Fishing in Chile: A Race against Time

In the early hours of Tuesday July 10, firemen in the southern Chilean port of Coronel were called to a blaze on the waterfront. When they arrived, they found a ship burning in the harbor. They tried to extinguish the flames but were driven back by angry fishermen who had set it alight.

Further up the coast, fishermen blocked access to the city of Constitución and set up barricades in Valparaíso. To the south, there were dockside protests in Puerto Montt and on the island of Chiloé.

The catalyst for this anger was the passage through the Chilean Congress of a new fishing law. The current one, which has been in force for over a decade, expires at the end of 2012 and the government has drafted a replacement. It has not proved easy. Chile’s big fishing companies, environmentalists, local fishermen, salmon farmers and workers at fish processing plants have all lobbied furiously to ensure they get the best deal possible from the new legislation.

On July 18, Chile’s lower house approved the draft law. It is now before the Senate where the arguments are likely to be just as intense.

“Every government that’s tried to reform the fishing industry has run into problems,” says Economy Minister Pablo Longueira, who has the task of shepherding the bill into law. “Every time we try to perfect, improve or regulate the sector, fishermen burn boats and stage marches, so it’s never been possible to implement the reforms that Chile needs.”

Tortured history

The history of the draft law can be traced back to the mid-1990s, when fish were still relatively plentiful in the South Pacific and Chile’s commercial fishing fleet landed up to 7 million tons a year of jack mackerel, pilchards, sardines, hake and kingclip.

Back then, Chile operated a Total Allowable Catch system, often referred to as an “Olympic system”. The authorities decided how many tons could be caught and left the fishermen to get on with it. The result was disastrous. Commercial fishermen rushed out to sea to net as many fish as possible before their rivals got to them.

So, in 2001, the government switched to a system of Individual Transferable Quotas, used in most of the world’s major fisheries. Companies were assigned a percentage of the overall catch on the basis of their historical record.

That has stabilized the industry and allowed badly depleted fisheries to recover somewhat. But critics say it makes it difficult for new companies, with no historical catch, to enter the market. Those criticisms have intensified in the light of a series of recent mergers. These days, according to data from the Economy Ministry, four conglomerates (Orizon, Camanchaca, Blumar and Marfood) account for 91% of the industrial quota for the main species in Chile.

“These guys have built a cartel,” says Rodrigo Vial, president of the ship owners’ association Anapesca and co-founder of Lota Protein, one of the smaller companies that account for the remaining 9%. “My prediction is that this group of big companies will be reduced further still, to maybe one company in the north and one in the south.” 

Sonapesca, the association that represents Chile’s industrial fishing companies, says Vial’s cartel claim is absurd.

“Once this law is introduced, 35 industrial companies will be responsible for landing 45% of the catch,” says Rodrigo Sarquis, president of Sonapesca. “The remaining 55% will be in the hands of thousands of artisanal fishermen. In what other sector of the Chilean economy are there so many different players involved?”

Auction or no auction?

If, as Vial suggests, power is concentrated in the hands of a few, then what can be done about it? For Lota Protein, the answer is auctions. The company says that rather than allocating quotas on historical grounds, the authorities should sell them to the highest bidder.

President Sebastián Piñera is keen on this idea and the government tried to include an auction system in the bill, but Congress members voted it down. Luis Felipe Moncada, general manager of Asipes, the industrial fishing association in the BíoBío Region, says they were right to do so.

“The vast majority of people in the fishing industry are opposed to auctions,” he says. “They haven’t worked elsewhere in the world and they don’t lead to increased competition. On the contrary, they lead to further concentration because it’s the big companies that can afford to bid high.”

Moncada points to the experience of Russia and Estonia, which privatized their fishing industries through auctions in the 1990s with unsatisfactory results.

But Riola Solano, Lota Protein’s head of corporate affairs, says the comparison is unfair because, unlike Chile, both countries were emerging from the economic debacle of the former Soviet Union. She says a well-designed auction system would benefit Chile, and cites the United States and New Zealand as examples to follow.

“This year they’ve auctioned quotas for 14 different species in the U.S. — in Maine and the state of Washington,” she says. “And if the Chilean government doesn’t want to auction quotas, they could at least oblige companies to auction fresh fish – the first catch – as they do in Norway.”

Critics of Lota Protein say the way to grow is to buy quotas from other companies, as allowed under current legislation. Sonapesca says there have been over 400 such sales since 2001.

But Solano says that’s easier said than done. “If we’d had the chance to buy we would have done so,” she says. “It’s true that the quotas are transferable but if people don’t want to sell then you can’t force them to.”

She cites a ruling from Chile’s antitrust authority (Tribunal de Defensa de Libre Competencia, TDLC) that found that between 2001 and 2011, not a single new company entered the industrial fishing sector in Chile. All the transfers were between market incumbents.

But Sarquis says the reason is that, with stocks and quotas declining, there was no incentive for new companies to enter the market. They could have done so if they’d wanted to. They simply chose not to.

Part of the difficulty of buying extra quotas is that they have, until now, been registered to ships rather than ship owners. If you want to buy the quota, you have to buy the ship too.

On this point, there is consensus that the law needs to be changed, and the bill reflects that. This reform (assuming the Senate approves it) should help make the secondary market in transferable fishing quotas more liquid.

More regulation

While quotas and auctions are a concern for the industrial fishing fleet, the main issue for the owners of smaller boats is regulation.

Chile makes a clear distinction between its industrial fishing ships and its artisanal boats. The cut-off point is precisely 18 meters. Any vessel longer than that is considered part of the industrial fleet. The government says there are 384 such ships in Chile although, faced with dwindling stocks in recent years, only 185 are operative. In 2011 those ships landed 1.6 million tons of fish, or just under half of the total Chilean catch.

The rest of the boats – those under 18 meters in length — belong to the artisanal fleet and are subject to far fewer checks and balances. There are over 13,000 of them in Chile.

As industrial quotas have shrunk, the artisanal sector has grown in importance. In 2000, it accounted for 22% of the country’s total catch but by 2010 that had risen to 52%. While the size of the overall Chilean catch dropped by 30% during that period, the artisanal catch rose by 80%.

The government says the time has come to regulate the artisanal fleet and has included several measures in the draft law to that effect. For the first time, it draws a distinction between medium-sized boats (those between 12 and 18 meters in length) and boats that are less than 12 meters long.

This distinction is stark. The medium-sized boats represent just 10% of the artisanal fleet but account for 90% of its catch. Minister Longueira says the owners of these semi-industrial vessels should be forced to pay for fishing licenses, certify the size of their catches and (in the cases of boats between 15 and 18 meters in length) install on-board satellite navigation systems so that authorities can monitor where they fish.

Unsurprisingly, some boat owners object to these proposals, saying they will be expensive and lead to redundancies. The government has included incentives in the bill to meet those concerns. It says, for example, that owners can deduct the price of satellite navigation equipment from the cost of fishing licenses.

Protecting the minnows

The government also says it wants to protect the owners of the very smallest vessels, the rustic wooden rowing boats of popular imagination. For the first time, the owners of those boats will have exclusive access to “the first mile” – the mile of water closest to the coast. Medium-sized boats will only be allowed inside that mile in certain areas, to fish certain species, and only in agreement with owners of the smaller vessels.

All boats measuring 18 meters or less will still have exclusive access to the first five miles, as under current law. But in response to complaints from artisanal fishermen, the government has changed the point from which those five miles are measured. The bill proposes that, where there is a bay, a line should be drawn between the two headlands and the five miles should be measured from that line rather than from the coastline. This would effectively push the industrial fleet further out to sea.

“That was a very important demand for us,” says Zoila Bustamante, president of the artisanal fishing federation Conapach. “In some places, where there are headlands, our access to the continental shelf is next to nothing at the moment.”

But the industrialists oppose the change and have vowed to fight it in the Senate. Moncada describes it as “absolutely unnecessary” and warns it will mean job losses.

The draft law grants artisanal fishermen a greater share of the overall quotas for each species. For example, they will be allowed to catch 60% of the hake quota in the Chacao channel, between Chiloé and the mainland, compared to 50% now. Their share of the pilchard catch in the area between Regions V and X will increase from 56% to 78%. In all, the government calculates that these quota changes will result in the transfer of US$34 million a year from the industrial sector to the artisanal sector over the next 20 years.

Taxes are another point of conflict. The government wants the owners of industrial ships and the larger artisanal boats to pay a royalty, but there is little consensus on how it should be calculated. The bill proposes a 3.3% royalty on the commercial value of quotas, but the industrial fishers say that is unfair. They say that if a royalty is to be imposed, it should be levied on operating profit, as in the mining industry, or on the value of each ship’s catch rather than on its nominal quota.

“If the mining companies make money, they pay a royalty, but if they don’t make money they don’t pay,” Sarquis says. “We don’t understand why the government is proposing a different tax regime for us.”

Chile’s fishermen are not the only ones following the bill’s progress through Congress. Workers at fish processing plants are watching too, because their jobs depend on it. Chile’s industrial fleet employs a relatively modest 5,000 fishermen but the fish they catch provide an additional 32,000 jobs on land.

Taking the politics out of fishing

Environmentalists, for their part, are worried about the way in which total allowable catches are calculated. At present, catch limits are determined by the state’s Fisheries Development Institute (IFOP) but are reviewed by regional fishing councils. Industry representatives sit on those councils, creating a clear conflict of interest.

To resolve this problem, the government plans to set up 11 independent scientific committees, responsible for setting catch limits for the 11 most important species in Chilean waters. Minister Longueira says this will “take the politics out of fishing” and ensure that catch limits are based on science, not greed.

That is important, because some of Chile’s fisheries are in a woeful state. Stocks of jack mackerel have plummeted due to the overfishing of the 1990s. Last year, Chile’s fishermen netted just 256,000 tons of the fish compared to a peak of 4.4 million tons in 1995. Some scientists estimate it will take over 100 years for stocks to recover.

If the bill is approved, the concept of a “maximum sustainable yield” will be incorporated into Chilean fishing legislation for the first time, as recommended by the United Nations and the European Union. This is a calculation of the largest catch that can be taken from the stock of any given species indefinitely, and was a key demand of the environmental lobby. The concept has its critics but has been incorporated into fishing laws in other countries including New Zealand, Iceland and Norway.

Battle in the Senate

Over the coming weeks, senators will debate the so-called “Longueira Law”. It is then likely to return to the lower house for further discussion. If no agreement is reached by December 31, the current legislation will expire and Chile could in theory return to the fishing free-for-all of the 1990s.

In regions like BíoBío and Los Lagos, the stakes are high. Chile’s fish and aquiculture exports were worth US$4.9 billion in 2011 and although salmon farmers accounted for most of that, around US$1.4 billion came from the oceans.

Nationally, fishing accounts for only 0.4% of GDP even though Chile’s overall fishing catch in 2010 was the seventh largest in the world. Lota Protein’s Solano says that is a clear indication that the industry is not performing to its true potential.

“We have 4,000 kilometers of coastline in Chile. We should be a major force in fish production and we’re not,” she says.

Anapesca’s Vial says he will fight “to the bitter end” to ensure auctions are re-inserted into the legislation during its passage through the Senate.

On the other side of the argument, Sarquis at Sonapesca and Moncada at Asipes vow to oppose auctions vociferously. They say the companies they represent have invested heavily in the industry for over half a century and have earned their historic quotas.

Meanwhile, amid this bitter dispute between Chile’s big fishing firms, the artisanal fishermen will try to make their voices heard.

“We haven’t achieved anything yet,” says Conapach’s Bustamante. “We’ve improved the bill, but we won’t cry victory until it becomes law.”

Gideon Long is a freelance journalist based in Santiago. He also writes for The Economist and the BBC.