatever becomes successful in marine farming systems in Chile, will probably become a model to be copied/adapted by others in this Continent , therefore (iii) Aquaculture products/equipment/services successfully supplied to Chilean producers can very likely be offered from this country to other parts of the American Continent, taking advantage of the economies of scale of doing larger‐scale aquaculture business from here.

3 As it commonly happens, the peculiarities of ‘doing business’ in a foreign country are many, not necessarily obvious and some of them are deeply rooted in local culture and other habits that are fairly difficult to comprehend and/or adequately master by foreigners in reasonable periods of time. Therefore, it is highly recommended to pay attention to the following issues:

a. Foreign firms should request specialized legal help from well‐

established law and accounting firms, to guide their activities both locally and in this Continent,

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b. It is recommended to consider joint‐venture agreements with already

established firms, to get things moving rapidly and more efficiently. Partnership/direct commercial arrangements with established and reputed local entrepreneurs can be the best solution to many selling very specialized services/equipment, whose intended level of business does not justify stand‐alone operations.

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Peru

12. Aquaculture in Peru

12.1 Landings and capture fisheries Peru has a very well developed capture fisheries sector and, still, limited but growing aquaculture activities. The country is well known for its anchovy (Engraulis ringens) and more recently for is giant squid (Dosidicus gigas) landings, which together account for 79% of the total fishery production in 2014, down from over 94%, just a decade ago.

Table26:Fisheriesproduction,bytypeofactivityandenvironment,2000‐2014(tonsandpercentages)

Source: Calculations of the study on FAO figures, 2016

Capture fisheries dominate landings by far, with 96.9% of production 2014, and 99.9% of those in 2000‐2002. However, their levels are markedly declining along the years, from 9.1MM tonnes in 2000‐2002 to 3.6 MM tonnes in 2014. The main cause for this substantial lose, is a declining anchovy fishery, one of the most important, globally, which moves from 8 MM tonnes in 2000‐2002 to only 2.3 MM tonnes in 2014. In fact, while anchovy landings decline, those for the remaining capture fisheries have slightly increased along the years since 2002. Thus, while anchovies accounted for 90.1% of marine landings in 2000, they represent only a 65% of those totals in 2014. Peru has developed a huge fishery industry since the 1950’s, based initially on anchovy (Engraulis ringens) to produce fishmeal, and sardines for canning. During the following decades, Peru became a world leader in capture fisheries, dominating the fishmeal exports market, a commodity highly appreciated by the feed industry for farmed animals, specially, for high quality aquaculture feeds used with carnivorous and

Item 2000‐2002 2003‐2005 2006‐2008 2009‐2011 2012‐2014 2 012 2 013 2 014

Aquaculture 7 272 20 572 37 015 75 179 104 419 72 293 125 693 115 271

Fresh water 2 718 5 579 10 376 18 588 36 105 29 563 40 068 38 683

Marine 4 554 14 993 26 639 56 591 68 314 42 730 85 625 76 588

Capture fisheries 9 138 555 8 364 288 7 215 306 6 496 545 4 774 399 4 850 500 5 875 368 3 597 328

Fresh water 32 660 36 941 41 837 42 285 28 528 33 601 27 301 24 682

Marine 9 105 895 8 327 346 7 173 469 6 454 260 4 745 871 4 816 899 5 848 067 3 572 646

Total 9 145 827 8 384 860 7 252 321 6 571 724 4 878 818 4 922 793 6 001 061 3 712 599

Aquaculture 0.1 0.2 0.5 1.1 2.1 1.5 2.1 3.1

Capture fisheries 99.9 99.8 99.5 98.9 97.9 98.5 97.9 96.9

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Percentages of total landings

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omnivorous species. Markets in Europe pay close attention to Peruvian landings, as changes in them directly impacts prices. Fishing and processing of giant squid have also evolved rapidly, in line with modern processing facilities, especially in the north. The fishing fleet involved in these activities is mainly composed of small artisanal boats and Peruvian squid products are well recognized worldwide. Peru’s well developed marine and continental fisheries activities relate very closely to the very rich productivity of the Humboldt current, considered to be the highest in the world. The South Pacific anticyclone generates strong and cold winds that run parallel to the coastline and results in an upwelling process, bringing nutrients to the surface and starting a rich food chain (Fig.55). This is the basis for the large anchovy biomass (Engraulis ringens) that makes Peru a global leader in capture fisheries.

Fig55:TheHumboldtcurrent

Sea Surface Temperature – Pacific 30.06.2016

Purple areas show cold influence of the Humboldt current, which carries nutrients to the surface (upwelling), triggering a huge natural productivity

Source: IMARPE

The Humboldt Current System off Peru is broadly characterized by the upwelling of nutrient rich cool waters to the surface, dramatically increasing biological productivity. As a result, this system produces more fish per unit area than any other region of the world’s oceans (Chavez et al. 20018). Moreover, the system is cooler in comparison with other regions of similar latitudes (sea surface temperature at 5° S off Peru reaches approximately 16°C, while most other tropical locations show temperatures in excess

18 Chavez et al, 2008. The Northern Humboldt Current System: Brief story, present status and view

towards the future. Prog. Oceanogr. 79:95‐105

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of 25°C) and experiences little seasonal variations (Chavez et al. 2008, Carstensen et al. 201019). Table27:Mainwildspeciescaptured,2000‐2014(tonnes)

Source: Calculations of the study, with figures from FAO

12.2 The aquaculture industry

Probably because of its important capture fisheries, fish farming has taken relatively long to develop in Peru, currently accounting for only about 3% of national landings. However, in the last 10‐15 years aquaculture has become a growing economic activity that can promote further development in the country under the National Plan for Productive Diversification (PNDP) and the Aquaculture Executive Board promoted by the Ministry of Production, so much so, that it is estimated that within the next five years, aquaculture will constitute not less than 15% of the fisheries’ sector contribution to GDP. Currently, fisheries and aquaculture account for 0.7% of GDP (2014), 0.4% attributable to primary activities, while the remaining 0.3% is linked to processing. These figures are lower than those for 2007, when sectorial contribution was calculated as 1.6% of GDP (0.7% extractive activities; 0.8% processing). These loses are mainly associated with the severe diminution of anchovy catches and the corresponding drops in fish meal and oil production. Aquaculture production in Peru is carried out mainly by small and medium‐size producers, followed by large‐scale companies (30%). According to the Food and Agriculture Organization (FAO), Peru was ranked fifth in Latin America and Caribbean aquaculture production in 2014, with over 115 000

19 Carstensen et al, 2010. Recurrent, thermally‐induced shifts in species distribution range in the

Humboldt current upwelling system. Mar. Environ. Res. 70:293‐299

Species Scientific name 2000‐2002 2003‐2005 2006‐2008 2009‐2011 2012‐2014

Fresh water Total 32 660 36 941 41 837 42 285 28 528

Freshwater fishes nei Osteichthyes 19 951 23 982 30 259 30 119 18 699

Netted prochilod Prochilodus reticulatus 10 765 11 041 9 868 10 276 8 398

Rainbow trout Oncorhynchus mykiss 264 428 328 324 387

Velvety cichlids Astronotus spp 195 226 359 560 365

Other 1 485 1 265 1 022 1 005 679

Marine Total 9 105 895 8 327 346 7 173 469 6 454 260 4 745 871

Anchoveta Engraulis ringens 8 012 888 7 603 714 6 117 695 5 503 673 3 656 546

Jumbo flying squid Dosidicus gigas 90 673 238 412 465 089 395 452 520 322

Marine fishes nei Osteichthyes 94 780 43 291 37 223 42 517 77 601

Chilean jack mackerel Trachurus murphyi 391 510 161 922 233 844 134 670 118 618

Other 516 044 280 008 319 619 377 948 372 783

Total capture fisheries 9 138 555 8 364 288 7 215 306 6 496 545 4 774 399

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2 014

1 214 523

561 803

368 207

194 224

115 269

92 002

75 250

30 726

30 566

29 500

22 592

20 762

10 335

7 500

7 211

‐ 200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000

Country

Chile

Brazil

Ecuador

Mexico

Peru

Colombia

Honduras

Venezuela

Nicaragua

Cuba

Costa Rica

Guatemala

Panama

Paraguay

Belize

Ranking of the most important aquaculture producing countries in L.America&Caribbean, 2014 Tonnes

tonnes of cultured species (Fig.56). This production level represents an increase of 344% since 2005 and of 1 648% since year 2000. It is relevant to note that even if Peruvian farmed output is still relatively limited in terms of volume, the country shows the highest growth rate (mean annual cumulative figures) among the ten most important aquaculture producers of Latin America and the Caribbean, with 18% per year in 2004‐2014 and 22.7% between 2000 and 2014, figures that more than double those for Chile and Brazil, the leading nations in this field.

Source: FAO Figures

As shown in Table 28, Peru produces several species through aquaculture, ranging from fish to mollusks, crustaceans and algae. As well, production takes place in fresh water and on the marine environment. However, production is highly concentrated on a much reduced number of species. In continental waters, rainbow trout accounts for 85% of harvests in 2014, and together with Nile tilapia, they represent 97% of farmed species in continental waters. On the marine environment, crops are concentrated on scallops (71.9% in 2014) and whiteleg shrimp (28.1%), while the remaining species are still farmed in negligible volumes.

Fig56:Latin America and Caribbean 2014 aquaculture production by main producing countries

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Table28:Peruvianaquacultureproductionbyspeciesandenvironment,2000‐2014(tonnes)

Source: Calculations of the study, on FAO figures

Peruvian aquaculture production has risen from around 6 600 tonnes in 2000 to close to 126,000 MT in 2013 and over 115 000 tonnes in 2014, (average cumulative growth of 22.7% per year in 2000‐2014).


Fresh water Total 2 718 5 579 10 376 18 588 36 105 29 563 40 068 38 683

Rainbow trout Oncorhynchus mykiss 2 498 4 428 8 429 15 676 30 893 24 762 34 993 32 923

Nile tilapia Oreochromis niloticus 131 681 1 316 1 899 3 875 3 174 3 840 4 610

Cachama Colossoma macropomum 29 232 433 589 496 453 531 504

Pirapatinga Piaractus brachypomus 27 19 48 102 398 299 443 453

Giant river prawn Macrobrachium rosenbergii 8 12 7 13 37 11 20 78

Arapaima Arapaima gigas ‐ 5 1 158 262 637 94 55

[Brycon cephalus] Brycon cephalus 3 102 57 86 47 47 58 37

Tambatinga, hybrid C. macropomum x P. brachypomus ‐ 9 50 9 14 17 15 9

Prochilods nei Prochilodus spp 8 82 17 26 32 35 56 6

Amazon sailfin catfish Pterygoplichthys pardalis ‐ ‐ 2 10 7 7 10 5

Common carp Cyprinus carpio 7 1 13 14 9 19 6 2

Freshwater fishes nei Osteichthyes 5 7 3 7 36 102 3 1

Argentinian silverside Odontesthes bonariensis 1 ‐ ‐ ‐ ‐ ‐ ‐ ‐

Characins nei Characidae ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Dorada Brycon moorei ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Velvety cichlids Astronotus spp ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Marine Total 5 842 14 993 26 639 56 591 68 314 42 730 85 625 76 588

Peruvian calico scallop Argopecten purpuratus 4 510 9 407 15 219 42 120 49 191 24 782 67 694 55 096

Whiteleg shrimp Penaeus vannamei 1 313 5 575 11 409 14 467 19 056 17 801 17 883 21 484

Flatfishes nei Pleuronectiformes 1 ‐ ‐ ‐ 4 1 3 6

[Chondracanthus chamissoi] Chondracanthus chamissoi ‐ ‐ ‐ ‐ 59 131 44 2

Brine shrimp Artemia salina 1 ‐ ‐ ‐ ‐ ‐ ‐ ‐

False abalone Concholepas concholepas ‐ 5 7 ‐ ‐ ‐ ‐ ‐

Giant kelps nei Macrocystis spp ‐ ‐ ‐ ‐ 5 15 ‐ ‐

Gracilaria seaweeds Gracilaria spp 8 ‐ ‐ ‐ ‐ ‐ ‐ ‐

Pacific cupped oyster Crassostrea gigas 9 7 2 ‐ ‐ ‐ ‐ ‐

Marine fishes nei Osteichthyes ‐ ‐ 2 3 ‐ ‐ ‐ ‐

Total, aquaculture 8 560 20 572 37 015 75 179 104 419 72 293 125 693 115 271

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F

Source: Ministry of Production, Peru

A reduction in production during 2014 and 2015 has mainly been caused by scallop seed scarcity and algae blooms occurred during an uncommon El Niño phenomenon. It is relevant to point out that marine aquaculture production of species such as scallops and shrimp can be affected by El Niño events, according to its intensity.

Fig57:MainPeruvianaquaculturespecies

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Fig58:Peruvianaquacultureproductionbyspecies,2010‐2015(tons)

Source: National Aquaculture Information Network ‐ RNIA,

http://rnia.produce.gob.pe/index.php?option=com_content&view=article&id=60&Itemid=78 (*) 2015 data are preliminary. Prepared by Christian Berger

During 2015, aquaculture production continued to decrease to some 85 000 tonnes, basically, because of the underperformance of scallop farming, a fact which has been directly linked to El Niño event. Here, and despite its diversity of climates, Peruvian aquaculture production during 2015 was concentrated in four species (Fig. 07) and in five main geographic areas (Fig. 59). The main species farmed were rainbow trout with over 38 000 tonnes (45.2%); whiteleg shrimp, with 22 000 tonnes (25.9%); scallops, with just over 20 000 tonnes (23.5%) and Tilapia, with 3 250 tonnes (3.8%). Amazonian fish such as Colossoma, Piaractus and Arapaima accounted for 1.5% and other species, for a meager 0.03%. The main geographic areas concentrating aquaculture production in 2013‐2014 are the northern Piura (44.3%: scallops, shrimp and tilapia); the Andean regions of Puno (24.6%; trout cage culture in Titicaca Lake) and Junin (1.6%: trout cultured in raceways); the northern and warmer region of Tumbes (13.7 %: shrimp) and the mid‐coastal region of Ancash (10.2%: scallops). San Martin, accounts for 1.7% of the crops; Huancavelica, for 1.2%, and other departments 2.7%. Among emerging aquaculture species Gamitana, Paco, Boquichico, flounder, yellowtail amberjack, Peruvian snook, Peruvian grunt, and several macro algae can be mentioned.

010 00020 00030 00040 00050 00060 00070 00080 00090 000

100 000110 000120 000130 000

2010 2011 2012 2013 2014 2015

Peru: Main aquaculture species produced, 2010‐2015, Tonnes

Rainbow Trout Shrimp Scallops Tilapia Other

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Fig59:Majorproducingregions(Departments)inPeruvianaquaculture–2013‐2014(%oftotals)

Source: Prepared by the study with figures from the Ministry of Production, National Aquaculture Information Network ‐ RNIA, 2016

Figure 60, in turn, shows graphically, how aquaculture production is regionally spread throughout several areas of the country. Fig60:MajoraquacultureareasinPeru

Source: Prepared by the study

Fish farming is locally carried out either by individuals or legally established companies, which have access to this activity through authorizations and concessions on maritime and inland waters.

44.3%

24.6%

13.7%

10.2%

1.7%1.6% 1.2% 2.7%

Peru: Aquaculture production by region,2013‐2014, % of Totals

Piura

Puno

Tumbes

Ancash

San Martin

Junín

Huancavelica

Otros

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According to the records of the Ministry of Production as of August 2016, there were 5 194 aquaculture facilities in the country, which differ in levels of production and technology, being classified as either subsistence, small‐scale or larger‐scale units, in addition to those dealing with re‐seeding of coastal or inland waters. These denominations will be in force, until their adaptation to new categories set out in the new General Aquaculture Act approved with legislative Decree No. 1195, which are AREL, AMYGE and AMYPE. In 2016 there are a total of 117 large‐scale fish farms; 2 576 small‐scale units; 2 151 farms at subsistence level; 300 areas for re‐seeding and 50 seed‐production centers. In general terms, aquaculture producers are generally small or medium‐size ventures, directing their harvests to self‐consumption and the domestic market. Only few companies (3‐4%) develop complex aquaculture activities, with high technology, and mainly focused on exports. By 2011, the Ministry of Production estimated that direct employment in aquaculture referred to some 24 000 persons, while indirect jobs rose to just over 57 000, for a total of 81 000. Aquaculture techniques in Peru are very diverse, ranging from very basic management schemes for aquatic bodies in the amazon regions, relying on natural production systems, to high‐technology farms for super intensive shrimp culture, using probiotics, bio‐flocs, aeration, very specialized feeds, biosecurity and high density stocking. Intermediate‐level techniques are used in scallop culture in bays, being them related to bottom farming or hanging lantern‐nets. Seeds are collected from the wild but are also produced in hatcheries. In turn, rainbow trout is produced either in cages (artisanal or industrial designs) or in raceways. This activity takes place in the Andean highlands, but during recent years it has substantially grown and concentrated in Lake Titicaca. It is also relevant to mention that even if the leading aquaculture products are well known in the local market, their development has been mainly driven by export possibilities. Peruvian aquaculture export values in 2000 reached US $ 10 million and during 2014 rose to US $ 225 million (Table 29), and it is expected that the implementation of the new General Aquaculture Law, will favor conditions to increase exports to about US $ 700 million by 2021.

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24.5%

71.7%

0.9%2.8% 0.03%

Scallops

Shrimp

Tilapia

Trout

Paiche

27.5%

69.3%

0.8%2.4% 0.05%

Scallops

Shrimp

Tilapia

Trout

Paiche

Table29:Peruvianexportsofaquacultureproducts,2005‐2014

Source: Ministry of Production (*) Preliminary figures subject to revision

% of Volumes % of Values Source : Ministry of Production figures

Here, it can be calculated that shrimp is the most important aquaculture export product, with 71.7% of volumes and 69.3% of the FOB export values in 2014. Scallops,

Species 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (*)Volumes (Tonnes) 7 247 8 765 10 860 12 030 19 924 18 732 25 153 17 935 35 861 26 529

Scallops 2 408 2 289 3 132 3 748 8 041 9 980 11 414 5 750 17 399 6 503

Shrimp 4 045 5 619 6 925 7 622 11 035 7 703 11 825 10 473 16 501 19 024Tilapia 40 0 8 69 62 94 232 237 286 247

Trout 754 857 795 591 786 953 1 650 1 380 1 518 747

Paiche - - - - - 2 32 96 142 7

Algae - - - - - - - - 16 0

Values(U$*1 000)

65 522 77 544 78 210 94 234 109 354 165 648 229 179 176 514 298 161 224 639

Scallops 29 048 30 471 25 832 34 245 46 759 96 427 131 293 75 323 159 361 61 735

Shrimp 33 008 42 869 47 401 56 250 57 999 62 560 87 501 89 066 126 508 155 652

Tilapia 187 0 58 251 351 710 1 186 1 700 1 353 1 852

Trout 3 279 4 204 4 920 3 489 4 246 5 929 8 868 8 959 8 857 5 293

Paiche 22 330 1 466 2 059 106Algae 23 0Values per

kilo, U$9.0 8.8 7.2 7.8 5.5 8.8 9.1 9.8 8.3 8.5

Scallops 12.1 13.3 8.2 9.1 5.8 9.7 11.5 13.1 9.2 9.5

Shrimp 8.2 7.6 6.8 7.4 5.3 8.1 7.4 8.5 7.7 8.2

Tilapia 4.7 0.7 7.2 3.6 5.7 7.6 5.1 7.2 4.7 7.5

Trout 4.3 4.9 6.2 5.9 5.4 6.2 5.4 6.5 5.8 7.1

Paiche 11.2 10.2 15.3 14.5 15.1Algae 1.4

Fig61:RelativeimportanceofdifferentspeciesfarmedonPeruvianexports,2013‐2014

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in turn, account for 24.5% of the values and 27.5% of the values of aquaculture products exported in 2014, while other species, show less relevant values. In 2011, local consumption of aquaculture products was estimated at 20,265 tonnes, increasing to 39,217 tonnes in 2015 (Fig. 62). This level of consumption represents a per caput intake of approximately 1.3 kg per year. The estimated value of domestic consumption of aquaculture products during 2015 was of US $ 200 million, projecting that by 2021 more than US $ 400 million of farmed products will be locally consumed. Trout is the main farmed species consumed locally (90% of totals), followed by tilapia (5%), shrimp (2.5%) and scallops (1.5%). Trout aquaculture has grown substantially in the last decade, to a record of around 40 000 tonnes in 2015. This figure includes an estimate for ‘informal’ production, not adequately captured by local statistics. Fig62:Localsalesofaquacultureproducts2000–2015(tons)

Source: National Aquaculture Information Network ‐ RNIA, Prepared by Christian Berger (*) 2015 data are preliminary

Several studies, indicate that consumption of seafood in Peru reaches at least 16 kg and up to 22 per caput and year (FAO, 2016), being one of the highest in Americas but a relatively low figure, when compared to those of other countries, especially in Asia and Europe (Fig. 63). In any case, seafood consumption per caput in Peru exceeds that of all other red meats, being one of the few countries in Latin America and the Caribbean where this situation prevails.

180

Source: FAO, SOFIA 2016

The highest consumption levels of fish inside Peru are associated with two Amazonian regions: Loreto and Ucayali. It is also important in northern coastal areas (Fig. 64). The supply of fish and shell fish for food security is particularly important in several inland regions which are, as well, the ones will lower income levels.

Source: ENAHO 2014

Fig63:SeafoodconsumptionintheAmericas

Fig64:seafoodconsumptionbyregion,2014 (kgper/cap/year)

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Peruvian population should grow to 40 million people by year 2050. Then, national seafood requirements will increase to more than one million tonnes per year. Summing up, Peru will remain to be an important player in terms of wild fisheries landings, but there are no doubts that it will gradually move from captured species to aquaculture products, taking advantage of the many opportunities and natural conditions for this relatively novel type of undertaking.

Even with its current production levels, the country already imports seafood products. An increase in aquaculture production becomes then important, particularly for food‐safety reasons in rural populations. The expected future growth in Peruvian aquaculture is based on several assumptions, such as economic, legal and social stability; increasing world demand for seafood and specially for aquaculture products; confidence of local private investors in aquaculture; better production technologies; availability of seeds (mainly of natural origin for scallops; imported eggs of trout and shrimp PLs), feed and services; sites with good characteristics, all along the coastal line and in inland waters, and wide open market opportunities. In parallel, and in order accomplish the expected growth and improve aquaculture sustainability and competitiveness, it is also important to invest heavily in innovation and research and development, to optimize production of currently farmed species and to enhance progress with the emerging ones. Particularly challenging are: the attainment of self‐sufficiency in seed supplies, diversification, quality and wholesomeness of products, the prevention and control of diseases, climate and oceanic variations associated with El Niño and La Niña, rains and red tides.

Regarding these needs, the Ministry of Production included in the strategic National Plan for Productive Diversification of 2014, the implementation of the first three Aquaculture CITES (Center for Productive Innovation and Technology Transfer) in Puno, San Martin and Piura, with an initial investment of US $ 11 million.

12.3 The institutional framework

Several institutions and government entities participate in Peruvian aquaculture governance, enforcement, research and technical assistance. As well, various universities ‐ both public and private – offer aquaculture courses and perform research activities. Among the various institutions, the following are particularly important: Production Ministry (PRODUCE); Regional Directorates of Production (DIREPRO’s); Sea Research Institute (IMARPE); Research Institute for Peruvian Amazonia (IIAP); Fisheries Development Fund (FONDEPES); Production Institute of Technology (ITP); National

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Fisheries Health Service (SANIPES); Peruvian Exports Commission (PROMPERU); National Council for Science, Technology and Innovation (CONCYTEC); and Universities and NGOs. Modernization and strengthening of the different entities, will allow the country to progress under sustainable patterns. In this respect, a legal framework and the necessary funds have been allocated, in order to create the pathway that will allow industry to reach its 2021 goals. (Appendix 1). Funds for Aquaculture Research & Development Aquaculture production projections to 2021 and further are promising and Peru has most basic elements already in place. However, a serious effort regarding R&D needs to be established in order to grow sustainably. Several funds and mechanisms are available today to support aquaculture growth projections in the country, i.e:

National Innovation Program for Fisheries and Aquaculture – PNIPA, funded by the World Bank, and directed to improve systems performance, innovation and value chains in fisheries and aquaculture

Aquaculture Centers for Productive Innovation and Technology Transfer for specific locations (CITES).

Others, such as:

o Competitive projects, promoted through diverse organizations, involving companies, associations, public and private institutions and academia. They are focused on technology R&D.

o Funds to organize courses, workshops, and other types of technical meetings, internships, specific missions and technological advisories.

o Incentives for publication in indexed journals. o Tax incentives for companies investing in R &D&i o National and international cooperation initiatives

National Plan for Aquaculture Development The National Aquaculture Development Plan 2010‐2021 was approved by Supreme Decree No. 001‐2010‐PRODUCE on January 7, 2010. It establishes policies for aquaculture development nationwide, having been prepared with FAO technical assistance. Each Region of the country has made specific adjustments to the National Plan, according to their particular characteristics. Its main objectives are (1) To increase quality, productivity and volume of aquaculture production; (2) To increase private investment in aquaculture; (3) To promote national

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production of critical inputs for aquaculture (seeds and feed); (4) To promote the development of education, training and technical assistance services for aquaculture production and commercialization; (5) To upgrade health and sanitary services directed to aquaculture production and products; (6) To promote research, development, technology adaptation and transfer in aquaculture; (7) To develop a proper organizational structure and the human capacities to ensure an effective preparation, implementation and assessment of policy provisions and instruments promoting aquaculture; (8) To obtain and asses the rational use of financial resources for aquaculture development. National Program for Aquaculture Science, Technical Development and Innovation, 2013 ‐ 2021 The program is directed to prioritize, organize and systematize research and technological development in Peruvian aquaculture. Its main objectives are (1) characterization of marine ecosystems for bivalve aquaculture; (2) study of the ecology in inland waters for trout, tilapia, and amazon species; (3) Research on marine fish rearing of flounders, Peruvian grunt (Anisotremus), yellowtail (Seriola) local rock sea bass (Paralabrax); invertebrates (sea urchin, Peruvian abalone); farming of macro algae (industrial, food, biofuels). Work also include currently exploited species, such as: shrimp, rainbow trout and tilapia and Amazonian fish aquaculture: paiche (Arapaima), doncella (Pseudoplatystoma), gamitana (Colossoma), paco (Piaratus) and ornamental fish; (4) training and capacity building of human resources. National Innovation Program for Fisheries and Aquaculture – PNIPA In what relates aquaculture, the PNIPA will manage innovation funds of around US $ 65 Million. These funds are oriented to:

Financing innovation subprojects (applied, and/or experimental development research, adaptive research, extension).

Development and strengthening of innovation services and markets.

Construction of local and regional networks (articulation, interaction between actors) according to productive chains and territories.

Capacity enhancement (organizational and territorial), supplying researchers, extension workers, formulators and managers of R & D &i.

The main objectives of this program are directed to promote the long‐term sustainable development of Fisheries and Aquaculture, by:

Expanding the productive base of the country

Increasing productivity and competitiveness of the aquaculture sector

Adding value to exports (value added products)

Strengthening food security in the country

Improving the sustainable use of biodiversity in fisheries and aquaculture

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Generating innovative answers to climate change

Reducing social heterogeneity. Formalizing and incorporating small‐scale aquaculture producers to competitive

value chains.

12.4 Legal framework

The following legal bodies are of particular relevance to Peruvian aquaculture:

1. General Law for Aquaculture (Decree 1195‐2015): States the national interest on the development of sustainable aquaculture, highlighting the sector as a major economic activity in food production, employment and income terms This law also establishes new productive categories, enforce the sanitary control through specialized institutions (SANIPES) and gives priorities on the use of water resources.

2. The General Law for Aquaculture is regulated trough Decree Nº 003‐2016‐PRODUCE, establishing procedures needed to establish and run aquaculture enterprises, as well as in relation to research, technological development, innovation, training and technical assistance.

3. Law for the Development of Highland Areas (Law Nº 29482), giving tax and investment incentives, and applied by some trout producers (according to altitude).

4. National Aquaculture Development Plan 2010 – 2021 (PNDA): Supreme Decree Nº001‐2010‐PRODUCE.

5. National Program for Aquaculture Science, Technical Development and Innovation 2013 – 2021 (Presidential Resolution CONCYTEC Nº 064 – 3013).

6. Several regulations applied to other agencies responsible for water management, environment enforcement, health and sanitary protocols, taxes, etc.

12.5 Services related to aquaculture production

A good number of services are required in aquaculture production and in other phases of the value chain, some of which are outlined next.

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Table30:AfewservicesrelatedtothefarmingofdifferentspeciesinPeru

Activity Remarks Services

Shrimp

Industry similar in terms of technology to the one existing in Ecuador. Some services share suppliers in both countries

Larvae: imported from Ecuadorian hatcheries or from local hatcheries. Feed: local supplies (Vitapro / Purina) and imports from Ecuador Others: liners and greenhouses for intensive farming, aeration systems, probiotics

Scallops Equipment for bottom‐farming and suspended systems.

Seeds: collection from the wild (self and sourced by fishermen), and also from local hatcheries Others: boats (local or imported), nets and lantern culture systems (local or imported), diving equipment, harvest cranes, floating systems, buoys, anchors, floating platforms

Rainbow trout

Raceway and cages farming systems are applied. Eggs are mainly imported and stocked at local hatcheries

Fingerlings: eggs are imported from north America or Europe. Feed: local suppliers (Vitapro / Purina / Naltech) Others: cage systems, floating systems, boats

Amazonian fish

Extensive and semi‐intensive systems, cages Fingerlings: local hatcheries

Hatcheries

All species Water pumps, water control equipment, laboratory equipment, jars, tanks, raceways, filters, blowers, aeration systems

General All species, mainly local providers. Some specific equipment is imported.

Water control equipment, water pumps, hoses, transport, plastic boxes, bags, workwear (boots, clothing), harvest nets. Processing plants, Sanitary services

Peruvian shrimps ready for export, Main markets: The U.S., Spain and France

Scallops, roe‐on IQF processing, Destination: French market

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Fish harvest in the Amazon

Production of Arapaima

13. Aquaculture production systems

The following paragraphs describe very briefly some of the technologies more widely used by the Peruvian aquaculture industry.

13.1 Scallop (Argopecten purpuratus) production systems

Scallop aquaculture in Peru dates back to the 1970’s , but it really become of interest only in the 1980's. The presence of El Niño phenomenon in 1982 ‐ 1983 massively increased the population of natural banks of this species, a situation that led to a rapid extraction process for commercial purposes, mainly for export. As it became obvious shortly thereafter, the farming of this species was encouraged as an alternative for its permanent and rational exploitation. Scallop farming is carried out throughout the central and northern coasts of Peru, in areas granted by the state for the development of coastal aquaculture. Seeds are mainly obtained from the natural environment, a fact that has economic advantages, but faces risks of shortages and other rather unpredictable events (2014, 2015). To a lesser extent, seeds are also provided through hatcheries, which should be further promoted to ascertain year‐round supplies. Currently, there are very few centers producing scallop seeds, which mainly supply their own on‐growing farms. However, they do not operate in periods where seed are naturally abundant.

187

Source: Prepared by the study

Source: Prepared by the consultants

Fig65:Productioncycleinsuspendedsystems

Fig66:Suspendedscallopfarmingsystem

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Medium and large enterprises in the north and center of the country usually use "suspended" systems, using Japanese and Chilean technology adapted over 20 years ago in Peru, utilizing nets for seed collection and ‘pearl‐nets/lantern‐nets’ hanging from long‐lines, for the various growth stages. Culture phases include seed intermediate culture (3 to 6 months) and fattening (6 months until they reach 5 to 8 cm). Variations in cycle duration are mainly due to temperatures and natural productivity of feed. According to fouling and growth stages of these mollusks, these culture devices are changed for cleaning, size classification and re‐stocking. Equipment needed for these purposes ‐nets, boats, ropes, lines, floats; work platforms, cleaning equipment, etc.‐ is locally made and/or is normally imported from China and/or Chile. Small producers (mainly fishermen associations in more shallow coastal waters) use preferably bottom culture. In this case, producers prevent predators and do some ‘cleaning work’ of the areas being farmed.

13.2 Shrimp production systems

Initiated experimentally in the 1970’s, especially by the Marine Institute of Peru (IMARPE), shrimp farming grew rapidly and became a consolidated activity leading at times local production and exports of aquaculture products. It currently is the second major aquaculture product in Peru, after trout.20 Shrimp farming is the more organized aquaculture cluster in Peru, thanks to perseverant efforts by Peruvian producers, processors, renders of ancillary services, exporting firms, governmental organizations and other players. This industry developed its own technologies and also adapted foreign ones to local conditions, trained its staff and achieved good competitive levels. Many observers claim that these investments –100% national capital ‐ were encouraged by tax incentives provided at the beginning of this century. This far, shrimp farming, producing over 20 000 tonnes in 2015 has surpassed by far wild shrimp caught in the wild, throughout the Peruvian coast. This local industry has overcome many challenges along the years, such as disease outbreaks (of bacterial and viral origin, among which, the destructive white spot virus); price variations on the international markets; exchange rates fluctuations in the local economy; hyperinflation, economic shocks; lacks of infrastructure and poor quality and/or availability of public/private services; conflicts with Ecuador, and environmental events, such as El Niño and La Niña, etc. Requiring warm‐water, shrimp farming in Peru is restricted to the northern coast, where it utilizes marine and brackish waters in Tumbes. Other somewhat cooler growing areas are located in the department of Piura, and employ freshwater.

20Comments relate to the 2015 season, where scallop production was extremely low. Generally, shrimp production comes third, after scallop and trout

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The species cultivated in Peru is currently the one produced more massively the world over, having more recently been introduced in Asia, where it is widely grown nowadays, with low production costs (particularly related to labor), a fact that increased global competition on the international markets. These situations have forced Peruvian growers to constantly improve efficiency, and productivity has improved in the various production schemes, being them semi‐intensive, intensive or super‐intensive systems. At present, the most widely used system is the semi‐intensive, yielding up to 6 500 kg per ha. per year, based on two to three annual harvests. More sophisticated ventures apply intensive schemes, using smaller lined ponds, greenhouses and bio‐flocs. In this later case, yields attained rise up to 25 or 30 tonnes per ha. and year, but requires more investments and operating costs.


Fig67:Shrimpproductionsystems

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About 70% of local requirements for shrimp seed are imported from Ecuador. Only one shrimp hatchery operates locally, supplying the remaining 30%. High‐quality feeds are mostly produced in Peru. Semi‐intensive farms, in some instances, and all intensive operations use different types of aerators, with 2 to 30 HP per ha. Fig68:ThePeruvianClusteroftheshrimpindustry

Source: MINCETUR – PNIPA

13.3 Rainbow trout (Oncorhynchus mykiss) production systems

Rainbow trout was introduced in the Peruvian Andean highlands in the 1920’s, mainly to enhance sports fishing and since then it has adapted to local climate conditions very well. Currently, producers utilize raceways (ponds) with high water flows, but very basic equipment. Also, floating cages are used in several lakes. They are generally made of metallic structures, whose common dimensions are 5x5 m, 10x10 m and 15x15 m. Wood artisanal cages are also available, mostly of 5x5 m and 7x7 m. Hexagonal and octagonal 5 m side cages are also occasionally available.

Tools, machines and

equipment suppliersLarvae suppliers

Supplies of other raw

materials and

production inputs

Artisanal fishermen Shrimp farms ALPE SNP

Processing facilitiesPackers and canning

facilitiesFONDEPES IMARPE

Trader PRODUCE

Local wholesalerInternational

DistributorsADEX PROMPERU

Retailer Restaurants Hotels Supermarkets

Notation

Final consumer

(domestic market)

Final consumer

(international)

Machinery, raw

materials and other

inputs

Production

Markets /

Marketing

Support institutions

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Trout farming in Peru fully depends on imported eggs, usually bought in the U.S. This fact represents an important weakness of current production and it certainly requires further future attention. Local high‐quality and duly certified egg production is a basic need to secure trout farming initiatives and development in the future. While it is true that incubation and maturation centers have improved along the years, most of them use water from spring sources (no recirculation systems) and are constructed with very basic materials. Only major players use modern and sophisticated technology. Around 80% of trout production in Peru is obtained by small and medium‐size producers. Only one company uses automatic feeding machines, harvest sleeves and modern equipment for water quality control. Despite the limited technology available, trout farming has evolved reasonably well, because of good local conditions and the availability of sufficient fresh‐water resources, although some problems have been encountered in relation to the expansion of agriculture and mining activities.

Fig69:Rainbow trout production systems

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Fig70:Trouteggandfingerlingcenters

13.4 Tilapia production systems

Tilapia farming experiences occurred first back in the 1950’s, when Tilapia rendalli was tried for fish production in the Amazon. Then, during the 1970’s Oreochromis niloticus, Oreochromis hornorum y Oreochromis mossambica were also experimentally used for aquaculture purposes. Since then, small and basic production ventures spread in Amazon rural areas, with both cages and ground ponds systems. Tilapia has adapted very well in warm areas and sometimes it has displaced local species. More recently, some small production units were also installed in coastal areas, with fingerlings produced by local institutions. Nowadays, sexual‐reversion techniques are popular and small ponds of 0.01 to 0.5 ha area are used to confine brood stock. At present, the most relevant tilapia projects have been located in the coast, because of the availability of services and logistics. In Piura and Lima a couple of experiences using pond systems produce their own fingerlings, having reached good standards already.

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Fig71:Tilapiabreedingcenters


In general terms, tilapia farming in Peru can be categorized as follows:

Low density, extensive production systems in the Amazon rural areas. They use basic technology and average‐quality fingerlings and feed. They show medium productivity rates. Their product is sold in local and regional markets.

High density, intensive systems in the coast. They use standard technology, aerators and intensive feeding (good quality). They produce their own fingerlings. Products are mainly marketed in Lima and small portions are exported.


13.5 Paiche (Arapaima gigas) production systems

The locally‐called Paiche is the biggest fish in the Amazon basin. It can grow up to 3 m long and weight 20 kg. Due to over‐exploitation in the past, this species it is listed in the Appendix II of CITES (Convention on International Trade in Endangered Species). Thus, special permissions are required for its trade, specifically stating that the product offered has been produced through farming. Even if its controlled reproduction is still to be improved, Paiche is extraordinarily fit for aquaculture. It adapts to production conditions and shows extraordinary growth

Fig72:TilapiaproductionsystemsinPeru

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rates. Because of these promises, a few farming projects have already started, with basic productive systems in ground ponds. There were also some trials in cages, but they were not particularly successful. More recently, new farming experiences have taken place, supported by Peruvian corporations which adapted technology especially for reproduction and breeding. Results are now at hand, but there are still many issues to be addressed, such as feeding, environmental management and processing, which properly undertaken, should improve the economics and sustainability of this novel venture. Just a few years ago, two projects were started in the coast, expecting to take advantage from available services and connectivity. However, fingerling supplies are not easy, as those specimens have to be transported live from the Amazon.

0 Source: Prepared by the consultants

13.6 Other species

Paralichthys adspersus, the native flounder, has been grown at a very small scale in Peru using sea water under recirculation. Yet, growing and survival rates are not at their best as yet, and therefore, business‐wise, it is still difficult to expand this activity, nor to grow this species in large volumes. This far, there are many outstanding issues which will have to be addressed to improve the economics of the process, such as genetic improvements, the development of efficient feeds, etc. Other species such as seabass, snook, Peruvian grunt, yellowtail kingfish, and several others are still being experimented with or are simply viewed as opportunities for future development. Most of them have very attractive market prices and, being carnivores, could use locally produced fish meal and oil in their diets, with certain advantages. For now, it is envisaged that most of these species are to be grown inland, in tanks using pumped sea water and under recirculation, or in offshore structures, if protected and more adequate coastal sites are not readily available.

Fig73:Paicheproductionsystems

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Good expectations are also linked to seaweed farming, profiting from natural nutrients in the Peruvian (Humboldt) current, and aimed for human consumption and for diverse industrial, pharmaceutical and cosmetic uses. Macroalgae have valuable minerals, proteins and sugars. Frequently, industrial applications focus on the use of hydrocolloids, as alginates, which are used at a significant scale in food preparations such as sushi, salads and sweets, or as a thickening agent. They also have a number of other valuable components which are currently being wasted. Therefore, there is a good amount of research currently directed to the integral use of macroalgae, including the use of each specific component to produce end‐products used by the food and feed industries, in bioplastics, chemicals and fuels. Macroalgae may also become one of the pillars for future farming activities along the coastline, and eventually, offshore. Additionally, large‐scale farming activities in the sea can further be combined with wind turbine parks, infrastructure, oil and aquaculture activities and the like. Microalgae production is also a promise, as beyond biomass production, it can reduce contamination, extracting and converting elements such as ammonia and sulfur compounds from the environment, and/or can be used to produce astaxanthin and many other very valuable products used both for human health and animal diets.

14. Aquaculture development prospects until 2030: opportunities and limitations

Shrimp and scallop production have taken place in coastal areas, where there is still great potential for further growth and diversification. Offshore projects are also envisaged for a later date. This being the case, Peruvian authorities have already identified several local species with real growth and market potentials and available technologies that can be used to expand mariculture throughout the country. Taking into account the fast development process experienced by Peruvian aquaculture in recent years, and world and domestic market opportunities, it can be postulated that harvests by 2030 could reach anything between 200 000 to 230 000 tonnes and up to 500 000 to 600 000 tonnes per year, according to the hypotheses used in these calculations. By far, and for now, the best expectations are put in currently farmed species, such as scallop, shrimp and trout, while there are also good opportunities for less developed species, and for those to be incorporated in the production matrix in the years to come.

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14.1 Traditional species making up for the bulk of current production

Three species are here considered, namely: scallop, shrimp and trout.

14.1.1 Scallops

Peru has superb natural conditions for scallop extraction and farming, but no doubt, the farming of this species will be the natural way to develop production volumes in the future. It has been proven that production of this bivalve can develop very rapidly, and in a matter of years only, as there are still sites that can be used for this purposes; technology is readily available, and while there are limitations, none of them‐ but for the eventual scarcity of seeds from the wild, and/or unfavorable world market conditions‐ should pose unsurmountable challenges. As mentioned, this activity relies fundamentally on the collection of wild seed, and is subject to the frequent occurrence of episodes of red tides and abnormal oceanic conditions. This last factor may cause mortalities due to low oxygen levels and high concentrations of sulfur or ammonia compounds (ie.: El Niño 2014‐2015). Other conflicting subjects refer to eventual conflicts over the use of marine areas with coastal fishermen and limitations that might arise because of ‐again eventual‐poor quality end products and presentations, a fact that can be easily solved by industry. The expansion of scallop aquaculture in coastal ‐and eventually in offshore ‐ facilities, is one of the most promising potentials of Peruvian aquaculture. Technology improvements will certainly be applied in the future in all phases of production, management and marketing, either copying and adapting foreign systems, or developing innovative solutions at home. As well, adapting innovations used for similar species and environments. Given the natural richness of the Peruvian current, scallop production can grow very substantially, involving significant investment opportunities such as those related to one or more of the following subjects:

(a) Existence of over 132 000 hectares available for suspended scallop growing. (b) Establishment of new and well equipped hatcheries, with the consequent

installation of recirculation systems, microalgae production, transport of seed, consultancy services, etc.

(c) Early warning systems related to harmful algal blooms or other negative or challenging oceanographic events, to improve crop management strategies at sea, including satellite tracking.

(d) Supplies of diverse infrastructure and equipment (e) New and better equipped rafts for maintenance, cleaning (lines, pearl nets,

lanternnets, etc.), size classification and harvest (f) Manufacture/provision and maintenance of boats and their engines and related

equipment. (g) Installation/maintenance of buoys for monitoring oceanographic conditions

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(h) Processing facilities in‐land, including civil works, warehouses, equipment, engineering and technical services, etc.

(i) Development of new products and new uses of by‐products (fouling composed mainly bay macro‐algae, scallop shells).

(j) Warehousing, transportation and marketing of fresh production (both by sea and land), and related equipment, services and the like.

(k) Infrastructure needs: roads, ports, airports, warehouses, water treatment plants, energy supplies, communications, etc.

Conservatively, scallop harvest to 2030 could reach 90 000 tonnes almost without doubts. However, considering that the Peruvian Sanitary System is gaining reliability, assuring future access to the more demanding markets; that new production areas can be incorporated to production; that better and more technology will be used at all stages, projected harvest of scallop could reach between 200 000 and 250 000 tonnes by 2030.

14.1.2 Shrimp

Shrimp growth prospects are principally expected by increasing yields per unit‐area of pond in Tumbes and Piura, and also by some expansion attributable to the use of greenhouses, to rise water temperature levels. Various interventions are needed in shrimp aquaculture, offering multiple investment opportunities to companies providing goods and services. Among them:

(a) Changes in production facilities, in addition to the reduction in area and deepening of ponds, involving:

Engineering projects Placing liners, high density polyethylene (HDPE) liners, to seal the bottoms

of ponds and to allow for a better management of water circulation and cleaning of sediments,

Installation of "greenhouses" that incorporate support systems and transparent or translucent plastics, covering the ponds in order to manage and raise temperatures.

Provision of different type of aerators (paddle, vacuum/suction, blowers), considering up to 35 HP per hectare, and the entire infrastructure for electricity supplies (generators, transformers, cables, poles, connections)

Installing raceways for post‐larval and juvenile acclimation. Recirculation and purification water systems, to apply biosecurity

principles. Incorporation of other production techniques such as multi‐trophic

integrated aquaculture (IMTA).

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(b) Local seed production through the installation and operation of hatcheries, to meet as closely as possible future demand levels and rely less on oceanographic conditions,

(c) Production of high‐quality balanced food using local inputs of animal (fishmeal and fish oil) and vegetable origin. This, also opens feed export opportunities.

(d) Processing plants and equipment (ice production, insulated containers, sorters, plate freezers, IQF chambers).

(e) Refrigerated transport trucks, containers and the like (f) Transport services, export, and marketing. (g) Provision of innumerable raw materials used by this industry (h) All services and equipment related to other logistic aspects (i) Research and development in genetics, nutrition, diseases, environmental care,

engineering, production systems and many others, including quality laboratories and equipment.

(j) Training of personnel of all levels (k) Security equipment (l) Software to control/plan production, processing, and sales

All of these actions should be accompanied by quality assurance systems along the value chain, as well as sanitary and traceability controls/specifications, increasingly required by specialized markets. Based on current assessment of world demand and its trends, and the recent clearance received by Peru to enter the Chinese market (September 2016), together with expected technical improvements as per the above comments, it is projected that shrimp harvests by 2030 could double current levels, reaching some 40 000 tonnes. However, other estimates by stakeholders, point to 65 000 tonnes considering as well productivity improvements in Tumbes and Piura.

14.1.3 Trout

Trout production in Peru has grown at outstanding rates, because there are proper conditions in different lakes and water bodies all over the Andes. Some of them, like Lake Titicaca still offer vast areas for further growth. Notwithstanding, for now, the forecast for future expansion considers limiting the availability and access to good quality eggs and fingerlings. This pending issue has to be approached by industry and government alike. Processing facilities in key production regions such as Puno, are also limiting to secure further growth. Better and cost effective floating systems (cages, etc.), will be needed, especially if new farming undertakings take place in more exposed sites, for which current technical solutions might not perform at their best. All things considered, it is estimated that for 2030 trout harvest will rise to at least 75 000 tonnes per year. However, under a more optimistic scenario, with better technology and sufficient investments and paying attention to social concerns

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regarding further growth of this industry, production volumes might very well surpass 180 000 tonnes per year.

14.2 New species

There are little doubts that Peru’s aquaculture will incorporate in the future marine and continental species to the production matrix, as in both environments conditions are excellent, and further growth based in good planning, public‐private cooperation and a good understanding with local populations can be sustainably attained.

14.2.1 Marine species

Marine fish species are considered particularly promising for future aquaculture activities in Peru, considering ‐as told‐ market prospects and natural conditions. Among them, yellowtail amberjack (Seriola lalandi), the native flounder (Paralichthys adspersus) or ‘lenguado’ and the Peruvian grunt (Anisotremus scapularis) or ‘chita’ are frequently highlighted, and are receiving attention by the R&D community. However, for none of these species there is still sufficient technologic development to ascertain that they might be commercially farmed in the near future. Certainly, though, they will become a part of Peruvian aquaculture of the 2020’s and chances are that by 2030 several undertakings will already be producing these species in growing but as yet undefined quantities. Seriola, perhaps, is the species than can be addressed in a shorter period of time, as farming technology for this species is already available and at work in certain parts of the world (Australia), while in others it is being adapted and improved with very promising results (Chile, Mexico and others). Local flounders will still face several technical problems, as for instance growth rates and feed are still to be improved, and a cost‐effective production systems have to be devised. Here, former experience with flounder and with ‘turbot’, imported from Chile, have already solved several unknowns, but there is still much work to be done to start commercial production of any interest. In any case, very preliminarily, a production target of at between 2 000 to 10 000 tons can be considered viable for 2030.

14.2.2 Fresh water species

Clearly, tilapia, produced in very small quantities these days has a tremendous potential in Peru, as farming technology is well known worldwide, and there are multiple and successful tilapia farms all over Latin America, with trained personnel and wide marketing experience. Here, tilapia is being massively produced in Ecuador, Brazil, Costa Rica, Honduras and Colombia, to name just a few countries. New markets opportunities and logistic limitations appear as main concerns to promote further production. However, none of these issues cannot be properly addressed, and therefore, interesting developments are expected until 2030. Coastal valleys in

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northern Peru (Piura) and the Amazon basin are areas where tilapia culture can experience interesting growth, easily surpassing shrimp and scallop production. Even if technology is available, new ventures have yet to learn how to integrate more and better techniques to the whole value chain. In the Amazon, areas with better connectivity and logistics, such as Tarapoto, Satipo or Tingo Maria look specially promising. However, logistics will still be challenging in the Amazon region for many years as several services, including processing lines, are still to be developed. Here, there is a need are to improve the quality of fingerlings, to adapt them better to Peruvian geographic features, and of technology transfer on recirculation systems, as eventually, high‐density production systems might be an opportunity in this field. Feeds and feeding and several logistic aspects should also receive preferential attention to facilitate future growth. In the Amazon areas, there is also a severe need for processing and cold store facilities. All of these limitations open wide investment opportunities, together with engineering services related to them. By 2030, then, conservative projections indicate that tilapia production can rise to between 12 000 and 15 000 tonnes, as a minimum, while on a more optimistic scenario, where most ‐if not all‐ of current limitations are solved, 120 000 tonnes per year could be harvested. There are other alternatives to expand fish farming, this time associated with aquaponics, integrated multi‐trophic aquaculture and rice‐fish systems. In all of these cases, tilapia is also an alternative, but specific production projections are no as yet available. Paiche, produced in small quantities these days, is another fresh water fish with an interesting production potential. A large‐size fish from the Amazon, shows amazing growth rates, reaching up to 12 kg in about 13 to 14 months, a performance that is still subject to improvements with better feed and feeding techniques and genetics. This unique species shared with Brazil, Colombia and more recently Bolivia, also need further attention with regard to the production of fingerlings and several other aspects, including market development, as its products are scarcely known abroad. However, the ‘exotic appeal’ of this huge Amazonian fish can certainly be used to promote its sales, a fact which is already known to the few local producers involved in this trade. Paiche has regional markets in Peru and Brazil, but it also has an extraordinary potential in the selected international market niches, for exclusive and exotic products. Farmed production of the species is still expensive, but more and better technology will certainly help diminishing costs and enhancing sales opportunities in the future. Nowadays, it can be found in luxury restaurants in USA and also in some retail shops like WholeFoods Inc (www.wholefoodsmarket.com/blog/put‐paiche‐your‐plate). Paiche’s firm and white color meat portions and fillets are a versatile option for consumers and chefs alike.

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More genetic studies to understand and define its origin are also needed. As told, there is also much to do in reproduction selection, fecundation, fingerling nutrition and feeding. Even if there are Peruvian institutions addressing these research subjects, current efforts are still insufficient, and need to be reinforced to enhance future farmed production. Should the Amazon region pose important restrictions to further farming of this species, particularly because poor logistics and lack of processing facilities and the like, Paiche can also be grown in northern coastal valleys (in aquaculture systems). There are experiences in shrimp and tilapia ponds, and producers are eager to integrate this fish into existing clusters, to take advantage of all logistics and services available. This idea requires further studies, and should receive additional attention by R&D institutions and governmental/private agencies that support innovation in Peru. Considering that currently there are only a few enterprises dealing with Paiche’s farming, and that technical and logistic issues are yet to be solved to advance more swiftly, harvest projections to 2030 are to be limited to not over 1 000 to 2 000 tonnes per year. Under a more optimistic scenario, Paiche’s harvest could rise to 5 000 tonnes per year. Additionally, there is a group of South American Amazon catfishes that deserve special attention. Because of its mild flavor and great texture Pseudoplatystoma genus also known in Spanish as doncella, surubi, or bagre. They also have a tremendous potential but have not yet been commercially farmed in noticeable volumes because of lack of technology, which in any case is much more developed in Brazil. This fish has local and regional markets and will certainly be farmed in the future, as it adapts very well to culture conditions and artificial feeding. There are no formal estimates for future harvest volumes for this species, but it is almost certain that, provided technology is brought in and adapted in Peru and more resources are assigned to these ends, local production could least be within the 1 000 to 10 000 range by 2030

14.3 More on diversification and diversification prospects

What has been said so far implicates that the main future developments until 2030, related to fish farming in Peru, will be related to the most important species currently cultivated. There are no doubts that the incorporation of more and better technologies, together with better governance and more financial and R&D support by public and private institutions could make the difference, and, together with better infrastructure and improved relations with local populations, can transform Peruvian aquaculture into a very powerful industry, which will be able to generate employment, improve food security and enhance local consumption and exports.

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Peru can also accelerate its efforts to include ‘new’ species into its farming matrix, to widen the geographic coverage of aquaculture and to amplify its economic impact, by encouraging production diversification in the coming years. The extent to which future governmental actions and the interest of private entrepreneurs will favor further work with ‘traditional’ or emerging species is still to be seen, but there are clear indications that both lines of action will progress in parallel in the coming years, and financial support will become available to diversify aquaculture output, as Peru has excellent conditions for a wider and rapid development of this activity, particularly, when world markets are wide open, and aquaculture products already account for over 50% of the seafood intended for human consumption. Here, even though it is expected that future farmed production will help increasing domestic supplies and promote further consumption at home, exports will continue being the main driver for aquaculture growth at least until 2030. Here, new integrated production systems, and/or the farming in more exposed or offshore marine sites are envisaged, while further re‐seeding of coastal waters are also to be expected, to supplement decaying artisanal landings. As mentioned earlier, further activity should be expected linked to (i) Multi‐trophic integrated crops, (ii) aquaponics, and (iii) offshore aquaculture. Here, and due to competition with other users of the coastline and fresh‐water resources, and increasing pollution, fish farming under recirculation will also emerge as an alternative means to enhance and stabilize production. Other options for high‐density production systems can also be envisaged, together with more sophisticated feed and feeding systems all along the production cycles. Local fish meal and oil, will also receive more attention, and will become an advantage to Peruvian fish farmers in the future Other species, beyond those mentioned above are also to be considered as possible targets for aquaculture, and here, hirame, and several molluscs, macroalgae and microalgae will also be targeted sometime in the future, In all these activities and for all these purposes, massive investments will be required and new business opportunities will be plentifully available. On top of business ideas linked to primary and secondary production, it is also evident that ancillary services, and the provision of an extensive lists of raw materials and products will be demanded, and offer open‐ended opportunities to local and foreign investors at least until 2030.

15. Aquaculture development strategies Most stakeholders agree that Peruvian aquaculture will continue to grow, achieving high production levels. However, the process needs to occur taking care of

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sustainability and environmental factors, enhancing and improving all processes along the production chains and obtaining quality products with high sanitary standards. The long‐term vision of Peruvian aquaculture, say to 2030, is characterized by the following attributes:

(1) To be a modern activity providing products that contribute to food security in Peru and to cope with a growing seafood demand in foreign markets;

(2) To be diversified in terms of production areas, species, products, and productive systems;

(3) To be developed using the best available science and technology, creating or adapting the most suitable rearing systems in each specific case;

(4) To be efficient in the use of space, water and natural resources, well oriented to sustainability and competitiveness, and taking advantage of the country’s strengths (i.e.: biodiversity, availability of critical raw materials, etc.) and;

(5) To have a proactive and organized governance and institutions, providing stable policies and rules for development, according to the particularities of each production model.

On a very recent interview, Mr. Bruno Giuffra –Peru’s new Minister of Production‐ highlighted that aquaculture needed incentives to sustain its growth rates, and thu,s that measures were to be taken to ‘recover’ all its special benefits conceded by law ‐including tax reductions‐ as aquaculture is considered to be a high‐risk production activity. Moreover, he indicated that technical support should be given to current and new forms of aquaculture, while there is also a need for Regional Development Plans in accordance with the National Strategy for Aquaculture Development. This being the case and the sectoral vision, the main strategies to be put in place to widen aquaculture possibilities and to reach the objectives of augmenting sectoral contribution to Peru’s well‐being and the production goals already mentioned, on sustainable basis, are yet to be devised and put into action by the new government. Here, there are no doubts that

(i) sustainability, (ii) governance, (iii) better relations with local communities, (iv) the incorporation of more and better technology throughout the value

chain, (v) more and better market and marketing efforts, (vi) enhancement of workforce capabilities at all levels, and

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(vii) better, more and sustained R&D efforts,

will be the central strategic issues to be addressed. In the case of Peru, and due to its extensive territory and coastline, and its varied geography, special attention will also have to be given to basic infrastructure and connectivity, as these aspects do influence and/or limit whatever can be achieved in aquaculture production in several parts of the country, particularly those that are relatively distant or already have deficiencies in terms of roads, ports and airports, energy, water, sewage, communications, etc. what might be able to achieve in the coming years. Among other concerns, the following concepts and remarks might be of interest regarding future strategies

Strategies Remarks Stakeholders

Diversification

New technologies are needed. If readily available, they can be bought and adapted. Otherwise/ in parallel, there is a need for further local R&D work.

PRODUCE, IMARPE, CITEs (Center for Technology and Innovation). Private companies

Production technology development and adaptation

Former FONDEPES aquaculture centers and/or research can be relaunched or used in joint venture with local and foreign universities (Appendix 4)

Private companies, CITEs

Environmental management and impact mitigation

Diagnosis and disease control studies (including emerging diseases) have to be improved. Peru has suffered in the past, especially in shrimp farming, with high loses due to WSSV. Environmental concerns in marine areas are linked to other activities such as artisanal fisheries. Also, Peruvian marine areas in the north are being explored for petroleum, a fact that can cause conflicts among different users of coastal waters, as territorial planning is just beginning in many areas of the country.

MINAM, SANIPES, Private laboratories

Commercial promotion and branding

Despite different activities and programs supporting promotion during the last 10 years, there are still pending tasks. Endemic products like Paiche (Arapaima gigas) and other ‘new’ species need further attention to develop sales in foreign and local markets, having interesting potentials

PROMPERU, Private Associations

16. Main business opportunities related to the aquaculture development process

To feed a current global population of 7.3 billion people, 75 percent of land currently used is dedicated to agriculture production, including livestock, that consumes 70 percent of all freshwater resources. Despite this, more than 800 million people are chronically undernourished. In turn, oceans cover more than 70 percent of the Earth’s

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surface, yet capture fisheries and a small marine aquaculture sector produce only 2 percent of the global food supply. One way to meet growing seafood demand while minimally impacting the environment, is through the expansion of marine aquaculture (NOAA). Well‐designed and well‐managed marine aquaculture farms utilizing best management practices can provide seafood to improve human health and create economic development without unacceptable environmental impacts. Currently, the major part of world aquaculture production occurs in freshwater systems. On the other hand, coastal and open‐sea aquaculture are still relatively newer undertakings for fish and other products in many countries, and might need the application of modern technology in cage design, mooring, feed formulation, operations and the like, while already being successfully practiced in other parts of the world. Adequate sites that have appropriate water currents, depths, and habitats can produce high quality seafood without unacceptable environmental or social impacts. Moored marine fish cages often function as habitats that attract wild fish seeking food and refuge, which in turn often interest local fishermen, divers, and even tourists. Offshore aquaculture, or farming in high‐energy sites might avoid competition with other users of coastal areas and local pollution, typical of near‐shore aquaculture. In Peru, there are many requirements and business opportunities associated with the growth expected in aquaculture production and /or with the sustainability of the process, some of which are outlined in the following paragraphs:

16.1 Basic oceanographic studies

i. Baseline studies on the in‐situ physical oceanographic characteristics of sites that might be used for aquaculture purposes.

ii. Baseline studies on the in‐situ chemical oceanographic characteristics of

water bodies likely to be used by fish farmers, to ascertain presence of pollutants, assess water quality and nutrient or gauge potential productivity levels.

iii. Studies to determine the carrying capacity of the different water bodies likely to be used to develop fish farming

16.2 Hatchery and breeding technology development and adaptation

This far, the diversification process has been limited to certain species and production systems, due to insufficient research, because funds available were not sufficient for these purposes, etc. In fact, shrimps and scallop aquaculture got started when there were enough and handy wild seeds and larvae. Nowadays, and because of production

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volumes, it is necessary to have more reliable and sustainable supplies of seeds, and hatcheries are therefore essential for the consolidation of what has already been achieved and to support further growth. As previously mentioned, the Peruvian shrimp industry use larvae from one local hatchery ‐belonging to the larger shrimp producer‐, but also from laboratories located in Ecuador. In this latter case, larvae are transported by trucks to the production sites, which are normally 1 to 2 hours away from the international border. In turn, scallop farmers obtain their seeds from a couple of private laboratories in the north of the country, and also from the wild. However, in the best scenario, working at full capacity, those laboratories can only cover around 20% of the total demand for scallop seeds on an average year. Trout fingerling are produced using artisanal installations in most of cases (with the exception of large‐capacity projects) with imported eggs. To consolidate trout production, new high‐technology hatcheries are required. In the case of tilapia, for the next development stage, high‐quality fingerlings and juveniles from species well adapted to local conditions will be inexcusably required. Clearly, then, there is a need for new hatcheries in Peru, to supply more scallop seeds, shrimp post‐larvae or juveniles, tilapia juveniles and trout eggs and juveniles, in what relates to well established undertakings, which are expected to grow and expand in future years. In most cases, work technologies can be easily mastered, as there exists a trained workforce that can be recruited for these purposes. Of course, there are many other opportunities in Peru for enterprises looking to adapt technologies to farm other species such as Seriola lalandi (Yellowtail amberjack), Anisotremus scapularis (Peruvian grunt) or flounders. Here, and in the case of foreign investors, eventual joint‐ventures with local entrepreneurs already at work in fish farming can be a good strategy to initiate new business activities. Microalgae potential has been seldom explored. These algae can be used not only in aquaculture, but also for human consumption or other purposes (energy). There are accessible areas in the wide Peruvian coastline to establish research facilities and the same applies in the case of microalgae to be produced using fresh water.

16.3 Innovation in production systems and feeding

It is almost certain that future marine aquaculture development will not continue much longer to rely on bottom‐farm systems, when it comes to bivalves. Due to environmental and productive concerns, new undertakings will focus on suspended systems that make a better use of the water column. Thus, floating platforms for

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operations, marine transport devices, cranes, nets, cables, floats and all related services / equipment will be needed. The Nordic experience in marine operations can be applied to address these needs. Moreover, water remediation solutions for the sea bed (accumulation of organic material) will be demanded. There are also some areas that may need dredging of sediments and the corresponding equipment and/or services. Also, due to the high oceanic productivity of coastal Peruvian waters, all farming devices and floating equipment tend to accumulate different kinds of fouling material, such as algae, barnacles, mussels and the like. These materials, plus other non‐organic waste have to be removed periodically, and their disposal or treatment are no easy task to Peruvian marine aquaculture. Here, new materials or designs aimed at minimizing this unwanted fouling effect will be most wanted throughout the country. The production of aquaculture feed is also a big opportunity in Peru. The country already has the raw material to produce fishmeal and fish oil, products that are very relevant and wanted inputs in feed manufacturing. Therefore, new and high‐tech solutions for this industry, to improve the quality of both products, to widen their use, or to improve their unit price would be most desirable as well. Being located next to world aquaculture leaders like Chile, Ecuador or Brazil; Peru has some potential as feed supplier for local aquaculture production and eventually for exports. For sure, new or innovative production systems will also be required in Peru’s aquaculture industry in coming years. There are several examples of enterprises willing to invest in new and novel undertakings to farm new native or exotic species, for which local technology/equipment was not available, and these situations are likely to be repeated in the future, creating new and varied business opportunities. As mentioned before, marine species such as flounders were studied for many years by IMARPE ‐ trying to solve feeding problems during the first stages of fingerling production ‐ and FONDEPES –adaptation of turbot‐ and also by at least two private companies, the first still in operation (Peruvian investors) with unstable results, and the other one owned by Korean investors that quit their project after 3 years, due to delays in obtaining permissions for the introduction of ‘hirame’. Existing aquaculture centers for innovation are good platforms to continue research programs, and new technologies brought in by foreign companies can very well be adapted there, for further use all over the country, where applicable. Seriola lalandi, a most interesting fish, is currently being farmed experimentally in Chile, and Peruvian climate and waters have adequate characteristics that should permit to adapt that technology locally with success. Moreover, the existing feed

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producers have excellent supplies to develop suitable feeding solutions for this and other species. A special reference is required in relation to Lake Titicaca. Titicaca is a deep and vast fresh water lake in the Andes, on the border of Peru with Bolivia. It is the largest lake in South America by surface area and water volume. Its average surface temperature ranges from 10 to 14°C, which is perfect for trout production. Here, further trout production should be expected in the future, and many coastal and ‘offshore’ systems will be required, together with all ancillary equipment and services, including engineering, transport equipment, other floating devices, communications, processing units and the like. Most probably, the Nordic experience in salmon / trout production can be of use to Peruvian trout farmers, currently and in the coming years.

16.4 Ancillary equipment and services

Piers, floating systems, feeding systems, harvesting systems and engineering abilities of all sorts will be required for new marine and/or continental aquaculture projects, and these products or services are still in short supply in most parts of Peru. Moreover, services related to submarine activities, maintenance, cleaning, safety and management of this marine/fresh‐water projects will be on the rise. Eggs and live fish transport, aeration and tanks will also be required for both productions of larvae / fingerlings and harvest, in existing and new aquaculture projects. The wide territory of this country and long distances between farms and markets and/or service suppliers do require of the best and most efficient logistics to become locally and globally competitive. Of course, several of these services and/or equipment are not readily available in the country. Support services/products such as vaccines, veterinary kits, water quality measure systems, sanitary solutions, probiotics management in aquaculture production will also be required. There is also a lack of cold‐storage and processing facilities in the Andean highlands and Amazon areas. Any new aquaculture development in those regions will demand at least primary processing facilities (stainless tables, knifes, baskets) and ice production units. Consultancy services for new aquaculture projects will also be in high demand during the coming decades. As mentioned above, there are different kind of funds available for research and innovation (FONDECYT, FINCYT, PNIPA), but advanced and specialized technology knowledge is still frequently missing in the case of novel and innovative

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undertakings, a fact that open further opportunities to newcomers to this industry, whether local or from abroad. Specialized economic, market and marketing and planning studies, as well as training courses should also be in high demand in the years to come, and represent a good opportunity for consultants and specialized institutions with adequate experience.

16.5 Research and development

This is a subject of great importance, to support current and future aquaculture development in Peru, and therefore, all stakeholders are pressing for more and consistent help from government and private industry alike, to broaden current fields of action, to improve its quality and to concentrate on subjects of practical relevance to fish farming. Here, among the huge variety of subjects, the following are worth mentioning:

Brood stock – nutrition, maturation, spawning. Genomics and applications in selective breeding

Larval production and rearing – diets and systems.

Biological and ecological impacts/adaptation

Fish nutrition – life stage specific formulations, dietary requirements, feed formulation, feed manufacturing, transport, use (automated systems)

Fish Health –vaccines, chemicals and other therapeutics

Farming system design and improvement: floating devices, nets, floating barges. Mooring systems and devices,

Equipment and appropriate systems to work offshore and with recirculation

Equipment, instrument design and manufacture, etc.

Processing, warehousing and transportation systems and equipment/materials, etc.

16.7 Financial support and investment

There are not as yet specific financial schemes provided by private/public sources to help and support newcomers to this industry, or to help/support expanding existing enterprises. Therefore, new options will be more than welcome by fish farmers and/or service suppliers in the country. Similarly, foreign enterprises willing to invest in Peruvian aquaculture will find it reasonably easy to start their new enterprises. However, joint‐venture agreements will local partners are a good idea, that should be carefully considered. In sum, and as explained in previous paragraphs, as local industry expands and matures, with prospects of doubling or more aquaculture production up to 2030, there will be many, varied and important business opportunities for both marine and

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continental aquaculture production, processing and ancillary services, together with R&D initiatives and the like. A country such as Norway, with extensive experience in aquaculture production; with a well‐developed production of high‐quality equipment and able to supply the many and varied range of ancillary services required by fish farmers will certainly be able to choose from the ample set of opportunities that have been initially pictured in this report, to the best advantage of the Nordic and Peruvian industries.

17. Conclusion

During these last years, Peru generated favorable conditions for investment, which derived in a good economic performance. A friendly legislation for foreign investors and competitive advantages positioned the country as a very interesting destination for future productive projects with both national and foreign capitals/financing.

Peru will remain being a major player in global fisheries, in as far as rational management measures are applied to local fisheries, particularly for that for anchovy. However, it is expected that apart from eventual recoveries in pelagic fisheries, most part of whatever growth can be expected in fish landings should come from aquaculture production.

Even though aquaculture development until 2030 will be basically linked to traditional species such as scallops, shrimp and trout, other emerging ones, such as paiche, tilapia and additional marine and continental species will play an increasingly interesting role, being it in terms of new employment opportunities, food security and/or exports.

Current farming levels of about 115 000 tonnes in 2014 and 85 000 in 2015 should rise to at least 205 000 tonnes of scallops, trout and shrimp by 2030, and an extra 16 000 tonnes of other species. On a more optimistic scenario, these figures could rise to 445 000 ‐ 495 000 tonnes of scallops, trout and shrimp, and additional 145 000 tonnes of other species.

Aquaculture has been mainly driven by export possibilities, even though domestic demand for aquaculture products is also significant. Local as well as global demand for seafood will increase in future years, and Peru can count on very open market opportunities for its aquaculture output, both domestically and in international destinations

There will be plenty commercial and investment opportunities linked to aquaculture upgrading and development in Peru until 2030. Opportunities will

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be available regarding primary production, processing, ancillary services including training of human resources and the provision of a wide variety or raw materials.

Technology transfer from abroad and its adaptation to local conditions, plus local R&D activities are necessary to support further aquaculture upgrading and growth in this country. Novel techniques, such as those related to recirculation and offshore farming should start receiving further attention as from now, to facilitate diversification and long‐term growth.

Fresh capitals for joint‐ventures and new projects will be needed to support the development process up to 2030.

Better and new governance schemes that concentrate on development, sustainability, diversification, competitiveness and social inclusion should be developed to back‐up and promote further aquaculture development in Peru.

Peruvian aquaculture outlook is encouraging and Legislative Decree N° 1195, has already stated that this activity is of ‘national interest’, suggesting that further governmental action should be expected to facilitate investments, expedite access and promote innovation in this field. These promotional measures apply alike for both local and foreign companies, and should be able to attract foreign investors in the future.

There are public funds available to local companies and institutions that facilitate and support R&D activities linked to innovation and other aspects that can have practical effects in aquaculture production and services. Local R&D

Peruvian institutions are open to adopt and validate foreign technologies that

can be locally adjusted for the development of sustainable aquaculture production, including offshore systems, aquaponics, integrated multi‐trophic aquaculture, among other farming systems. The same applies with regard to seafood processing, product development, quality assurance, traceability and other issues of relevance to aquaculture development and efficiency.

18. Final Remarks

This report should be considered as a first approach to identifying business and investment opportunities linked to aquaculture and aquaculture development in Peru up to 2030. It has been prepared with a limited budget and within just over a one‐month period by a knowledgeable team of Peruvian experts, with the contribution of the Project Leader from Chile, that visited Peru to coordinate this task.

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However general this sectoral description, it gives a fair idea on current realities in Peruvian aquaculture, and moreover, it pictures in some detail expected objectives and production goals to 2030, based on the best knowledge available and a number of assumptions which are not officially adopted. No such goals until 2030 are readily available elsewhere in Peru from other sources, and therefore, they are a substantial contribution to the exploration of Peru’s future aquaculture capacities. Limitations to development are also exposed, picturing very fairly the type and magnitude of the challenges to be faced in future years to achieve those goals. The analysis concentrates, thereafter, in highlighting business opportunities that will accompany the aquaculture development process in Peru, some of which are expected to be of interest to Innovation Norway, on its aims to identify new openings for Norwegian enterprises linked to the oil and gas industries. In all cases, opportunities are described in very general terms, and further market analysis is required to identify their precise extent and framework. With these ideas and analysis at hand, it is advisable to approach local authorities and other stakeholders to complement and contrast the ideas exposed, for an even better understanding of local conditions and possibilities in the aquaculture sector.

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AppendixAppendix 1 Institutional framework

Ministerio de la Producción Ministry of Production

www.produce.gob.pe

Ministerio de Comercio Exterior y Turismo Ministry of Foreign Trade and Tourism

www.mincetur.gob.pe

Instituto del Mar del Peru Peruvian Sea Institute

www.imarpe.pe

Organismo Nacional de Sanidad Pesquera (SANIPES) National Sanitary Authority

www.sanipes.gob.pe

Fondo Nacional de Desarrollo Pesquero (FONDEPES) National Fund for Fisheries Development

www.fondepes.gob.pe

Sociedad Peruana de Acuicultura (SNA) National Society of Aquaculture

Sociedad Nacional de Pesquería (SNP) National Society of Fisheries

www.snp.org.pe

Sociedad Nacional de Industrias (SNI) National Society of Industry

www.sni.org.pe

Asociación de Exportadores (ADEX) Exporters Association

www.adexperu.org.pe

Sociedad de Comercio Exterior del Peru (COMEX) Peruvian Foreign Trade Society

www.comexperu.org.pe

Fondo Nacional de Desarrollo Científico, Tecnológico y de Innovación Tecnológica (FONDECYT) National Fund for Scientific Development, Technology and Technological Innovation

www.cienciactiva.gob.pe

Programa Nacional de Innovación para la Competitividad y Productividad (Innóvate Perú) National Innovation Program for Competitiveness and Productivity

www.fincyt.gob.pe

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Programa Nacional de Innovación en Pesca y Acuicultura (PNIPA) National Innovation Program Fisheries and Aquaculture

http://pnipa.produce.gob.pe

Red Nacional de Información Acuícola (RNIA) National Network of Aquaculture Information

Catastro Acuícola Nacional (CAN) National Aquaculture Cadastre

http://catastroacuicola.produce.gob.pe

Appendix 2 Main Aquaculture companies

Shrimp

Marinazul (Seafood division of Camposol)

www.camposol.com.pe Elie Barsimantov (Commercial Representative)

Eco Acuicola www.ecosac.com.pe Mario Mustafa (President)

Scallops

Acuacultura y Pesca (Acuapesca) www.acuapesca.com Carlos Goldin (President)

Acuicultores Pisco (Inversiones Prisco)

www.iprisco.com.pe Edgardo Wong (President)

Cultimarine www.cultimarine.com Giacomo Zerga (General Manager)

Seacorp www.seacorperu.com Ian Hanschke (General Manager)

Seaprotein www.seaprotein.com.pe Alfredo Moreno (Operations manager)

Rainbow trout

Piscifactorias de los Andes www.piscisperu.com.pe Eloisa Alarcon (General Manager)

Peruvian Aquaculture Company www.patsac.com Jose Muñoz (General Manager)

Consorcio Acuícola Junín http://www.acuijunin.com/ Flavio Ventura (President)

Tilapia

Acuahuaura www.naltech.com.pe/acuahuara/Jorge Luis Favre (General Manager)

American Quality Aquaculure (Aquaperu)

www.aquaperu.com Javier Caceres (General Manager)

Paiche

Acuicola Los Paiches www.amazone.com.pe Isaac Gherson (General Manager)

Amazon Harvest www.amazon‐harvest.pe Italo Solimano (General

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Manager)

Silver Corporation www.fundopalmeiras.com Israel Silva (General Manager)

Appendix 3 Aquaculture exports, by main exporting companies

Peru: Shrimp (L. vannamei) Exports by main exporting companies, MT

Company

MT

2013 2014 2015

1 CORP. REFRIGERADOS INYSA 1.541 1.711 4.272

2 ECO ‐ ACUICOLA SAC 1.569 2.429 2.794

3 LA FRAGATA S A 995 1.084 930

4 VIRAZON S A 728 860 858

5 LANGOSTINERA TUMBES S.A.C. 536 555 554

6 MARINAZUL S.A. 2.023 2.476 500

7 CCORAL S.A 406 427 473

8 ACUICOLA SANTA ISABEL SAC 563 542 414

9 GARCIA BARRANTES HECTOR MANUEL 428 528 398

10 CMAR S.A.C. 0 0 360

11 ISLA BELLA S.A.C 302 279 343

12 CRIADOR EL GUAMITO S.A.C. 297 374 316

13 EXPORTACIONES LIVIAMAR SAC 302 373 301

14 CRIADERO LOS PACAES S.A. 167 268 273

15 LANGOSTINERA MACORI SRL 131 255 268

16 LANGOSTINERA LA BOCANA SA 235 273 265

17 LANGOSTINERA VICTORIA SRL 271 226 248

18 TUMIMAR SRL 184 173 237

19 INVERSIONES SILMA S.A.C. 234 193 221

20 LANGOSTINERA ULISES SA 212 226 220

21 ATISA 164 178 180

22 LANGOSTINERA CARDALITO S.A.C 0 224 168

23 LANGOSTINERA HUACURA E.I.R.L 33 125 167

24 ZAPATA CHAVEZ RUPERTO ENRIQUE 72 151 162

25 Others 2.233 1.809 1.321

Total 13.625 15.738 16.244

Source: PROMPERU, 2016 Note: Shrimp reprocessed in Peru has being excluded, to focus the analysis on Peruvian aquaculture development. Average growth rate during last year was 10%. Corp. INY has been taken over by Marinazul that is why both companies’ volumes vary considerably between 2014 and 2015. In total the new company (Marinazul+INY) represents 28% of total exports, and is increasing its export volumes in around 15% per year. Major players increasingly concentrate most part of the volumes exported.

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Peru: Main Scallop exporters (A. purpuratus) , MT

Company MT

2013 2014 2015

1 ACUACULTURA Y PESCA S.A.C 1.326 921 1.020

2 SEAFROST S.A.C. 1.546 1.498 702

3 INVERSIONES PRISCO S.A.C. 2.097 1.844 636

4 PESQUERA SAN SIMONE SAC 862 622 560

5 CULTIMARINE S.A.C. 332 285 371

6 SEACORP PERU S.A.C. 284 445 333

7 CORPORACION REFRIGERADOS INY SA 2.346 1.823 315

8 PREMIUM FISH S.A.C. 176 146 296

9 PROANCO SRL 826 818 294

10 SCALLOPS PERU SAC 172 221 284

11 AQUACULTIVOS DEL PACIFICO S.A.C. 176 182 207

12 PERUPEZ S.A.C. 211 168 147

13 INTERCOLD S.A.C 195 132 105

14 NEMO CORPORATION S.A.C 462 258 103

15 NEDIX S.A. 586 368 72

Others 3.534 2.610 533

Total 15.133 12.341 5.976

Source: PROMPERU, 2016 Note: Export figures were reduced 18% from 2013 to 2014 and 52% last year. This situation is caused by production issues. Also, export volumes have been concentrated by the main packers. Not all companies listed are aquaculture producers. Some of the main players (for instance San Simone, Seafrost, INY, Proanco) are just packers that gather production from small fishermen associations. Companies that have their own production systems, show more stable figures during these last years. It is expected that volumes during 2016 will be reduced again, but some recovery will be experienced in 2017 in both production and exports.

Peru: Main Rainbow trout (O. mykiss) Exporters in MT

Company

MT

2013 2014 2015

1 PERUVIAN ANDEAN TROUT S.A.C. 439,4 312,4 1.348,7

2 PISCIFACTORIAS DE LOS ANDES S.A 898,8 448,3 399,7

Others 2,1 2,1 2,0

Total 1.340,3 762,7 1.750,5

Source: PROMPERU, 2016 Note: it is clear that two companies share the production and exports of rainbow trout in Peru. Nevertheless, there are many small aquaculture units that provide the local markets. It is expected that export figures will increase constantly next coming years.

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Appendix 4 Former FONDEPES aquaculture research centers

Facilities Characteristics

Centro Acuicola La Arena Location: Casma

Initially designed to reasearch in scallops and oyster adaptation. Focus in reproduction and hatching

Centro Acuicola La Cachuela Location: Tambopata

Study of amazon fish species for aquaculture. Colossoma and Piaractus. General production aspects Incubation and hatching Technical assistance for local ventures

Centro Acuicola Morro Sama Location: Tacna

Interest in new marine species: California red abalone, native flounders, microalgae Turbot adaptation Mollusc hatchery production

Centro Acuicola Nuevo Horizonte Location: Iquitos

Culture and reproduction of amazon fishes Identifying migration and productive natural areas Colossoma and Piaractus: general aspects related to production Amazon native catfish (Pseudoplatystoma) reproduction and culture Technical assistance to local producers

Centro Acuicola Virrila Location: Sechura Artemia aquaculture conditions

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19. Annex Annex 1

Brazilian States and top 20 municipalities, in decreasing order

Production (T)

Individual Participation (%)

Accumulated Participation (%)

Mato Grosso (MT) 75630 19.3 19.3 Paraná (PR) 51143 13.0 32.3 Ceará (CE) 30670 7.8 40.1 São Paulo (SP) 26715 6.8 46.9Rondônia (RO) 25141 6.4 53.3Goiás (GO) 22913 5.8 59.2 Santa Catarina (SC) 21240 5.4 64.6 Maranhão (MA) 16926 4.3 68.9 Roraima (RR) 16134 4.1 73.0 Minas Gerais (MG) 15742 4.0 77.0Rio Grande do Sul (RS) 15680 4.0 81.0Amazonas (AM) 15064 3.8 84.8 Bahia (BA) 10854 2.8 87.6 Tocantins (TO) 7259 1.8 89.5 Espírito Santo (ES) 6490 1.7 91.1 Mato Grosso do Sul (MS) 5667 1.4 92.6Piauí (PI) 5474 1.4 93.9Sergipe (SE) 5420 1.4 95.3Pará (PA) 5055 1.3 96.6 Acre (AC) 3864 1.0 97.6 Pernambuco (PE) 3114 0.8 98.4 Rio Grande do Norte (RN) 2356 0.6 99.0Rio de Janeiro (RJ) 1111 0.3 99.3Paraíba (PB) 978 0.2 99.5Distrito Federal (DF) 800 0.2 99.7 Alagoas (AL) 600 0.2 99.9 Amapá (AL) 452 0.1 100.0 Top 20 municipalities Sorriso – MT 21524 5.5 5.5Jaguaribara – CE 14587 3.7 9.2 Nossa Senhora do Livramento – MT 14093 3.6 12.8 Jangada – MT 7022 1.8 14.6 Santa Fé do Sul – SP 6486 1.7 16.2Rio Preto do Eva – AM 5472 1.4 17.6Orós – CE 5280 1.3 19.0Itapuã do Oeste – RO 5227 1.3 20.3 Almas – TO 5157 1.3 21.6 Poconé – MT 5016 1.3 22.9 Toledo – PR 4992 1.3 24.2 Assis Chateaubriand – PR 4913 1.3 25.4Santa Clara d’Oeste‐ SP 4460 1.1 26.6Alvorada do Sul – PR 4271 1.1 27.6 Cuiabá – MT 4235 1.1 28.7 Linhares – ES 4050 1.0 29.8 Maripá – PR 4010 1.0 30.8 Amajarí – RR 3995 1.0 31.8Propriá – CE 3921 1.0 32.8Ariquemes ‐ RO 3551 0.9 33.7

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