Winds of change

By Karla Faúndez and Christian Pérez

A continuous reinvention seems to be the trend of this Chilean economic sector post ISA virus. Following the readjustment of the production model –especially in sanitary and environmental terms, there came the difficult time of recovering from the crisis itself. This involved complex financial negotiations and big fluctuations in salmon prices. On top of that was the continuous dealing with those diseases that the industry still faces. At this time, the focus is on a new configuration of players within the industry, which, according to SalmonChile, exported salmonids totaling US$ 3,517 million last year. After several months of uncertainty, some emblematic operations have finally got the green light, giving rise to a new stage in the sector, the so-called “consolidation”. Along these lines, the industry has witnessed major changes just in the last quarter. For example, the fish feed manufacturer, EWOS, purchased Nova Austral for an amount close to US$183 million. This company, located in the Magallanes Region, was suffering from serious economic problems following the bankruptcy of its parent company, Pescanova, based in Spain. The other salmon subsidiary of Pescanova in Chile, Acuinova, which is located in the Region of Aysén, was acquired by Marine Harvest in a transaction of US$ 120 million. This was after a long process in which other companies such as the Canadian Cooke Aquaculture, had shown an interest. Likewise, the largest Chilean salmon producing company, AquaChile, entered the scene in this shopping season, being in process of taking control of Invermar through a capital increase estimated at US$ 30 million. At press time, no news was available regarding the final terms of this last agreement, which was supposed to have been ready by November the 30th. Besides, by late October – the same week of AquaSur 2014, the purchase of the Norwegian company Cermaq by the Japanese giant Mitsubishi was confirmed, in an operation that was estimated at around US$ 1,400 million. Clearly, this seems like a new scenario which reorders the industry and forces it to assume new challenges.

Consolidation All these new acquisitions, together with some others made earlier this year and during 2013 have resulted in the consolidation of the industry. For example, the purchase of 20 aquaculture licenses from Pacific Seafood by Friosur for US$ 9.5 million; the purchase of 30 per cent of Multiexport for US$ 36 million from Mitsui, and the sale by Australis of Landcatch to AquaGen for US$ 11.4 million. These transactions imply that the local salmon production is now distributed among fewer players, of which a significant number are companies of foreign capital. Thus, through these mergers, 12 companies currently operating between the regions of Los Lagos and Magallanes represent about 80 per cent of the local production. These are AquaChile, Mitsubishi, Marine Harvest, Los Fiordos, Multiexport, Camanchaca, Ventisqueros, Blumar, Granja Marina Tornagaleones, Salmones Antártica, Salmones Austral and Australis. This situation, as discussed by many voices within the sector, would lead to a more coordinated production management with special attention to disease control and neighborhood planning, among others. One of the protagonists of these purchases and chairman of AquaChile, Victor Hugo Puchi, believes that this development is positive. “This new consolidation process is very good for the sector. One of the crucial challenges for the Chilean salmon industry is to recover sanitary safety. We can improve disease control of. As the industry is concentrated in fewer players, we will meet that challenge in a much more efficient manner, which is good for both the industry and the country.” Regarding the purchase of a controlling stake in Invermar, Puchi said that “this acquisition should not affect employment. We bought a limited company listed on the local stock exchange and we will take advantage of its strengths. There would also be a larger demand for labor as we recover the production volumes lost by Invermar,” he explained.

In turn, the general manager of Camanchaca and co-chairman of the Global Salmon Initiative (GSI), Ricardo García, also believes that this phenomenon helps the industry. “I think (consolidation) is very positive for the Chilean sanitary conditions and for the consumers for two reasons: further consolidation in larger, more serious and responsible companies, allows the production to be done in a better and more controlled sanitary environment. Likewise, it contributes to greater coordination in order to control diseases, which ultimately translates into lower costs for companies and, therefore, lower prices.” However, Camanchaca is only a spectator of this trend so far, because, for now and as detailed by García, they are not interested in participating in this consolidation process as Camanchaca would be highly focused on cost efficiency and in taking advantage of the opportunities that their existing assets give them. For the Multiexport CEO, José Ramón Gutiérrez, this trend also represents progress for the sector, noting that “consolidation is the only way for the Chilean industry to achieve important things. Joining efforts is the only way to bear the huge outstanding issues of this industry, especially in sanitary terms since not everyone is convinced that a more gradual production growth is the best approach.” This executive also blamed the government for the delay in addressing outstanding issues about sanitation. “The Chilean government is not available for a discussion of such a great magnitude, given that it was so wrong 30 years ago with its design and provision of so many aquaculture licenses, which were three times the number of permits we now have. Therefore, the risk is for the industry to fall into a new error of unreasonable growth with good prices while sanitary problems are still latent. The only way to address this is through consolidation and larger companies thinking about the sanitary future,” he said.

Is Multiexport willing to buy? “We have always said we are absolutely pro consolidation and, therefore, have been available to join efforts in any which way, such as what we are doing now in the GSI where companies meet together and have joint marketing offices. Some of that is happening in the industry, although these recent acquisitions are better explained by financial reasons than real intentions of joining forces.”

Projections Other major players in the local salmon industry also suggest that consolidation will come to order the industry, bringing significant benefits in production as well as sanitary and labor conditions. The general manager of Salmones Camanchaca, Gerardo Balbontín, is one of them. “This is a natural and long-expected rationalisation that was slightly delayed, maybe more than necessary. The good thing for firms and employees is that they are going to be able to go ahead with much more strength,” he said. Regarding the impact that these purchases may have on the job stability of employees in these companies, Balbontín commented that “these mergers will have no impact on employees, since they are all mergers with companies that will continue to operate. On the contrary, I believe that these mergers will give more stability to the workforce of these companies.” Likewise, the general manager of Salmones Friosur, Joachim Wessel, said that this consolidation process “is good because you can better order the industry, both in production and commercial aspects. We are still a fairly fragmented industry and this development leads us to coordinate better the work on neighbourhoods, improvement of sanitary practices and sales by not competing so strongly in the markets. The good news is that these are serious companies with considerable capital and good operating practices. It is very difficult to coordinate with too many players and, conversely, is easier with less.” For the Chief Operating Officer of Cermaq Chile, Francisco Miranda, this consolidation process “is certainly positive. With fewer players there are things that can be done much easier and faster: coordination, agreements and anything that goes in the pursuit of ensuring and having a healthier and more sustainable industry. When I think of agreements, I mean from the sanitary point of view, which is the great topic in our industry in general. We as a group feel good about this process and have always been willing to be part of it “.

He also said that some of the main features that a company should have to be attractive and acquired are “diversification across different geographical areas, diversification in species and a long-term vision.” The government’s opinion regarding this issue was expressed by the Undersecretary of Fisheries and Aquaculture, Raul Súnico, who commented that “it is always good to have a lot of competition. These mergers do not alter our policies for rigorous enforcement and maintaining of the necessary regulation to keep the sanitary status we have today, which is proving successful. We must learn from past experiences, and that’s what we’re doing now, while maintaining stringent regulations, beyond the concentration levels that might exist in the industry.” Mr. Súnico added that “we do not promote economic concentration; we regulate the industry for optimal sanitary conditions with production appropriate to the potential of the industry. For that, we are pointing to the relocation of sites. This is our goal, regardless who owns this or that company.” Although some of the most, significant transactions have been concluded over the last two years, this consolidation process is not finished yet, since there are still large groups with money in their pockets to invest. For example, Cooke Aquaculture and its Chilean subsidiary Salmones Cupquelan, who were in the bid to acquire Acuinova and Invermar. Similarly, Inversiones Futuro, the fund created by the former CEO of Acuinova, José Gago, is also looking for future acquisitions, as they were one of the main interested parties in the bid for the local salmon farming subsidiaries of the Spanish group Pescanova. Finally, there is some consensus that this process is beneficial for the whole sector, although some uncertainties arise with how some of these firms will continue to operate, such as the arrival of Mitsubishi, which will emerge as one of the leading companies in the industry, with a large number of licenses and operations in the Region of Magallanes. In words of Gerardo Balbontín, “we hope the Chilean production will continues to grow, as it has the potential, but it must do so in a sustainable and calm way, with normal growth. These acquisitions and mergers will assist in achieving this outcome.” Cards are already drawn, now all that remains is to wait and see under which conditions the local industry will further develop with this rearrangement of actors, while the sanitary aspect remains the most important in order to ensure sustainable production in harmony with the environment and the communities in which it operates.