Salmon industry in Chile: an industrial resilience case?

SALMON INDUSTRY IN CHILE: AN INDUSTRIAL RESILIENCE CASE?

JUAN PABLO ZANLUNGO MATSUHIRO DEPARTAMENTO INGENIERÍA INDUSTRIAL, UNIVERSIDAD DE CHILE

Context •  Today the industry exports about U$3,5 billion •  Dominates the world market, along with

Norway •  It is known as the “third engine” of the national

economy •  After the ISAv crisis (2009 : 89 outbreaks), the

disease was reduced to isolated cases (2013 : 3 outbreaks), (2014: 2 outbreaks)

Servicio Nacional de Pesca y Acuicultura www.sernapesca.cl 6

3. Situación de Anemia Infecciosa del Salmón

A continuación, se presenta la actualización de la situación sanitaria asociada al virus de la Anemia Infecciosa del Salmón.

Se exhibe en el Gráfico N°4, luego de los últimos brotes registrados el año 2010 la frecuencia de éstos disminuye a cero, hasta reaparecer, con dos casos, en abril del año 2013. Durante el primer semestre del año 2014, se presentó un brote de ISAv, que correspondió a la variante viral HPR 7B, afectando a la especie s. del Atlántico, centro ubicado en la ACS 9A, Macrozona N°3 (zona de Chiloé central), Región de Los Lagos (Mapa N°1). Para éste último caso, se aplicaron todas las medidas de control señaladas en el Programa, el centro fue completamente cosechado en el mes de mayo y se mantiene en descanso sanitario.

Gráfico N° 4: Número de brotes de Anemia Infecciosa del Salmón, años 2007 a 2014.

What will we understand by Industrial Resilience? Which elements allow would us to classify the evolution of

Chilean salmon industry crisis as a resilience case? How can we explain the accelerated recovery?

2008 2010

2012

630.000 tons 450.000 tons 820.000 tons

How was the organization of the cluster altered? Is the industry more sustainable today? What role did the collective–share actions play on managing

the crisis? What remains to be re-set?

Balanced View: a resilience

system, after undergoing a disturbance is able to resume its natural growth path. (a) and (b)

Ecologist View: equilibria are

arbitrary, and any crisis should force strong enough effects for a system to adopt a new pattern of behavior (c) and (d)

INDUSTRIAL RESILIENCE

Figure 1: Stylised Responses of a Regional Economy to a Major Shock. Simmie & Mar6n, 2010

Normalized Recovery Paths post ISAv crisis Chile Faroe Islands and Norway T0 is the year in which production reached its lowest level as a result of the health crisis.

Differences between paths

•  Norway has learned to live with the virus (fjords structure favors them)

•  Faroe Islands shut down all production and operation of sea farms.

•  Chile learned from these experience and also received support

from the Canada to design a way out of the crisis. Regulations in place today are more stringent than in Norway.

THE EVOLUTION OF THE CRISIS IN THE CHILEAN SALMON INDUSTRY (2007-2010) The crisis in

numbers •  26.000 unemployed

•  50% decrease in production

•  US$ 5.000 million estimated cost

For a year the number of operating sea farms was less than the maximum "positive" infected sea farms (January 2009)

0

50

100

150

200

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J ul-‐07

S ep-‐07

Nov-‐07

E ne-‐08

Mar-‐08

May-‐08J ul-‐08

S ep-‐08

Nov-‐08

E ne-‐09

Mar-‐09

May-‐09J ul-‐09

S ep-‐09

Nov-‐09

E ne-‐10

Mar-‐10

May-‐10J ul-‐10

S ep-‐10

Nov-‐10

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itivo

s/op

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2005 2006 2007 2008 2009 2010 2011 2012 2013

Ton

Salmon ProducCon 2005-‐2013

Estadís6cas Sernapesca (Ton)

I

Actors, networks and institutions •  Trade Association dominated by

large companies •  Weak Regulations •  Increase in the granting of

concessions

Orientation to Production •  Catching up in production with Norway since

2001. A race to get to 100,000 tons per producer, and become a global player

•  Geographic concentration of Production •  Increasing outsourcing, deregulated, following

cost reduction criterion

Trends that led to the crisis

Fuente: Informe sectorial de Pesca y Acuicultura, enero 2014, SERNAPESCA

RESPONSE MECHANISMS DYNAMICS ASSOCIATED

•  Production Frontier Expansion •  Changes in the Value Chain

EXPLANATIONS FOR AN ACCELERATED RECOVERY

•  New regulatory policy and institutional framework

•  Financial Rescue

New regulatory and institutional framework (2010)

•  Forced breaks in system organization: "salmon neighborhoods.”

•  New and more stringent standards for production-logistics and required certification

•  Greater supervisory authority

Financial "Rescue"

•  Change in the legal conception of the public good in concession to private property: Concessions could now be traded between private actors, and used as a collateral to get credits from the bank industry •  US $ 450 million purchase of mortgage debt

concessions (US $ 2,000 million estimated total debt) •  Indexing health risk to financial risk (in addition to stock

trading companies)

Dynamic associated: Production Frontier Expansion

Associated dynamic: Production Frontier Expansion was already available

Associated dynamic: Production Frontier Expansion and changes in the production

distribution across regions

Associated dynamic: Production Frontier Expansion

Insufficient provision of Public Goods •  Enabling Infrastructure (linked to the operation and

installation of new families) •  Connectivity and Logistics

Gaps •  Employment and job quality •  Human Capital formation •  R&D + i

NEW CLUSTER

Changes in the Value Chain –  Automating processes –  Demand for workers is reduced in the core of the chain

(freshwater, seawater, process) –  Territorial Expansion of services –  Changing weights in relative powers (customer-supplier)

Changes in the Value System

–  Complexity / Sophistication (Biosafety, Health, Environmental) –  Migration of talents to suppliers –  Emergence of Knowledge Intensive Business Services

–  Financial industry oversight

A MORE SUSTAINABLE INDUSTRY?

•  Acknowledgement of environmental and sanitary limitations (how far you could get)

•  Consensus on what to ‘stop doing’ (industry measures) •  A clearer and better equipped public system. More clarity

what must the state require, inspect, subject to fines.

It is clear that we know better and are alarmed, But have we passed the examination of resilience?

Export (US$ billion) Budget (US$ million)

2,207 (2006) 19,68 (2007)

3,517 (2013) 45,3 (2014)

Export (US$ billion) Fines (US$ million)

2,242 (2007) 0,74 (2007)

3,517 (2013) 1,4 (2013)

148% local funds

81% local funds

Health Status in the fronCer zone expanded renew commitments and acCons geared

More % production losses

Less operating sites, but more sea lice Are there old

practices that must be

eliminated? New challenges: •  Major changes to strengthen

enforcement at the individual firms level

•  New diseases of local expression

Fuente: Elaborado en base a datos Sernapesca 2010-2013

Concerns about sanitary status in the expansion zones have produced a renewed commitment and has provided guidance to new initiatives

A few years ago I made a similar presentation and called it “Health crisis in the Salmon Cluster; learning lessons process” (6to CLAC, 2011)… Today I would say … “Lessons in consolidation process”

Start up (2014-15) of new health regulations •  Risk Score •  Density Regulation •  Reducing Seeding

Industrial resilience and sustainability are not only related with sanitary issues. It also involves industrial structure reconfigurations.

Sanitary crisis & financial crisis Production Concentration by recent Merges and Acquisitions Most visible cases: •  AquaChile bought Invermar •  Mitsubishi is in the final negotiation for Cermaq •  Marine Harvest is now taking control over Aquinova In the near future, 80% of production will be concentrated in

12 actors. At ISAv climax (2009) they were 19.

COMMON-POOL RESOURCES, INSTITUTIONS AND COLLECTIVE ACTION

•  The case of collective use of resources: 'Tragedy of the commons‘

•  Self-governance of firms ends collective crisis. Freedom implies a 'commons' eventually ruins all ¨ (G.Hardin, Science, December 1968)

Institutions and Rules of the Game •  The institutions have been created to reduce uncertainty in exchange North (1991)

•  The rules must include security, portability, durability, divisibility, flexibility and exclusivity of property rights. Ostrom (1990) & Anderson (2007)

Generating Collective Action

Trust Ranking OECD 2008

Legatum Prosperity Index (35 position Chile)

A major challenge in Chile DenmarkNorwayFinlandSweden

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Nevertheless... A successful resilience path was based on

•  Reaction at the industry level. Taking immediate health regulations themselves (self regulation).

•  Quick public legislative action(urgency given by the political context -2009 presidential elections ad portas-, and the international financial crisis) •  Head of the “Salmon Industry Roundtable” acted as de facto

delegate of the President, thus in practice by-passing the formal institutional structure of the state.

•  Changing status of concessions. Start up of Health Regulations, Surveillance Plans.

•  Rescue from financial world.

TASKS FOR THE CONSOLIDATION OF THE RE-SET Resilience as adaptive ability

Securing Health Enforcement Standards and Monitoring Better information to focus and prioritize the audit process Sanctions (highest and largest)

Coordinated Work Sea lice treatments and baths

Assess the implementation of the new regulations Expect measurable results, while eliminating redundancies

R+D+i Focus on local diseases e.g. Piscirickettsisis (SRS)

•  Strengthen coordinated efforts at different levels State-Industry-Academia. Strengthen social capital

•  Na6onal Level (recovery of cluster promo6on policy) •  Meso-‐Regional •  Regional •  Macro zones and Neighborhoods

•  Installation of shared value as a paradigm of the industry •  Improve links with territories

•  Seize Windows of Opportunity •  e.g. joint KIBS export, at least to La6n America •  Addressing Gaps to regain compe66veness

17 TH TCI GLOBAL CONFERENCE | CREATING SHARED VALUE THROUGH CLUSTERS FOR A SUSTAINABLE FUTURE

THANK YOU

JUAN PABLO ZANLUNGO MATSUHIRO DIRECTOR PROGRAMA CLUSTER Y TERRITORIO

[email protected]

Salmon industry in Chile: an industrial resilience case?

Presentations & Public Speaking

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